<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 1999
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------------
------------
Commission file number: 0-23255
COPART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2867490
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5500 E. SECOND STREET, BENICIA, CA 94510
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (707) 748-5000
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
Number of shares of Common Stock outstanding as of June 3, 1999: 26,724,100
<PAGE>
COPART, INC. AND SUBSIDIARIES
INDEX TO THE QUARTERLY REPORT
APRIL 30, 1999
<TABLE>
<CAPTION>
Description Page
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PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Vehicle Processing Programs 7
Composition of Revenues 7
Composition of Costs and Expenses 8
Acquisitions and New Openings 8
Results of Operations 8
Liquidity and Capital Resources 10
Year 2000 Compliance 11
Factors Affecting Future Results 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 15
Exhibit 27.1 Financial Data Schedule 16
</TABLE>
2
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ITEM 1- FINANCIAL STATEMENTS
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
---------------------- ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,070,300 $ 15,733,500
Short-term investments - 13,062,200
Accounts receivable, net 36,195,000 32,751,500
Vehicle pooling costs 10,243,100 9,399,700
Deferred income taxes 614,900 614,900
Prepaid expenses and other assets 3,631,700 3,426,600
---------------------- ----------------------
Total current assets 88,755,000 74,988,400
Property and equipment, net 47,512,300 37,562,300
Intangibles and other assets, net 76,057,300 78,391,400
---------------------- ----------------------
Total assets $ 212,324,600 $ 190,942,100
---------------------- ----------------------
---------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 363,500 $ 621,300
Accounts payable and accrued liabilities 16,177,900 11,674,800
Deferred revenue 5,835,600 5,602,800
Income taxes payable 1,337,700 -
Other current liabilities 1,710,900 2,260,800
---------------------- ----------------------
Total current liabilities 25,425,600 20,159,700
Deferred income taxes 1,122,000 1,122,000
Long-term debt, less current portion 7,592,500 7,804,100
Other liabilities 1,727,900 1,673,700
---------------------- ----------------------
Total liabilities 35,868,000 30,759,500
---------------------- ----------------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized; 26,724,100
and 26,550,120 shares issued and outstanding
at April 30, 1999 and July 31, 1998, respectively 114,179,400 113,202,600
Retained earnings 62,277,200 46,980,000
---------------------- ----------------------
Total shareholders' equity 176,456,600 160,182,600
---------------------- ----------------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 212,324,600 $ 190,942,100
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended April 30, Nine months ended April 30,
--------------------------------------- -----------------------------------------
1999 1998 1999 1998
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Revenues:
Salvage fees $33,885,300 $25,505,500 $86,242,300 $69,552,200
Transportation revenue 4,887,600 3,958,500 12,807,600 10,534,000
Purchased vehicle revenue 1,241,900 1,104,700 3,212,300 4,147,100
----------------- ------------------- ------------------ -------------------
Total revenues 40,014,800 30,568,700 102,262,200 84,233,300
----------------- ------------------- ------------------ -------------------
Operating costs and expenses:
Yard and fleet 24,577,000 18,718,100 62,280,200 52,931,200
General and administrative 3,185,700 3,276,400 9,219,700 8,671,800
Depreciation and amortization 2,503,200 1,924,100 7,228,300 5,783,400
----------------- ------------------- ------------------ -------------------
Total operating expenses 30,265,900 23,918,600 78,728,200 67,386,400
----------------- ------------------- ------------------ -------------------
Operating income 9,748,900 6,650,100 23,534,000 16,846,900
----------------- ------------------- ------------------ -------------------
Other income (expense):
Interest expense (144,700) (150,400) (441,400) (499,000)
Interest income 312,700 430,300 1,131,700 1,224,600
Other income 138,800 123,000 541,300 289,200
----------------- ------------------- ------------------ -------------------
Total other income 306,800 402,900 1,231,600 1,014,800
----------------- ------------------- ------------------ -------------------
Income before income taxes 10,055,700 7,053,000 24,765,600 17,861,700
Income taxes 3,770,800 2,750,500 9,468,400 6,965,800
----------------- ------------------- ------------------ -------------------
Net income $ 6,284,900 $ 4,302,500 $15,297,200 $10,895,900
----------------- ------------------- ------------------ -------------------
----------------- ------------------- ------------------ -------------------
Basic net income per share $ .24 $ .16 $ .57 $ .41
----------------- ------------------- ------------------ -------------------
----------------- ------------------- ------------------ -------------------
Weighted average shares
outstanding 26,705,800 26,435,400 26,645,500 26,305,000
----------------- ------------------- ------------------ -------------------
----------------- ------------------- ------------------ -------------------
Diluted net income per share $ .23 $ .16 $ .55 $ .40
----------------- ------------------- ------------------ -------------------
----------------- ------------------- ------------------ -------------------
Weighted average shares and dilutive
potential common shares outstanding 27,797,100 27,057,600 27,867,800 26,916,400
----------------- ------------------- ------------------ -------------------
----------------- ------------------- ------------------ -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended April 30,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,297,200 $ 10,895,900
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,228,300 5,783,400
Deferred rent 54,200 226,400
(Gain) / loss on sale of assets (172,300) 35,500
Employee Stock Purchase Plan compensation 37,500 23,600
Changes in operating assets and liabilities:
Accounts receivable (3,443,500) 498,800
Vehicle pooling costs (843,400) 181,500
Prepaid expenses and other current assets (379,600) (1,400,500)
Accounts payable and accrued liabilities 3,953,200 2,707,700
Deferred revenue 232,800 (521,700)
Income taxes 1,337,700 740,000
------------------ ------------------
Net cash provided by operating activities 23,302,100 19,170,600
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,482,200) (8,383,100)
Proceeds from sale of property and equipment 307,700 347,400
Sale of short-term investments, net 13,062,200 -
Other intangible asset additions (29,100) (5,200)
Purchase of net current assets in connection with acquisitions - (262,000)
Purchase of property and equipment in connection
with acquisitions - (492,900)
Purchase of intangible assets in connection
with acquisitions - (791,600)
Deferred preopening costs (293,800) -
------------------ ------------------
Net cash used in investing activities (1,435,200) (9,587,400)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 727,000 561,400
Proceeds from issuance of
Employee Stock Purchase Plan shares 212,300 133,400
Principal payments on notes payable (469,400) (1,293,500)
------------------ ------------------
Net cash provided by / (used in) financing activities 469,900 (598,700)
------------------ ------------------
Net increase in cash and cash equivalents 22,336,800 8,984,500
Cash and cash equivalents at beginning of period 15,733,500 27,684,500
------------------ ------------------
Cash and cash equivalents at end of period $ 38,070,300 $ 36,669,000
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 441,600 $ 499,200
------------------ ------------------
------------------ ------------------
Income taxes paid $ 8,955,500 $ 5,920,600
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
NOTE 1 - General:
In the opinion of the management of Copart, Inc. (the "Company" or
"Copart"), the accompanying unaudited consolidated financial statements contain
all adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the financial information included therein. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1998 filed with the Securities and Exchange
Commission.
Gross proceeds generated from auctioned salvage vehicles were
approximately $183,555,900 and $146,943,700 for the three months ended April 30,
1999 and 1998, and $466,901,900 and $394,038,900 for the nine months ended April
30, 1999 and 1998, respectively.
NOTE 2 - Net Income Per Share:
There were no adjustments to net income in calculating diluted net
income per share. The table below reconciles basic weighted shares outstanding
to diluted weighted average shares outstanding:
<TABLE>
<CAPTION>
Three months ended April 30, Nine months ended April 30,
----------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic weighted shares outstanding 26,705,800 26,435,400 26,645,500 26,305,000
Stock options and warrants outstanding 1,091,300 622,200 1,222,300 611,400
----------- ----------- ----------- -----------
Diluted weighted average shares outstanding 27,797,100 27,057,600 27,867,800 26,916,400
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 3 - New Openings:
During February 1999, the Company opened a new 60-acre full service
automotive auction facility to service the Austin and San Antonio, Texas area
and a new 15-acre facility in Nashville, Tennessee. With the addition of these
locations, the Company has 62 facilities in 32 states.
6
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW IN THIS REPORT. THE COMPANY HAS ATTEMPTED TO IDENTIFY
FORWARD-LOOKING STATEMENTS BY PLACING AN ASTERISK IMMEDIATELY FOLLOWING THE
SENTENCE OR PHRASE THAT CONTAINS THE FORWARD-LOOKING STATEMENT.
VEHICLE PROCESSING PROGRAMS
The Company processes salvage vehicles principally on a consignment
method, on either the Percentage Incentive Program (the "PIP") or on a fixed fee
consignment basis. Using either consignment method, only the fees associated
with vehicle processing are recorded in revenue. The Company also processes a
small percentage of its salvage vehicles pursuant to purchase contracts (the
"Purchase Program") under which the Company records the gross proceeds of the
vehicle sale in purchased vehicle revenues and the cost of the vehicle in yard
and fleet expenses.
For the three months ended April 30, 1999 and 1998, approximately 51%
and 48%, respectively, and for the nine months ended April 30, 1999 and 1998,
approximately 49% and 45%, of the vehicles sold by Copart, respectively, were
processed under the PIP. The increase in the percentage of vehicles sold under
the PIP is due to the Company's successful marketing efforts. The Company
attempts to convert acquired operations to the PIP, which typically results in
higher net returns to vehicle suppliers and higher fees to the Company than
standard fixed fee consignment programs.
For the three months ended April 30, 1999 and 1998, approximately 48%
and 51%, respectively, and for the nine months ended April 30, 1999 and 1998,
approximately 50% and 54%, of the vehicles sold by Copart, respectively, were
processed under fixed fee agreements. The decline in the percentage of vehicles
processed under fixed contracts is the direct result of the Company's marketing
efforts to convert contracts from fixed fee to PIP.
For the three and nine months ended April 30, 1999 and 1998,
approximately 1%, of the vehicles sold by Copart, respectively, were processed
pursuant to the Purchase Program.
Due to a number of factors, including the timing and size of new
acquisitions, market conditions, and acceptance of the PIP program by vehicle
suppliers, the percentage of vehicles processed under these programs in future
periods may vary.*
COMPOSITION OF REVENUES
Revenues consist of salvage fees charged to vehicle suppliers and
vehicle buyers, transportation revenue and purchased vehicle revenues. Salvage
fees from vehicle suppliers include fees under PIP agreements and fixed programs
where the Company charges for title processing, special preparation, storage and
auctioning. Salvage fees also include fees charged vehicle buyers for purchasing
vehicles, storage and annual registration. Transportation revenue includes
charges to suppliers for towing vehicles under fixed fee contracts.
Transportation revenue also includes towing charges assessed to buyers for
delivering vehicles. Purchased vehicle revenues are comprised of the price that
buyers paid at the Company's auctions for vehicles processed under the Purchase
Program.
7
<PAGE>
COMPOSITION OF COSTS AND EXPENSES
Costs attributable to yard and fleet expenses consist primarily of
operating personnel (which includes yard management, clerical and yard
employees), rent, contract vehicle towing, insurance, fuel, fleet maintenance
and repair, and acquisition costs of salvage vehicles under the Purchase
Program. Costs associated with general and administrative expenses consist
primarily of executive, accounting, data processing and sales personnel,
professional fees and marketing expenses.
ACQUISITIONS AND NEW OPENINGS
Copart has experienced significant growth as it acquired ten salvage
vehicle auction facilities and established fourteen new facilities since the
beginning of fiscal 1996. All of the acquisitions have been accounted for using
the purchase method. Accordingly, the excess of the purchase price over the fair
value of net tangible assets acquired, consisting principally of goodwill, is
being amortized over periods not exceeding 40 years. Costs related to the
opening of new auction facilities, such as preopening payroll and various
training expenses, are deferred until the auction facilities open and are
amortized over the subsequent 12 months.
As part of the Company's overall expansion strategy of offering
integrated nationwide service to vehicle suppliers, the Company anticipates
additional openings or acquisitions in new regions, as well as the regions
currently served by the Company. * To date during fiscal 1999, the Company has
opened new facilities in Nashville, Tennessee and Austin/San Antonio, Texas.
During fiscal 1998, the Company acquired facilities in or near Avon, Minnesota;
Columbia, South Carolina; Mobile, Alabama; San Diego, California; Des Moines,
Iowa and Detroit, Michigan. In addition, during fiscal 1998, the Company opened
new facilities in Orlando, Florida, Raleigh, North Carolina and Las Vegas,
Nevada. The Company believes that these acquisitions and openings help to
solidify the Company's nationwide service and expand the Company's coverage of
the United States. In the event of future acquisitions, the Company expects to
incur future amortization charges in connection with such acquisitions
attributable to goodwill and covenants not to compete. *
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30, 1998
REVENUES
Revenues were approximately $40.0 million during the three months ended
April 30, 1999, an increase of approximately $9.4 million, or 31.0%, over the
three months ended April 30, 1998. The change in revenues is due primarily to a
$8.4 million increase in salvage fees plus a $0.9 million increase in
transportation revenue, plus a $0.1 million increase in purchased vehicle
revenues. Under the Purchase Program, the Company records the gross proceeds of
the vehicle sale as revenue.
New facilities in Avon, Raleigh, Orlando, Columbia, Las Vegas, Mobile,
San Diego, Des Moines, Detroit, Nashville and Austin/San Antonio contributed
$3.7 million of new salvage fee and transportation revenues for the three months
ended April 30, 1999. Existing yard salvage fee and transportation revenues
increased by $5.6 million, or 19.1%, and existing yard purchased vehicle
revenues increased by $0.1 million, or 6.6%, compared to the same period in the
prior year.
8
<PAGE>
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $24.6 million during the
three months ended April 30, 1999, an increase of approximately $5.9 million, or
31.3%, over the comparable period in fiscal 1998. Approximately $2.4 million of
yard and fleet expenses were attributable to new facilities in Avon, Raleigh,
Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines, Detroit, Nashville
and Austin/San Antonio. The remainder of the increase in yard and fleet was
attributable to yard and fleet expenses from existing operations. Yard and fleet
expenses remained unchanged at 61% of revenues during the third quarter of
fiscal 1999 and 1998.
General and administrative expenses were approximately $3.2 million
during the three months ended April 30, 1999, a decrease of approximately $0.1
million, or 3%, over the comparable period in fiscal 1998. General and
administrative expenses decreased to 8% of revenues during the third quarter of
fiscal 1999 as compared to 11% of revenues during the same period of fiscal
1998.
Depreciation and amortization expense was approximately $2.5 million
during the three months ended April 30, 1999, an increase of approximately $0.6
million, or 30%, over the comparable period in fiscal 1998. This increase was
primarily due to the amortization and depreciation of tangible and intangible
assets acquired in fiscal 1998 and the nine months ended April 30, 1999.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $9.7 million during the three months
ended April 30, 1999, an increase of approximately $3.1 million, or 46.6% over
the comparable period in fiscal 1998. New facilities in Avon, Raleigh, Orlando,
Columbia, Las Vegas, Mobile, San Diego, Des Moines, Detroit, Nashville and
Austin/San Antonio produced $1.4 million of this increase. Existing facilities
produced $1.7 million of the increase due to improved PIP percentages, market
share gains, favorable weather and other factors.
Total other income was approximately $0.3 million during the three
months ended April 30, 1999, a decrease of approximately $0.1 million, over the
three months ended April 30, 1998. This decrease was due primarily to lower
interest income.
The Company's effective income tax rate of 38% applicable to the three
months ended April 30, 1999 is comparable to the effective income tax rate for
the three months ended April 30, 1998 of 39%.
Due to the foregoing factors, Copart realized net income of
approximately $6.3 million for the three months ended April 30, 1999, compared
to net income of approximately $4.3 million for the three months ended April 30,
1998.
NINE MONTHS ENDED APRIL 30, 1999 COMPARED TO NINE MONTHS ENDED APRIL 30, 1998
REVENUES
Revenues were approximately $102.3 million during the nine months ended
April 30, 1999, an increase of approximately $18.0 million, or 21.4%, over the
nine months ended April 30, 1998. The change in revenues is due primarily to a
$16.7 million increase in salvage fees plus a $2.2 million increase in
transportation revenue, offset by a $0.9 million decrease in purchased vehicle
revenues. Under the Purchase Program, the Company records the gross proceeds of
the vehicle sale as revenue.
9
<PAGE>
New facilities in Avon, Raleigh, Orlando, Columbia, Las Vegas, Mobile,
San Diego, Des Moines, Detroit, Nashville and Austin/San Antonio contributed
$9.6 million of new salvage fee and transportation revenues for the nine months
ended April 30, 1999. Existing yard salvage fee and transportation revenues
increased by $9.3 million, or 11.7%, and existing yard purchased vehicle
revenues decreased by $1.1 million, or 26.8% compared to the same period in the
prior year.
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $62.3 million during the
nine months ended April 30, 1999, an increase of approximately $9.3 million, or
17.7%, over the comparable period in fiscal 1998. Approximately $7.0 million of
yard and fleet expenses were attributable to new facilities in Avon, Raleigh,
Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines, Detroit, Nashville
and Austin/San Antonio. The remainder of the increase in yard and fleet was
attributable to yard and fleet expenses from existing operations. Yard and fleet
expenses decreased to 61% of revenues during the first nine months of fiscal
1999, as compared to 63% of revenues during the same period of fiscal 1998.
General and administrative expenses were approximately $9.2 million
during the nine months ended April 30, 1999, an increase of approximately $0.5
million, or 6.3%, over the comparable period in fiscal 1998. This increase is
due primarily to increased payroll and other operating expenses. General and
administrative expenses decreased to 9% of revenues during the first nine months
of fiscal 1999, as compared to 10% of revenues during the first nine months of
fiscal 1998.
Depreciation and amortization expense was approximately $7.2 million
during the nine months ended April 30, 1999, an increase of approximately $1.4
million, or 25%, over the comparable period in fiscal 1998. This increase was
primarily due to the amortization and depreciation of tangible and intangible
assets acquired in fiscal 1998 and the nine months ended April 30, 1999.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $23.5 million during the nine
months ended April 30, 1999, an increase of approximately $6.7 million or 40%
over the comparable period in fiscal 1999. New facilities in Avon, Raleigh,
Orlando, Columbia, Las Vegas, Mobile, San Diego, Des Moines, Detroit,
Nashville and Austin/San Antonio produced $2.2 million of this increase.
Existing facilities produced $4.5 million of the increase due to improved PIP
percentages, market share gains, favorable weather conditions and other
factors.
Total other income was approximately $1.2 million during the nine
months ended April 30, 1999, an increase of approximately $0.2 million over the
nine months ended April 30, 1998. This increase was due primarily to additional
rental income.
The effective income tax rate of 38% applicable to the nine months
ended April 30, 1999 is comparable to the effective income tax rate for the nine
months ended April 30, 1998 of 39%.
Due to the foregoing factors, Copart realized net income of
approximately $15.3 million for the nine months ended April 30, 1999, compared
to net income of approximately $10.9 million for the nine months ended April 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth principally through cash generated from
operations, debt financing, public offerings of Common Stock, and the equity
issued in conjunction with certain acquisitions.
10
<PAGE>
At April 30, 1999, Copart had working capital of approximately $63.3
million, including cash and cash equivalents of approximately $38.1 million. The
Company is able to process, market, sell and receive payment for processed
vehicles quickly. The Company's primary source of cash is from the collection of
sellers' fees and reimbursable advances from the proceeds of auctioned salvage
vehicles and from buyers' fees.
The Company has entered into various operating lease lines for the
purpose of leasing yard and fleet equipment.
Copart generated cash from operations of approximately $23.3 million
and $19.2 million, during the nine months ended April 30, 1999 and 1998,
respectively.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $14.5 million and $8.4 million
for the nine months ended April 30, 1999, and 1998, respectively. Copart's
capital expenditures have related primarily to opening and improving facilities
and acquiring yard equipment.
Cash and cash equivalents increased by approximately $22.3 million for
the nine months ended April 30, 1999. The Company's liquidity and capital
resources have not been materially affected by inflation and are not subject to
significant seasonal fluctuations.
The Company believes that its currently available cash, cash generated
from operations and borrowing availability under its bank credit facilities and
equipment leasing lines will be sufficient to satisfy the Company's working
capital requirements and fund acquisitions and openings of new facilities for at
least 12 months.* However, there can be no assurance that the Company will not
be required to seek additional debt or equity financing prior to such time, or
if new financing is required, that it will be available on reasonable terms if
at all.
YEAR 2000 COMPLIANCE
GENERAL
Various Year 2000 issues result from computer programs written using a
two-digit date field rather than four to define the applicable year. Certain
computer programs utilizing a two-digit date field may recognize a date using
"00" as the year 1900 rather than the year 2000. This could potentially result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in other similar normal business activities.
The Company's internal information technology (IT) systems include all
hardware and software used in its computer systems. The Company's non-IT systems
include telephone and alarm systems, office equipment, and motor vehicle
electronic components.
COMPANY'S STATE OF READINESS
The Company has completed an assessment of its internal information
systems relative to the Year 2000 issue. The assessment has determined that the
hardware and software the Company currently uses is Year 2000 compliant. In
addition, the Company has surveyed non-IT systems and concluded that they are
also Year 2000 compliant.
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.
11
<PAGE>
RISKS TO THE COMPANY
The Company has initiated informal communications with many of its
significant third parties and suppliers (Insurance companies, Banks and State
Motor Vehicle Departments) to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
The Company has received some assurances regarding these issues from these third
parties, but there are no guarantees these third party systems will be
compliant. In addition, the event of non-compliance may have a material effect
on the operations of the Company. For example, if some of the Company's
suppliers are not Year 2000 compliant it could impact the Company's ability to
obtain orders from those suppliers.
The Company believes its exposure to the Year 2000 issue will come
mainly from third parties, either as the result of these parties not being
prepared, or other parties these third parties rely upon not being prepared.
Although there can be no assurance that unforeseen problems will not occur, the
Company expects that all critical internal Year 2000 issues will be resolved as
encountered.
CONTINGENCY PLANS
The Company currently has no formal Year 2000 contingency plans.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for
a substantial portion of the Company's revenues. In the third quarter of fiscal
1999 and 1998, vehicles supplied by Copart's largest vehicle supplier accounted
for approximately 14% and 16%, of Copart's revenues, respectively. The Company's
agreements with these and other vehicle suppliers are either oral or written
agreements that typically are subject to cancellation by either party upon 30
days' notice. There can be no assurance that existing agreements will not be
canceled or that the terms of any new agreements will be comparable to those of
existing agreements. The Company believes that, as the salvage vehicle auction
industry becomes more consolidated, the likelihood of large vehicle suppliers
entering into agreements with single companies to dispose of all of their
salvage vehicles on a statewide, regional or national basis increases.* There
can be no assurance that the Company will be able to enter into such agreements
or that it will be able to retain its existing supply of salvage vehicles in the
event that vehicle suppliers begin disposing of their salvage vehicles pursuant
to state, regional or national agreements with other operators of salvage
vehicle auction facilities. A loss or reduction in the number of vehicles from a
significant vehicle supplier or material changes in the terms of an arrangement
with a substantial vehicle supplier could have a material adverse effect on the
Company's financial condition and results of operations.
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future depending on a number of factors. These
factors include changes in the market value of salvage vehicles, buyer
attendance at salvage auctions, fluctuations in vehicle transportation costs,
delays or changes in state title processing and/or changes in state or federal
laws or regulations affecting salvage vehicles, fluctuations in Actual Cash
Values of salvage vehicles, the availability of vehicles, and weather
conditions. As a result, the Company believes that period-to-period comparisons
of its results of operations should not be
12
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relied upon as any indication of future performance. There can be no assurance,
therefore, that the Company's operating results in some future quarter will not
be below the expectations of public market analysts and/or investors.
The market price of the Company's Common Stock is subject to
significant fluctuations in response to various factors and events, including
variations in the Company's operating results, the inability to continue to
increase service fees, the timing and size of acquisitions and facility
openings, the loss of vehicle suppliers or buyers, the announcement of new
vehicle supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its vehicle suppliers,
environmental problems or litigation. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the specific operating performance of companies.
The Company seeks to increase sales and profitability primarily through
the increase of salvage vehicle volume and revenue at existing facilities, the
opening of new facilities, and the acquisition of other salvage vehicle auction
facilities. There can be no assurance that the Company will be able to continue
to acquire additional facilities on terms economical to the Company or that the
Company will be able to increase revenues at newly acquired facilities above
levels realized at such facilities prior to their acquisition by the Company.
Additionally, as the Company continues to grow, its openings and acquisitions
will have to be more numerous or of a larger size in order to have a material
impact on the Company's operations. The ability of the Company to achieve its
expansion objectives and to manage its growth is also dependent on other
factors, including the integration of new facilities into existing operations,
the establishment of new relationships or expansion of existing relationships
with vehicle suppliers, the identification and lease of suitable premises on
competitive terms and the availability of capital. The size and timing of such
acquisitions and openings may vary. Management believes that facilities opened
by the Company require more time to reach revenue and profitability levels
comparable to its existing facilities and may have greater working capital
requirements than those facilities acquired by the Company. Therefore, to the
extent that the Company opens a greater number of facilities in the future than
it has historically, the Company's growth rate in revenues and profitability may
be adversely affected.
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with two other existing shareholders, beneficially owns approximately
40% of the issued and outstanding shares of Common Stock. This interest in the
Company may also have the effect of making certain transactions, such as mergers
or tender offers involving the Company, more difficult or impossible, absent the
support of Mr. Johnson, and such other existing shareholders.
The Company's operations are subject to federal, state and local laws
and regulations regarding the protection of the environment. In the salvage
vehicle auction industry, large numbers of wrecked vehicles are stored at
auction facilities for short periods of time. Minor spills of gasoline, motor
oils and other fluids may occur from time to time at the Company's facilities
which may result in localized soil, surface water or groundwater contamination.
Petroleum products and other hazardous materials are contained in aboveground or
underground storage tanks located at certain of the Company's facilities. Waste
materials such as waste solvents or used oils are generated at some of the
Company's facilities that are disposed of as nonhazardous or hazardous wastes.
The Company has put into place procedures to reduce the amounts of soil
contamination that may occur at its facilities, and has initiated safety
programs and training of personnel on safe storage and handling of hazardous
materials. The Company believes that it is in compliance in all material
respects with applicable environmental regulations and does not anticipate any
material capital expenditures for environmental compliance or remediation that
are not currently reserved for. * Environmental laws and regulations, however,
could become more stringent over time and there can be no assurance that the
Company or its operations will not be subject to significant compliance costs in
the future. To date, the Company has not incurred expenditures for preventive or
remedial action with respect to soil contamination or the use of
13
<PAGE>
hazardous materials which have had a material adverse effect on the Company's
financial condition or results of operations. The soil contamination which may
occur at the Company's facilities and the potential contamination by previous
users of certain acquired facilities create the risk, however, that the Company
could incur substantial expenditures for preventive or remedial action, as well
as potential liability arising as a consequence of hazardous material
contamination, which could have a material adverse effect on the Company.
The salvage vehicle auction industry is highly fragmented in many
markets. As a result, the Company faces intense competition for the supply of
salvage vehicles from vehicle suppliers, as well as competition for buyers of
vehicles from other salvage vehicle auction companies. The Company believes
its principal competitor is Insurance Auto Auctions, Inc. ("IAAI"). IAAI 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. The Company may
also encounter competition from new market entrants that are significantly
larger and have greater financial resources. These potential new competitors
may include consolidators of automobile dismantling businesses, organized
salvage buying groups, automobile manufacturers, automobile auctioneers, and
software companies. Due to the limited number of vehicle suppliers and the
absence of long-term contractual commitments between the Company and such
salvage vehicle suppliers, competition for salvage vehicles from such
suppliers is intense. The Company may also encounter significant competition
for state, regional and national supply agreements with vehicle suppliers.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COPART, INC.
/s/ Wayne R. Hilty
-----------------------------------------
Wayne R. Hilty, Senior Vice President and
Chief Financial Officer (duly authorized
officer and principal financial and
accounting officer)
Date: June 14, 1999
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COPART INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDING AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 38,070,300
<SECURITIES> 0
<RECEIVABLES> 36,195,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,755,000
<PP&E> 67,768,200
<DEPRECIATION> 17,255,900
<TOTAL-ASSETS> 212,324,600
<CURRENT-LIABILITIES> 25,425,600
<BONDS> 0
0
0
<COMMON> 114,179,400
<OTHER-SE> 62,277,200
<TOTAL-LIABILITY-AND-EQUITY> 212,324,600
<SALES> 102,262,200
<TOTAL-REVENUES> 102,262,200
<CGS> 0
<TOTAL-COSTS> 78,728,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441,700
<INCOME-PRETAX> 24,765,600
<INCOME-TAX> 9,468,400
<INCOME-CONTINUING> 15,297,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,297,200
<EPS-BASIC> .57
<EPS-DILUTED> .55
</TABLE>
