UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
OR
Commission file number: 0-23255
COPART, INC. (Exact name of registrant as specified in its charter)
5500 E. Second Street, Benicia, CA 94510(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (707) 748-5000
N/A(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO
Number of shares of Common Stock outstanding as of June 7, 2001: 55,236,154
Copart, Inc. and Subsidiaries Index to the Quarterly Report April 30, 2001
2
ITEM 1—FINANCIAL INFORMATION
Copart, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
See accompanying notes to consolidated financial statements.
3
Copart, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
4
Copart, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
5
Copart, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2001 (Unaudited)
NOTE 1—General:
In the opinion of the management of Copart, Inc. (the "Company" or "Copart"), the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2000 filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
NOTE 2—Net Income Per Share:
There were no adjustments to net income in calculating diluted net income per share. The table below reconciles basic weighted shares outstanding to diluted weighted average shares outstanding:
NOTE 3—Openings:
During May 2001, the Company opened a 36-acre salvage auction facility located in Martinez, California. With the addition of this location, the Company has 82 facilities in 36 states occupying approximately 2,305 acres nationwide.
NOTE 4—Segment Reporting:
All of the Company's facilities are aggregated into one reportable segment given the similarities of economic characteristics between the operations represented by the facilities and the common nature of the products, customers and methods of revenue generation.
6
ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below in this report. The Company has attempted to identify forward-looking statements by placing an asterisk immediately following the sentence or phrase that contains the forward-looking statement.
Overview
The Company processes salvage vehicles principally on a consignment method, on either the Percentage Incentive Program (the "PIP") or on a fixed fee consignment basis. Using either consignment method, only the fees associated with vehicle processing are recorded in revenue. The Company also processes a small percentage of its salvage vehicles pursuant to purchase contracts (the "Purchase Program") under which the Company records the gross proceeds of the vehicle sale in purchased vehicle revenues and the cost of the vehicle in yard and fleet expenses.
For the three months ended April 30, 2001 and 2000, approximately 61% and 55%, respectively, and for the nine months ended April 30, 2001 and 2000, approximately 60% and 55%, of the vehicles sold by Copart, respectively, were processed under the PIP. The increase in the percentage of vehicles sold under the PIP is due to the Company's successful marketing efforts. The Company attempts to convert acquired operations to the PIP, which typically results in higher net returns to vehicle suppliers and higher fees to the Company than standard fixed fee consignment programs.
For the three months ended April 30, 2001 and 2000, approximately 39% and 44%, respectively, and for the nine months ended April 30, 2001 and 2000, approximately 40% and 44%, of the vehicles sold by Copart, respectively, were processed under fixed fee agreements. The decline in the percentage of vehicles processed under fixed contracts is the direct result of the Company's marketing efforts to convert contracts from fixed fee to PIP.
For the three and nine months ended April 30, 2000, approximately 1%, of the vehicles sold by Copart, respectively, were processed pursuant to the Purchase Program.
Due to a number of factors, including the timing and size of new acquisitions, market conditions, and acceptance of the PIP program by vehicle suppliers, the percentage of vehicles processed under these programs in future periods may vary.*
Revenues consist of salvage fees charged to vehicle suppliers and vehicle buyers, transportation revenue and purchased vehicle revenues. Salvage fees from vehicle suppliers include fees under PIP agreements and fixed programs where the Company charges for title processing, special preparation, storage and auctioning. Salvage fees also include fees charged vehicle buyers for purchasing vehicles, storage and annual registration. Transportation revenue includes charges to suppliers for towing vehicles under fixed fee contracts. Transportation revenue also includes towing charges assessed to buyers for delivering vehicles. Purchased vehicle revenues are comprised of the price that buyers paid at the Company's auctions for vehicles processed under the Purchase Program.
Costs attributable to yard and fleet expenses consist primarily of operating personnel (which includes yard management, clerical and yard employees), rent, contract vehicle towing, insurance, fuel, fleet maintenance and repair, and acquisition costs of salvage vehicles under the Purchase Program. Costs associated with general and administrative expenses consist primarily of executive, accounting, data processing and sales personnel, professional fees and marketing expenses.
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.
7
Acquisitions and New Openings
Copart has experienced significant growth as it acquired fifteen salvage vehicle auction facilities and established seven new facilities since the beginning of fiscal 1999. All of the acquisitions have been accounted for using the purchase method. Accordingly, the excess of the purchase price over the fair value of net tangible assets acquired (consisting principally of goodwill) is being amortized over periods not exceeding 40 years.
As part of the Company's overall expansion strategy of offering integrated service to vehicle suppliers, the Company anticipates further attempts to open or acquire new salvage facilities in new regions, as well as the regions currently served by Company facilities.* As part of this strategy, during fiscal 2001, Copart acquired facilities in Chatham, Virginia; Shreveport, Louisiana and Mount Morris, Pennsylvania and opened new facilities in Harrisburg, Pennsylvania and Chicago Heights, Illinois. In 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. The Company believes that these acquisitions and openings help to solidify the Company's nationwide service and expand the Company's coverage of the United States. In the event of future acquisitions, the Company expects to incur future amortization charges in connection with such acquisitions attributable to goodwill, covenants not to compete and other purchase-related adjustments.*
Results of Operations
Three Months Ended April 30, 2001 Compared to Three Months Ended April 30, 2000
Revenues
Revenues were approximately $71.5 million during the three months ended April 30, 2001, an increase of approximately $17.7 million, or 33%, over the three months ended April 30, 2000. The change in revenues is driven primarily by the increase in gross proceeds generated from auctioned salvage vehicles. Gross proceeds were approximately $293.7 million during the three months ended April 30, 2001, an increase of approximately $52.5 million, or 22%, over the three months ended April 30, 2000.
New facilities in San Antonio, Albuquerque, Harrisburg, Chicago Heights, Chatham, Shreveport and Mt. Morris contributed $3.9 million of new revenue for the three months ended April 30, 2001.
Operating Costs and Expenses
Yard and fleet expenses were approximately $43.2 million during the three months ended April 30, 2001, an increase of approximately $9.4 million, or 28%, over the comparable period in fiscal 2000. The increase in yard and fleet expenses is due principally to the cost of handling increased volume at existing operations and the costs of new facilities. Approximately $3.1 million of the change was the result of the acquisitions and openings of new facilities. Yard and fleet expenses from existing facilities grew by approximately $6.3 million, or 19%, compared to existing-facility revenue growth of 26%. Yard and fleet expenses decreased to 60% of revenues during the third quarter of fiscal 2001, as compared to 63% of revenues during the same period of fiscal 2000.
General and administrative expenses were approximately $5.6 million during the three months ended April 30, 2001, an increase of approximately $1.6 million, or 39%, over the comparable period in fiscal 2000. This increase is due primarily to increased payroll and other operating expenses. General and administrative expenses increased to 8% of revenues during the third quarter of fiscal 2001 as compared to 7% of revenues in the same period of fiscal 2000.
8
Depreciation and amortization expense was approximately $3.6 million during the three months ended April 30, 2001, an increase of approximately $0.7 million, or 24%, over the comparable period in fiscal 2000. This increase was primarily due to the amortization and depreciation of tangible and intangible assets acquired in fiscal 2000 and 2001.
Operating Income, Other Income and Income Taxes
The Company's operating income was $19.1 million during the three months ended April 30, 2001, an increase of approximately $6.0 million, or 46% over the comparable period in fiscal 2000. Existing facilities produced $5.4 million of the increase due to improved PIP percentages, market share gains, favorable weather conditions and other factors. New facilities in San Antonio, Albuquerque, Harrisburg, Chicago Heights, Chatham, Shreveport and Mt. Morris produced $0.6 million of the increase.
Total other income was approximately $0.2 million during the three months ended April 30, 2001, a decrease of approximately $0.2 million, over the three months ended April 30, 2000.
The Company's effective income tax rate for the three months ended April 30, 2001 increased, as compared to the three months ended April 30, 2000, to 40% from 38.5%, to account for the increase in income and the higher tax rate jurisdictions the Company added due to its acquisitions.
Due to the foregoing factors, Copart realized net income of approximately $11.5 million for the three months ended April 30, 2001, compared to net income of approximately $8.3 million for the three months ended April 30, 2000.
Nine Months Ended April 30, 2001 Compared to Nine Months Ended April 30, 2000
Revenues were approximately $185.3 million during the nine months ended April 30, 2001, an increase of approximately $46.5 million, or 34%, over the nine months ended April 30, 2000. The change in revenues is driven primarily by the increase in gross proceeds generated from auctioned salvage vehicles. Gross proceeds were approximately $774.9 million during the nine months ended April 30, 2001, an increase of approximately $159.8 million, or 26%, over the nine months ended April 30, 2000.
New facilities in San Antonio, Albuquerque, Harrisburg, Chicago Heights, Chatham, Shreveport and Mt. Morris contributed $7.0 million of new revenue for the nine months ended April 30, 2001.
Yard and fleet expenses were approximately $112.7 million during the nine months ended April 30, 2001, an increase of approximately $26.9 million, or 31%, over the comparable period in fiscal 2000. The increase in yard and fleet expenses is due primarily to the cost of handling increased volume at existing operations and the costs of new facilities. Approximately $5.5 million of the change was the result of the acquisitions and openings of new facilities. Yard and fleet expenses from existing facilities grew by approximately $21.4 million, or 25%, compared to existing-facility revenue growth of 28%. Yard and fleet expenses decreased to 61% of revenues during the first nine months of fiscal 2001, as compared to 62% of revenues during the first nine months of fiscal 2000.
General and administrative expenses were approximately $14.3 million during the nine months ended April 30, 2001, an increase of approximately $3.0 million, or 26%, over the comparable period in fiscal 2000. This increase is due primarily to increased payroll and other operating expenses. General and administrative expenses remained unchanged at 8% of revenues during the first nine months of fiscal 2001 and fiscal 2000.
9
Depreciation and amortization expense was approximately $10.4 million during the nine months ended April 30, 2001, an increase of approximately $2.0 million, or 24%, over the comparable period in fiscal 2000. This increase was primarily due to the amortization and depreciation of tangible and intangible assets acquired in fiscal 2000 and 2001.
The Company's operating income was $47.8 million during the nine months ended April 30, 2001, an increase of approximately $14.6 million or 44% over the comparable period in fiscal 2000. Existing facilities produced $13.5 million of the increase due to improved PIP percentages, market share gains, favorable weather conditions and other factors. New facilities in San Antonio, Albuquerque, Harrisburg, Chicago Heights, Chatham, Shreveport and Mt. Morris produced $1.1 million of the increase.
Total other income was approximately $1.5 million during the nine months ended April 30, 2001, an increase of approximately $0.1 million over the nine months ended April 30, 2000.
The Company's effective income tax rate for the nine months ended April 30, 2001 increased, as compared to the nine months ended April 30, 2000, to 40% from 38.5%, to account for the increase in income and the higher tax rate jurisdictions the Company added due to its acquisitions.
Due to the foregoing factors, Copart realized net income of approximately $29.8 million for the nine months ended April 30, 2001, compared to net income of approximately $21.3 million for the nine months ended April 30, 2000.
Liquidity and Capital Resources
Copart has financed its growth principally through cash generated from operations, debt financing, public offerings of Common Stock, and the equity issued in conjunction with certain acquisitions.
At April 30, 2001, Copart had working capital of approximately $56.9 million, including cash and cash equivalents of approximately $18.1 million. The Company is able to process, market, sell and receive payment for processed vehicles quickly. The Company's primary source of cash is from the collection of sellers' fees and reimbursable advances from the proceeds of auctioned salvage vehicles and from buyers' fees.
Copart generated cash from operations of approximately $44.4 million and $22.5 million, during the nine months ended April 30, 2001 and 2000, respectively.
Capital expenditures (excluding those associated with fixed assets attributable to acquisitions) were approximately $36.6 million and $27.0 million for the nine months ended April 30, 2001, and 2000, respectively. Copart's capital expenditures have related primarily to opening and improving facilities and acquiring yard equipment.
Cash and cash equivalents increased by approximately $5.9 million for the nine months ended April 30, 2001. The Company's liquidity and capital resources have not been materially affected by inflation and are not subject to significant seasonal fluctuations.
The Company believes that its currently available cash, cash generated from operations and borrowing availability under its bank credit facilities and equipment leasing lines will be sufficient to satisfy the Company's working capital requirements and fund acquisitions and openings of new facilities for at least 12 months. However, there can be no assurance that the Company will not be required to seek additional debt or equity financing prior to such time, or if new financing is required, that it will be available on reasonable terms if at all.
10
Factors Affecting Future Results
Historically, a limited number of vehicle suppliers have accounted for a substantial portion of the Company's revenues. In the third quarter of fiscal 2001, vehicles supplied by Copart's two largest suppliers accounted for approximately 13% and 9%, of Copart's revenues, respectively. The Company's agreements with these and other vehicle suppliers are either oral or written agreements that typically are subject to cancellation by either party upon 30 days notice. There can be no assurance that existing agreements will not be canceled or that the terms of any new agreements will be comparable to those of existing agreements. The Company believes that, as the salvage vehicle auction industry becomes more consolidated, the likelihood of large vehicle suppliers entering into agreements with single companies to dispose of all of their salvage vehicles on a statewide, regional or national basis increases.* There can be no assurance that the Company will be able to enter into such agreements or that it will be able to retain its existing supply of salvage vehicles in the event vehicle suppliers begin disposing of their salvage vehicles pursuant to state, regional or national agreements with other operators of salvage vehicle auction facilities. A loss or reduction in the number of vehicles from a significant vehicle supplier or material changes in the terms of an arrangement with a substantial vehicle supplier could have a material adverse effect on the Company's financial condition and results of operations.
The Company's operating results have fluctuated in the past and may fluctuate significantly in the future depending on a number of factors. These factors include changes in the market value of salvage vehicles, buyer attendance at salvage auctions, fluctuations in vehicle transportation costs, delays or changes in state title processing and/or changes in state or federal laws or regulations affecting salvage vehicles, fluctuations in Actual Cash Values (ACV's) of salvage vehicles, the availability of vehicles and weather conditions. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. There can be no assurance, therefore, that the Company's operating results in some future quarter will not be below the expectations of public market analysts and/or investors.
The market price of the Company's Common Stock could be subject to significant fluctuations in response to various factors and events, including variations in the Company's operating results, the inability to continue to increase service fees, the timing and size of acquisitions and facility openings, the loss of vehicle suppliers or buyers, the announcement of new vehicle supply agreements by the Company or its competitors, changes in regulations governing the Company's operations or its vehicle suppliers, environmental problems or litigation. In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of companies.
The Company seeks to increase sales and profitability primarily through the increase of salvage vehicle volume and revenue at existing facilities, the opening of new facilities and the acquisition of other salvage vehicle auction facilities. There can be no assurance that the Company will be able to continue to acquire additional facilities on terms economical to the Company or that the Company will be able to increase revenues at newly acquired facilities above levels realized at such facilities prior to their acquisition by the Company. Additionally, as the Company continues to grow, its openings and acquisitions will have to be more numerous or of a larger size in order to have a material impact on the Company's operations. The ability of the Company to achieve its expansion objectives and to manage its growth is also dependent on other factors, including the integration of new facilities into existing operations, the establishment of new relationships or expansion of existing relationships with vehicle suppliers, the identification and lease of suitable premises on competitive terms and the availability of capital. The size and timing of such acquisitions and openings may vary. Management believes that facilities opened by the Company require more time to reach revenue and profitability levels comparable to its existing facilities and may have greater working capital requirements than those facilities acquired by the Company. Therefore, to the extent that the Company opens a greater number
11
of facilities in the future than it has historically, the Company's growth rate in revenues and profitability may be adversely affected.
Currently, Willis J. Johnson, Chief Executive Officer of the Company, together with two other existing shareholders, beneficially owns approximately 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 or impossible, absent the support of Mr. Johnson, and such other existing shareholders.
The Company's operations are subject to federal, state and local laws and regulations regarding the protection of the environment. In the salvage vehicle auction industry, large numbers of wrecked vehicles are stored at auction facilities for short periods of time. Minor spills of gasoline, motor oils and other fluids may occur from time to time at the Company's facilities which may result in localized soil, surface water or groundwater contamination. Petroleum products and other hazardous materials are contained in aboveground or underground storage tanks located at certain of the Company's facilities. Waste materials such as waste solvents or used oils are generated at some of the Company's facilities that are disposed of as nonhazardous or hazardous wastes. The Company has put into place procedures to reduce the amounts of soil contamination that may occur at its facilities, and has initiated safety programs and training of personnel on safe storage and handling of hazardous materials. The Company believes that it is in compliance in all material respects with applicable environmental regulations and does not anticipate any material capital expenditures for environmental compliance or remediation that are not currently reserved for.* Environmental laws and regulations, however, could become more stringent over time and there can be no assurance that the Company or its operations will not be subject to significant compliance costs in the future. To date, the Company has not incurred expenditures for preventive or remedial action with respect to soil contamination or the use of hazardous materials which have had a material adverse effect on the Company's financial condition or results of operations. The soil contamination which may occur at the Company's facilities and the potential contamination by previous users of certain acquired facilities create the risk, however, that the Company could incur substantial expenditures for preventive or remedial action, as well as potential liability arising as a consequence of hazardous material contamination, which could have a material adverse effect on the Company.
The salvage vehicle industry is highly fragmented. As a result, the Company faces intense competition for the supply of salvage vehicles obtained from vehicle suppliers, as well as intense competition for buyers. The Company believes its principal competitors include vehicle auction companies and vehicle dismantlers. These national, regional, and local competitors may have established relationships with vehicle suppliers and buyers and financial resources that are greater than that of the Company. The largest national or regional vehicle auctioneers include Manheim Auctions, the ADESA Corporation, Insurance Auto Auctions, SADISCO and Auction Broadcasting Co. In addition, the Company competes with locally owned vehicle auctions in most markets. National, regional, and local dismantlers also compete with Copart for the supply of salvage vehicles. The largest national dismantlers include Greenleaf, a subsidiary of Ford Motor Company, and LKQ Corporation. These national dismantlers, in addition to buying groups of dismantlers such as the American Recycling Association (ARA) and the United Recyclers Group (URG), purchase salvage vehicles directly from the insurance companies, and in doing so completely bypass the auction companies, including the Company. Due to the limited number of vehicle suppliers and the absence of long-term contractual commitments between the Company and such vehicle suppliers, competition for vehicles is intense. The Company may encounter significant competition for state, regional and national supply agreements with vehicle suppliers. Vehicle suppliers have entered into state, regional, or national 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
12
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.
13
PART II—OTHER INFORMATION
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
14
QuickLinks