<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended: July 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
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COPART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2867490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 E. SECOND STREET 94510
BENICIA, CALIFORNIA (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (707) 748-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of October 13, 1999 was $345,510,000 based upon the last sales
price reported for such date on the Nasdaq National Market. For purposes of this
disclosure, shares of Common Stock held by persons who hold more than 5% of the
outstanding shares of Common Stock and shares held by officers and directors of
the registrant, have been excluded in that such persons may be deemed to be
affiliates. This determination is not necessarily conclusive for other purposes.
At October 13, 1999 registrant had outstanding 26,848,469 shares of Common
Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the Annual Meeting of Shareholders
to be held on December 7, 1999 (the "Proxy Statement").
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TABLE OF CONTENTS
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PART I
ITEM 1 - Business
General 3
The Salvage Vehicle Auction Industry 3
Industry Participants 3
The Insurance Adjustment and Vehicle Auction Process 4
Operating Strategy 5
Growth Strategy 8
Supply Arrangements and Supplier Marketing 10
Buyers 11
Competition 11
Environmental Matters 12
Governmental Regulations 13
Management Information System 14
Employees 14
Factors Affecting Future Results 14
Executive Officers of the Registrant 16
ITEM 2 - Properties 17
ITEM 3 - Legal Proceedings 17
ITEM 4 - Submission of Matters to a Vote of Security Holders 17
PART II
ITEM 5 - Market Registrant's Common Equity and Related
Stockholder Matters 17
ITEM 6 - Selected Financial Data 18
ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
ITEM 7A - Quantitative and Qualitative Disclosures About
Market Risk 25
ITEM 8 - Financial Statements and Supplementary Data 25
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting And Financial Disclosure 25
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 25
ITEM 11 - Executive Compensation 25
ITEM 12 - Security Ownership of Certain Beneficial Owners
and Management 25
ITEM 13 - Certain Relationships and Related Transactions 25
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 26
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PART I
ITEM 1. BUSINESS
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 OR INCORPORATED BY REFERENCE INTO 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.
GENERAL
Copart, Inc. ("Copart" or the "Company") provides vehicle suppliers,
primarily insurance companies, with a full range of services to process and sell
salvage vehicles through auctions, principally to licensed dismantlers,
rebuilders and used vehicle dealers. Salvage vehicles are either damaged
vehicles deemed a total loss for insurance or business purposes or are recovered
stolen vehicles for which an insurance settlement with the vehicle owner has
already been made. The Company offers vehicle suppliers a full range of services
which expedite each stage of the salvage vehicle auction process and minimize
administrative and processing costs. The Company generates revenues primarily
from auction fees paid by vehicle suppliers and vehicle buyers as well as
related fees for services such as towing and storage.
During fiscal year ending July 31, 1999, Copart has acquired three
additional salvage vehicle auction facilities and opened two new facilities.
Acquisitions include facilities in McAllen, Texas; Huntsville, Alabama and
Wichita, Kansas. New salvage vehicle auction sites have been opened in
Nashville, Tennessee and Austin/San Antonio, Texas.
Copart was organized as a California corporation in 1982. The Company's
principal executive offices are located at 5500 E. Second Street, Benicia,
California 94510, and its telephone number at that address is (707) 748-5000.
THE SALVAGE VEHICLE AUCTION INDUSTRY
Although there are other suppliers of salvage vehicles, such as
financial institutions, vehicle leasing companies, automobile rental companies
and automobile dealers, the primary source of salvage vehicles to the salvage
vehicle auction industry historically has been insurance companies. Of the total
number of vehicles processed by the Company in fiscal 1999, approximately 88%
were obtained from insurance company suppliers. While there has been substantial
consolidation of the salvage vehicle auction industry, the Company believes
opportunities continue to exist either to open or acquire facilities. *
INDUSTRY PARTICIPANTS
The primary businesses and/or individuals involved in the salvage
vehicle auction industry include:
SALVAGE VEHICLE AUCTION COMPANIES. Salvage vehicle auction companies such as
the Company generally either (i) auction salvage vehicles on consignment, for a
fixed fee or for a percentage of the sales price of the vehicle or (ii) purchase
vehicles from vehicle suppliers at a formula price, based on a percentage of the
vehicles' estimated pre-loss value, or "actual cash value" ("ACV"), and auction
the vehicles for their own account.
VEHICLE SUPPLIERS. The primary suppliers of salvage vehicles are insurance
companies. Additional suppliers include automobile dealers, automobile rental
companies, financial institutions and vehicle leasing companies.
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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VEHICLE BUYERS. Vehicle dismantlers, rebuilders, repair licensees and used car
dealers are the primary buyers of salvage vehicles. Vehicle dismantlers, which
the Company believes are the largest group of salvage vehicle buyers, either
dismantle a vehicle and sell parts individually or sell the entire vehicle to
rebuilders, used automobile dealers or the public. Vehicle rebuilders and
vehicle repair licensees repair salvage vehicles for sale to used car dealers
and noncommercial buyers. Used automobile dealers will generally purchase
recovered stolen or slightly damaged vehicles directly from a salvage vehicle
auction facility.
THE INSURANCE ADJUSTMENT AND VEHICLE AUCTION PROCESS
Following an accident involving an insured vehicle, the damaged vehicle
is generally towed to a towing company or a vehicle repair facility for
temporary storage pending insurance company examination. The vehicle is
inspected by the insurance company's adjuster, who estimates the costs of
repairing the vehicle and gathers information regarding the damaged vehicle's
mileage, options and condition in order to estimate its ACV. The insurance
company's adjuster determines whether to pay for repairs or to classify the
vehicle as a total loss, based upon the adjuster's estimate of repair costs and
the vehicle's salvage value, as well as customer service considerations. If the
cost of repair is greater than the ACV less the estimated salvage value, the
insurance company generally will classify the vehicle as a total loss. The
insurance company will thereafter assign the vehicle to a salvage auction
company, such as the Company, settle with the insured vehicle owner and receive
title to the vehicle.
Factors that vehicle suppliers consider when selecting a salvage
vehicle auction company include (i) the anticipated percentage return on salvage
(E.G., gross salvage proceeds, minus vehicle handling and selling expenses,
divided by the ACV); (ii) the services provided by the salvage vehicle auction
company and the degree to which such services reduce administrative costs and
expenses; (iii) the ability to provide service across a broad geographic area;
(iv) the timing of payment; and (v) the financial and operating history of the
salvage vehicle auction company.
In disposing of a salvage vehicle, a vehicle supplier assigns the
vehicle to a salvage vehicle auction company with which it has a contractual or
other relationship. Upon receipt of the pick-up order, which is conveyed by
telephone, facsimile, through an Electronic Data Interchange (EDI) connection or
by accessing the Company's web site, the salvage vehicle auction company
dispatches one of its transporters or a contract towing company to transport the
vehicle to the salvage vehicle auction company's facility. As a service to the
vehicle supplier, the salvage vehicle auction company customarily pays advance
charges (reimbursable charges paid by the Company on behalf of vehicle
suppliers) to obtain the subject vehicle's release from a towing company or
vehicle repair facility. Typically, advance charges are paid on behalf of the
vehicle supplier and are recovered by the salvage vehicle auction company upon
sale of the salvage vehicle.
After being received and evaluated at the salvage vehicle auction
facility, the vehicle remains in storage and cannot be sold at an auction until
ownership documents are transferred from the insured vehicle owner and title to
the vehicle is cleared through the appropriate state's motor vehicle regulatory
agency (or "DMV"). If a vehicle is a total loss (as determined by the insurance
company), it can be sold in most states upon settlement with and receipt of
title documents from the insured. Total loss vehicles may be sold in most states
only after obtaining a salvage certificate from the DMV; however, in some states
only a bill of sale from the insured is required. Upon receipt of the
appropriate documentation from the state DMV or the insured, which is generally
received within 45 to 60 days of vehicle pick-up, the salvage vehicle auction
company auctions the vehicle. Vehicles are sold primarily through weekly or
biweekly live auctions, supplemented by Internet bids. At the Company, bids are
accepted in person, by Internet and occasionally by sealed bid.
At the Company's facilities, the vehicles to be auctioned are moved
from storage areas to a sales area for the convenience of the buyers. At the
Company and many other facilities, the auctioneer works from a bus that proceeds
through the sales area from vehicle to vehicle. Certain vehicles that are
driveable are
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driven through an auction display area. Minimum bids are occasionally set by
vehicle suppliers on high-value and specialty cars, and often facilities have
standing guaranteed bids of between $.01 to $50 per vehicle from local
dismantlers for "junk" vehicles.
Once a vehicle is sold at auction, the buyer typically must pay by
cashier's check, money order or approved company check and take possession of
the sold vehicle within two to five days. After payment for the vehicle, the
buyer receives the appropriate title documentation. In addition to the awarded
bid price, the buyer pays any fees or other charges assessed by the salvage
vehicle auction company, such as post-sale processing, towing and storage fees.
The salvage vehicle auction company thereafter remits to the insurance company
the vehicle sales proceeds, less advance charges and any fees for its towing,
storage and selling of the vehicle pursuant to the arrangement between the
insurance company and the salvage vehicle auction company. Proceeds are remitted
by check or through Electronic Funds Transfer (EFT). The insurance proceeds
check will typically be accompanied by copies of invoices for deducted fees and
advance charges, and copies of title and related DMV documents. When payment is
made by EFT a separate file is sent electronically to the customer with a list
of the final invoices. The insurance company may then close its claims file with
copies of all records of the transaction.
OPERATING STRATEGY
The Company's operating strategy is to increase salvage vehicle volume
from new and existing vehicle suppliers by (i) designing sales programs tailored
to a vehicle supplier's particular needs, (ii) offering a full range of services
that reduce the administrative time and costs of the salvage vehicle auction
process, such as Internet reporting and access to inventory data, (iii)
developing a growing base of buyers, (iv) providing salvage vehicle auction
facilities throughout broad geographic regions, and (v) offering insurance
companies the ability to contract for vehicle salvage services on a regional or
national basis. The Company believes its flexible, service-oriented approach
promotes the establishment and maintenance of strong relationships with vehicle
suppliers, which are an integral factor in competing effectively in the salvage
vehicle auction industry.
FLEXIBLE VEHICLE PROCESSING PROGRAMS
At the election of the vehicle supplier, the Company auctions vehicles
(i) pursuant to its Percentage Incentive Program, (ii) on a fixed fee
consignment basis, (iii) on a purchase basis or (iv) on a basis which combines
the consignment and purchase bases in order to meet a vehicle supplier's
particular needs. Based upon the Company's database of historical returns on
salvage vehicles and information provided by vehicle suppliers, the Company
works with the vehicle supplier to design a program that maximizes the net
returns on salvage vehicles. Due to multiple factors, including the timing and
size of new acquisitions, market conditions, and acceptance of a particular
program by vehicle suppliers, the percentage of vehicles processed under each of
its programs may vary in future periods.* The three primary sales programs are
as follows:
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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PERCENTAGE FEE CONSIGNMENT. Copart introduced its Percentage Incentive Program
(the "PIP") as an innovative processing program to better serve the needs of
certain vehicle suppliers. Under the PIP, Copart agrees to sell at auction all
of the salvage vehicles of a vehicle supplier in a specified market for
predetermined percentages of vehicle sales prices. Because Copart's revenues
under the PIP are directly linked to the vehicle's auction price, Copart has an
incentive to actively merchandise the vehicles in order to maximize the net
return on salvage vehicles. Under the PIP, Copart provides the vehicle supplier,
at Copart's expense, with transport of the vehicle to the nearest Company
facility, storage at its facilities for up to 90 days, and DMV processing. In
addition, Copart provides merchandising services such as covering/taping
openings to protect vehicle interiors from weather, adding tires if needed,
washing vehicle exteriors, vacuuming vehicle interiors, cleaning and polishing
dashboards and tires, making keys for driveable vehicles and operating
"drive-through" sales auctions of driveable vehicles. The Company believes its
merchandising increases the sales prices of salvage vehicles, thereby increasing
the return on salvage vehicles to both vehicle suppliers and the Company. In
fiscal 1999, approximately 50% of all salvage vehicles processed by Copart were
processed under the PIP.
FIXED FEE CONSIGNMENT. Under the fixed fee consignment program, the Company
sells vehicles for a fixed consignment fee, generally $50 to $150 per vehicle.
In addition to the consignment fees, the Company usually charges for, or
includes in its fee to the vehicle supplier, the cost of transporting the
vehicle to the Company's facility, storage of the vehicle, and other incidental
costs. Approximately 49% of all salvage vehicles processed by Copart in fiscal
1999 were processed under the fixed fee consignment program.
PURCHASE CONTRACT. Under a purchase contract arrangement, the Company agrees to
buy salvage vehicles of a vehicle supplier in a specific market. The vehicles
generally are purchased for a pre-determined percentage of the vehicle's ACV and
then resold by the Company for its own account. Under a purchase contract, the
Company usually provides vehicle suppliers with free towing to its premises and
storage at its facilities for up to 90 days. Approximately 1% of all salvage
vehicles processed by the Company during fiscal 1999 were processed under
purchase contracts.
BROAD ARRAY OF SERVICES
The Company offers vehicle suppliers a full range of services, which
expedite each stage of the salvage vehicle auction process and minimize
administrative and processing costs:
SALVAGE LYNK-TM-. Copart's proprietary software program, Salvage Lynk, provides
a vehicle supplier with on-line access to retrieve information on any of its
salvage vehicles being processed at Copart throughout the claims adjustment and
auction process. Copart furnishes each user of Salvage Lynk with software and a
computer terminal, if necessary, which enables the user to monitor each stage of
the salvage vehicle auction process, from pickup to payment and the eventual
auction of the vehicle, from each user's own office.
COPART ACCESS. In August of 1998, the Company introduced Copart Access - an
Internet-based service for vehicle suppliers. On the Access web pages at
www.copart.com, suppliers can enter assignments, check auction calendars,
view photos and details of their vehicles in storage, view and reprint
invoices and body-shop receipts, run a salvage estimate (Copart Pro Quote)
and see graphs of the historic performance of their vehicles at Copart
auctions.
MONTHLY REPORTING. Upon request, the Company provides vehicle suppliers with
monthly reports that summarize all of their salvage vehicles processed by the
Company. These reports are able to track the vehicle suppliers' gross and net
return on each vehicle, service charges, and other data that enable the vehicle
suppliers to more easily administer and monitor the salvage vehicle disposition
process. In addition, when the suppliers receive payment, they also receive a
detailed closing invoice, noting any advance charges paid by the Company on
their behalf. Copart's vehicle suppliers can obtain all of their payment and
invoice information on-line through Salvage Lynk.
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DMV PROCESSING. The Company offers employees of vehicle suppliers training on
DMV document processing and has prepared manuals that provide step-by-step
instructions to expedite title document processing. In addition, the Company's
computers provide a direct link to the California, Texas and New York DMV
computer systems. This training on DMV procedures and, in California, Texas and
New York, the direct link to the DMV computer system, allow vehicle suppliers to
expedite title searches and the processing of paperwork, thereby facilitating
title acquisition from the insured vehicle owner and consequently shortening the
time period in which vehicle suppliers can receive their salvage vehicle
proceeds. Under California's license registration fee rebate program, the
Company, for a fee, assists participating vehicle suppliers in calculating,
applying for and obtaining rebates of unearned owner registration and license
fees. The net rebates are delivered and paid to the vehicle supplier.
VEHICLE INSPECTION STATION. The Company offers certain of its major insurance
company suppliers office and yard space to house a Vehicle Inspection Station
("VIS") on-site at its auction facilities. At July 31, 1999, there were 33 VIS's
at 27 of the Company's facilities. An on-site VIS provides an insurance company
a central location to inspect potential total loss vehicles and reduces storage
charges that otherwise may be incurred at the initial storage and repair
facility. The Company believes that providing an on-site VIS enables the Company
to improve the level of service it provides to such insurance companies.
VEHICLE PREPARATION AND MERCHANDISING. The Company has developed merchandising
techniques designed to increase the volume and sale price of salvage vehicles.
Under the PIP, Copart provides vehicle weather protection, including
shrink-wrapping vehicles to protect them from inclement weather, cleaning and
drive-through sales of driveable vehicles, which the Company believes enhance
salvage vehicle presentation and increase vehicle sales prices. Buyers
registered with the Company's Buyer Profile service can receive automatically
generated emails when vehicles matching their criteria are ready for sale.
SALVAGE BROKERAGE NETWORK. In response to requests from vehicle suppliers to
coordinate disposal of their vehicles outside of Copart's current areas of
operation, Copart has developed a national network of third party affiliate
salvage vehicle auction facilities that process vehicles under the direction of
Copart. Copart's customers benefit from being able to monitor and obtain
information on virtually all of their salvage vehicles at any place in the
United State through Copart Access, as opposed to dealing with numerous salvage
auction facilities across the country. Copart receives net revenues from the
sale of vehicles processed by affiliates, net of the affiliate fees. Copart does
not earn a buyer fee on vehicles processed by the network.
TRANSPORTATION SERVICES. The Company maintains a fleet of multi-vehicle
transport trucks at most of its facilities as well as contracts for vehicle
transports at most facilities. This enables the Company to ensure rapid, on-time
vehicle pickup and allows the Company to respond quickly to catastrophes.
BUYER NETWORK. The Company maintains a database of thousands of registered
buyers of salvage vehicles in the vehicle dismantling, rebuilding, repair,
and/or resale business. Copart's database of buyers also includes vehicle
preference and purchasing history by buyer. This data enables a local facility
manager to notify key prospective buyers throughout the region or country of the
sale of salvage vehicles that may match their preferences. Sales notices listing
the salvage vehicles to be auctioned on a particular day and location are made
available at each auction and on the Internet. Each notice details for each
vehicle, among other things, the year and make of the vehicle, the description
of the damage and the status of title.
INTERNET SERVICES. During fiscal 1999, the Company introduced several Internet
tools for its buyers, including Buyer Profile; Online Bidding and
CoPartfinder.com. With the Buyer Profile service registered users are
automatically notified, by email, when a car fitting their requirements is ready
for sale. Online Bidding allows registered buyers to submit a bid for a vehicle
up for sale without leaving their shop or office. CoPartfinder.com is a unique
"search engine" to enable anyone with Internet access to locate specific parts
quickly and efficiently. CoPartfinder is open to the public through its own web
site (WWW.COPARTFINDER.COM).
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BUYERS PLUS PROGRAM. The Company seeks to establish a loyal and growing
customer base of salvage vehicle buyers by providing a variety of value-added
programs and services. Copart has initiated its Buyers Plus Program, which
includes a Copart Silver and Gold Card frequent buyer program designed to
attract high-volume commercial customers by providing them with frequent
buyer credits to acquire promotional merchandise, and extra services such as
express check-in and streamlined paperwork processing. Copart also
periodically provides free prizes and giveaways to promote auction attendance.
MULTIPLE LOCATIONS. The Company had a total of 65 facilities in 32 states at
July 31, 1999. The Company's multiple locations provide vehicle suppliers
certain advantages, including (i) a reduction in administrative time and effort,
(ii) a reduction in overall towing costs, (iii) the ability for adjusters to
make inspections of vehicles in their area, as opposed to traveling long
distances, (iv) the convenience to the insurance company's customers of
inspecting their vehicles and retrieving any personal belongings left in the
vehicle and (v) access to buyers in a broad geographic area.
GROWTH STRATEGY
The Company's growth strategy is to (i) increase salvage vehicle volume
from new and existing suppliers, (ii) increase revenues and profitability at its
existing facilities, (iii) open or acquire new facilities, and (iv) pursue
regional and national supply agreements with vehicle suppliers.* While there has
been substantial consolidation of the salvage vehicle auction industry, the
Company believes opportunities exist to either open or acquire new facilities.*
EXISTING MARKETS. The Company attempts to increase vehicle volume from existing
and new suppliers by promoting its ability to increase a supplier's net returns
and to provide a broad selection of services to suppliers. The Company also
believes that a portion of its sales growth in existing markets has been
attributable to recommendations from branch offices of insurance company
suppliers to other branch offices of the same insurance company. Because a
number of the Company's current insurance company suppliers are large national
companies with branch offices throughout the country, the Company believes that
such referrals provide the potential for future growth in sales in existing, as
well as new, geographic markets.*
NEW FACILITIES. Since its formation in 1982, Copart has expanded, primarily
through acquisitions, from a single facility in Vallejo, California, to an
integrated network of 65 facilities located in California, Texas, Arkansas,
Oklahoma, Kansas, Washington, Oregon, Georgia, Missouri, New York, Connecticut,
Florida, Pennsylvania, New Jersey, Massachusetts, Maryland, Ohio, Illinois,
Minnesota, Wisconsin, Mississippi, North Carolina, Indiana, Arizona, Louisiana,
Utah, Nevada, Alabama, South Carolina, Iowa, Michigan and Tennessee.
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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The Company's strategy is to offer integrated service to vehicle
suppliers on a regional or national basis by acquiring or opening salvage
facilities in new markets as well as in regions currently served by the Company.
The Company believes that by either opening or acquiring new operations in such
markets, it can capitalize on certain operating efficiencies resulting from,
among other things, the reduction of duplicative overhead and the implementation
of the Company's operating procedures.* During fiscal 1997, the Company acquired
two facilities in or near Baton Rouge, Louisiana and Salt Lake City, Utah and
opened two new facilities in or near Hammond, Indiana and Woodinville,
Washington. During fiscal 1998, the Company acquired six facilities in or near
Avon, Minnesota; Columbia, South Carolina; Mobile, Alabama; San Diego,
California; Des Moines, Iowa and Detroit, Michigan and opened three new
facilities in or near Orlando, Florida; Raleigh, North Carolina and Las Vegas,
Nevada. During fiscal 1999, the Company acquired three new facilities in or near
McAllen, Texas; Huntsville, Alabama and Wichita, Kansas and opened two new
facilities in or near Nashville, Tennessee and Austin/San Antonio, Texas. In
addition, the Company believes that the establishment of a national presence
both enhances the ability of a salvage vehicle auction company to enter into
state, regional or national supply agreements with vehicle suppliers and to
develop name recognition with vehicle suppliers and buyers.* The Company, in
the normal course of its business, maintains an active dialogue with acquisition
candidates of various sizes.
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers 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 and (iii) initiating
the Company's value-enhancing merchandising procedures. * In addition, the
Company attempts to effect cost efficiencies at each of its acquired facilities
through, among other things, implementing the Company's operating procedures,
integrating the Company's management information systems and, when necessary,
redeploying personnel.
Before entering a new market, the Company seeks to establish vehicle
supply arrangements with one or more of the major insurers in the targeted
market. Often this is accomplished by targeting an insurance company in that
market with whom the Company does business in other geographic areas. Additional
factors which the Company considers when acquiring or opening a new vehicle
auction facility include relationships with vehicle suppliers, market size,
supply of salvaged vehicles, quality and location of facility, growth potential
and the region's potential for additional markets.
The Company strives to integrate its new facilities with minimum
disruption to the facility's existing suppliers. Consistent with industry
practice, most salvage vehicle auction companies, including those acquired by
the Company, operate exclusively on a fixed fee consignment basis. The Company
works with suppliers to tailor a vehicle disposition method to fit their needs.
Copart's fee structures and service programs for buyers are implemented at a new
facility gradually, providing Copart the opportunity to gain knowledge of, and
respond to, the existing market. The Company typically attempts to retain all or
most of the management at acquired facilities and trains management at acquired
facilities by rotating one or two managers from other Company facilities through
the new facility for short assignments. If a new facility is opened or if
management of an acquired facility needs assistance in converting to the Copart
system, the Company will assign an integration team to the new facility, and,
where necessary, transfer an experienced facility manager.
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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The following chart sets forth facilities acquired or opened by Copart
since the beginning of fiscal 1997, through July 31, 1999.
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ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
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Wichita, Kansas July 1999 Kansas
Huntsville, Alabama June 1999 Northern Alabama
McAllen, Texas June 1999 South Texas
Austin/San Antonio, Texas February 1999 Central Texas
Nashville, Tennessee February 1999 Tennessee
Detroit, Michigan July 1998 Michigan, Northern Ohio
Des Moines, Iowa June 1998 Iowa, Eastern Nebraska
San Diego, California May 1998 San Diego, California
Mobile, Alabama May 1998 Alabama, Southeast Mississippi, Florida
Panhandle
Orlando, Florida June 1998 Central Florida
Las Vegas, Nevada May 1998 Southern Nevada, Northwest Arizona
Columbia, South Carolina April 1998 South Carolina, Eastern Georgia
Raleigh, North Carolina March 1998 Eastern North Carolina,Virginia
Avon, Minnesota November 1997 Northern Minnesota, Eastern North and South
Dakota
Salt Lake City, Utah March 1997 Utah, Western Colorado
Baton Rouge, Louisiana January 1997 Southern Louisiana, Western Mississippi
Hammond, Indiana October 1996 Chicago, Southern Illinois, Indiana
Woodinville, Washington September 1996 Washington
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SUPPLY ARRANGEMENTS AND SUPPLIER MARKETING
The Company currently obtains salvage vehicles from thousands of
vehicle suppliers, including local and regional offices of such suppliers. In
fiscal 1999, vehicles supplied by its single largest supplier accounted for
approximately 15% of the Company's revenues. The Company's agreements with this
and other vehicle suppliers are either oral or written agreements that generally
are subject to cancellation by either party upon 30 to 90 days notice.
The Company typically contracts with the regional or branch office of
an insurance company or other vehicle supplier. The agreements are customized to
each vehicle supplier's particular needs, often providing for disposition of
different types of salvage vehicles by differing methods. Although the Company
does not have written agreements with all of its vehicle suppliers, the Company
has arrangements to process the vehicles generated by such suppliers. Such
contracts or arrangements generally provide that the Company will sell virtually
all total loss and recovered stolen vehicles generated by the vehicle supplier
in a designated geographic area. The Company's written agreements with vehicle
suppliers are typically subject to cancellation by either party upon 30 to 90
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 markets its services to vehicle suppliers through an
in-house sales force which utilizes mailing of Company sales literature,
telemarketing and follow-up personal sales calls, and participation in trade
shows and vehicle and insurance industry conventions. The Company's marketing
personnel meet with vehicle suppliers and, based upon the Company's historical
data on salvage vehicles and upon vehicle information supplied by the vehicle
suppliers, provide vehicle suppliers with detailed analysis of the net return on
salvage vehicles and a proposal setting forth ways in which the Company can
improve net returns on salvage vehicles and reduce administrative costs and
expenses.
See "Factors Affecting Future Results" below.
10
<PAGE>
BUYERS
The buyers of salvage vehicles at salvage vehicle auctions are
primarily dismantlers, rebuilders, vehicle repair licensees and used automobile
dealers. Dismantlers either dismantle the vehicles and sell the parts, or sell
the entire vehicle to rebuilders, used car dealers or the public. Rebuilders and
vehicle repair licensees are generally wholesale used car dealers and body shops
that repair salvage vehicles for sale to used car dealers. Used car dealers
typically purchase late model, slightly damaged or intact, recovered stolen
vehicles for repair and sale.
The Company maintains a database of thousands of registered buyers
of salvage vehicles in the vehicle dismantling, rebuilding, repair, and/or
resale businesses. The Company believes that it has established a broad buyer
base by providing buyers of salvage vehicles with a variety of programs and
services.* In order to gain admission to a Company auction and become a
registered buyer, prospective buyers must pay an initial registration fee and
an annual fee, have a vehicle dismantler's, dealer's or repair license, have
an active resale license, and provide requested personal and business
information. Registration entitles a buyer to transact business at any
Company auction subject to local licensing and permitting. A buyer may also
bring guests to an auction for a fee. Strict admission procedures are
intended to prevent frivolous bids that would invalidate an auction. The
Company markets to buyers on the Internet and through customer incentive
programs, sales notices, telemarketing and participation in trade show
events. In addition, Copart has initiated programs specifically designed to
address the needs of its wholesale and high volume buyers, including
providing streamlined paperwork processing, simplified payment procedures and
personalized customer services. No single buyer accounted for more than 1% of
the Company's gross proceeds in fiscal 1999.
COMPETITION
The salvage vehicle auction industry is highly fragmented. 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"). 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.* Vehicle suppliers may enter
into state, regional or national supply agreements with competitors of the
Company.
The Company has a number of regional and national contracts with
various suppliers. There can be no assurance that the existence of other state,
regional or national contracts entered into by the Company's competitors will
not have a material adverse effect on the Company or the Company's expansion
plans. Furthermore, the Company is likely to face competition from major
competitors in the acquisition of salvage vehicle auction facilities, which
could significantly increase the cost of such acquisitions and thereby
materially impede the Company's expansion objectives or have a material adverse
effect on the Company's results of operations.* These potential new competitors
may include consolidators of automobile dismantling businesses, organized
salvage buying groups, automobile manufacturers, automobile auctioneers and
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
11
<PAGE>
software companies. While most vehicle suppliers have abandoned or reduced
efforts to sell salvage vehicles without the use of service providers such as
the Company, there can be no assurance that they may not in the future decide to
dispose of their salvage vehicles directly to buyers. Existing or new
competitors may be significantly larger and have greater financial and marketing
resources than the Company. There can be no assurance that the Company will be
able to compete successfully in the future.
See "Factors Affecting Future Results" below.
ENVIRONMENTAL MATTERS
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 approved
aboveground containment 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 which 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.*
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.
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.
In connection with the acquisition of its Dallas facility in March
1994, the Company accrued and set aside $3.0 million for environmental
corrective action and consulting expenses. The amount accrued was intended to
cover the cost to remediate an approximately six-acre portion of the Dallas
facility which contains elevated levels of lead due to the prior activities of
the former operators. In 1995, the Company's environmental consultant submitted
a Baseline Risk Assessment ("BRA") to the Texas Natural Resource Conservation
Commission (TNRCC), which concluded that neither human health nor the
environment are placed at risk by the lead battery casing chips at the site. In
1996, the TNRCC approved the BRA and the Company began the approved on-site
stabilization. The stabilization project was completed in fiscal 1999. Upon
completion of testing of the effectiveness of the on-site stabilization to the
satisfaction of the TNRCC, the TNRCC has indicated that it will issue a
no-further-action letter, at which time the remaining funds of the original $3.0
million accrued, currently approximately $1.4 million, will be paid as
consulting fees to the seller of the Dallas facility pursuant to the agreement
entered in connection with its acquisition. There can be no assurance that the
TNRCC letter will be received; and, if not, that there may not be additional
liabilities with respect to the site, if the stabilization proves ineffective,
or if environmental regulations become more restrictive, or that any further
actual costs of such remediation would not have a material adverse effect on the
Company.
Metals and hydrocarbon soil contamination was detected at one of
Copart's California facilities, which was determined to be associated with uses
of the property by persons prior to the time that the prior
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
12
<PAGE>
owner became the occupant of the facility. In addition, metals were detected
in samples collected from groundwater monitoring wells located at this
property. Copart obtained specific indemnification from the landowner of such
facility for any liability for pre-existing environmental contamination. In
addition, a small quantity of tetrachlorethane ("PCE") and toluene was
detected in a temporary ground water monitoring well at the Dallas Operation.
The Company's environmental consultants concluded that both PCE and toluene
were from an off-site source upgradient of the facility, and no further
action was recommended.
In 1991, Copart removed an underground storage tank from one of its
California facilities after monitoring devices indicated that the tank was
leaking. Subsequent testing revealed localized low level contamination of the
soil and ground water where the tank was removed, but no migration of the
contamination. The Company has retained the services of an environmental
consultant to represent the Company before the local county environmental
management department. The Company has been informed by the consultant that the
county agreed to a plan involving periodic monitoring of soil and ground water
to assure that the contamination is not spreading. In fiscal 1997, the county
issued a remedial action completion certification indicating that no further
action related to the underground storage tank release is required.
In connection with the acquisition of NER Auction Systems ("NER"),
environmental consultants were engaged to perform a limited environmental
assessment of the properties on which NER conducted its business. Prior to the
acquisition, the site assessment for the Company's leased facility located in
Bellingham, Massachusetts, reported concentrations of Benzene and MTBE in the
groundwater, which slightly exceed the reportable concentrations under the
Massachusetts environmental laws. The former principal shareholder of NER has
undertaken a remedial plan to remediate the groundwater contamination. To the
best knowledge of the Company, that remedial plan is completed. It remains
unclear if any of the contamination has migrated off-site and additional
remediation costs may be necessary if any groundwater beyond the site has been
contaminated. Pursuant to the terms of the NER acquisition, Copart is
indemnified as to any environmental liabilities relating to sites being leased
from NER, including the Bellingham site, by the former shareholders of NER.
There can be no assurance that this indemnification will be adequate.
The Company does not believe that the metals and hydrocarbon soil
contamination, PCE, storage tank removal or Bellingham Remediation will, either
individually or in the aggregate, have a material adverse effect on the
Company.*
GOVERNMENTAL REGULATIONS
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. The acquisition and sale of damaged and recovered stolen
vehicles is regulated by state motor vehicle departments. In addition to the
regulation of sales and acquisitions of vehicles, the Company is also subject
to various local zoning requirements with regard to the location of its
auction and storage facilities. These zoning requirements vary from location
to location. The Company is also subject to environmental regulations. The
Company believes that it is in compliance in all material respects with
applicable regulatory requirements.* The Company may be subject to similar
types of regulations by federal, state, and local governmental agencies in
new markets. Although the Company believes that it has all permits necessary
to conduct its business and is in material compliance with applicable
regulatory requirements, failure to comply with present or future regulations
or changes in interpretations of existing regulations could result in
impairment of the Company's operations and the imposition of penalties and
other liabilities.
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
13
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The Company's management information system ("MIS") consists of an
expandable, integrated IBM AS/400 computer located in Benicia, California,
integrated computer interfaces (Internet and Salvage Lynk) and proprietary
software which enables salvage vehicles to be tracked by the Company and vehicle
suppliers throughout the salvage vehicle auction process. By providing this
accessibility, the Company provides a marketing benefit to its customers in
streamlining their internal salvage tracking process. The Company's MIS is an
essential part of its strategy to provide superior service to its clients and
buyers, as well as to effectively support internal operations. In fiscal 1999,
the Company developed various Internet based applications such as Internet
Bidding, Buyer Profile emails and CoPartfinder.com: In addition, the Company
further expanded the capabilities of Copart Access via the web. In February
1997, Copart finished the development of a new proprietary operating system, the
Copart Auction System ("CAS"). During fiscal 1998, the Company fully implemented
CAS at all locations. CAS is written for the millenium change and is designed to
be more efficient in processing and billing vehicles. The Company continues to
research new computer technologies to enhance its MIS applications. Other
functions provided by MIS include accounting, inventory and salvage vehicle
supplier and buyer information. The Company believes that, with planned upgrades
and integration of new acquisitions, the Company's MIS will serve its
information management needs for the foreseeable future.*
EMPLOYEES
As of July 31, 1999, the Company had approximately 1,363 full-time
employees, of whom approximately 130 were engaged in general and administrative
functions and approximately 1,233 were engaged in yard and fleet operations. The
Company is not subject to any collective bargaining agreements and believes that
its relationships with its employees are good.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for
a substantial portion of the Company's revenues. In fiscal 1999, vehicles
supplied by Copart's single largest supplier accounted for approximately 15% 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. While 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 in the past and may in the future
fluctuate significantly depending on a number of factors. These factors include
changes in the market value of salvage vehicles, buyer attendance at salvage
auctions, delays or changes in state title processing and/or changes in state or
federal laws or regulations affecting salvage vehicles, fluctuations in 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.
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
14
<PAGE>
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 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 opening of new facilities, the acquisition of other salvage vehicle auction
facilities, and the increase of salvage vehicle volume and revenue at existing
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. In
particular, the Company's rate of growth could be materially adversely affected
if the Company is not able to open or acquire new facilities at the same rate as
it has in the past. 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
39% 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, absent the support of
Mr. Johnson and such other existing shareholders.
While the Company believes that the proceeds from its financing and
public offerings, cash generated from operations, borrowing availability
under its line of credit and existing equipment leasing lines of credit will
be sufficient to satisfy the Company's working capital requirements for at
least the next 12 months, there can be no assurance that additional funding
will not be required sooner, depending on a number of factors including the
rate at which the Company acquires or opens new facilities, the size and
timing of capital expenditures for existing facilities, the extent of future
environmental remediation costs, if any, and other factors. There can be no
assurance that any such funding would be available if, and when, required by
the Company, on acceptable terms to the Company or at all.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31,
1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Willis J. Johnson 52 Chief Executive Officer and Director
A. Jayson Adair 30 President and Director
James E. Meeks 50 Executive Vice President and Chief Operating Officer
Wayne R. Hilty 43 Senior Vice President and Chief Financial Officer
Paul A. Styer 43 Senior Vice President, General Counsel and Secretary
</TABLE>
WILLIS J. JOHNSON, co-founder of the Company, has served as Chief
Executive Officer of the Company since 1986, and has been a Board member since
1982. Mr. Johnson was also President of the Company from 1986 through May 1995.
Mr. Johnson has over 27 years of experience in owning and operating auto
dismantling and vehicle salvage companies.
A. JAYSON ADAIR has served as President of the Company since October
1996 and as a director since September 1992. From April 1995 to October 1996,
Mr. Adair served as Executive Vice President, from August 1990 until April 1995,
Mr. Adair served as Vice President of Sales and Operations and from June 1989 to
August 1990, Mr. Adair served as the Company's Manager of Operations.
JAMES E. MEEKS has served as Vice President and Chief Operating Officer
of the Company since September 1992 when he joined the Company concurrent with
the Company's purchase of South Bay Salvage Pool (the "San Martin Operation").
Mr. Meeks has served as Executive Vice President and Director since October 1996
and as Senior Vice President since April 1995. From April 1986 to September
1992, Mr. Meeks, together with his family, owned and operated the San Martin
Operation. Mr. Meeks is also an officer, director and part owner of Cas & Meeks,
Inc., a towing and subhauling service company, which he has operated since 1991.
Mr. Meeks has also been an officer and director of E & H Dismantlers, a
self-service auto dismantler, since 1967. Mr. Meeks has over 32 years of
experience in the vehicle dismantling business.
WAYNE R. HILTY has served as Senior Vice President and Chief Financial
Officer of the Company since January 1998. Mr. Hilty served as the Company's
Vice-President and Controller from January 1997 until January 1998, and
previously was an independent consultant to the Company. Mr. Hilty received a
B.S. from San Francisco State University in 1980 and became a certified public
accountant in 1983 with Arthur Young and Company.
PAUL A. STYER has served as General Counsel of the Company since
September 1992, served as Senior Vice President since April 1995 and as Vice
President from September 1992 until April 1995. Mr. Styer served as a Director
of the Company from September 1992 until October 1993. Mr. Styer has served as
Secretary since October 1993. From August 1990 to September 1992, Mr. Styer
conducted an independent law practice. Mr. Styer received a B.A. from the
University of California, Davis and a J.D. from the University of the Pacific.
Mr. Styer is a member of the California State Bar Association.
Officers are elected by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among any of the
directors or executive officers of the Company, except that A. Jayson Adair is
the son-in-law of Willis J. Johnson.
16
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Benicia, CA. This
facility consists of 29,200 square feet of office space and is under a lease
that expires in April 2005. The Company also owns or leases an additional 65
facilities consisting of 1,650 acres in California, Texas, Arkansas, Oklahoma,
Kansas, Washington, Oregon, Georgia, Missouri, New York, Connecticut, Florida,
Pennsylvania, New Jersey, Massachusetts, Maryland, Ohio, Illinois, Minnesota,
Wisconsin, Mississippi, North Carolina, Indiana, Arizona, Louisiana, Utah,
Nevada, Alabama, South Carolina, Iowa, Michigan and Tennessee. The Company
believes that its existing facilities are adequate to meet current requirements
and that suitable additional or substitute space will be available as needed to
accommodate any expansion of operations and additional offices.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET PRICE AND DISTRIBUTIONS
The following table summarizes the high and low sales prices per share
of the Company's Common Stock for each quarter during the last two fiscal years.
As of July 31, 1999, there were 26,845,115 shares outstanding. The Company's
Common Stock has been quoted on the Nasdaq National Market under the symbol CPRT
since March 17, 1994. As of July 31, 1999, the Company had 351 shareholders of
record.
<TABLE>
<CAPTION>
1999 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter 12 9/16 8 3/16
Second Quarter 16 1/2 11
Third Quarter 24 7/8 15 1/2
Fourth Quarter 27 1/2 15 1/4
</TABLE>
<TABLE>
<CAPTION>
1998 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter 9 1/2 7 13/16
Second Quarter 9 3/16 7 5/8
Third Quarter 10 1/4 7 1/2
Fourth Quarter 12 1/4 8 9/16
</TABLE>
The Company has not paid a cash dividend since 1984 and does not
anticipate paying any cash dividends in the foreseeable future.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The table below summarizes the Selected Consolidated Financial Data of
the Company as of and for each of the last five fiscal years. This selected
financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Report. The selected financial data presented below have been
derived from the Company's consolidated financial statements that have been
audited by KPMG LLP, independent public accountants, whose report is included
herein covering the consolidated financial statements as of July 31, 1999 and
1998 and for each of the years in the three-year period ended July 31, 1999. The
selected operating data for the years ended July 31, 1996 and 1995 and the
balance sheet data as of July 31, 1997, 1996 and 1995 are derived from audited
consolidated financial statements not included herein:
(in 000's except per share and other data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Revenues $141,751 $114,206 $126,276 $118,248 $ 58,117
Operating income 33,386 23,508 18,853 17,802 11,261
Income before income taxes 35,123 24,945 19,475 18,190 11,437
Net income 21,966 15,216 11,993 11,185 6,894
Basic per share amounts:
Net income 0.82 0.58 0.47 0.45 0.35
Weighted average shares 26,688 26,363 25,748 24,866 19,466
Diluted per share amounts:
Net income 0.80 0.57 0.45 0.42 0.32
Weighted average shares 27,569 26,899 26,513 26,432 21,228
BALANCE SHEET DATA
Cash and short-term investments $ 37,048 $ 28,796 $ 27,685 $ 13,026 $ 13,779
Working capital 64,647 54,829 48,930 40,586 32,756
Total assets 218,677 190,942 175,340 158,066 135,158
Total debt 7,820 8,425 9,753 11,260 3,734
Shareholders' equity 183,982 160,183 142,814 126,245 113,116
OTHER
Gross proceeds (000's) $641,472 $534,818 $537,657 $506,916 $317,788
Number of auction facilities 65 60 53 49 42
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company processes salvage vehicles principally on a consignment
method, on either the Percentage Incentive Program 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 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 cost of the vehicle in yard and fleet expenses.
For the fiscal years ended July 31, 1999, 1998 and 1997, approximately
50%, 46% and 33% of the vehicles sold by Copart, respectively, were processed
under the PIP. The increase in the percentage of vehicles sold under the PIP in
fiscal 1999 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 fiscal years ended July 31, 1999, 1998 and 1997, approximately
49%, 53% and 61% of the vehicles sold by Copart, respectively, were processed
under fixed fee agreements. The decline in the percentage of vehicles under
fixed contracts is the direct result of the Company's marketing efforts to
convert contracts from fixed fee to PIP.
For the fiscal years ended July 31, 1999, 1998 and 1997, approximately
1%, 1% and 6% 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. *
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 and data processing, sales personnel,
professional fees and marketing expenses.
The period-to-period comparability of Copart's operating results and
financial condition is substantially affected by business acquisitions and new
openings made by Copart during such periods.
ACQUISITIONS AND NEW OPERATIONS
Copart has experienced significant growth as it acquired eleven salvage
vehicle auction facilities and established seven new facilities since the
beginning of fiscal 1997. 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.
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
19
<PAGE>
As part of the Company's overall expansion strategy of offering
integrated service to vehicle suppliers, the Company anticipates further
attempts to open or acquire new salvage facilities in new regions, as well as
the regions currently served by Company facilities.* As part of this strategy,
during fiscal 1999, Copart acquired facilities in or near McAllen, Texas;
Huntsville, Alabama and Wichita, Kansas and opened new facilities in Nashville,
Tennessee and Austin/San Antonio, Texas. In fiscal 1998, Copart acquired
facilities in or near Avon, Minnesota; Columbia, South Carolina; Mobile,
Alabama; San Diego, California; Des Moines, Iowa and Detroit, Michigan and
opened new facilities in Orlando, Florida; Raleigh, North Carolina and Las
Vegas, Nevada. In fiscal 1997, Copart acquired facilities near Baton Rouge,
Louisiana and Salt Lake City, Utah and opened new facilities in Woodinville,
Washington and Hammond, Indiana. 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, covenants not to compete and other
purchase-related adjustments. *
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers 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, (iii) making available
vehicle purchase programs which are designed to reduce vehicle suppliers'
administrative expenses and (iv) initiating the Company's merchandising
procedures. In addition, the Company attempts to effect cost efficiencies at
each of its acquired facilities through, among other things, implementing the
Company's operational procedures, integrating the Company's management
information systems and, when necessary, redeploying personnel.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the consolidated statements of income of Copart expressed as a
percentage of revenues. There can be no assurance that any trend in operating
results will continue in the future.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Yard and fleet 61.0 62.6 70.8
General and administrative 8.5 9.9 8.4
Depreciation and amortization 6.9 6.9 5.9
----- ----- -----
Total operating expenses 76.4 79.4 85.1
----- ----- -----
Operating income 23.6 20.6 14.9
Other income, net 1.2 1.3 0.5
----- ----- -----
Income before income taxes 24.8 21.9 15.4
Income taxes 9.3 8.5 5.9
----- ----- -----
Net income 15.5% 13.4% 9.5%
===== ===== =====
</TABLE>
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
20
<PAGE>
FISCAL 1999 COMPARED TO FISCAL 1998
Revenues were approximately $141.8 million during fiscal 1999, an
increase of approximately $27.5 million, or 24.1%, over fiscal 1998. The change
in revenues is due primarily to a $24.5 million increase in salvage fees plus a
$2.9 million increase in transportation revenue and a $0.1 million increase in
purchase vehicle revenues. Under the Purchase Program, the Company records the
gross proceeds of the vehicle sale as revenue.
New facilities contributed $9.9 million of new salvage fees and
transportation revenues during fiscal 1999. Existing yard salvage fees and
transportation revenues increased by $17.5 million, or 16.0%, during fiscal
1999, as compared to an increase of 9.0% during fiscal 1998.
Yard and fleet expenses were approximately $86.5 million during fiscal
1999, an increase of approximately $14.9 million, or 20.9%, over fiscal 1998.
Approximately $7.1 million of the change was the result of the acquisition and
opening of new facilities. The remainder of the increase in yard and fleet
expenses was attributable to increased yard and fleet expenses from existing
operations. Yard and fleet expense decreased to 61.0% of revenues during fiscal
1999, as compared to 62.6% of revenues during fiscal 1998.
General and administrative expenses were approximately $12.1 million
during fiscal 1999, an increase of approximately $0.8 million, or 6.7%, over
fiscal 1998, due primarily to increased personnel expense. General and
administrative expenses decreased to 8.5% of revenues during fiscal 1999, as
compared to 9.9% of revenues during fiscal 1998 due to costs being spread over a
greater revenue base.
Depreciation and amortization expense was approximately $9.8 million
during fiscal 1999, an increase of approximately $2.0 million, or 25.3%, over
fiscal 1998. This increase was due primarily to depreciation and amortization of
capital expenditures, goodwill and covenants not to compete and depreciation of
acquired assets resulting from the acquisition of new salvage auction
facilities.
Interest expense was approximately $584,000 during fiscal 1999, a
decrease of $66,600 over fiscal 1998. This decrease was attributable to the
decrease in total debt.
The effective income tax rate of 37% applicable to fiscal 1999 is lower
than the fiscal 1998 effective income tax rate of 39%, due to overpayments made
in fiscal 1998 and tax exempt interest income in fiscal 1999.
Due to the foregoing factors, Copart realized net income of $22.0
million for fiscal 1999, compared to net income of $15.2 million for fiscal
1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues were approximately $114.2 million during fiscal 1998, a
decrease of approximately $12.1 million, or 9.6%, over fiscal 1997. The change
in revenues is due primarily to a $7.9 million increase in salvage fees plus a
$2.9 million increase in transportation revenue, offset by a $22.9 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 contributed $2.0 million of new salvage fees and
transportation revenues during fiscal 1998. Existing yard salvage fees and
transportation revenues increased by $8.8 million, or 9.0%, and existing yard
purchased vehicle revenues decreased by $23.1 million, or 81.6% during fiscal
1998, as compared to a drop of 16.6% during 1997.
21
<PAGE>
Yard and fleet expenses were approximately $71.5 million during fiscal
1998, a decrease of approximately $17.8 million, or 20%, over fiscal 1997.
Approximately $1.8 million of the change was the result of the acquisition and
opening of new facilities. The remainder of the decrease in yard and fleet
expenses was primarily attributable to the decrease in the cost of Purchase
Program vehicles. Yard and fleet expense decreased to 62.6% of revenues during
fiscal 1998, as compared to 70.8% of revenues during fiscal 1997.
General and administrative expenses were approximately $11.3 million
during fiscal 1998, an increase of approximately $0.7 million, or 7.1%, over
fiscal 1997, due primarily to increased personnel expense. General and
administrative expenses increased to 9.9% of revenues during fiscal 1998, as
compared to 8.4% of revenues during fiscal 1997 primarily as a result of the
accounting impact of the Purchase Program.
Depreciation and amortization expense was approximately $7.8 million
during fiscal 1998, an increase of approximately $0.4 million, or 5.1%, over
fiscal 1997. This increase was due primarily to the amortization of goodwill and
covenants not to compete and depreciation of acquired assets resulting from the
acquisition of new salvage auction facilities.
Interest expense was approximately $651,000 during fiscal 1998, a
decrease of $175,500 over fiscal 1997. This decrease was attributable to the
decrease in total debt.
The effective income tax rate of 39% applicable to fiscal 1998 is
comparable to the fiscal 1997 effective income tax rate of 38%.
Due to the foregoing factors, Copart realized net income of $15.2
million for fiscal 1998, compared to net income of $12.0 million for fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth through cash generated from operations,
debt financing, public offerings of Common Stock, and the equity issued in
conjunction with certain acquisitions.
At July 31, 1999, Copart had working capital of approximately $64.6
million, including cash and cash equivalents of approximately $37.0 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 sellers' fees and reimbursable advances from the
proceeds of auctioned salvage vehicles and from buyers' fees.
The Company has a bank credit facility provided by Wells Fargo Bank,
N.A., U.S. Bank of California and Fleet National Bank (the "Bank Credit
Facility"). The Bank Credit Facility consists of an unsecured revolving reducing
line of credit of $50 million, which matures in February 2002. The amount
available under the facility reduces by $10 million in February 2000 and 2001,
leaving the principal balance available as follows: March 1, 2000, $40 million
available; March 1, 2001, $30 million available; February 28, 2002, the line of
credit matures. Amounts outstanding under the Bank Credit Facility accrue
interest at either the prime rate most recently announced by Wells Fargo or at a
rate based on LIBOR plus a spread of 0.50%, subject to increases to a maximum
spread of 1.25% based on certain credit ratios. As of July 31, 1999, there are
no outstanding borrowings under this facility. The Company is subject to
customary covenants, including restrictions on payment of dividends, with which
it is in compliance.
The Company has entered into various operating lease lines for the
purpose of leasing up to $13.5 million of yard and fleet equipment, of which
approximately $7.2 million was available as of July 31, 1999.
22
<PAGE>
Copart generated cash from operations of approximately $30.7 million,
$22.8 million and $24.5 million in fiscal years 1999, 1998 and 1997,
respectively.
During the fiscal year ended July 31, 1999, Copart used cash for the
acquisition of McAllen, Huntsville and Wichita operations, which had an
aggregate cash cost of approximately $3.0 million. During the fiscal year ended
July 31, 1998, Copart used cash for the acquisition of the Avon, Columbia,
Mobile, San Diego, Des Moines and Detroit operations, which had an aggregate
cash cost of approximately $9.8 million. During the fiscal year ended July 31,
1997, Copart used cash for the acquisition of the Baton Rouge and the Salt Lake
City operations, which had an aggregate cash cost of approximately $3.4 million.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $20.2 million, $11.4 million
and $8.8 million for fiscal 1999, 1998 and 1997, respectively. Copart's capital
expenditures have related primarily to improving, expanding and acquiring
facilities, acquiring yard and computer equipment and software. The Company has
entered into agreements to acquire approximately $3.7 million of additional
multi-vehicle transport trucks and forklifts and is disposing of certain older
equipment.
During fiscal 1999, the Company sold approximately $13.1 million of
short-term investments. In fiscal 1999, 1998 and 1997, the Company generated
approximately $0.8, $0.8 and $2.4 million through the exercise of stock options
and warrants, respectively.
Cash and cash equivalents increased by approximately $21.3 million in
fiscal 1999 and decreased by approximately $12.0 million in fiscal 1998. 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 the Bank Credit Facility and
existing equipment leasing lines of credit will be sufficient to satisfy the
Company's working capital requirements and fund openings and acquisitions of new
facilities for at least 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, depending upon certain factors, including the rate
at which the Company opens or acquires new facilities.
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 determined that the
hardware and software the Company currently
- ---------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
23
<PAGE>
uses is Year 2000 compliant. In addition, the Company has surveyed non-IT
systems and concluded that they are also Year 2000 compliant.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company has not had any specific Year 2000 costs. All of the
internal 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The SFAS establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The SFAS requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
a company to formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. This statement is not expected to
have a material impact on Copart's results of operations, financial position or
cash flows. The statement will be effective for the Company beginning in the
first quarter of fiscal year ending July 31, 2001.
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The adoption
of SOP No. 98-1 is not expected to have a material impact on Copart's results of
operations, financial position or cash flows. The statement will be effective
for the Company beginning in the first quarter of fiscal year ending July 31,
2000.
In 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The adoption of SOP No. 98-5 is not
expected to have a material impact on Copart's results of operations, financial
position or cash flows. The statement will be effective for the Company
beginning in the first quarter of fiscal year ending July 31, 2000.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 (a) for an index to the financial statements
and supplementary financial information which are attached thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this
Item is incorporated herein by reference from the Company's Definitive Proxy
Statement to be filed in connection with the Company's Annual Meeting of
Shareholders to be held on December 7, 1999 ("Proxy Statement") under the
heading "Election of Directors."
Information regarding executive officers is included in Item 1, Part
I hereof under the caption "Executive Officers of the Registrant."
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended is incorporated herein by reference
from the Company's Proxy Statement under the heading "Election of Directors-
Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Election of
Directors-Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Election of
Directors-Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference from the Company's Proxy Statement under the heading "Certain
Transactions."
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
The following documents are filed as part of this report:
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................... 30
Consolidated Balance Sheets at July 31,
1999 and 1998........................................................................ 31
Consolidated Statements of Income for the
three years ended July 31, 1999...................................................... 32
Consolidated Statements of Shareholders'
Equity for the three years ended
July 31, 1999........................................................................ 33
Consolidated Statements of Cash Flows for the
three years ended July 31, 1999...................................................... 34
Notes to Consolidated Financial Statements............................................. 35
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II- Valuation and Qualifying Accounts.................................................. 48
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
3. EXHIBITS
<TABLE>
<S> <C>
*3.1 Amended and Restated Articles of Incorporation of the
Registrant
***3.2 Bylaws of the Registrant, as amended
***10.1+ Copart, Inc. 1992 Stock Option Plan, as amended
*10.2+ 1994 Employee Stock Purchase Plan, with form of Subscription
Agreement
*10.3+ 1994 Director Option Plan, with form of Subscription Agreement
*10.4 Indemnification Agreement, dated December 1, 1992, among the
Registrant and Willis J. Johnson, Reba J. Johnson, A. Jayson
Adair, Michael A. Seebode, Steven D. Cohan and Paul A. Styer
*10.5 Indemnification Agreement, dated July 1, 1993, between the
Registrant and Willis J. Johnson, Marvin L. Schmidt, James E.
Meeks and Steven D. Cohan
*10.6 Indemnification Agreement, dated November 9, 1993, between the
Registrant and James Grosfeld
*10.7 Form of Indemnification Agreement to be entered into by the
Registrant and each of Harold Blumentstein and Patrick Foley
*10.8+ Employment Contract for Chief Executive, dated February 17,
1993, between Willis J. Johnson and the Registrant
*10.9+ Employment Contract, dated August 1, 1992, between A. Jayson
Adair and the Registrant
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
*10.10+ Employment for Senior Executive, dated September 1, 1992,
between Paul A. Styer and the Registrant
*10.11 Employment Contract for Senior Executive, dated September 1,
1992, between James E. Meeks and the Registrant
*10.12 Common Stock Warrant, dated November 9, 1993, issued to James
Grosfeld
***10.13 Credit Agreement among Copart, Inc. and Wells Fargo Bank,
National Association, U.S. Bank of California and Wells Fargo
Bank, National Association, as Agent, dated May 1, 1995
****10.14 Agreement for Purchase and Sale of Assets of NER Auction
Systems, dated January 13, 1995, among Registrant, the list of
Sellers as set forth therein, Richard A. Polidori, Gordon
VanValkenberg, and Stephen Powers
*****10.15 Contract of Sale by and between the Stroh Companies, Inc. as
Seller and Copart, Inc. as Purchaser, dated April 4, 1996
******10.16 Amended and Restated Credit Agreement among Copart, Inc.
and Wells Fargo Bank, National Association, U.S. Bank of
California and Fleet National Bank and Wells Fargo Bank,
National Association, as Agent, dated March 7, 1997
23.1 Consent of KPMG LLP
24.1 Power of Attorney (See page 28 of this Form 10-K)
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
(c) See response to Item 14(a)(3) above.
(d) See response to Item 14(a)(2) above.
- -------------------------
* Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-1, as amended (File No. 33- 74250).
+ Denotes a compensation plan in which an executive officer participates.
*** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1995, filed with the Securities and
Exchange Commission.
**** Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-3, as amended (File No. 33-91110) filed with the
Securities and Exchange Commission.
***** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1996, filed with the Securities and
Exchange Commission.
****** Incorporated by reference from exhibit to registrant's Form 10-K for
its fiscal year ended July 31, 1997, filed with the Securities and
Exchange Commission.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant
COPART, INC.
October 18, 1999 BY: /s/ WILLIS J. JOHNSON
-----------------------------
Willis J. Johnson
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Willis J. Johnson, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
--------- ------------------------ ----
<S> <C> <C>
/s/ WILLIS J. JOHNSON Chief Executive Officer October 18, 1999
----------------------- (Principal Executive Officer,
Willis J. Johnson and Director)
/s/ WAYNE R. HILTY Senior Vice President and October 18, 1999
----------------------- Chief Financial Officer
Wayne R. Hilty (Principal Financial and
Accounting Officer)
/s/ A. JAYSON ADAIR President October 18, 1999
----------------------- and Director
A. Jayson Adair
/s/ JAMES E. MEEKS Executive Vice President, October 18, 1999
----------------------- Chief Operating Officer and Director
James E. Meeks
/s/ JAMES GROSFELD
----------------------- Director October 18, 1999
James Grosfeld
/s/ MARVIN L. SCHMIDT
----------------------- Director October 18, 1999
Marvin L. Schmidt
/s/ JONATHAN VANNINI
----------------------- Director October 18, 1999
Jonathan Vannini
/s/ HAROLD BLUMENSTEIN
----------------------- Director October 18, 1999
Harold Blumenstein
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Copart, Inc.:
We have audited the consolidated financial statements of Copart, Inc. and
subsidiaries as listed in Item 14(a). In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in Item 14(a). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copart, Inc. and
subsidiaries as of July 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1999, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
San Francisco, California
September 17, 1999
30
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, July 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,047,800 $ 15,733,500
Short-term investments - 13,062,200
Accounts receivable, net 37,531,300 32,751,500
Vehicle pooling costs 10,471,500 9,399,700
Deferred income taxes 988,800 614,900
Prepaid expenses and other assets 3,255,800 3,426,600
------------ -------------
Total current assets 89,295,200 74,988,400
Property and equipment, net 51,599,400 37,562,300
Intangibles and other assets, net 77,782,500 78,391,400
------------ -------------
Total assets $218,677,100 $190,942,100
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 260,100 $ 621,300
Accounts payable and accrued liabilities 16,586,900 11,674,800
Deferred revenue 5,864,600 5,602,800
Income taxes payable 493,400 -
Other current liabilities 1,443,700 2,260,800
------------ -------------
Total current liabilities 24,648,700 20,159,700
Deferred income taxes 802,100 1,122,000
Long-term debt, less current portion 7,560,000 7,804,100
Other liabilities 1,683,900 1,673,700
------------ -------------
Total liabilities 34,694,700 30,759,500
------------ -------------
Shareholders' equity:
Common stock, no par value-30,000,000 shares authorized;
26,845,115 and 26,550,120 shares issued and outstanding at
July 31, 1999 and 1998, respectively 115,036,100 113,202,600
Retained earnings 68,946,300 46,980,000
------------ -------------
Total shareholders' equity 183,982,400 160,182,600
------------ -------------
Commitments and contingencies
Total liabilities and shareholders' equity $218,677,100 $190,942,100
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31,
-------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Salvage fees $ 118,928,800 $ 94,471,600 $ 86,533,900
Transportation revenue 17,291,100 14,327,700 11,390,900
Purchased vehicle revenue 5,531,500 5,406,700 28,351,100
------------- ------------- -------------
Total revenues 141,751,400 114,206,000 126,275,900
------------- ------------- -------------
Operating costs and expenses:
Yard and fleet 86,480,400 71,546,900 89,393,500
General and administrative 12,058,600 11,306,600 10,566,100
Depreciation and amortization 9,826,400 7,844,900 7,463,300
------------- ------------- -------------
Total operating expenses 108,365,400 90,698,400 107,422,900
------------- ------------- -------------
Operating income 33,386,000 23,507,600 18,853,000
------------- ------------- -------------
Other income (expense):
Interest expense (584,000) (650,600) (826,100)
Interest income 1,644,800 1,747,100 1,066,500
Other income 675,900 340,500 381,400
------------- ------------- -------------
Total other income 1,736,700 1,437,000 621,800
------------- ------------- -------------
Income before income taxes 35,122,700 24,944,600 19,474,800
Income taxes 13,156,400 9,728,400 7,482,200
------------- ------------- -------------
Net income $ 21,966,300 $ 15,216,200 $ 11,992,600
============= ============= =============
Basic net income per share $ .82 $ .58 $ .47
============= ============= =============
Weighted average shares
outstanding 26,687,600 26,362,600 25,747,800
============= ============= =============
Diluted net income per share $ .80 $ .57 $ .45
============= ============= =============
Weighted average shares and dilutive
potential common shares outstanding 27,569,000 26,899,400 26,513,400
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Outstanding Retained Shareholders'
shares Amount Earnings Equity
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCES AT JULY 31, 1996 25,282,426 $106,473,800 $ 19,771,200 $126,245,000
Exercise of stock options and
related tax benefit 90,800 1,147,000 - 1,147,000
Exercise of warrants and
related tax benefit 714,002 3,023,800 - 3,023,800
Shares issued for Employee
Stock Purchase Plan 54,994 406,000 - 406,000
Net Income - - 11,992,600 11,992,600
----------- ------------ ------------ ------------
BALANCES AT JULY 31, 1997 26,142,222 111,050,600 31,763,800 142,814,400
Exercise of stock options and
related tax benefit 302,916 1,579,100 - 1,579,100
Exercise of warrants and
related tax benefit 64,446 223,600 - 223,600
Shares issued for Employee
Stock Purchase Plan 40,536 349,300 - 349,300
Net Income - - 15,216,200 15,216,200
----------- ------------ ------------ ------------
BALANCES AT JULY 31, 1998 26,550,120 113,202,600 46,980,000 160,182,600
Exercise of stock options and
related tax benefit 251,700 1,290,600 - 1,290,600
Shares issued for Employee
Stock Purchase Plan 43,295 542,900 - 542,900
Net Income - - 21,966,300 21,966,300
----------- ------------ ------------ ------------
BALANCES AT JULY 31, 1999 26,845,115 $115,036,100 $ 68,946,300 $183,982,400
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,966,300 $ 15,216,200 $ 11,992,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 9,826,400 7,844,900 7,463,300
Deferred rent 10,200 299,700 404,300
Deferred income taxes (693,800) (124,400) 399,600
(Gain) loss on sale of property and equipment (168,200) 100,600 (197,200)
Changes in operating assets and liabilities:
Accounts receivable (4,554,900) (349,800) (827,500)
Vehicle pooling costs (901,000) 506,700 1,849,600
Prepaid expenses and other current assets (44,300) (217,700) (580,000)
Accounts payable and accrued liabilities 4,095,000 (941,300) 1,352,900
Deferred revenue 261,800 (450,100) (4,200)
Income taxes 951,400 894,000 2,624,100
------------ ------------ ------------
Net cash provided by operating activities 30,748,900 22,778,800 24,477,500
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,156,200) (11,375,700) (8,828,300)
Proceeds from sale of property and equipment 336,500 425,600 1,853,800
Purchase of short-term investments, net - (13,062,200) -
Proceeds from sale of short-term investments 13,062,200 - -
Other intangible asset additions (27,700) (140,000) (222,700)
Purchase of net current assets in connection with acquisitions (395,700) (1,379,900) (839,900)
Purchase of property and equipment in connection
with acquisitions (153,900) (761,100) (466,600)
Purchase of intangible assets in connection
with acquisitions (2,494,300) (7,679,500) (2,130,700)
Deferred preopening costs (375,700) (604,200) (456,100)
------------ ------------ ------------
Net cash used in investing activities (10,204,800) (34,577,000) (11,090,500)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 832,600 825,500 2,372,100
Proceeds from issuance of
Employee Stock Purchase Plan shares 542,900 349,300 406,000
Proceeds from issuance of notes payable - 558,000 -
Principal payments on notes payable (605,300) (1,885,600) (1,506,800)
------------ ------------ ------------
Net cash provided by (used in) financing activities 770,200 (152,800) 1,271,300
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 21,314,300 (11,951,000) 14,658,300
Cash and cash equivalents at beginning of period 15,733,500 27,684,500 13,026,200
------------ ------------ ------------
Cash and cash equivalents at end of period $ 37,047,800 $ 15,733,500 $ 27,684,500
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 584,000 $ 650,600 $ 826,100
------------ ------------ ------------
------------ ------------ ------------
Income taxes paid $ 12,618,000 $ 8,823,100 $ 4,864,900
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATION ACTIVITIES
Copart, Inc. and its subsidiaries (the "Company") provide vehicle
suppliers with a full range of services to process and sell salvage vehicles.
The Company auctions salvage vehicles, which are either damaged vehicles deemed
a total loss for insurance or business purposes or are recovered stolen vehicles
for which an insurance settlement with the vehicle owner has already been made.
Gross proceeds generated from auctioned vehicles were approximately
$641,472,000, $534,818,000 and $537,657,000 for the fiscal years ended July 31,
1999, 1998 and 1997, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries. Significant intercompany transactions and
balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recorded at the date the vehicles are sold at auction.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Short-term investments at July 31, 1998 consist of corporate debt and
municipal bonds. The Company has classified its short-term investments as
available for sale. Available for sale securities are stated at market value and
unrealized holding gains and losses, net of the related tax effect, are excluded
from earnings and are reported as a separate component of shareholders' equity
until realized. Since the market value of short-term investments approximates
cost at July 31, 1998, net unrealized gains and losses on available for sale
securities for 1998 were not material.
VEHICLE POOLING COSTS
Vehicle pooling costs consist of labor, towing, outside services and
other costs directly attributable to the gathering and processing of vehicles
prior to their sale. Vehicle pooling costs are recognized as expenses in the
period the vehicle is sold at auction. The Company continually evaluates and
adjusts the components of vehicle pooling costs as necessary.
DEFERRED PREOPENING COSTS
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.
These costs are included in prepaid expenses and other assets.
35
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease terms or the useful lives of the respective
assets.
Depreciation is computed on a straight-line basis over the estimated
useful lives of: 3 to 7 years for transportation and other equipment; 5 to 10
years for office furniture and equipment; and 15 to 19 years or life of lease,
whichever is shorter, for buildings and leasehold improvements.
INTANGIBLE ASSETS
Intangible assets consist primarily of covenants not to compete,
goodwill and options to purchase leased property. Amortization, except for the
options to purchase leased property, is provided on the straight-line basis over
the estimated lives, which range from five to forty years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximate fair value.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
NET INCOME PER SHARE
Basic net income per share amounts were computed by dividing net income
by the weighted average number of common shares outstanding. Diluted net income
per share amounts were computed by dividing net income by the weighted average
number of common shares outstanding plus dilutive potential common shares
calculated for stock options and warrants outstanding using the treasury stock
method.
ACCOUNTING FOR STOCK OPTIONS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded only if the current market price of the
underlying stock exceeded the exercise price on the date of grant. The Company
has adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma net income per share disclosures for
employee stock option grants made in fiscal 1996 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB No. 25 and provide pro
forma disclosures required by SFAS No. 123.
36
<PAGE>
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." during fiscal 1999. 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
prominence with the other financial statements. 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, as there is no difference
between net income and comprehensive income for the years ended July 31, 1999,
1998 and 1997.
SEGMENT REPORTING
The Company adopted the SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers,
during fiscal 1999. An operating segment is defined as a component of an
enterprise that engages in business activities from which it may earn revenues
and incur expenses, and about which separate financial information is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources. All of the Company's facilities are aggregated into one reportable
segment given the similarities of economic characteristics between the
operations represented by the facilities and the common nature of the products,
customers and methods of revenue generation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property and equipment exceeds its
fair market value. In addition, the Company continually evaluates the
recoverability of enterprise goodwill by assessing whether the book value can be
recovered through expected and undiscounted cash flows.
37
<PAGE>
(2) ACQUISITIONS
FISCAL 1999 TRANSACTIONS
During fiscal 1999 the Company had the following acquisitions: Salvage
Pool, Inc., of McAllen, Texas, Indian Creek Salvage, of Huntsville, Alabama and
Kansas Insurance Pool, Inc., of Wichita, Kansas. The consideration paid for
these acquisitions consisted of $3,043,900 in cash. The acquired net assets
consisted of accounts and advances receivable, inventory, fixed assets, goodwill
and covenants not to compete. The acquisitions were accounted for using the
purchase method of accounting, and the operating results subsequent to the
acquisition dates are included in the Company's consolidated statements of
income. The excess of the purchase price over fair market value of the net
identifiable assets acquired of $2,234,300 has been recorded as goodwill and is
being amortized on a straight-line basis over 40 years. In conjunction with
these acquisitions, the Company entered into leases for the use of these
facilities.
FISCAL 1998 TRANSACTIONS
During fiscal 1998 the Company had the following acquisitions: Central
Minnesota Salvage Center, of Avon, Minnesota; O'Neal's Equipment Sales, Inc., of
Columbia, South Carolina; Southern Salvage, Inc., of Mobile, Alabama; Auto
Storage Auction Pool, of San Diego, California; Mid Iowa Salvage Pool, Inc., of
Des Moines, Iowa and Auto Salvage Pools, Inc. and Auto Pool Auction, Inc., of
Detroit, Michigan. The consideration paid for these acquisitions consisted of
$9,820,500 in cash. The acquired net assets consisted of land, accounts and
advances receivable, inventory, fixed assets, goodwill and covenants not to
compete. The acquisitions were accounted for using the purchase method of
accounting, and the operating results subsequent to the acquisition dates are
included in the Company's consolidated statements of income. The excess of the
purchase price over fair market value of the net identifiable assets acquired of
$5,551,500 has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. In conjunction with the Avon, Minnesota;
Mobile, Alabama; San Diego, California; Des Moines, Iowa and Detroit, Michigan
acquisitions, the Company entered into leases for the use of these facilities.
FISCAL 1997 TRANSACTIONS
During fiscal 1997 the Company had the following acquisitions: SALA
Insurance Salvage, Inc., of Baton Rouge, Louisiana and Western Affiliated
Salvage Pool and Auction, of Salt Lake City, Utah. The consideration paid for
these acquisitions consisted of $3,437,200 in cash. The acquired net assets
consisted of accounts and advances receivable, inventory, fixed assets, goodwill
and covenants not to compete. The acquisitions were accounted for using the
purchase method of accounting, and the operating results subsequent to the
acquisition dates are included in the Company's consolidated statements of
income. The excess of the purchase price over fair market value of the net
identifiable assets acquired of $2,130,700 has been recorded as goodwill and is
being amortized on a straight-line basis over 40 years. In conjunction with the
Salt Lake City acquisition, the Company entered into a lease for the use of the
facility.
Pro forma financial information for these acquisitions does not
result in a significant change from actual results for 1999 and 1998.
38
<PAGE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1999 1998
---- ----
<S> <C> <C>
Advance charges receivable $24,160,400 $20,485,300
Trade accounts receivable 13,311,800 11,100,200
Other receivables 559,100 1,551,000
----------- -----------
38,031,300 33,136,500
Less allowance for doubtful accounts 500,000 385,000
----------- -----------
$37,531,300 $32,751,500
=========== ===========
</TABLE>
Advance charges receivable represents amounts paid to third parties on
behalf of insurance companies for which the Company will be reimbursed when the
vehicle is sold. Trade accounts receivable include fees to be collected from
insurance companies and buyers.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1999 1998
---- ----
<S> <C> <C>
Transportation and other equipment $ 9,684,000 $ 9,620,300
Office furniture and equipment 13,469,700 9,147,000
Land, buildings and leasehold improvements 47,402,900 32,040,100
----------- -----------
70,556,600 50,807,400
Less accumulated depreciation and amortization 18,957,200 13,245,100
----------- -----------
$51,599,400 $37,562,300
=========== ===========
</TABLE>
Included in property and equipment as of July 31, 1999 and 1998, are
$1,195,100 and $1,488,000, respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $375,900 and $436,100 as
of July 31, 1999 and 1998, respectively.
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1999 1998
---- ----
<S> <C> <C>
Covenants not to compete $ 7,567,500 $ 7,307,500
Goodwill 80,230,700 77,968,700
Options to purchase leased property 3,455,000 3,455,000
Other 284,000 333,500
----------- -----------
91,537,200 89,064,700
Less accumulated amortization 13,754,700 10,673,300
----------- -----------
$77,782,500 $78,391,400
=========== ===========
</TABLE>
39
<PAGE>
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1999 1998
---- ----
<S> <C> <C>
Trade accounts payable $ 1,351,900 $ 900,200
Accounts payable to insurance companies 11,910,700 8,054,200
Accrued payroll 2,254,900 1,731,000
Other accrued liabilities 1,069,400 989,400
----------- -----------
$16,586,900 $11,674,800
=========== ===========
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
--------
1999 1998
---- ----
<S> <C> <C>
Note payable to a corporation, secured by land, payable in monthly interest only
installments of $45,000 through May 2001, when balance is due, bearing
interest at 7.2% $7,500,000 $7,500,000
Notes payable under capital leases, secured by equipment, payable in monthly
installments of $400 to $34,800 through April 2001, bearing interest from 6.5%
to 7.7% 274,700 725,700
Unsecured notes payable to individual, payable in monthly installments of $4,000
through February 2000, bearing interest at 12% 45,400 85,600
Notes payable to financial institutions, secured by equipment, payable in
monthly installments of $1,400 to $25,000 through November 1998, bearing
interest from 7.5% to 9.5% - 114,100
---------- ----------
7,820,100 8,425,400
Less current portion 260,100 621,300
---------- ----------
$7,560,000 $7,804,100
========== ==========
</TABLE>
The aggregate maturities of long-term debt are as follows:
YEARS ENDING JULY 31,
---------------------
2000 $ 260,100
2001 7,560,000
----------
$7,820,100
==========
40
<PAGE>
The Company has a bank credit facility provided by Wells Fargo Bank, N.A.,
U.S. Bank of California and Fleet National Bank (the "Bank Credit Facility").
The Bank Credit Facility consists of an unsecured revolving reducing line of
credit of $50 million, which matures in February 2002. The amount available
under the facility reduces by $10 million in February 2000 and 2001, leaving the
principal balance available as follows: March 1, 2000, $40 million available;
March 1, 2001, $30 million available; February 28, 2002, the line of credit
matures. Amounts outstanding under the Bank Credit Facility accrue interest at
either the prime rate most recently announced by Wells Fargo or at a rate based
on LIBOR plus a spread of 0.50%, subject to increases to a maximum spread of
1.25% based on certain credit ratios. As of July 31, 1999, there are no
outstanding borrowings under this facility. The Company is subject to customary
covenants, including restrictions on payment of dividends, with which it is in
compliance.
(8) SHAREHOLDERS' EQUITY
In fiscal 1999, the Company declared a common stock split on a
two-for-one basis. The accompanying consolidated financial statements have been
restated to reflect this split.
The Company adopted the Copart, Inc. 1992 Stock Option Plan (the
"Plan") as amended, presently covering 3,000,000 shares of the Company's Common
Stock. The Plan provides for the grant of incentive stock options to employees
and non-qualified stock options to employees, officers, directors and
consultants at prices not less than 100% and 85% of the fair market value for
incentive and non-qualified stock options, respectively, as determined by the
Board of Directors at the grant date. Incentive and non-qualified stock options
may have terms of up to ten years and vest over periods determined by the Board
of Directors. Options generally vest ratably over a two or five year period.
In March 1994, the Company adopted the Copart, Inc. 1994 Director
Option Plan under which 80,000 shares of the Company's common stock are
presently reserved. In general, new non-employee directors will automatically
receive grants of non-qualified stock options to purchase 6,000 shares and
subsequent grants to purchase 3,000 shares at specified intervals.
The Company has authorized the issuance of 5,000,000 shares of
preferred stock, no par value, none of which are issued at July 31, 1999.
The Copart, Inc. Employee Stock Purchase Plan (the "ESPP") provides for
the purchase of up to 340,000 shares of Common Stock of the Company by employees
pursuant to the terms of the ESPP. Shares of Common Stock issued pursuant to the
ESPP during fiscal 1999, 1998 and 1997 were 43,295, 40,536 and 54,994,
respectively.
41
<PAGE>
Pro forma information regarding net income and net income per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for the Plans under the fair value method. The fair value of options
issued under the Plans was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: no dividend yield,
volatility factor of the expected market price of the Company's stock of .60, a
forfeiture rate of .05, a weighted-average expected life of the options of five
years and a risk-free interest rate of 5.0%, 5.8% and 6.6% for 1999, 1998 and
1997, respectively. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting period.
The Company's pro forma net income and net income per common share would
approximate the following:
AS REPORTED PRO FORMA
----------- -----------
Year Ended July 31, 1999:
Net income $21,966,300 $21,279,400
=========== ===========
Basic net income per share $ .82 $ .80
=========== ===========
Diluted net income per share $ .80 $ .77
=========== ===========
Year Ended July 31, 1998:
Net income $15,216,200 $14,772,300
=========== ===========
Basic net income per share $ .58 $ .56
=========== ===========
Diluted net income per share $ .57 $ .55
=========== ===========
Year Ended July 31, 1997:
Net income $11,992,600 $11,867,300
=========== ===========
Basic net income per share $ .47 $ .46
=========== ===========
Diluted net income per share $ .45 $ .45
=========== ===========
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996. A summary of stock option activity for the years ended July 31, 1999, 1998
and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,716,300 $ 6.14 1,511,550 $ 4.48 1,691,000 $ 4.58
Granted 260,000 13.41 566,000 8.65 - -
Exercised (251,700) 3.31 (302,916) 2.73 (90,800) 2.71
Cancelled (12,667) 6.56 (58,334) 5.12 (88,650) 8.24
------------------------- ------------------------- -------------------------
Outstanding at year end 1,711,933 7.66 1,716,300 6.14 1,511,550 4.48
========================= ========================= =========================
Options exercisable at year end 914,067 $ 5.61 894,734 $ 4.26 1,011,050 $ 3.32
========================= ========================= =========================
Weighted average fair value of
options granted during the year: $ 7.49 $ 4.92 $ -
========== ========== ==========
</TABLE>
42
<PAGE>
A summary of stock option activity for the year ended July 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES JULY 31,1999 LIFE PRICE JULY 31, 1999 PRICE
------ ------------ ---- ----- ------------- -----
<S> <C> <C> <C> <C> <C>
0.50 - 1.00 268,000 3.35 $0.92 268,000 $0.92
6.00 - 8.00 498,600 6.66 6.45 367,602 6.27
8.50 - 13.50 945,333 7.41 10.20 278,465 9.26
------------ ----------- --------- -------------- ---------
1,711,933 6.75 $7.66 914,067 $5.61
============ =========== ========= ============== =========
</TABLE>
9) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 12,268,200 $ 8,888,100 $ 6,390,300
Deferred (613,800) (112,200) 359,400
------------ ------------ ------------
11,654,400 8,775,900 6,749,700
------------ ------------ ------------
State:
Current 1,582,000 964,700 692,300
Deferred (80,000) (12,200) 40,200
------------ ------------ ------------
1,502,000 952,500 732,500
------------ ------------ ------------
$ 13,156,400 $ 9,728,400 $ 7,482,200
============ ============ ============
</TABLE>
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 35% to income before income taxes and the actual
income tax expense follows:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate 35% 35% 35%
State income taxes, net of federal income tax benefit 3 4 3
Amortization of goodwill 2 1 1
Other differences (3) (1) (1)
---- ---- ----
37% 39% 38%
==== ==== ====
</TABLE>
43
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JULY 31,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 249,000 $ 179,400
Accrued vacation 201,900 97,800
State taxes 537,900 337,700
Depreciation 1,250,400 726,300
----------- -----------
Total gross deferred tax assets 2,239,200 1,341,200
----------- -----------
Deferred tax liabilities:
Amortization of intangible assets (2,052,500) (1,848,300)
----------- -----------
Total gross deferred tax liabilities (2,052,500) (1,848,300)
----------- -----------
Net deferred tax asset (liability) $ 186,700 $ (507,100)
=========== ===========
</TABLE>
Based on the Company's historical operating earnings, management
believes it is more likely than not that the Company will realize the benefit of
the deferred tax assets recorded and, accordingly, has established no valuation
allowance.
In fiscal 1999, 1998 and 1997, the Company recognized a tax benefit of
$458,000, $977,200 and $1,798,700, respectively, upon the exercise of certain
stock warrants and options.
(10) 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>
YEARS ENDING JULY 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic weighted shares outstanding 26,687,600 26,362,600 25,747,800
Effect of dilutive securities-stock options and warrants 881,400 536,800 765,600
---------- ---------- ----------
Diluted weighted average shares outstanding 27,569,000 26,899,400 26,513,400
========== ========== ==========
</TABLE>
(11) MAJOR CUSTOMERS
One customer accounted for 15% of revenue in fiscal 1999 and 16% in
fiscal 1998 and 1997, respectively. No other customer accounted for more than
10% of revenues. No buyer of auto salvage accounted for more than 1% of gross
proceeds in any period.
44
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases certain facilities under operating leases and has
either a right of first refusal to acquire or option to purchase certain
facilities at fair value. Facilities rental expense for the years ended July 31,
1999, 1998 and 1997 aggregated, $8,175,700, $6,967,800 and $6,223,300,
respectively.
The Company has operating leasing lines with certain financial
institutions of approximately $13.5 million for the purpose of leasing yard and
fleet equipment of which approximately $7.2 million was available as of July 31,
1999.
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING JULY 31, LEASES LEASES
- --------------------- ------ ------
<S> <C> <C>
2000 $223,400 $12,967,100
2001 61,500 11,692,800
2002 -- 9,433,800
2003 -- 7,975,400
2004 -- 5,717,200
Thereafter -- 7,125,200
-------- -----------
284,900 $54,911,500
===========
Less amount representing interest 10,200
--------
$274,700
========
</TABLE>
COMMITMENT:
The Company has entered into agreements to acquire approximately $3.7
million of multi-vehicle transport trucks and forklifts.
CONTINGENCIES:
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, any ultimate
liability with respect to these actions will not materially affect the financial
position, results of operations or cash flows of the Company.
(13) RELATED PARTY TRANSACTIONS
The Company leases certain of its facilities from affiliates of the
Company under lease agreements. Rental payments under these leases aggregated
$508,100, $398,200 and $388,800 for the years ended July 31, 1999, 1998 and
1997, respectively, and expire on various dates through 2005.
An affiliate provided $518,800, $608,400 and $565,500 of tow services
to the Company in fiscal 1999, 1998 and 1997, respectively.
45
<PAGE>
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
In fiscal 1998 and 1997, 72,792 and 108,280 warrants were exercised in
a non-cash transaction, which resulted in the issuance of 64,446 and 93,906
shares of common stock, respectively.
(15) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 30,193,100 $ 32,054,300 $ 40,014,800 $ 39,489,200 $141,751,400
============ ============ ============ ============ ============
Operating income $ 6,346,900 $ 7,438,200 $ 9,748,900 $ 9,852,000 $ 33,386,000
============ ============ ============ ============ ============
Net income $ 4,190,700 $ 4,821,600 $ 6,284,900 $ 6,669,100 $ 21,966,300
============ ============ ============ ============ ============
Basic net income per share $ .16 $ .18 $ .24 $ .25 $ .82
============ ============ ============ ============ ============
Diluted net income per share $ .15 $ .18 $ .23 $ .24 $ .80
============ ============ ============ ============ ============
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
1998
Revenues $ 27,490,800 $ 26,173,700 $ 30,568,700 $ 29,972,800 $114,206,000
============ ============ ============ ============ ============
Operating income $ 4,814,600 $ 5,382,200 $ 6,650,100 $ 6,660,700 $ 23,507,600
============ ============ ============ ============ ============
Net income $ 3,140,100 $ 3,453,000 $ 4,302,500 $ 4,320,600 $ 15,216,200
============ ============ ============ ============ ============
Basic net income per share $ .12 $ .13 $ .17 $ .16 $ .58
============ ============ ============ ============ ============
Diluted net income per share $ .12 $ .13 $ .16 $ .16 $ .57
============ ============ ============ ============ ============
</TABLE>
46
<PAGE>
FORM 10-K
The Company will provide, without charge to each Shareholder, upon written
request a copy of its Form 10-K as required to be filed with the Securities &
Exchange Commission pursuant to rule 13a-1, under the Securities Exchange Act of
1934. Your written request should be directed to: Chief Financial Officer,
Copart, Inc.
ANNUAL MEETING
The Annual meeting of Shareholders will be held at 5500 E. Second Street,
Benicia, California 94510 at 9:00 a.m. December 7, 1999.
47
<PAGE>
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT CHARGED TO COSTS APPLICATIONS TO BALANCE AT
DESCRIPTION AND YEAR BEGINNING OF YEAR AND EXPENSES BAD DEBT END OF YEAR
-------------------- ----------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts:
July 31, 1999 $ 385,000 $ 400,000 $(285,000) $ 500,000
========= ========= ========= =========
July 31, 1998 $ 99,000 $ 374,000 $ (88,000) $ 385,000
========= ========= ========= =========
July 31, 1997 $ 99,000 $ 96,300 $ (96,300) $ 99,000
========= ========= ========= =========
</TABLE>
48
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Copart, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-81238) on Form S-8 of Copart, Inc. of our report dated September 17, 1999,
relating to the consolidated balance sheets of Copart, Inc. and subsidiaries
as of July 31, 1999, and 1998, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended July 31, 1999, and related schedule, which report
appears in the July 31, 1999, annual report on Form 10-K of Copart, Inc.
KPMG LLP
San Francisco, California
October 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COPART INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDING AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 37,047,800
<SECURITIES> 0
<RECEIVABLES> 37,531,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,755,000
<PP&E> 70,556,600
<DEPRECIATION> 18,957,200
<TOTAL-ASSETS> 218,677,100
<CURRENT-LIABILITIES> 24,648,700
<BONDS> 0
0
0
<COMMON> 115,036,100
<OTHER-SE> 68,946,300
<TOTAL-LIABILITY-AND-EQUITY> 218,677,100
<SALES> 141,751,400
<TOTAL-REVENUES> 141,751,400
<CGS> 0
<TOTAL-COSTS> 108,365,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 584,000
<INCOME-PRETAX> 35,122,700
<INCOME-TAX> 13,156,400
<INCOME-CONTINUING> 21,966,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,966,300
<EPS-BASIC> .82
<EPS-DILUTED> .80
</TABLE>
