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SECURITIES AND EXCHANGE COMMISSION
-------------------
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, 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 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, 2000 was $445,811,000 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, 2000, registrant had outstanding 54,555,094 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 5, 2000 (the "Proxy Statement").
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TABLE OF CONTENTS
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PAGE
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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 14
Management Information System 14
Employees 14
Factors Affecting Future Results 15
Executive Officers of the Registrant 17
ITEM 2 - Properties 18
ITEM 3 - Legal Proceedings 18
ITEM 4 - Submission of Matters to a Vote of Security Holders 18
PART II
ITEM 5 - Market Registrant's Common Equity and Related
Stockholder Matters 18
ITEM 6 - Selected Financial Data 19
ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
ITEM 7A - Quantitative and Qualitative Disclosures About
Market Risk 26
ITEM 8 - Financial Statements and Supplementary Data 26
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 26
ITEM 11 - Executive Compensation 26
ITEM 12 - Security Ownership of Certain Beneficial Owners
and Management 26
ITEM 13 - Certain Relationships and Related Transactions 26
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 27
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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 the fiscal year ending July 31, 2000, Copart has acquired eight
additional salvage vehicle auction facilities and opened three new facilities.
Acquisitions include facilities in or near Chesapeake, Virginia; Peoria,
Illinois; North Boston, Massachusetts; Boise, Idaho; Pasco, Washington; Abilene,
Texas; San Antonio, Texas and Albuquerque, New Mexico. New salvage vehicle
auction sites have been opened in or near Graham, Washington; Denver, Colorado
and West Palm Beach, Florida.
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 2000, approximately 87%
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.
--------
* 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 more detailed discussion of factors that could affect future performance.
3
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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.
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 vehicles
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 appropriate Department of
Motor Vehicles (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.
4
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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
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 incentive 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:
--------
* 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 more detailed discussion of factors that could affect future performance.
5
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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 2000, approximately 55% 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 44% of all salvage vehicles processed by Copart in fiscal
2000 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 2000 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.
6
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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. 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 States 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. In fiscal 2000, the Company entered into an agreement with
Keystone Automotive Industries, Inc. to market and accept orders for Keystone
parts through its Copart.com web site. 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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MULTIPLE LOCATIONS. The Company had a total of 76 facilities in 36 states at
July 31, 2000. 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 76 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, Tennessee, Virginia,
Colorado, Idaho and New Mexico.
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 2000, the Company acquired eight
new facilities in or near Chesapeake, Virginia; Peoria, Illinois; North Boston,
Massachusetts; Boise, Idaho; Pasco, Washington; Abilene, Texas; San Antonio,
Texas and Albuquerque, New Mexico and opened three new facilities in or near
Graham, Washington; Denver, Colorado and West Palm Beach, Florida. 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. 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. 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.
--------
* 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 more detailed discussion of factors that could affect future performance.
8
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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.
--------
* 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 more detailed discussion of factors that could affect future performance.
9
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The following chart sets forth facilities acquired or opened by Copart
since the beginning of fiscal 1998, through July 31, 2000.
<TABLE>
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ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
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Avon, Minnesota November 1997 Northern Minnesota, Eastern North and
South Dakota
Raleigh, North Carolina March 1998 Eastern North Carolina, Virginia
Columbia, South Carolina April 1998 South Carolina, Eastern Georgia
Las Vegas, Nevada May 1998 Southern Nevada, Northwest Arizona
Orlando, Florida June 1998 Central Florida
Mobile, Alabama May 1998 Alabama, Southeast Mississippi, Florida
Panhandle
San Diego, California May 1998 San Diego, California
Des Moines, Iowa June 1998 Iowa, Eastern Nebraska
Detroit, Michigan July 1998 Michigan, Northern Ohio
Nashville, Tennessee February 1999 Tennessee
Austin/San Antonio, Texas February 1999 Central Texas
McAllen, Texas June 1999 South Texas
Huntsville, Alabama June 1999 Northern Alabama
Wichita, Kansas July 1999 Kansas
Chesapeake, Virginia November 1999 Virginia
Graham, Washington November 1999 Washington
Denver, Colorado November 1999 Colorado
Peoria, Illinois December 1999 Central Illinois
North Boston, Massachusetts December 1999 Northern Massachusetts, Vermont, New
Hampshire, Maine
Boise, Idaho March 2000 Southern Idaho
Pasco, Washington March 2000 Eastern Washington
West Palm Beach, Florida April 2000 South and East Florida
Abilene, Texas April 2000 North Texas
San Antonio, Texas May 2000 Central Texas
Albuquerque, New Mexico May 2000 New Mexico
</TABLE>
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
2000, vehicles supplied by its two largest suppliers accounted for approximately
15% and 12% of the Company's revenues. The Company's agreements with these 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
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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 also "Factors Affecting Future Results" below.
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 2% of
the Company's gross proceeds in fiscal 2000.
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
--------
* 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 more detailed discussion of factors that could affect future performance.
11
<PAGE>
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 marketing resources than the Company.
There can be no assurance that the Company will be able to compete successfully
in the future.
See also "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 (the "Environmental Fund") 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
--------
* 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 more detailed discussion of factors that could affect future performance.
12
<PAGE>
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 and close its file regarding this facility. The entire
balance of the Environmental Fund was to be distributed in March 2001, under the
terms of the Consulting agreement with the seller of the Dallas facility. In
August 2000, however, representatives of the estate of the seller of the Dallas
facility and Copart agreed upon distribution of the balance of the Environmental
Fund, less $200,000. The funds released totaled $2,021,808. The environmental
consultant working with the TNRCC on behalf of the Company and the estate of the
seller of the Dallas facility estimated that total costs to obtain a no further
action letter would not exceed $30,000. The $200,000 will be used to pay
additional costs incurred to obtain the no further action letter from the TNRCC.
Any part of the $200,000 remaining after receipt of a no further action letter
shall be paid to the estate of the seller of the Dallas facility. 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.
In 1991, 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 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.
13
<PAGE>
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.
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 2000,
the Company continued to enhance its various internet based applications as well
as adding the capability to accept orders for Keystone Automotive Industries
aftermarket replacement parts at the Company's Copart.com web site. 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. All locations
operate on the Company's proprietary operating system, Copart Auction System
("CAS"), which was developed in 1997. 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, 2000, the Company had approximately 1,803 full-time
employees, of whom approximately 172 were engaged in general and administrative
functions and approximately 1,631 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.
--------
* 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 more detailed discussion of factors that could affect future performance.
14
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for a
substantial portion of the Company's revenues. In fiscal 2000, vehicles supplied
by Copart's two largest suppliers accounted for approximately 15% and 12% 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. 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.
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
--------
* 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 more detailed discussion of factors that could affect future performance.
15
<PAGE>
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
36% 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.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31,
2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ---------
<S> <C> <C>
Willis J. Johnson 53 Chief Executive Officer and Director
A. Jayson Adair 31 President and Director
James E. Meeks 51 Executive Vice President and Chief Operating Officer
Wayne R. Hilty 44 Senior Vice President and Chief Financial Officer
Paul A. Styer 44 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 28 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 33 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.
17
<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 76
facilities consisting of 2,082 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, Tennessee, Virginia, Colorado,
Idaho, and New Mexico. 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, 2000, there were 54,553,094 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, 2000, the Company had 558 shareholders of record.
<TABLE>
<CAPTION>
2000 HIGH LOW
---- ---- ------
<S> <C> <C>
First Quarter 12.75 6.94
Second Quarter 25.88 9.91
Third Quarter 23.75 15.00
Fourth Quarter 20.00 12.38
1999 HIGH LOW
---- ---- ------
First Quarter 6.28 4.09
Second Quarter 8.25 5.50
Third Quarter 12.44 7.75
Fourth Quarter 13.75 7.63
</TABLE>
The Company has not paid a cash dividend since 1984 and does not
anticipate paying any cash dividends in the foreseeable future.
18
<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, 2000 and 1999 and
for each of the years in the three-year period ended July 31, 2000. The selected
operating data for the years ended July 31, 1997 and 1996 and the balance sheet
data as of July 31, 1998, 1997 and 1996 are derived from audited consolidated
financial statements not included herein:
<TABLE>
<CAPTION>
(in 000's except per share and other data)
SELECTED OPERATING DATA 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $190,042 $141,751 $114,206 $126,276 $118,248
Operating income 46,216 33,386 23,508 18,853 17,802
Income before income taxes 47,974 35,123 24,945 19,475 18,190
Net income 29,429 21,966 15,216 11,993 11,185
Basic per share amounts:
Net income 0.55 0.41 0.29 0.23 0.22
Weighted average shares 55,901 53,375 52,725 51,496 49,732
Diluted per share amounts:
Net income 0.53 0.40 0.28 0.23 0.21
Weighted average shares 55,807 53,138 53,798 53,026 52,864
BALANCE SHEET DATA
Cash and short-term investments $ 12,165 $ 37,048 $ 28,796 $ 27,685 $ 13,026
Working capital 54,042 64,647 54,829 48,930 40,586
Total assets 262,324 218,677 190,942 175,340 158,066
Total debt 8,555 7,820 8,425 9,753 11,260
Shareholders' equity 219,890 183,982 160,183 142,814 126,245
OTHER DATA
Gross proceeds (000's) $844,899 $641,472 $534,818 $537,657 $506,916
Number of auction facilities 76 65 60 53 49
</TABLE>
19
<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, 2000, 1999 and 1998, approximately 55%,
50% and 46% 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
2000 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, 2000, 1999 and 1998, approximately 44%,
49% and 53% 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 each of the fiscal years ended July 31, 2000, 1999 and 1998,
approximately 1% of the vehicles sold by Copart, 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 seventeen 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.
20
<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
2000, Copart acquired facilities in or near Chesapeake, Virginia; Peoria,
Illinois; North Boston, Massachusetts; Boise, Idaho; Pasco, Washington; Abilene,
Texas; San Antonio, Texas and Albuquerque, New Mexico 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.*
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,
------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Yard and fleet 61.4 61.0 62.6
General and administrative 8.2 8.5 9.9
Depreciation and amortization 6.0 6.9 6.9
------ ------ ------
Total operating expenses 75.6 76.4 79.4
------ ------ ------
Operating income 24.4 23.6 20.6
Other income, net 0.9 1.2 1.3
------ ------ ------
Income before income taxes 25.3 24.8 21.9
Income taxes 9.8 9.3 8.5
------ ------ ------
Net income 15.5% 15.5% 13.4%
====== ====== ======
</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 more detailed discussion of factors that could affect future performance.
21
<PAGE>
FISCAL 2000 COMPARED TO FISCAL 1999
Revenues were approximately $190.0 million during fiscal 2000, an increase
of approximately $48.2 million, or 34.1%, over fiscal 1999. The change in
revenues is driven primarily by the increase in gross proceeds generated from
auctioned salvage vehicles. Gross proceeds were approximately $844.9 million
during fiscal 2000, an increase of approximately $203.4 million, or 32%, over
fiscal 1999. The increase in gross proceeds resulted in a $39.4 million increase
in salvage fees plus a $4.3 million increase in transportation revenue and a
$4.5 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 $8.1 million of new salvage fees and
transportation revenues during fiscal 2000. Existing yard salvage fees and
transportation revenues increased by $35.7 million, or 26.2%, during fiscal
2000, as compared to an increase of 16.0% during fiscal 1999.
Yard and fleet expenses were approximately $116.7 million during fiscal
2000, an increase of approximately $30.2 million, or 34.9%, over 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 $7.9 million of the change was the result of the
acquisition and opening of new facilities. Yard and fleet expenses from existing
facilities grew by approximately $22.3 million or 26%, compared to existing
facility revenue growth of 28%. The increase in yard and fleet expenses is
nearly parallel to the growth in revenues. Yard and fleet expense remained
unchanged at 61% of revenues during fiscal 2000.
General and administrative expenses were approximately $15.6 million during
fiscal 2000, an increase of approximately $3.6 million, or 29.8%, over fiscal
1999, due primarily to increased personnel expense. General and administrative
expenses decreased to 8.2% of revenues during fiscal 2000, as compared to 8.5%
of revenues during fiscal 1999 due to costs being spread over a greater revenue
base.
Depreciation and amortization expense was approximately $11.5 million
during fiscal 2000, an increase of approximately $1.7 million, or 16.8%, over
fiscal 1999. 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 $549,800 during fiscal 2000, a decrease
of $34,200 over fiscal 1999.
The effective income tax rate of 39% applicable to fiscal 2000 is higher
than the fiscal 1999 effective income tax rate of 37%, due to overaccruals
relating to fiscal 1998 and tax exempt interest income in fiscal 1999.
Due to the foregoing factors, Copart realized net income of $29.4 million
for fiscal 2000, compared to net income of $22.0 million for fiscal 1999.
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 driven primarily by the increase in gross proceeds generated from
auctioned salvage vehicles. Gross proceeds were approximately $641.5 million
during fiscal 1999, an increase of approximately $106.7 million, or 20%, over
fiscal 1998. The increase in gross proceeds resulted in 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.
22
<PAGE>
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.
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 $7.8 million of the change was the result of the
acquisition and opening of new facilities. Yard and fleet expenses from existing
facilities grew by approximately $79.4 million or 11%, compared to existing
facility revenue growth of 16%. 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 overaccruals
relating to 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.
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, 2000, Copart had working capital of approximately $54.0
million, including cash and cash equivalents of approximately $12.2 million. The
Company is able to process, market, sell and receive payment for processed
vehicles quickly. Therefore, the Company does not need to finance 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 $40 million, which matures in February 2002. The amount available
under the facility reduces by $10 million in February 2001, leaving the
principal balance available of $30 million until February 28, 2002, when 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, 2000,
there were no outstanding borrowings under this facility. The
23
<PAGE>
Company is subject to customary covenants, including restrictions on payment of
dividends, with which it is in compliance.
The Company has agreements with certain financial institutions whereby the
institutions will purchase approximately $10.4 million of yard and fleet
equipment as of July 31, 2000, which will be leased back to the Company under
operating leases.
Net cash provided by operating activities decreased $4.5 million to $26.2
million in fiscal 2000, down from $30.7 million in fiscal 1999, resulting
primarily from an increase in accounts receivable and pooling costs, offset by
the increase in net income.
During the fiscal year ended July 31, 2000, Copart used cash for the
acquisition of operations in Chesapeake, Peoria, North Boston, Boise, Pasco,
Abilene, San Antonio and Albuquerque, which had an aggregate cash cost of
approximately $20.4 million. During the fiscal year ended July 31, 1999, Copart
used cash for the acquisition of operations in McAllen, Huntsville and Wichita,
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
operations in Avon, Columbia, Mobile, San Diego, Des Moines and Detroit, which
had an aggregate cash cost of approximately $9.8 million.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $34.8 million, $20.2 million
and $11.4 million for fiscal 2000, 1999 and 1998, respectively. Copart's capital
expenditures have related primarily to improving, expanding and starting new
facilities, acquiring yard and computer equipment and software. The Company has
entered into agreements to acquire approximately $1.8 million of additional
multi-vehicle transport trucks and forklifts and is disposing of certain older
equipment.
In fiscal 2000, 1999 and 1998, the Company generated approximately $2.1,
$0.8 and $0.8 million through the exercise of stock options and warrants,
respectively. During fiscal 1999, the Company sold approximately $13.1 million
of short-term investments.
Cash and cash equivalents decreased by approximately $24.9 million in
fiscal 2000 and increased by approximately $21.3 million in fiscal 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 the Bank Credit Facility and
existing equipment operating lease agreements will be sufficient to satisfy the
Company's working capital requirements 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.
--------
* 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 more detailed discussion of factors that could affect future performance.
24
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"("SFAS No.
133") (as amended by SFAS Nos. 137 and 138). SFAS No. 133 is required to be
adopted for all fiscal quarters and fiscal years beginning after June 15, 2000
and relates to accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Based on the Company's
current limited use of derivative instruments, Copart anticipates that adoption
of SFAS No. 133 will not have a material effect on its results of operations or
its financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 is to be adopted for fiscal years beginning after December
15, 1999, which for the Company would be fiscal year 2001. SAB 101 addresses
various topics in revenue recognition. The Company is currently analyzing SAB
101, however based on management's current understanding and interpretation, SAB
101 is not expected to have a material impact on the Company's consolidated
financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation - An Interpretation of Accounting Principles Board Opinion
("APB") No. 25". FIN 44 clarifies the application of APB 25 and is effective
July 1, 2000. The Company believes that its current accounting policies are in
conformity with this interpretation, and does not believe that FIN 44 will have
a material effect on the Company's consolidated financial statements.
25
<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 5, 2000 (the "Proxy Statement") under the heading "Election
of Directors."
Information regarding executive officers is included in Item I, 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."
26
<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........................................................... 31
Consolidated Balance Sheets at July 31,
2000 and 1999........................................................................ 32
Consolidated Statements of Income for the
three years ended July 31, 2000...................................................... 33
Consolidated Statements of Shareholders'
Equity for the three years ended
July 31, 2000........................................................................ 34
Consolidated Statements of Cash Flows for the
three years ended July 31, 2000...................................................... 35
Notes to Consolidated Financial Statements............................................. 36
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
3.1b Certificate of Amendment of Articles of Incorporation
***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 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
****10.9 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,
27
<PAGE>
Richard A. Polidori, Gordon VanValkenberg, and Stephen Powers
*****10.10 Contract of Sale by and between the Stroh Companies, Inc. as Seller and Copart, Inc.
as Purchaser, dated April 4, 1996
******10.11 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 29 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).
** Incorporated by reference from identically numbered exhibit filed on
Form 8-K with the Securities and Exchange Commission on October 30,
1999.
+ 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.
28
<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, 2000 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.
29
<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, 2000
---------------------------- (Principal Executive Officer,
Willis J. Johnson and Director)
/S/ Wayne R. Hilty Senior Vice President and October 18, 2000
---------------------------- Chief Financial Officer
Wayne R. Hilty (Principal Financial and
Accounting Officer)
/S/ A. Jayson Adair President October 18, 2000
---------------------------- and Director
A. Jayson Adair
/S/ James E. Meeks Executive Vice President, October 18, 2000
---------------------------- Chief Operating Officer and Director
James E. Meeks
/S/ James Grosfeld Director October 18, 2000
----------------------------
James Grosfeld
/S/ Marvin L. Schmidt Director October 18, 2000
----------------------------
Marvin L. Schmidt
/S/ Jonathan Vannini Director October 18 2000
----------------------------
Jonathan Vannini
/S/ Harold Blumenstein Director October 18 2000
----------------------------
Harold Blumenstein
</TABLE>
30
<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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. 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 15, 2000
31
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, July 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,164,900 $ 37,047,800
Accounts receivable, net 52,509,600 37,531,300
Vehicle pooling costs 15,271,300 10,471,500
Deferred income taxes 1,708,200 988,800
Income tax receivable 3,317,200 -
Prepaid expenses and other assets 6,443,300 3,255,800
------------- -------------
Total current assets 91,414,500 89,295,200
Property and equipment, net 80,514,200 51,599,400
Intangibles and other assets, net 90,395,600 77,782,500
------------- -------------
Total assets $ 262,324,300 $ 218,677,100
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,842,300 $ 260,100
Accounts payable and accrued liabilities 19,984,500 16,586,900
Deferred revenue 7,688,100 5,864,600
Income taxes payable - 493,400
Other current liabilities 1,857,300 1,443,700
------------- -------------
Total current liabilities 37,372,200 24,648,700
Deferred income taxes 2,834,300 802,100
Long-term debt, less current portion 712,200 7,560,000
Other liabilities 1,515,200 1,683,900
------------- -------------
Total liabilities 42,433,900 34,694,700
------------- -------------
Shareholders' equity:
Common stock, no par value - 120,000,000 shares authorized;
54,553,094 and 53,690,230 shares issued and outstanding at
July 31, 2000 and 1999, respectively 121,515,000 115,036,100
Retained earnings 98,375,400 68,946,300
------------- -------------
Total shareholders' equity 219,890,400 183,982,400
------------- -------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 262,324,300 $ 218,677,100
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------------------------
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Salvage fees $ 158,359,400 $ 118,928,800 $ 94,471,600
Transportation revenue 21,627,200 17,291,100 14,327,700
Purchased vehicle revenue 10,055,700 5,531,500 5,406,700
------------- ------------- ------------
Total revenues 190,042,300 141,751,400 114,206,000
------------- ------------- ------------
Operating costs and expenses:
Yard and fleet 116,697,300 86,480,400 71,546,900
General and administrative 15,649,800 12,058,600 11,306,600
Depreciation and amortization 11,479,000 9,826,400 7,844,900
------------- ------------- ------------
Total operating expenses 143,826,100 108,365,400 90,698,400
------------- ------------- ------------
Operating income 46,216,200 33,386,000 23,507,600
------------- ------------- ------------
Other income (expense):
Interest expense (549,800) (584,000) (650,600)
Interest income 1,640,600 1,644,800 1,747,100
Other income 667,000 675,900 340,500
------------- ------------- ------------
Total other income 1,757,800 1,736,700 1,437,000
------------- ------------- ------------
Income before income taxes 47,974,000 35,122,700 24,944,600
Income taxes 18,544,900 13,156,400 9,728,400
------------- ------------- ------------
Net income $ 29,429,100 $ 21,966,300 $ 15,216,200
============= ============= ============
Basic net income per share $ .55 $ .41 $ .29
============= ============= ============
Weighted average shares
Outstanding 53,900,800 53,375,200 52,725,200
============= ============= ============
Diluted net income per share $ .53 $ .40 $ .28
============= ============= ============
Weighted average shares and dilutive
Potential common shares outstanding 55,806,500 55,138,000 53,798,800
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
33
<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, 1997 52,284,444 $ 111,050,600 $ 31,763,800 $ 142,814,400
Exercise of stock options and
related tax benefit 605,832 1,579,100 - 1,579,100
Exercise of warrants and
related tax benefit 128,892 223,600 - 223,600
Shares issued for Employee
Stock Purchase Plan 81,072 349,300 - 349,300
Net Income - - 15,216,200 15,216,200
------------ ------------- ------------ -------------
BALANCES AT JULY 31, 1998 53,100,240 113,202,600 46,980,000 160,182,600
Exercise of stock options and
related tax benefit 503,400 1,290,600 - 1,290,600
Shares issued for Employee
Stock Purchase Plan 86,590 542,900 - 542,900
Net Income - - 21,966,300 21,966,300
------------ ------------- ------------ -------------
BALANCES AT JULY 31, 1999 53,690,230 115,036,100 68,946,300 183,982,400
Exercise of stock options and
related tax benefit 789,338 5,657,300 - 5,657,300
Shares issued for Employee
Stock Purchase Plan 73,526 821,600 - 821,600
Net Income - - 29,429,100 29,429,100
------------ ------------- ------------ -------------
BALANCES AT JULY 31, 2000 54,553,094 $ 121,515,000 $ 98,375,400 $ 219,890,400
============ ============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,429,100 $ 21,966,300 $ 15,216,200
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11,479,000 9,826,400 7,844,900
Deferred rent (168,700) 10,200 299,700
Deferred income taxes 1,312,800 (693,800) (124,400)
(Gain) loss on sale of property and equipment 11,700 (168,200) 100,600
Changes in operating assets and liabilities:
Accounts receivable (13,926,900) (4,554,900) (349,800)
Vehicle pooling costs (3,878,700) (901,000) 506,700
Prepaid expenses and other current assets (3,449,100) (44,300) (217,700)
Accounts payable and accrued liabilities 3,811,200 4,095,000 (941,300)
Deferred revenue 1,823,500 261,800 (450,100)
Income taxes (248,700) 951,400 894,000
------------ ------------ ------------
Net cash provided by operating activities 26,195,200 30,748,900 22,778,800
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (34,786,800) (20,156,200) (11,375,700)
Proceeds from sale of property and equipment 483,300 336,500 425,600
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)
Purchase of net current assets in connection with acquisitions (1,972,500) (395,700) (1,379,900)
Purchase of property and equipment in connection
with acquisitions (2,235,600) (153,900) (761,100)
Purchase of intangible assets in connection
with acquisitions (16,217,900) (2,494,300) (7,679,500)
Deferred preopening costs - (375,700) (604,200)
------------ ------------ ------------
Net cash used in investing activities (54,729,500) (10,204,800) (34,577,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants 2,095,400 832,600 825,500
Proceeds from issuance of
Employee Stock Purchase Plan shares 821,600 542,900 349,300
Proceeds from issuance of notes payable 994,500 - 558,000
Principal payments on notes payable (260,100) (605,300) (1,885,600)
------------ ------------ ------------
Net cash provided by (used in) financing activities 3,651,400 770,200 (152,800)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (24,882,900) 21,314,300 (11,951,000)
Cash and cash equivalents at beginning of period 37,047,800 15,733,500 27,684,500
------------ ------------ ------------
Cash and cash equivalents at end of period $ 12,164,900 $ 37,047,800 $ 15,733,500
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 549,800 $ 584,000 $ 650,600
============ ============ ============
Income taxes paid $ 17,480,800 $ 12,618,000 $ 8,823,100
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000, 1999 AND 1998
(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.
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 generally recorded at the date the vehicles are sold at
auction.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
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.
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.
36
<PAGE>
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 the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," which 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.
COMPREHENSIVE INCOME
The Company has no items of other comprehensive income in any period
presented. Therefore, net income as presented in the Consolidated Statements of
Income equals comprehensive income.
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.
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.
37
<PAGE>
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.
(2) ACQUISITIONS
FISCAL 2000 TRANSACTIONS
During fiscal 2000 the Company made the following acquisitions: Buchanan
Auto & Auction, of Chesapeake, Virginia; Pekin Auto Storage Pool, Ltd. of
Peoria, Illinois; Ronnie's Auto Auction, Inc., of North Boston, Massachusetts;
Idaho Insurance Auto Pools, Inc., of Boise, Idaho; DAA's Northwest Salvage
Auction, of Pasco, Washington; Brokaw's of Abilene, Texas; Texas Alamo Salvage
Pool, Inc., of San Antonio, Texas and New Mexico Salvage Pool, of Albuquerque,
New Mexico. The consideration paid for these acquisitions consisted of
$20,426,000 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. These new facilities contributed
$6.4 million of revenues during fiscal 2000. The excess of the purchase price
over fair market value of the net identifiable assets acquired of $11,751,900
has been recorded as goodwill and is being amortized on a straight-line basis
over 40 years. In addition, the Company paid $4,466,000 for covenants not to
compete relating to these acquisitions, which are being amortized over the life
of these agreements. In conjunction with the Chesapeake, Virginia; Peoria,
Illinois; North Boston, Massachusetts; Boise, Idaho; Pasco, Washington and
Albuquerque, New Mexico acquisitions, the Company entered into leases for the
use of these facilities.
FISCAL 1999 TRANSACTIONS
During fiscal 1999 the Company made 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. These new facilities contributed $0.1 million of revenues during fiscal
1999.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 made 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
38
<PAGE>
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. These new
facilities contributed $1.9 million of revenues during fiscal 1998. 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.
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Advance charges receivable $ 33,408,900 $ 24,160,400
Trade accounts receivable 16,143,700 13,311,800
Other receivables 4,520,500 559,100
------------ ------------
54,073,100 38,031,300
Less allowance for doubtful accounts 1,563,500 500,000
------------ ------------
$ 52,509,600 $ 37,531,300
============ ============
</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,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Transportation and other equipment $ 11,414,900 $ 9,684,000
Office furniture and equipment 19,107,900 13,469,700
Land, buildings and leasehold improvements 75,606,400 47,402,900
------------ ------------
106,129,200 70,556,600
Less accumulated depreciation and amortization 25,615,000 18,957,200
------------ ------------
$ 80,514,200 $ 51,599,400
============ ============
</TABLE>
Included in property and equipment as of July 31, 2000 and 1999, are
$1,231,800 and $1,195,100, respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $109,500 and $375,900 as
of July 31, 2000 and 1999, respectively.
39
<PAGE>
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Covenants not to compete $ 12,033,500 $ 7,567,500
Goodwill 91,982,600 80,230,700
Options to purchase leased property 3,455,000 3,455,000
Other 284,000 284,000
------------ ------------
107,755,100 91,537,200
Less accumulated amortization 17,359,500 13,754,700
------------ ------------
$ 90,395,600 $ 77,782,500
============ ============
</TABLE>
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Trade accounts payable $ 1,522,000 $ 1,351,900
Accounts payable to insurance companies 12,814,400 11,910,700
Accrued payroll 2,894,800 2,254,900
Other accrued liabilities 2,753,300 1,069,400
------------ ------------
$ 19,984,500 $ 16,586,900
============ ============
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
2000 1999
------------ ------------
<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 $24,000 through
October 2003, bearing interest from
6.6 % to 6.9% 1,054,500 274,700
Unsecured notes payable to individual,
payable in monthly installments of $4,000
through February 2000, bearing interest
at 12% 0 45,400
------------ ------------
8,554,500 7,820,100
Less current portion 7,842,300 260,100
------------ ------------
$ 712,200 $ 7,560,000
============ ============
</TABLE>
40
<PAGE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JULY 31,
---------------------
<S> <C>
2001 $7,842,300
2002 302,900
2003 324,600
2004 84,700
----------
$8,554,500
==========
</TABLE>
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 $40 million, which matures in February 2002. The amount available
under the facility reduces by $10 million in February 2001, leaving the
principal balance available of $30 million until, February 28, 2002, when 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, 2000,
there were 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 2000 and 1999, the Company declared a two-for-one forward common
stock split. The accompanying consolidated financial statements have been
restated to reflect these splits.
The Company adopted the Copart, Inc. 1992 Stock Option Plan (the "Plan") as
amended, presently covering an aggregate of 8,000,000 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 an aggregate of 160,000 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 12,000
shares and subsequent grants to purchase 6,000 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 or outstanding at July 31, 2000.
The Copart, Inc. Employee Stock Purchase Plan (the "ESPP") provides for the
purchase of up to an aggregate of 1,000,000 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 2000, 1999 and 1998 were 73,526,
86,590 and 81,072, 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 6.0%, 5.0% and 5.8% for 2000, 1999 and
1998, respectively. The weighted average fair value of options granted were
$8.62, $3.56 and $2.51, for 2000, 1999 and 1998, respectively. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. The effects of applying SFAS No. 123 in
this pro forma disclosure are not indicative of future results. The Company's
pro forma net income and net income per common share would approximate the
following:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Year Ended July 31, 2000:
Net income $29,429,100 $28,090,400
=========== ===========
Basic net income per share $ .55 $ .52
=========== ===========
Diluted net income per share $ .53 $ .50
=========== ===========
Year Ended July 31, 1999:
Net income $21,966,300 $21,279,400
=========== ===========
Basic net income per share $ .41 $ .40
=========== ===========
Diluted net income per share $ .40 $ .39
=========== ===========
Year Ended July 31, 1998:
Net income $15,216,200 $14,772,300
=========== ===========
Basic net income per share $ .29 $ .28
=========== ===========
Diluted net income per share $ .28 $ .27
=========== ===========
</TABLE>
A summary of stock option activity for the years ended July 31, 2000, 1999 and
1998 follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ---------------------- ----------------------
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 3,423,866 $ 3.83 3,432,600 $ 3.07 3,023,100 $ 2.24
Granted 590,000 15.88 520,000 6.71 1,132,000 4.33
Exercised (789,338) 2.65 (503,400) 1.66 (605,832) 1.37
Cancelled (10,596) 3.13 (25,334) 3.28 (116,668) 2.56
--------- -------- --------- ---------- ---------- ---------
Outstanding at year end 3,213,932 6.42 3,423,866 3.83 3,432,600 3.07
========= ======== ========= ========== ========== =========
Options exercisable at year end 1,606,364 $ 3.81 1,828,134 $ 2.81 1,798,468 $ 2.13
========= ======== ========= ========== ========== =========
</TABLE>
42
<PAGE>
A summary of stock options outstanding at July 31, 2000 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 31,2000 LIFE PRICE JULY 31, 2000 PRICE
------------ -------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
0.25 - 0.50 155,000 2.36 $ 0.49 155,000 $ 0.49
3.00 - 4.00 744,933 5.81 3.21 611,532 3.14
4.25 - 6.75 1,747,999 7.37 5.10 835,998 4.88
8.25 - 16.75 566,000 9.58 16.34 3,834 11.00
--------- ------ ------- --------- ------
3,213,932 7.63 $ 6.42 1,606,364 $ 3.81
========= ====== ======= ========= ======
</TABLE>
9) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
-----------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Federal:
Current $ 14,657,600 $ 12,268,200 $ 8,888,100
Deferred 1,333,000 (613,800) (112,200)
------------ ------------ ------------
15,990,600 11,654,400 8,775,900
------------ ------------ ------------
State:
Current 2,574,500 1,582,000 964,700
Deferred (20,200) (80,000) (12,200)
------------ ------------ ------------
2,554,300 1,502,000 952,500
------------ ------------ ------------
$ 18,544,900 $ 13,156,400 $ 9,728,400
============ ============ ============
</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
-----------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense at statutory rate 35% 35% 35%
State income taxes, net of federal
income tax benefits 4 3 4
Amortization of goodwill 2 2 1
Other differences (2) (3) (1)
--- --- ---
39% 37% 39%
=== === ===
</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,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 670,800 $ 249,000
Accrued vacation 344,000 201,900
State taxes 693,400 537,900
Depreciation 2,138,700 1,250,400
------------ ------------
Total gross deferred tax assets 3,846,900 2,239,200
------------ ------------
Deferred tax liabilities:
Vehicle pooling costs (2,874,800) -
Amortization of intangible assets (2,098,200) (2,052,500)
------------ ------------
Total gross deferred tax liabilities (4,973,000) (2,052,500)
------------ ------------
Net deferred tax (liability) asset $ (1,126,100) $ 186,700
============ ============
</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 not established a valuation
allowance.
In fiscal 2000, 1999 and 1998, the Company recognized a tax benefit of
$3,561,900, $458,000 and $977,200, 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,
--------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted shares outstanding 53,900,800 53,375,200 52,725,200
Effect of dilutive securities-stock options and warrants 1,905,700 1,762,800 1,073,600
---------- ---------- ----------
Diluted weighted average shares outstanding 55,806,500 55,138,000 53,798,800
========== ========== ==========
</TABLE>
44
<PAGE>
(11) MAJOR CUSTOMERS
Two customers accounted for 15% and 12% of the Company's revenue in fiscal
2000. At July 31, 2000 these two customers accounted for 8% and 6% of accounts
receivable, respectively. No other customer accounted for more than 10% of
revenues. No buyer of auto salvage accounted for more than 2% of gross proceeds
in any period.
(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, 2000, 1999
and 1998 aggregated, $9,866,000, $8,175,700 and $6,967,800, respectively.
The Company has agreements with certain financial institutions whereby the
institutions will purchase approximately $10.4 million of yard and fleet
equipment as of July 31, 2000, which will be leased back to the Company under
operating leases.
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
2000 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING JULY 31, LEASES LEASES
--------------------- ----------- ------------
<S> <C> <C>
2001 $ 386,800 $ 17,112,600
2002 342,600 14,920,400
2003 342,600 13,519,400
2004 85,700 11,414,500
2005 -- 8,136,400
Thereafter -- 15,569,300
------------ -------------
1,157,700 $ 80,672,600
Less amount representing interest 103,200 =============
------------
$ 1,054,500
============
</TABLE>
COMMITMENT:
The Company has entered into agreements to acquire approximately $1.8
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 $587,300,
$508,100 and $398,200 for the years ended July 31, 2000, 1999 and 1998,
respectively, and expire on various dates through 2005.
45
<PAGE>
An affiliate provided $614,300, $518,800 and $608,400 of tow services to
the Company in fiscal 2000, 1999 and 1998, respectively.
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
In fiscal 1998, 72,792 warrants were exercised in a non-cash transaction,
which resulted in the issuance of 64,446 shares of common stock.
(15) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 40,507,600 $ 44,406,400 $ 53,801,200 $ 51,327,100 $ 190,042,300
============ ============ ============ ============ =============
Operating income $ 9,812,400 $ 10,303,300 $ 13,107,400 $ 12,993,100 $ 46,216,200
============ ============ ============ ============ =============
Net income $ 6,312,600 $ 6,618,500 $ 8,336,100 $ 8,161,900 $ 29,429,100
============ ============ ============ ============ =============
Basic net income per share $ .12 $ .12 $ .15 $ .15 $ .55
============ ============ ============ ============ =============
Diluted net income per share $ .11 $ .12 $ .15 $ .15 $ .53
============ ============ ============ ============ =============
FIRST SECOND THIRD FOURTH TOTAL
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 $ .08 $ .09 $ .12 $ .12 $ .41
============ ============ ============ ============ =============
Diluted net income per share $ .08 $ .09 $ .11 $ .12 $ .40
============ ============ ============ ============ =============
</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. 5500 East Second Street, Benicia, California 94510.
ANNUAL MEETING
The Annual meeting of Shareholders will be held at the Company's facility
located at 5500 East Second Street, Benicia, California 94510 at 9:00 a.m.,
December 5, 2000.
47
<PAGE>
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
<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, 2000 $ 500,000 $ 1,359,500 $ (296,000) $ 1,563,500
========= =========== ========== ===========
July 31, 1999 $ 385,000 $ 400,000 $ (285,000) $ 500,000
========= =========== ========== ===========
July 31, 1998 $ 99,000 $ 374,000 $ (88,000) $ 385,000
========= =========== ========== ===========
</TABLE>
48
