<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, 2000
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 8, 2000:
54,099,270
<PAGE>
COPART, INC. AND SUBSIDIARIES
INDEX TO THE QUARTERLY REPORT
APRIL 30, 2000
<TABLE>
<CAPTION>
Description Page
----------- ------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Vehicle Processing Programs 7
Composition of Revenues 7
Composition of Costs and Expenses 8
Acquisitions and New Openings 8
Results of Operations 8
Liquidity and Capital Resources 11
Year 2000 Compliance 11
Factors Affecting Future Results 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Signatures 15
Exhibit 27.1 Financial Data Schedule 16
</TABLE>
2
<PAGE>
ITEM 1 - FINANCIAL INFORMATION
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 30, July 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,595,000 $ 37,047,800
Accounts receivable, net 48,585,100 37,531,300
Vehicle pooling costs 13,862,800 10,471,500
Deferred income taxes 988,800 988,800
Prepaid expenses and other assets 4,725,300 3,255,800
------------ ------------
Total current assets 88,757,000 89,295,200
Property and equipment, net 73,905,900 51,599,400
Intangibles and other assets, net 86,027,200 77,782,500
------------ ------------
Total assets $248,690,100 $218,677,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 80,700 $ 260,100
Accounts payable and accrued liabilities 22,726,800 16,586,900
Deferred revenue 7,075,200 5,864,600
Income taxes payable 1,118,000 493,400
Other current liabilities 1,602,100 1,443,700
------------ ------------
Total current liabilities 32,602,800 24,648,700
Deferred income taxes 802,100 802,100
Long-term debt, less current portion 7,500,000 7,560,000
Other liabilities 1,552,100 1,683,900
------------ ------------
Total liabilities 42,457,000 34,694,700
------------ ------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
53,992,470 and 53,690,230 shares issued and outstanding at
April 30, 2000 and July 31, 1999, respectively 116,019,900 115,036,100
Retained earnings 90,213,200 68,946,300
------------ ------------
Total shareholders' equity 206,233,100 183,982,400
------------ ------------
Commitments and contingencies
Total liabilities and shareholders' equity $248,690,100 $218,677,100
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended April 30, Nine months ended April 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Salvage fees $ 44,237,900 $ 33,885,300 $ 114,530,300 $ 86,242,300
Transportation revenue 6,021,000 4,887,600 15,504,500 12,807,600
Purchased vehicle revenue 3,542,300 1,241,900 8,680,200 3,212,300
------------- ------------- ------------- -------------
Total revenues 53,801,200 40,014,800 138,715,000 102,262,200
------------- ------------- ------------- -------------
Operating costs and expenses:
Yard and fleet 33,761,500 24,577,000 85,760,100 62,280,200
General and administrative 4,017,300 3,185,700 11,326,000 9,219,700
Depreciation and amortization 2,915,000 2,503,200 8,406,100 7,228,300
------------- ------------- ------------- -------------
Total operating expenses 40,693,800 30,265,900 105,492,200 78,728,200
------------- ------------- ------------- -------------
Operating income 13,107,400 9,748,900 33,222,800 23,534,000
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (135,500) (144,700) (413,600) (441,400)
Interest income 314,800 312,700 1,169,100 1,131,700
Other income 262,900 138,800 602,100 541,300
------------- ------------- ------------- -------------
Total other income 442,200 306,800 1,357,600 1,231,600
------------- ------------- ------------- -------------
Income before income taxes 13,549,600 10,055,700 34,580,400 24,765,600
Income taxes 5,213,500 3,770,800 13,313,500 9,468,400
------------- ------------- ------------- -------------
Net income $ 8,336,100 $ 6,284,900 $ 21,266,900 $ 15,297,200
============= ============= ============= =============
Basic net income per share $ .15 $ .12 $ .40 $ .29
============= ============= ============= =============
Weighted average shares
outstanding 53,914,500 53,411,600 53,779,000 53,291,000
============= ============= ============= =============
Diluted net income per share $ .15 $ .11 $ .38 $ .27
============= ============= ============= =============
Weighted average shares and dilutive
potential common shares outstanding 56,464,900 55,594,200 56,019,400 55,735,600
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended April 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,266,900 $ 15,297,200
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8,406,100 7,228,300
Deferred rent (131,800) 54,200
Gain on sale of assets (143,000) (172,300)
Employee Stock Purchase Plan compensation -- 37,500
Changes in operating assets and liabilities:
Accounts receivable (10,458,100) (3,443,500)
Vehicle pooling costs (2,860,600) (843,400)
Prepaid expenses and other current assets (1,733,800) (379,600)
Accounts payable and accrued liabilities 6,298,300 3,953,200
Deferred revenue 1,210,600 232,800
Income taxes 624,600 1,337,700
------------ ------------
Net cash provided by operating activities 22,479,200 23,302,100
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (26,963,000) (14,482,200)
Proceeds from sale of property and equipment 226,200 307,700
Sale of short-term investments, net -- 13,062,200
Other intangible asset additions -- (29,100)
Purchase of net current assets in connection with acquisitions (1,126,400) --
Purchase of property and equipment in connection with acquisition (923,400) --
Purchase of intangible assets in connection with acquisitions (10,889,800) --
Deferred preopening costs -- (293,800)
------------ ------------
Net cash used in investing activities (39,676,400) (1,435,200)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 576,900 727,000
Proceeds from the issuance of
Employee Stock Purchase Plan shares 406,900 212,300
Principal payments on notes payable (239,400) (469,400)
------------ ------------
Net cash provided by financing activities 744,400 469,900
------------ ------------
Net (decrease) increase in cash and cash equivalents (16,452,800) 22,336,800
Cash and cash equivalents at beginning of period 37,047,800 15,733,500
------------ ------------
Cash and cash equivalents at end of period $ 20,595,000 $ 38,070,300
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 413,600 $ 441,600
============ ============
Income taxes paid $ 12,602,800 $ 8,955,500
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
(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, 1999 filed with the Securities and Exchange
Commission. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
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,
---------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted shares outstanding 53,914,500 53,411,600 53,779,000 53,291,000
Stock options and warrants outstanding 2,550,400 2,182,600 2,240,400 2,444,600
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 56,464,900 55,594,200 56,019,400 55,735,600
========== ========== ========== ==========
</TABLE>
NOTE 3 - Acquisitions:
During May 2000, the Company purchased certain assets of a 40-acre
salvage auction facility located in San Antonio, Texas and purchased certain
assets of a 52-acre salvage auction facility located in Albuquerque, New Mexico.
With the addition of these locations, the Company has 76 facilities in 36 states
occupying approximately 1,963 acres nationwide.
NOTE 4 - Segment Reporting:
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.
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, 2000 and 1999, approximately 55%
and 51%, respectively, and for the nine months ended April 30, 2000 and 1999,
approximately 55% and 49%, 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, 2000 and 1999, approximately 44%
and 48%, respectively, and for the nine months ended April 30, 2000 and 1999,
approximately 44% and 50%, 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, 2000 and 1999,
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 sixteen
salvage vehicle auction facilities and established eight new facilities since
the beginning of fiscal 1998. 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.
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 2000, Copart acquired facilities in or near Chesapeake, Virginia;
Peoria, Illinois; North Boston, Massachusetts; Boise, Idaho; Pasco, Washington
and Abilene, Texas and opened new facilities in Graham, Washington; Denver,
Colorado and West Palm Beach, Florida. In 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. 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. *
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
REVENUES
Revenues were approximately $53.8 million during the three months ended
April 30, 2000, an increase of approximately $13.8 million, or 35%, over the
three months ended April 30, 1999. The change in revenues is driven primarily by
the increase in gross proceeds generated from auctioned salvage vehicles. Gross
proceeds were approximately $241.2 million during the three months ended April
30, 2000, an increase of approximately $57.6 million, or 31%, over the three
months ended April 30, 1999. The increase in gross proceeds resulted in a $10.4
million increase in salvage fees plus a $1.1 million increase in transportation
revenue. In addition, purchase vehicle revenues increased by $2.3 million
compared to the prior year due to increased gross proceeds from vehicles sold
under the Purchase Program.
8
<PAGE>
New facilities in McAllen, Huntsville, Wichita, Chesapeake, Graham,
Denver, Peoria, North Boston, Boise, Pasco, and Abilene contributed $2.9 million
of new salvage fee and transportation revenues for the three months ended April
30, 2000. Existing yard salvage fee and transportation revenues increased by
$8.6 million, or 22%, and existing yard purchased vehicle revenues increased by
$2.1 million, compared to the same period in the prior year.
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $33.8 million during the
three months ended April 30, 2000, an increase of approximately $9.2 million, or
37%, over the comparable period in fiscal 1999. The increase in yard and fleet
expenses is due principally to the cost of handling increased volume at existing
operations and the costs of new facilities. Approximately $3.0 million of yard
and fleet expenses were attributable to new facilities in McAllen, Huntsville,
Wichita, Chesapeake, Graham, Denver, Peoria, North Boston, Boise, Pasco, West
Palm Beach, and Abilene. Yard and fleet expenses from existing facilities grew
by approximately $6.2 million, or 25%, compared to existing-facility revenue
growth of 27%. Yard and fleet expenses increased to 63% of revenues during the
third quarter of fiscal 2000, as compared to 61% of revenues during the same
period of fiscal 1999.
General and administrative expenses were approximately $4.0 million
during the three months ended April 30, 2000, an increase of approximately $.8
million, or 26%, over the comparable period in fiscal 1999. This increase is due
primarily to increased payroll and other operating expenses. General and
administrative expenses decreased to 7% of revenues during the third quarter of
fiscal 2000 as compared to 8% of revenues in the same period of fiscal 1999.
Depreciation and amortization expense was approximately $2.9 million
during the three months ended April 30, 2000, an increase of approximately $0.4
million, or 16%, over the comparable period in fiscal 1999. This increase was
primarily due to the amortization and depreciation of tangible and intangible
assets acquired in fiscal 1999 and 2000.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $13.1 million during the three
months ended April 30, 2000, an increase of approximately $3.3 million, or 34%
over the comparable period in fiscal 1999. Existing facilities produced $3.4
million of the increase due to the changes in revenues and expenses as discussed
above. New facilities in McAllen, Huntsville, Wichita, Chesapeake, Graham,
Denver, Peoria, North Boston, Boise, Pasco, West Palm Beach, and Abilene lost
$0.1 million.
Total other income was approximately $0.4 million during the three
months ended April 30, 2000, an increase of approximately $0.1 million, over the
three months ended April 30, 1999.
The Company's effective income tax rate of 38.5% applicable to the
three months ended April 30, 2000 is comparable to the effective income tax rate
for the three months ended April 30, 1999 of 38%.
Due to the foregoing factors, Copart realized net income of
approximately $8.3 million for the three months ended April 30, 2000, compared
to net income of approximately $6.3 million for the three months ended April 30,
1999.
9
<PAGE>
NINE MONTHS ENDED APRIL 30, 2000 COMPARED TO NINE MONTHS ENDED APRIL 30, 1999
REVENUES
Revenues were approximately $138.7 million during the nine months ended
April 30, 2000, an increase of approximately $36.5 million, or 36%, over the
nine months ended April 30, 1999. The change in revenues is driven primarily by
the increase in gross proceeds generated from auctioned salvage vehicles. Gross
proceeds were approximately $615.1 million during the nine months ended April
30, 2000, an increase of approximately $148.2 million, or 32%, over the nine
months ended April 30, 1999. The increase in gross proceeds resulted in a $28.3
million increase in salvage fees plus a $2.7 million increase in transportation
revenue. In addition, purchase vehicle revenues increased by $5.5 million
compared to the prior year due to increased gross proceeds from vehicles sold
under the Purchase Program.
New facilities in McAllen, Huntsville, Wichita, Chesapeake, Graham,
Denver, Peoria, North Boston, Boise, Pasco, and Abilene contributed $4.7 million
of new salvage fee and transportation revenues for the nine months ended April
30, 2000. Existing yard salvage fee and transportation revenues increased by
$26.3 million, or 27%, and existing yard purchased vehicle revenues increased by
$5.3 million, compared to the same period in the prior year.
OPERATING COSTS AND EXPENSES
Yard and fleet expenses were approximately $85.8 million during the
nine months ended April 30, 2000, an increase of approximately $23.5 million, or
38%, over the comparable period in fiscal 1999. The increase in yard and fleet
expenses is due primarily to the cost of handling increased volume at existing
operations and the costs of new facilities. Approximately $5.0 million of yard
and fleet expenses were attributable to new facilities in McAllen, Huntsville,
Wichita, Chesapeake, Graham, Denver, Peoria, North Boston, Boise, Pasco, West
Palm Beach, and Abilene. Yard and fleet expenses increased to 62% of revenues
during the first nine months of fiscal 2000, as compared to 61% of revenues
during the first nine months of fiscal 1999.
General and administrative expenses were approximately $11.3 million
during the nine months ended April 30, 2000, an increase of approximately $2.1
million, or 23%, over the comparable period in fiscal 1999. This increase is due
primarily to increased payroll and other operating expenses. General and
administrative expenses decreased to 8% of revenues during the first nine months
of fiscal 2000, as compared to 9% of revenues during the first nine months of
fiscal 1999.
Depreciation and amortization expense was approximately $8.4 million
during the nine months ended April 30, 2000, an increase of approximately $1.2
million, or 16%, over the comparable period in fiscal 1999. This increase was
primarily due to the amortization and depreciation of tangible and intangible
assets acquired in fiscal 1999 and 2000.
OPERATING INCOME, OTHER INCOME AND INCOME TAXES
The Company's operating income was $33.2 million during the nine months
ended April 30, 2000, an increase of approximately $9.7 million or 41% over the
comparable period in fiscal 1999. Existing facilities produced $10.5 million of
the increase due to changes in revenues and expenses as discussed above. New
facilities in McAllen, Huntsville, Wichita, Chesapeake, Graham, Denver, Peoria,
North Boston, Boise, Pasco, West Palm Beach, and Abilene lost $.8 million.
Total other income was approximately $1.4 million during the nine
months ended April 30, 2000, an increase of approximately $0.1 million over the
nine months ended April 30, 1999.
10
<PAGE>
The effective income tax rate of 38.5% applicable to the nine months
ended April 30, 2000 is comparable to the effective income tax rate for the nine
months ended April 30, 1999 of 38%.
Due to the foregoing factors, Copart realized net income of
approximately $21.3 million for the nine months ended April 30, 2000, compared
to net income of approximately $15.3 million for the nine months ended April 30,
1999.
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.
At April 30, 2000, Copart had working capital of approximately $56.2
million, including cash and cash equivalents of approximately $20.6 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 $22.5 million
and $23.3 million, during the nine months ended April 30, 2000 and 1999,
respectively.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $27.0 million and $14.5 million
for the nine months ended April 30, 2000, and 1999, respectively. Copart's
capital expenditures have related primarily to opening and improving facilities
and acquiring yard equipment.
Cash and cash equivalents decreased by approximately $16.5 million for
the nine months ended April 30, 2000. The decrease is due primarily to
acquisitions, additions to property and equipment, increases in accounts
receivable, and other working capital changes. The Company's liquidity and
capital resources have not been materially affected by inflation and are not
subject to significant seasonal fluctuations.
The Company believes that its currently available cash, cash generated
from operations and borrowing availability under its bank credit facilities and
equipment leasing lines will be sufficient to satisfy the Company's working
capital requirements and fund acquisitions and openings of new facilities for at
least 12 months. However, there can be no assurance that the Company will not be
required to seek additional debt or equity financing prior to such time, or if
new financing is required, that it will be available on reasonable terms if at
all.
YEAR 2000 COMPLIANCE
To date, the Company has experienced no disruptions in the operations
of its internal information systems or in the availability of its facilities
during its transition to the year 2000. The Company is not aware that any of its
vendors experienced any significant disruptions during their transition to the
year 2000. The Company will continue to monitor its systems in the transition to
year 2000 and will act promptly to resolve any problems that occur. If the
Company or any third parties with which it has business relationships experience
problems related to the year 2000 transition that have not yet been discovered,
it could have a material adverse impact on the Company.
11
<PAGE>
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
2000 and 1999, vehicles supplied by Copart's largest vehicle supplier accounted
for approximately 15% and 14%, of Copart's revenues, respectively. The Company's
agreements with these and other vehicle suppliers are either oral or written
agreements that typically are subject to cancellation by either party upon 30
days notice. There can be no assurance that existing agreements will not be
canceled or that the terms of any new agreements will be comparable to those of
existing agreements. The Company believes that, as the salvage vehicle auction
industry becomes more consolidated, the likelihood of large vehicle suppliers
entering into agreements with single companies to dispose of all of their
salvage vehicles on a statewide, regional or national basis increases.* There
can be no assurance that the Company will be able to enter into such agreements
or that it will be able to retain its existing supply of salvage vehicles in the
event vehicle suppliers begin disposing of their salvage vehicles pursuant to
state, regional or national agreements with other operators of salvage vehicle
auction facilities. A loss or reduction in the number of vehicles from a
significant vehicle supplier or material changes in the terms of an arrangement
with a substantial vehicle supplier could have a material adverse effect on the
Company's financial condition and results of operations.
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future depending on a number of factors. These
factors include changes in the market value of salvage vehicles, buyer
attendance at salvage auctions, fluctuations in vehicle transportation costs,
delays or changes in state title processing and/or changes in state or federal
laws or regulations affecting salvage vehicles, fluctuations in Actual Cash
Values (ACV's) of salvage vehicles, the availability of vehicles and weather
conditions. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance. There can be no assurance,
therefore, that the Company's operating results in some future quarter will not
be below the expectations of public market analysts and/or investors.
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to various factors and events, including
variations in the Company's operating results, the inability to continue to
increase service fees, the timing and size of acquisitions and facility
openings, the loss of vehicle suppliers or buyers, the announcement of new
vehicle supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its vehicle suppliers,
environmental problems or litigation. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the operating performance of companies.
The Company seeks to increase sales and profitability primarily through
the increase of salvage vehicle volume and revenue at existing facilities, the
opening of new facilities and the acquisition of other salvage vehicle auction
facilities. There can be no assurance that the Company will be able to continue
to acquire additional facilities on terms economical to the Company or that the
Company will be able to increase revenues at newly acquired facilities above
levels realized at such facilities prior to their acquisition by the Company.
Additionally, as the Company continues to grow, its openings and acquisitions
will have to be more numerous or of a larger size in order to have a material
impact on the Company's operations. The ability of the Company to achieve its
expansion objectives and to manage its growth is also dependent on other
factors, including the integration of new facilities into existing operations,
the establishment of new relationships or expansion of existing relationships
with vehicle suppliers, the identification and lease of suitable premises on
competitive terms and the availability of capital. The size and timing of such
acquisitions and openings may vary. Management believes that facilities opened
by the Company require more time to reach revenue and profitability levels
comparable to its existing facilities and may have greater working capital
requirements than those facilities acquired by the Company. Therefore, to the
extent that the Company opens a greater number of facilities in the future than
it has historically, the Company's growth rate in revenues and profitability may
be adversely affected.
12
<PAGE>
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with two other existing shareholders, beneficially owns 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 or impossible, absent the
support of Mr. Johnson, and such other existing shareholders.
The Company's operations are subject to federal, state and local laws
and regulations regarding the protection of the environment. In the salvage
vehicle auction industry, large numbers of wrecked vehicles are stored at
auction facilities for short periods of time. Minor spills of gasoline, motor
oils and other fluids may occur from time to time at the Company's facilities
which may result in localized soil, surface water or groundwater contamination.
Petroleum products and other hazardous materials are contained in aboveground or
underground storage tanks located at certain of the Company's facilities. Waste
materials such as waste solvents or used oils are generated at some of the
Company's facilities that are disposed of as nonhazardous or hazardous wastes.
The Company has put into place procedures to reduce the amounts of soil
contamination that may occur at its facilities, and has initiated safety
programs and training of personnel on safe storage and handling of hazardous
materials. The Company believes that it is in compliance in all material
respects with applicable environmental regulations and does not anticipate any
material capital expenditures for environmental compliance or remediation that
are not currently reserved for.* Environmental laws and regulations, however,
could become more stringent over time and there can be no assurance that the
Company or its operations will not be subject to significant compliance costs in
the future. To date, the Company has not incurred expenditures for preventive or
remedial action with respect to soil contamination or the use of hazardous
materials which have had a material adverse effect on the Company's financial
condition or results of operations. The soil contamination which may occur at
the Company's facilities and the potential contamination by previous users of
certain acquired facilities create the risk, however, that the Company could
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. 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
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
13
<PAGE>
marketing resources than the Company. There can be no assurance that the Company
will be able to compete successfully in the future.
During December 1999, the Company announced that its Board of Directors
had approved the creation of a subsidiary for the possibility of operating and
expanding the Company's Internet businesses which provide quotes of salvage
vehicle values (Copart ProQuote) and locate used automobile parts
(CoPartfinder). The Company has initiated the process of seeking a private
letter ruling from the Internal Revenue Service (IRS) as to whether it can
distribute shares of the subsidiary to its shareholders as a tax-free dividend.
IRS approval may take from four to nine months and there can be no assurance
that such approval will be received or will be issued on terms acceptable to the
Company. The proposed transaction will be subject to receiving IRS approval and
the business operating and market conditions at the actual time of the spin-off.
The Company is also considering obtaining separate funding and other strategic
alternatives.
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 8, 2000
15
