SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [FEE REQUIRED]
For the fiscal year ended: July 31, 1997
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number 0-23255
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COPART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2867490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 E. SECOND STREET 94510
BENICIA, CALIFORNIA (zip code)
(address of principal executive offices)
Registrant's telephone number, including area code: (707) 748-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of October 23, 1997 was $147,079,000 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 23, 1997 registrant had outstanding 13,100,354 shares of Common
Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the definitive
proxy statement for the Annual Meeting of Shareholders to be held on December 9,
1997 (the "Proxy Statement").
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. 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.
Since July 31, 1996, Copart has acquired two auction facilities near Baton
Rouge, Louisiana and Salt Lake City, Utah and opened two new facilities in or
near Hammond, Indiana and Woodinville, Washington. From July 31, 1990 through
July 31, 1996, Copart grew from four auction facilities in northern California
to 49 auction facilities in 24 states. In May, 1995, the Company acquired
substantially all of the net operating assets (excluding real property) of NER
Auction Group ("NER"). The operations acquired by Copart were part of a group
of 14 companies that owned and operated 20 salvage vehicle auction facilities in
11 states (the "NER Acquisition"). The number of salvage vehicles processed
annually by Copart has grown from approximately 17,200 in fiscal 1990 to 410,000
in fiscal 1997.
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 1997, over 90% 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
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* This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Factors Affecting Future
Results" for a fuller discussion of factors that could affect future
performance.
2
vehicles' estimated pre-loss value, or "actual cash value" ("ACV"), and auction
the vehicles for their own account.
VEHICLE SUPPLIERS. The primary suppliers of salvage vehicles are insurance
companies. Additional suppliers include automobile dealers and automobile
rental companies, which process self-insured salvage vehicles and occasionally
process retired fleets, and financial institutions and vehicle leasing companies
which process repossessed, uninsured salvage vehicles.
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
directly from a salvage vehicle auction facility vehicles requiring few repairs
before resale such as late model, slightly damaged or intact recovered stolen
vehicles.
THE INSURANCE ADJUSTMENT AND VEHICLE AUCTION PROCESS
Following an accident involving an insured vehicle, the damaged vehicle is
generally towed to a towing company or a vehicle repair facility for temporary
storage pending insurance company examination. The vehicle is inspected by the
insurance company's adjuster, who estimates the costs of repairing the vehicle
and gathers information regarding the damaged vehicle's mileage, options and
condition in order to estimate its ACV. The insurance company's adjuster
determines whether to pay for repairs or to classify the vehicle as a total
loss, based upon the adjuster's estimate of repair costs and the vehicle's
salvage value, as well as customer service considerations. If the cost of
repair is greater than the ACV less the estimated salvage value, the insurance
company generally will classify the vehicle as a total loss. The insurance
company will thereafter assign the vehicle to a salvage auction company, such as
the Company, settle with the insured vehicle owner and receive title to the
vehicle.
Factors that vehicle suppliers consider when selecting a salvage vehicle
auction company include (i) the anticipated percentage return on salvage (E.G.,
gross salvage proceeds, minus vehicle handling and selling expenses, divided by
the ACV); (ii) the services provided by the salvage vehicle auction company and
the degree to which such services reduce administrative costs and expenses;
(iii) the ability to provide service across a broad geographic area; (iv) the
timing of payment; and (v) the financial and operating history of the salvage
vehicle auction company.
In disposing of a salvage vehicle, a vehicle supplier assigns the vehicle
to a salvage vehicle auction company with which it has a contractual or other
relationship. Upon receipt of the pick-up order, which is conveyed by
facsimile, telephone or computer, the salvage vehicle auction company dispatches
one of its transporters or a contract towing company to transport the vehicle to
the salvage vehicle auction company's facility. As a service to the vehicle
supplier, the salvage vehicle auction company customarily pays advance charges
(reimbursable charges paid by the Company on behalf of vehicle suppliers) to
obtain the subject vehicle's release from a towing company or vehicle repair
facility. Typically, advance charges are paid on behalf of the vehicle supplier
and are recovered by the salvage vehicle auction company upon sale of the
salvage vehicle.
After being received and evaluated at the salvage vehicle auction facility,
the vehicle remains in storage and cannot be sold at an auction until ownership
documents are transferred from the insured vehicle owner and title to the
vehicle is cleared through the appropriate state's motor vehicle regulatory
agency (or "DMV"). If a vehicle is a total loss (as determined by the insurance
company), it can be sold in most states upon settlement with and receipt of
title documents from the insured. Total loss vehicles may be sold in most
states only after obtaining a salvage certificate from the DMV, however, in some
states only a bill of sale from the insured is required. Upon receipt of the
appropriate documentation from the state DMV or the
3
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 live auctions, which are typically held weekly or biweekly at
each facility, and occasionally by sealed bid auctions.
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 truck 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 $25 to $100 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. 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. 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 computerized monitoring and tracking of salvage vehicles,
(iii) developing a growing base of buyers, (iv) providing salvage vehicle
auction facilities throughout broad geographic regions, and (v) offering
insurance companies the ability to contract for vehicle salvage services on a
regional or national basis. The Company believes its flexible, service-oriented
approach promotes the establishment and maintenance of strong relationships with
vehicle suppliers, which are an integral factor in competing effectively in the
salvage vehicle auction industry.
FLEXIBLE VEHICLE PROCESSING PROGRAMS
At the election of the vehicle supplier, the Company auctions vehicles
(i) pursuant to its Percentage Incentive Program, (ii) on a fixed fee
consignment basis, (iii) on a purchase basis or (iv) on a basis which combines
the consignment and purchase bases in order to meet a vehicle supplier's
particular needs. Based upon the Company's database of historical returns on
salvage vehicles and information provided by vehicle suppliers, the Company
works with the vehicle supplier to design a program that maximizes the net
returns on salvage vehicles. Due to, among other 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:
PERCENTAGE FEE CONSIGNMENT. Copart introduced its Percentage Incentive
Program, or 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
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* This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Factors Affecting Future
Results" for a fuller discussion of factors that could affect future
performance.
4
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 1997,
approximately 33% 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 $125 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 61% of all salvage vehicles processed by Copart in fiscal
1997, 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 6% of all salvage vehicles processed by the Company during fiscal
1997 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.
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 made by the Company on
their behalf. Copart's vehicle suppliers can obtain all of their payment and
invoice information on-line through Salvage Lynk.
DMV PROCESSING. The Company offers employees of vehicle suppliers training on
DMV document processing and has prepared a manual that provides 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 unused owner registration and license
fees. The net rebates are delivered and paid to the vehicle supplier.
5
VEHICLE INSPECTION STATION. The Company offers certain of its major insurance
company suppliers office and yard space to house a Vehicle Inspection Station
("VIS") on-site at its auction facilities. At July 31, 1997, there were 27
VIS's at 21 of the Company's facilities. An on-site VIS provides an insurance
company a central location to inspect potential total loss vehicles and reduces
storage charges that otherwise may be incurred at the initial storage and repair
facility. The Company believes that providing an on-site VIS enables the
Company to improve the level of service it provides to such insurance company.
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. Direct mailings
are also made to selected vehicle buyers, identified through the Company's
database of buyers, to alert them to the availability of salvage vehicles in
which they might be interested.
SALVAGE BROKERAGE NETWORK. In response to requests of 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 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 Salvage Lynk, as opposed to dealing with numerous salvage auction
facilities across the country. Copart receives revenues from the sale of
vehicles processed by members of these networks, net of applicable fees of the
facility which processed the vehicle and without buyer's fees.
TRANSPORTATION SERVICES. The Company maintains a fleet of multi-vehicle
transport trucks at most of its yards as well as contracts for vehicle
transports at most facilities.
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. Each notice details for each vehicle, among other
things, the year and make of the vehicle, the description of the damage, the
status of title and the order of the vehicle in the auction.
The Company seeks to establish a loyal and growing customer base of salvage
vehicle buyers by providing a variety of value-added programs and services.
Copart has initiated its Buyers Plus Program, which includes a Copart Silver and
Gold Card frequent buyer program designed to attract high-volume commercial
customers by providing them with frequent buyer credits to acquire promotional
merchandise, and extra services such as express check-in procedures and
streamlined paperwork processing services. Copart also periodically provides
free prizes and giveaways to promote auction attendance.
MULTIPLE LOCATIONS
The Company had a total of 53 facilities in 26 states at July 31, 1997.
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.
6
GROWTH STRATEGY
The Company's growth strategy is to (i) open or acquire new facilities,
(ii) increase salvage vehicle volume from new and existing suppliers,
(iii) increase revenues and profitability at its existing 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.*
NEW FACILITIES. Since its formation in 1982, Copart has expanded, primarily
through acquisition, from a single facility in Vallejo, California, to an
integrated network of 53 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
and Utah.
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 1995, in addition to the NER
Acquisition, the Company acquired six facilities in or near Kansas City, Kansas,
Tulsa and Oklahoma City, Oklahoma, St. Louis, Missouri, Conway and West Memphis,
Arkansas and opened an additional facility in Sacramento, California. During
fiscal 1996, the Company acquired two facilities in or near Jackson, Mississippi
and El Paso, Texas, and opened five new facilities in or near Charlotte, North
Carolina, Jacksonville, Florida, Van Nuys, California, Indianapolis, Indiana and
Phoenix, Arizona. During fiscal 1997 the Company acquired facilities in Baton
Rouge, Louisiana and Salt Lake City, Utah and opened two new facilities in or
near Hammond, Indiana and Woodinville, Washington. In addition, the Company
believes that the establishment of a national presence both enhances the ability
of a salvage vehicle auction company to enter into state, regional or national
supply agreements with vehicle suppliers and to develop name recognition with
vehicle suppliers and buyers.* The Company, in the normal course of its
business, maintains an active dialogue with acquisition candidates of various
sizes.
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees to
the Company than standard fixed fee consignment programs and (iii) initiating
the Company's value-enhancing merchandising procedures. In addition, the
Company attempts to effect cost efficiencies at each of its acquired facilities
through, among other things, implementing the Company's operating procedures,
integrating the Company's management information systems and, when necessary,
redeploying personnel.
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*This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Factors Affecting Future
Results" for a fuller discussion of factors that could affect future
performance.
7
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.
The following chart sets forth facilities acquired or opened by Copart
since the beginning of fiscal 1995, through July 31, 1997.
ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
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Salt Lake City, Utah March 1997 Northern Utah, Western Colorado
Baton Rouge, Louisiana January 1997 Southern Louisiana, Western Mississippi
Hammond, Indiana October 1996 Chicago, Southern Illinois, Indiana
Woodinville, Washington September 1996 Washington
Phoenix, Arizona February 1996 Arizona
El Paso, Texas December 1995 Southwest Texas, Southern New Mexico
Van Nuys, California November 1995 Greater Los Angeles area
Jacksonville, Florida November 1995 Northeast Florida
Indianapolis, Indiana September 1995 Indiana
Jackson, Mississippi August 1995 Mississippi, Western Louisiana
Charlotte, North Carolina August 1995 North Carolina
Hartford, Connecticut May 1995 Connecticut
Marlboro, New York May 1995 New York City, Southern New York
Syracuse, New York May 1995 Syracuse and Northeastern New York
Philadelphia, Pennsylvania May 1995 Philadelphia, Eastern Pennsylvania
Boston, Massachusetts May 1995 Massachusetts
Pittsburgh, Pennsylvania May 1995 Pittsburgh, Western Pennsylvania
Columbus, Ohio May 1995 Ohio
Southampton, New York May 1995 New York City, Long Island
Glassboro, New Jersey May 1995 New York City, New Jersey
Waldorf, Maryland May 1995 Washington D.C., Maryland
Buffalo, New York May 1995 Buffalo, Western New York
Miami, Florida May 1995 Miami, South Florida
Tampa, Florida May 1995 Tampa, Gulf Coast Florida
8
ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
-------- ------------ -----------------------
Chicago, Illinois May 1995 Chicago; Northern Illinois
Minneapolis, Minnesota May 1995 Central Minnesota
Madison, Wisconsin May 1995 Central Wisconsin
Milwaukee, Wisconsin May 1995 Milwaukee metropolitan area
St. Cloud, Minnesota May 1995 Northwestern Minnesota
Rochester, Minnesota May 1995 Southern Minnesota
Duluth, Minnesota May 1995 Northwestern Minnesota
Conway and West Memphis, Arkansas April 1995 Arkansas, Western Tennessee,
Northern Mississippi, Southern Kentucky
St. Louis, Missouri March 1995 St. Louis
Oklahoma City and Tulsa, Oklahoma November 1994 Oklahoma; Arkansas; North Texas
Kansas City, Kansas October 1994 Kansas, Missouri
Sacramento, California September 1994 Northern Central Valley area of
California, Northern Nevada
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
1997, vehicles supplied by its largest supplier accounted for approximately 16%
of the Company's revenues. The Company's agreements with this and other vehicle
suppliers are either oral or written agreements that generally are subject to
cancellation by either party upon 30 to 90 days' notice.
The Company typically contracts with the regional or branch office of an
insurance company or other vehicle supplier. The agreements are customized to
each vehicle supplier's particular needs, often providing for disposition of
different types of salvage vehicles by differing methods. Although the Company
does not have written agreements with all of its vehicle suppliers, the Company
has arrangements to process the vehicles generated by such suppliers. Such
contracts or arrangements generally provide that the Company will sell virtually
all total loss and recovered stolen vehicles generated by the vehicle supplier
in a designated geographic area. The Company's written agreements with vehicle
suppliers are typically subject to cancellation by either party upon 30 to 90
days' notice. There can be no assurance that existing agreements will not be
canceled or that the terms of any new agreements will be comparable to those of
existing agreements.
The Company markets its services to vehicle suppliers through an in-house
sales force which utilizes mailing of Company sales literature, telemarketing
and follow-up personal sales calls, and participation in trade shows and vehicle
and insurance industry conventions. The Company's marketing personnel meet with
vehicle suppliers and, based upon the Company's historical data on salvage
vehicles and upon vehicle information supplied by the vehicle suppliers, provide
vehicle suppliers with detailed analysis of the net return on salvage vehicles
and a proposal setting forth ways in which the Company can improve net returns
on salvage vehicles and reduce administrative costs and expenses.
See "Factors Affecting Future Results" below.
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
9
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 a one-time membership 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. Membership 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 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 retail 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
net revenues in fiscal 1997.
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"). Over the last several
years, IAA acquired and opened a number of salvage vehicle auction facilities.
IAA is a significant competitor in certain regions in which the Company operates
or may expand in the future. In other regions of the United States, the Company
faces substantial competition from salvage vehicle auction facilities with
established relationships with vehicle suppliers and buyers and financial
resources which may be greater than the Company's. Due to the limited number of
vehicle suppliers and the absence of long-term contractual commitments between
the Company and such salvage vehicle suppliers, competition for salvage vehicles
from such suppliers is intense. The Company may also encounter significant
competition for state, regional and national supply agreements with vehicle
suppliers. Vehicle suppliers may enter into state, regional or national supply
agreements with competitors of the Company.
The Company has a number of regional and national contracts with various
suppliers. There can be no assurance that the existence of other state,
regional or national contracts entered into by the Company's competitors will
not have a material adverse effect on the Company or the Company's expansion
plans. Furthermore, the Company is likely to face competition from major
competitors in the acquisition of salvage vehicle auction facilities, which
could significantly increase the cost of such acquisitions and thereby
materially impede the Company's expansion objectives or have a material adverse
effect on the Company's results of operations. Potential competitors could
include vehicle suppliers, some of which presently supply salvage vehicles to
the Company and used car auction companies. While most vehicle suppliers have
abandoned or reduced efforts to sell salvage vehicles without the use of service
providers such as the Company, there can be no assurance that they may not in
the future decide to dispose of their salvage vehicles directly to buyers.
Existing or new competitors may be significantly larger and have greater
financial and marketing resources than the Company. There can be no assurance
that the Company will be able to compete successfully in the future.
See "Factors Affecting Future Results" below.
10
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 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 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 except
with regard to the Dallas Operation (as defined below). 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.
On a case-by-case basis, the Company evaluates the potential risks and
possible exposure to liabilities associated with hazardous materials. In
addition, the Company has a policy of conducting environmental site assessments
of all newly-acquired or opened facilities. In connection with the acquisition
and lease of all of its newly-acquired facilities, except in connection with the
Dallas Operation which is described below, the Company's policy is to obtain
indemnification from the prior owner and/or landowner for any environmental
contamination which is present on the property prior to the Company entering
into a lease or acquiring the property. However, there can be no assurance that
prior or future owners and/or landowners will have assets sufficient to meet
their indemnification obligations, if any.
In connection with its acquisition of a facility in the Dallas metropolitan
area (the "Dallas Operation") in March 1994, the Company will pay $3.0 million
for environmental corrective action and consulting expenses associated with an
approximately six-acre portion of the Dallas Operation's real property which
contains elevated levels of lead which related to prior activities of the former
operators. The Company estimates that, based upon an investigation of the
property by its environmental consultant, the most probable range of cost of
corrective action is approximately $980,000 if the contaminated soil can be
stabilized on-site to $2.9 million if the contaminated soil must be excavated
and disposed of at an off-site disposal facility. If total costs of corrective
action at the Dallas Operation do not exceed $3.0 million, then the remaining
funds after payment of all costs of corrective action, up to $3.0 million, will
be paid as consulting fees to the former principal shareholder of the Dallas
Operation. If the total costs of corrective action exceed $3.0 million, then
the former principal shareholder of the Dallas Operation will pay the next $1.2
million of costs of corrective action. The Company and such former principal
shareholder are each obligated to pay up to $1.5 million of the costs for
corrective action, if incurred, between $4.2 million and $7.2 million. If the
total costs of corrective action exceed $7.2 million, then such former principal
shareholder will either pay up to the next $1.0 million, or notify the Company
to pay up to the next $1.0 million in exchange for a dollar-for-dollar credit
toward the purchase price of the Dallas Operation's real property, calculated as
the greater of $1.0 million or the then fair market value. Such former
principal shareholder's obligations under this arrangement are secured by a
pledge of 225,000 shares of Common Stock. However, there can be no assurance
that such former principal shareholder will be able to meet his obligations or
that the pledged stock will be sufficient to cover such obligations. In
March 1995, the Texas
11
Natural Resource Conservation Commission ("TNRCC") authorized the Company to
perform a Corrective Measure Study ("CMS") to determine if the proposed on-site
soil stabilization remedy would be effective. In August 1995, the Company's
environmental consultant submitted a Baseline Risk Assessment ("BRA") to the
TNRCC, which concluded that neither human health nor the environment are placed
at risk by the lead battery casing chips at the site. In April 1996, the TNRCC
approved the BRA, and in October 1996 approved a modified CMS. Following such
approval, the Company contracted to complete the on-site stabilization and
asphalt cap for a contract price of $687,000. The project is scheduled to be
completed before the end of December 1997. Upon completion of the on-site soil
stabilization to the satisfaction of the TNRCC, the TNRCC has indicated to the
Company that it will issue a no-further-action letter, at which time the
remaining funds shall be paid as consulting fees as set forth above. There can
be no assurance that the ultimate cost of corrective action, or any other
liabilities with respect to the site, will not exceed estimates of the Company's
environmental consultant, or that such actual costs will not have a material
adverse effect on the Company.
Metals and hydrocarbon soil contamination was detected at one of Copart's
California facilities, which was determined to be associated with uses of the
property by persons prior to the time that the prior 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, 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 consultant has indicated that further investigation will
be required to determine the complete extent of the contamination, and that
remediation will likely be required (the "Bellingham Remediation"). It is
estimated that the most likely total cost of the Bellingham Remediation will be
approximately $50,000, with the maximum remediation costs estimated to be
approximately $350,000. It is unclear at this time 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. Approximately $125,000 of the
estimated remediation costs relate to amounts accrued for operation and
maintenance costs expected to be paid out through 1999. Pursuant to the terms of
the NER Acquisition, Copart is indemnified as to any environmental liabilities
relating to sites being leased from NER Auction Group, including the Bellingham
site by the former shareholders of NER. There can be not assurance that this
indemnification will be adequate. The total estimate of $50,000 is a current
estimate of all remediation costs and could change due to further site
investigation or changes in applicable laws.
12
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.*
GOVERNMENT REGULATION
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 (Salvage Lynk) and proprietary software which
enables salvage vehicles to be tracked by the Company and vehicle suppliers
throughout the salvage vehicle auction process. Salvage Lynk provides remote
access to customers via the client's personal computer system to allow direct
inquiry during the Company's salvage vehicle disposal 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 February 1997,
Copart finished the design of a new proprietary operating system, the Copart
Auction System (CAS). By December, 1997, the Company plans to be fully
implemented on CAS.* The new system is written for the millenium change and is
designed to be more efficient in processing and billing vehicles. The Company
continues to research new computer technologies to enhance its MIS development.
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, 1997, the Company had approximately 1,050 full-time
employees, of whom approximately 420 were engaged in general and administrative
functions and approximately 630 were engaged in yard and fleet operations. The
Company is not subject to any collective bargaining agreements and believes that
its relationships with its employees are good.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for a
substantial portion of the Company's revenues. In fiscal 1997, vehicles
supplied by Copart's largest supplier accounted for
- --------------
* This statement is a forward-looking statement reflecting current expectations.
Actual future performance may differ materially from the Company's current
expectations. The reader is advised to review "Factors Affecting Future
Results" for a fuller discussion of factors that could affect future
performance.
13
approximately 16% of Copart's revenues. The Company's agreements with this and
other vehicle suppliers are either oral or written agreements that typically are
subject to cancellation by either party upon 30 days' notice. There can be no
assurance that existing agreements will not be canceled or that the terms of any
new agreements will be comparable to those of existing agreements. While the
Company believes that, as the salvage vehicle auction industry becomes more
consolidated, the likelihood of large vehicle suppliers entering into agreements
with single companies to dispose of all of their salvage vehicles on a
statewide, regional or national basis increases, there can be no assurance that
the Company will be able to enter into such agreements or that it will be able
to retain its existing supply of salvage vehicles in the event vehicle suppliers
begin disposing of their salvage vehicles pursuant to state, regional or
national agreements with other operators of salvage vehicle auction facilities.
A loss or reduction in the number of vehicles from a significant vehicle
supplier or material changes in the terms of an arrangement with a substantial
vehicle supplier could have a material adverse effect on the Company's financial
condition and results of operations.
The Company's operating results have in the past and may in the future
fluctuate significantly depending on a number of factors. These factors include
changes in the market value of salvage vehicles, buyer attendance at salvage
auctions, delays or changes in state title processing and/or changes in state or
federal laws or regulations affecting salvage vehicles, fluctuations in ACV's of
salvage vehicles, the availability of vehicles and weather conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. There can be no assurance, therefore, that
the Company's operating results in some future quarter will not be below the
expectations of public market analysts and/or investors.
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. For example, while the Company opened or
acquired an average of eight facilities per fiscal year from fiscal 1992 through
fiscal 1996, it opened or acquired four facilities during fiscal 1997.
Additionally, as the Company continues to grow, its openings and acquisitions
will have to be more numerous or of a larger size in order to have a material
impact on the Company's operations. The ability of the Company to achieve its
expansion objectives and to manage its growth is also dependent on other
factors, including the integration of new facilities into existing operations,
the establishment of new relationships or expansion of existing relationships
with vehicle suppliers, the identification and lease of suitable premises on
competitive terms and the availability of capital. The size and timing of such
acquisitions and openings may vary. Management believes that facilities opened
by the Company require more time to reach revenue and profitability levels
comparable to its existing facilities and may have greater working capital
requirements than those facilities acquired by the Company. Therefore, to the
extent that the Company opens a greater number of facilities in the future than
it has historically, the Company's growth rate in revenues and profitability may
be adversely affected.
While Copart has acquired a number of companies in recent years, the
Company's acquisition of the NER Auction Group in May 1995 was its largest
acquisition undertaken to date. The successful integration
14
of NER was more difficult and required a greater period of time than prior
acquisitions. In connection with the integration of NER, the Company completed
the closure of the eastern division office and former NER corporate headquarters
in July, 1996.
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with one other existing shareholder, beneficially own approximately 31%
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 shareholder.
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 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31, 1997
are as follows:
NAME AGE POSITION
- ---- --- --------
Willis J. Johnson 50 Chief Executive Officer and Director
A. Jayson Adair 28 President and Director
James E. Meeks 48 Executive Vice President and Chief Operating Officer
Joseph M. Whelan 42 Senior Vice President and Chief Financial Officer
Paul A. Styer 41 Senior Vice President, General Counsel and Secretary
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 the closing of
the NER Acquisition in May 1995. Mr. Johnson has over 25 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 25
years of experience in the vehicle dismantling business.
15
JOSEPH M. WHELAN has served as Senior Vice President since April 1995 and
Chief Financial Officer of the Company since March 1994. From 1989 to 1993,
Mr. Whelan served as Senior Vice President and Chief Financial Officer of
Phillips, Inc., the largest privately held owner of educational facilities in
the United States. Mr. Whelan received a B.A. from Vanderbilt University and a
M.B.A. from Tulane University. Mr. Whelan is a certified public accountant. Mr.
Whelan resigned his position as Senior Vice President and Chief Financial
Officer on October 6, 1997. A successor has not been named.
PAUL A. STYER has served as General Counsel of the Company since
September 1992, served as Senior Vice President since April 1995 and as Vice
President from September 1992 until April 1995. Mr. Styer served as a Director
of the Company from September 1992 until October 1993. Mr. Styer has served as
Secretary since October 1993. From August 1990 to September 1992, Mr. Styer
conducted an independent law practice. Mr. Styer received a B.A. from the
University of California, Davis and a J.D. from the University of the Pacific.
Mr. Styer is a member of the California State Bar Association.
Officers are elected by the Board of Directors and serve at the discretion
of the Board. There are no family relationships among any of the directors or
executive officers of the Company, except that A. Jayson Adair is the son-in-law
of Willis J. Johnson.
16
ITEM 2. PROPERTIES
FACILITIES INFORMATION
The following table sets forth certain information regarding the facilities
currently used by the Company.
FACILITY OPENED/ APPROXIMATE EXPIRATION OF PURCHASE OPTION
----------- ---------------
LOCATION ACQUIRED ACREAGE LEASE TERM
-------- -------- ------- ----------
COPART
Vallejo, California (1) 18 February 2000 Yes
Sacramento, California A 12 Company owned Not applicable
Hayward, California O 8 Month-to-month No
Fresno, California A 10 July 2000 Yes
Bakersfield, California A 5 Company owned Not applicable
San Martin, California A 14 August 2002 Yes
Colton, California A 14 November 2002 Right of first refusal
Seattle, Washington A 11 March 1998 Yes
Portland, Oregon O 33 June 2001 Yes
Los Angeles, California A 12 June 1998 Right of first refusal
Houston, Texas A 62 January 2004 Right of first refusal
Dallas, Texas (2) A 42 March 2004 Yes
Lufkin, Texas A 15 May 1999 Yes
Longview, Texas A 10 May 1999 Yes
Atlanta, Georgia A 62 July 2004 Yes
Sacramento, California O 11 Month-to-month Not applicable
Kansas City, Kansas A 27 October 2004 Yes
Oklahoma City, Oklahoma A 12 November 2004 Yes
Tulsa, Oklahoma A 10 November 2004 Yes
St. Louis, Missouri A 21 March 2005 Yes
Conway, Arkansas A 22 March 2005 Yes
West Memphis, Arkansas A 12 April 2005 Yes
Hartford, Connecticut A 30 May 2005 Yes
Marlboro, New York A 25 May 2005 Yes
Syracuse, New York A 12 May 2005 Yes
Philadelphia, Pennsylvania A 40 May 2005 Yes
Boston, Massachusetts A 20 May 2005 Yes
Pittsburgh, Pennsylvania A 20 May 2005 Yes
Columbus, Ohio A 20 May 2005 Yes
Southampton, New York (3) A 13 July 2000 Yes
Glassboro, New Jersey A 18 May 2005 Yes
Waldorf, Maryland A 15 May 2005 Yes
Buffalo, New York A 10 May 2005 Yes
Miami, Florida A 14 May 2005 Yes
Tampa, Florida A 10 May 2005 Yes
Chicago, Illinois A 10 September 1999 Right of first refusal (4)
Minneapolis, Minnesota A 12 December 2001 No
Duluth, Minnesota A 20 February 1998 No
Rochester, Minnesota A 20 August 2003 Right of first refusal (4)
St. Cloud, Minnesota A 20 August 2003 Right of first refusal (4)
Madison, Wisconsin A 10 August 2003 Right of first refusal (4)
17
FACILITY OPENED/ APPROXIMATE EXPIRATION OF PURCHASE OPTION
----------- ---------------
LOCATION ACQUIRED ACREAGE LEASE TERM
-------- -------- ------- ----------
Milwaukee, Wisconsin A 20 August 2003 Right of first refusal (4)
Jackson, Mississippi A 15 July 2005 Yes
Charlotte, North Carolina O 24 July 2005 Yes
Jacksonville, Florida O 28 October 2005 Yes
Van Nuys, California O 40 Company owned Not applicable
Indianapolis, Indiana O 16 February 2001 No
El Paso, Texas A 15 Company owned Not applicable
Phoenix, Arizona O 13 February 2001 Yes
Hammond, Indiana O 19 September 2001 Right of first refusal
Woodinville, Washington O 10 August 2001 No
Baton Rouge, Louisiana A 30 Company owned Not applicable
Salt Lake City, Utah O/A 20 March 2007 Yes
Benicia, California (5) N/A 16,400/sq ft April 2000 No
- ---------
(1) Copart's initial facility.
(2) In connection with the acquisition of the Dallas Operation, Copart obtained
an option, exercisable from March 2004 through March 2014, to acquire the Dallas
Operation's real property for the purchase price of $2.5 million, consisting of
$500,000 in cash and a $2.0 million promissory note bearing interest at the then
prime rate payable in equal monthly installments over 10 years. Such purchase
price may be subject to adjustment in the event that the total cost of
corrective action at the Dallas Operation exceeds $7.2 million.
(3) Leasehold interest held by NER Auction Group on the current Southampton
facility expired on July 31, 1997. Thereafter, the Company and Richard Polidori,
the former principal owner of NER, cancelled a lease agreement for property
owned by Mr. Polidori on Long Island. The Company has extended its existing
lease of the Southampton facility to July 31, 2000.
(4) Right of first refusal for these properties is held by the NER Auction
Group entities which are leasing such properties from third party landowners and
as to which Copart is the sublesee.
(5) Corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
On June 3, 1994, Bill Woltz, doing business as Salvage Pool Systems, filed
a complaint against Copart and Willis J. Johnson, the Company's Chief Executive
Officer and a Director, in the Northern District of California alleging claims
for copyright infringement, breach of implied contract, common law fraud,
negligent misrepresentation and slander. Mr. Woltz is a former employee and
consultant who performed computer programming services for Copart. On
August 25, 1994, the original complaint was dismissed without prejudice.
Mr. Woltz filed a new complaint on October 14, 1994 in the Northern District of
California alleging the same claims contained in his prior complaint and, in
addition, claims for unfair competition, goods sold and delivered, accounting
and libel. The dispute arises out of alleged contracts between Woltz and
Copart, Copart's alleged use and copying of computer programs, and alleged
statements by Copart about the computer programs and alleged contracts. The
complaint seeks an unspecified amount in damages, an injunction preventing
Copart from using or offering to sell or license the software, costs and
attorneys' fees, treble damages, punitive damages, and a retraction of alleged
libelous statements. Copart filed an answer to the complaint denying all of the
allegations and asserting various defenses. Management believes that the action
is without merit and is contesting the action vigorously. Additionally, the
Company has asserted counterclaims against Woltz for ownership of software that
Woltz developed while a Copart employee, conversion and possession of Copart's
property. In February 1996 the Company filed a Motion for Summary Judgment. On
August 19, 1996, the Court entered an Order in which it denied summary judgment
on plaintiff's copyright infringement claim and reserved ruling on plaintiff's
state law causes of action. However, in that Order the Court invited the
Company to file a further summary judgment motion
18
based on certain copyright issues. Trial was held on August 25-28, 1997 before
Judge Vaugh Walker in United States District Court in San Francisco. Judge
Walker issued a decision finding for the Company and Willis Johnson on all
causes of action. The case was dismissed.
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 summarized the high and low sales prices per share for each
quarter during the last two fiscal years. As of July 31, 1997, there were
13,071,111 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, 1997, the Company had 264 shareholders of record.
1996 High Low
- ---- ---- ---
First Quarter 23 7/8 19 1/4
Second Quarter 30 1/8 20 3/4
Third Quarter 30 1/4 23 1/4
Fourth Quarter 28 1/2 12 1/4
1997 High Low
- ---- ---- ---
First Quarter 21 1/8 14 3/8
Second Quarter 18 3/4 10 1/4
Third Quarter 18 3/4 12 3/4
Fourth Quarter 19 12 7/8
The Company has not paid a cash dividend since 1984 and does not anticipate
paying any cash dividends in the foreseeable future.
19
ITEM 6. SELECTED FINANCIAL DATA
The tables below summarize the Selected Consolidated Financial Data of the
Registrant 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 Peat Marwick LLP, independent public accountants, whose report
is included herein covering the consolidated financial statements as of July 31,
1997 and 1996 and for each of the years in the three-year period ended July 31,
1997. The selected operating data for the years ended July 31, 1994 and 1993 and
the balance sheet data as of July 31, 1995, 1994 and 1993 are derived from
audited consolidated financial statements not included herein:
SELECTED OPERATING DATA 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues (1) $126,276 $118,248 $ 58,117 $ 22,794 $10,436
Operating income 18,853 17,802 11,261 4,112 1,422
Income before income taxes and
extraordinary item 19,475 18,190 11,437 3,710 729
Extraordinary item, net -- -- -- (1,633) --
Net income 11,993 11,185 6,894 590 495
Per share:
Income before
extraordinary item $ 0.90 $ 0.85 $ 0.65 $ 0.30 $ 0.07
Extraordinary item, net -- -- -- (0.22) --
-------- -------- -------- -------- -------
Net income $ 0.90 $ 0.85 $ 0.65 $ 0.08 $ 0.07
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Weighted average shares (000) 13,257 13,216 10,614 7,305 6,780
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
BALANCE SHEET DATA
Cash and cash equivalents $ 27,685 $ 13,026 $ 13,779 $ 17,871 $ 1,786
Working capital 48,930 40,586 32,756 21,890 2,941
Total assets 175,340 158,066 135,158 62,569 15,944
Total debt 9,753 11,260 3,734 4,019 8,575
Shareholders' equity 142,814 126,245 113,116 49,288 4,132
OTHER
Salvage vehicles processed 410,000 391,100 223,300 101,000 45,400
Gross proceeds (000) $537,657 $506,916 $317,788 $114,397 $57,876
Number of auction facilities 53 49 42 15 10
(1) See Note 2 to the Consolidated Financial Statements for a discussion
of acquisitions.
20
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 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
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 revenue. For the fiscal years ended July 31, 1997, 1996, and 1995,
approximately 33%, 25%, and 28% of the vehicles sold by Copart, respectively,
were processed under the PIP, and approximately 6%, 6% and 2% of the vehicles
sold by Copart, respectively, were processed pursuant to the Purchase Program.
The increase in the percentage of vehicles sold under the PIP in fiscal 1997 is
due to the Company's successful marketing efforts. The decrease in the
percentage of vehicles sold under the PIP in fiscal 1996 resulted from the
acquisition by Copart of various companies that conducted business on a fixed
fee consignment basis, which is consistent with industry practice. As a result
of the acquisition of NER Auction Group ("NER") on May 2, 1995, which processed
almost all of its vehicles on a fixed fee consignment basis, the percentage of
the Company's vehicles processed under the PIP decreased. The Company attempts
to convert acquired operations to the PIP Program which typically results in
higher net returns to vehicle suppliers and higher fees to the Company than
standard fixed fee consignment programs. The decrease in vehicles sold under
the Purchase Program between fiscal 1997 and 1996 is attributable to the
termination, or renegotiation to consignment contracts, of certain vehicle
purchase contracts. However, 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 this
program in future periods may vary. In addition to auction fees paid by vehicle
suppliers and vehicle buyers, approximately 31%, 27%, and 31% of Copart's
revenues for the fiscal years ended July 31, 1997, 1996 and 1995, respectively,
were attributable to buyer fees, which are fees received from buyers in addition
to amounts they pay to purchase salvage vehicles.
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, fleet maintenance and
repair, fuel 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.
ACQUISITIONS AND NEW OPERATIONS
Copart has experienced significant growth as it acquired 30 salvage vehicle
auction facilities and established eight new facilities since the beginning of
fiscal 1995. All of the acquisitions have been accounted for using the purchase
method. Accordingly, the excess of the purchase price over the 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 yards in new regions, as well as the regions currently
served by Company yards. As part of this strategy, during fiscal 1997, Copart
acquired facilities near Baton Rouge, Louisiana, and Salt Lake City, Utah and
opened new facilities in Woodinville, Washington and Hammond, Indiana. In
fiscal 1996, Copart acquired two facilities in or near Jackson, Mississippi and
El Paso, Texas and opened five new facilities in or near Charlotte, North
Carolina; Jacksonville, Florida; Indianapolis, Indiana; Van Nuys, California;
and Phoenix, Arizona. During fiscal
21
1995, Copart acquired NER, plus six facilities in or near Kansas City, Kansas;
Tulsa and Oklahoma City, Oklahoma; St. Louis, Missouri; and Conway and West
Memphis, Arkansas; and opened one facility in Sacramento, California. The
Company believes that these acquisitions and openings solidify the Company's
coverage of the West Coast, expand the Company's coverage of the South,
Southwest and Midwest, give the Company a substantial presence in the Northeast,
the Great Lakes states, Georgia and Florida. The Company expects to incur
future amortization charges in connection with anticipated 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.
YEAR ENDED JULY 31
------------------
1997 1996 1995
---- ---- ----
Revenues 100.0 % 100.0 % 100.00 %
------ ------ ------
Operating expenses:
Yard and fleet 70.8 70.6 65.0
General and administrative 8.4 9.2 9.8
Depreciation and amortization 5.9 5.1 5.8
------ ------ ------
Total operating expenses 85.1 84.9 80.6
------ ------ ------
Operating income 14.9 15.1 19.4
Other income, net 0.5 0.3 0.3
------ ------ ------
Income before income taxes 15.4 15.4 19.7
Income taxes 5.9 5.9 7.8
------ ------ ------
Net income 9.5 % 9.5 % 11.9 %
------ ------ ------
------ ------ ------
- -----------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
22
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues were approximately $126.3 million during fiscal 1997, an increase
of approximately $8.0 million, or 7%, over fiscal 1996 based on 410,000 vehicles
processed. Approximately $4.2 million of the increase in revenues was the
result of the acquisition of the El Paso, Baton Rouge, and Salt Lake City
operations and the opening of Copart's Charlotte, Jacksonville, Indianapolis,
and Phoenix facilities. Existing yard revenues increased overall by
approximately $3.8 million, or 3%, over fiscal 1996, despite decreased revenues
from Purchase Program vehicles of approximately $5.8 million. Under the
Purchase Program the Company records the gross proceeds of the vehicle sale in
revenue. After eliminating the accounting impact of the Purchase Program, the
remainder of the increase in revenues at existing operations was primarily
attributable to increased per unit revenues of approximately 10% and increased
vehicle volume of approximately 1%.
Yard and fleet expenses were approximately $89.4 million during fiscal
1997, an increase of approximately $5.9 million, or 7%, over fiscal 1996.
Approximately $0.8 million of the increase was the result of the acquisition of
the El Paso, Baton Rouge, and Salt Lake City operations and the opening of
Copart's Charlotte, Jacksonville, Indianapolis, and Phoenix. facilities. The
remainder of the increase in yard and fleet expenses was attributable to
increased yard and fleet expenses from existing operations, including the cost
of Purchase Program vehicles. Yard and fleet expense increased to 70.8% of
revenues during fiscal 1997, as compared to 70.6% of revenues during fiscal
1996.
General and administrative expenses were approximately $10.6 million during
fiscal 1997, a decrease of approximately $0.3 million, or 3%, over fiscal 1996,
due primarily to decreased personnel expense. General and administrative
expenses decreased to 8.4% of revenues during fiscal 1997, as compared to 9.2%
of revenues during fiscal 1996 due to costs being spread over a greater revenue
base.
Depreciation and amortization expense was approximately $7.5 million during
fiscal 1997, an increase of approximately $1.5 million, or 24%, over fiscal
1996. Such increase was due primarily to the amortization of goodwill and
covenants not to compete and depreciation of acquired assets resulting from the
acquisition of new salvage auction facilities.
Interest expense was approximately $826,000 during fiscal 1997, an increase
of $375,000 over fiscal 1996. This increase was attributable to the increase in
debt associated with the land acquisition in Van Nuys in May, 1996.
The effective income tax rate of 38% applicable to fiscal 1997 is
comparable to the fiscal 1996 effective income tax rate of 39%.
Due to the foregoing factors, Copart realized net income of $12.0 million
for fiscal 1997, compared to net income of $11.2 million for fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues were approximately $118.2 million during fiscal 1996, an increase
of approximately $60.1 million, or 103%, over fiscal 1995 based on 391,100
vehicles processed. Approximately $45.8 million of the increase in revenues was
the result of the acquisition of the Kansas City, Oklahoma City, Tulsa, St.
Louis, Conway, West Memphis, NER, Jackson, and El Paso operations and the
opening of Copart's Charlotte, Jacksonville, Indianapolis, and Phoenix
facilities. Existing yard revenues increased by approximately $14.3 million, or
33% over fiscal 1995, of which revenues from Purchase Program vehicles accounted
for approximately $11.5 million of the increase. Under the Purchase Program the
Company records the gross proceeds of the vehicle sale as revenue. The
remainder of the increase in revenue at these facilities was
23
primarily attributable to increased per unit revenues of approximately 9% and
increased vehicle volume of approximately 3%.
Yard and fleet expenses were approximately $83.5 million during fiscal
1996, an increase of approximately $45.8 million, or 121%, over fiscal 1995.
Approximately $34.2 million of the increase was the result of the acquisition of
the Kansas City, Oklahoma City, Tulsa, St. Louis, Conway, West Memphis, NER,
Jackson, and El Paso operations; and the opening of Copart's Charlotte,
Jacksonville, Indianapolis, and Phoenix facilities. The remainder of the
increase in yard and fleet expenses was attributable to yard and fleet expenses
from existing operations, including the cost of Purchase Program vehicles. Yard
and fleet expenses increased to 70.6% of revenues during fiscal 1996, as
compared to 65.0% of revenues during fiscal 1995, primarily as a result of the
Company processing additional vehicles under the Purchase Program.
General and administrative expenses were approximately $10.9 million during
fiscal 1996, an increase of approximately $5.2 million, or 91%, over fiscal
1995, due primarily to increased personnel expense resulting from acquisitions,
increased hiring in anticipation of additional growth and additional investments
in marketing and MIS staff. General and administrative expenses decreased to
9.2% of revenues during fiscal 1996, as compared to 9.8% of revenues during
fiscal 1995, primarily as a result of the Company processing additional vehicles
under the Purchase Program which has higher revenue per unit.
Depreciation and amortization expense was approximately $6.0 million during
fiscal 1996, an increase of approximately $2.6 million, or 76%, over fiscal
1995. Such increase was due primarily to the amortization of goodwill and
covenants not to compete and depreciation of acquired assets resulting from the
acquisition of new salvage auction facilities.
The expected effective income tax rate of 39% applicable to fiscal 1996 is
lower than the fiscal 1995 effective income tax rate, due to savings associated
with state and local tax planning.
Due to the foregoing factors, Copart realized net income of $11.2 million
for fiscal 1996, an increase of 62% compared to net income of $6.9 million for
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth principally through cash generated from
operations, debt financing in February 1993, the issuance by Copart of 1,071,600
shares of Common Stock at $7.00 per share in a private placement to certain of
its existing shareholders in November 1993, its March 1994 initial public
offering ("IPO") of 2,300,000 shares of Common Stock at $12.00 per share, its
follow-on offering in May 1995 of 1,897,500 shares of Common Stock at $19.25 per
share, the equity issued in conjunction with certain acquisitions and borrowings
under the Bank Credit Facility (as defined below) in connection with the NER
Acquisition.
At July 31, 1997, Copart had working capital of approximately $48.9
million, including cash and cash equivalents of approximately $27.7 million.
The Company is able to process, market, sell and receive payment for processed
vehicles quickly. Therefore, the Company does not require substantial amounts of
working capital, as it receives payment for vehicles at approximately the same
time as it remits payments to vehicle suppliers. The Company's primary source
of cash is from the collection of sellers' fees and reimbursable advances from
the proceeds of auctioned salvage vehicles and from buyers' fees.
In May, 1995 Copart entered into a bank credit facility provided by Wells
Fargo Bank, N.A. and U.S. Bank of California which was amended in March, 1997 to
include Fleet National Bank (the "Bank Credit Facility"). The Bank Credit
Facility consists of an unsecured revolving reducing line of credit of $50
million which matures in February 2002. The amount available under the facility
reduces by $10 million in February 2000 and 2001, leaving the principal balance
available as follows: March 1, 2000, $40 million available; March 1, 2001, $30
million available; February 28, 2002, the line of credit matures. Amounts
24
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, 1997, there are no outstanding borrowings
under this facility.
The Company has entered into various operating lease lines for the purpose
of leasing up to $16.0 million of yard and fleet equipment, of which
approximately $5.5 million was available as of July 31, 1997.
Copart generated cash from operations of approximately $24.6 million, $11.3
million and $5.2 million in fiscal years 1997, 1996 and 1995, respectively. The
increase in cash from operations from fiscal 1995 to fiscal 1996 and from fiscal
1996 to fiscal 1997 reflects Copart's increased profitability.
During the fiscal year ended July 31, 1997, Copart used cash for the
acquisition of the Baton Rouge and the Salt Lake City operations, which had an
aggregate cash cost of approximately $3.4 million. During the fiscal year ended
July 31, 1996, Copart used cash for the acquisition of the Jackson, Mississippi
and El Paso, Texas facilities, which had an aggregate cash cost of approximately
$2.8 million. During the fiscal year ended July 31, 1995, Copart's principal
use of cash was for the acquisition of the NER, Kansas City, Oklahoma City,
Tulsa, St. Louis, Conway and West Memphis salvage vehicle auction facilities,
which had an aggregate cash cost of approximately $38.3 million. Copart financed
the cash portion of the NER acquisition of approximately $24.7 million
principally with the proceeds from the Bank Credit Facility. The Company used a
portion of the net proceeds of its May 1995 follow-on offering to repay the
amounts borrowed under the Bank Credit Facility. In addition, the Company
issued $21.3 million in value of its Common Stock in conjunction with the fiscal
1995 acquisitions.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $7.2 million, $8.4 million and
$5.1 million for fiscal 1997, 1996 and 1995, respectively. During the fiscal
year ended July 31, 1996, Copart acquired approximately 40 acres of land at the
Van Nuys facility for the purchase price of $10.5 million, for which the Company
paid $3.0 million in cash and issued the seller a promissory note secured by the
real property in the principal amount of $7.5 million, payable interest only at
the rate of 7.2% per annum, with the principal payable in 5 years. Copart's
capital expenditures have related primarily to opening and operating facilities
and acquiring yard equipment. Historically, while Copart has sub-contracted for
a significant portion of its vehicle transport services, the Company has
implemented a program for converting long haul transports to its own fleet of
vehicle carriers at each facility. Based upon the potential for increased
revenues from Company-owned vehicle towing services, the Company has entered
into agreements to acquire approximately $5.0 million of additional
multi-vehicle transport trucks and forklifts and is disposing of certain older
equipment.
In fiscal 1997, 1996 and 1995, the Company generated approximately $2.4,
$0.6 and $0.3 million through the exercise of stock options and warrants,
respectively. In fiscal 1995, the Company generated approximately $33.9 million
of net cash primarily through the issuance of common stock in its follow-on
offering.
Cash and cash equivalents increased by approximately $14.7 million and
decreased by $0.8 million in fiscal 1997 and 1996, respectively. 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 the proceeds of its follow-on offering of Common
Stock, cash generated from operations, borrowing availability under the Bank
Credit Facility and existing equipment leasing lines of credit will be
sufficient to satisfy the Company's working capital requirements and fund
openings and acquisitions of new facilities for the next 12 months.* However,
there can be no assurance that the Company
- -----------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could affect
future performance.
25
will not be required to seek additional debt or equity financing prior to such
time, depending upon the rate at which the Company opens or acquires new
facilities.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. The
statement specified the computation, presentation and disclosure requirements
for earnings per share and is effective for periods ending after December 15,
1997, and will be adopted by Copart, Inc. in fiscal year 1998.
In 1997, the FASB issued SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT
CAPITAL STRUCTURE. The statement is effective for periods ending after December
15, 1997. This statement will have no impact on Copart's disclosures within the
consolidated financial statements.
In 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which establishes standards for reporting and displaying comprehensive income
and its components. The statement is effective for fiscal years beginning after
December 15, 1997 and will be adopted by Copart, Inc. in fiscal year 1999.
In 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which establishes standards for the way that
public business enterprises are to report information about operating segments
in the annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. The statement is effective for periods beginning after
December 15, 1997, and will be adopted by Copart, Inc. in fiscal year 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See 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 Proxy Statement
under the heading "Election of Directors."
Information regarding executive officers is included in Part I
hereof under the caption "Executive Officers of the Registrant" and is
incorporated by reference herein.
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."
26
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."
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Independent Auditors' Report................................. 32
Consolidated Balance Sheets at July 31,
1997 and 1996.............................................. 33
Consolidated Statements of Income for the
three years ended July 31, 1997............................ 34
Consolidated Statements of Shareholders'
Equity for the three years ended
July 31, 1997.............................................. 35
Consolidated Statements of Cash Flows for the
three years ended July 31, 1997............................ 36
Notes to Consolidated Financial Statements................... 38
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts....................... 52
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
*3.1 Amended and Restated Articles of Incorporation of the Registrant
***3.2 Bylaws of the Registrant, as amended
***10.1+ Copart, Inc. 1992 Stock Option Plan, as amended
*10.2+ 1994 Employee Stock Purchase Plan, with form of Subscription
Agreement
*10.3+ 1994 Director Option Plan, with form of Subscription Agreement
*10.4 Indemnification Agreement, dated December 1, 1992, among the
Registrant and Willis J. Johnson, Reba J. Johnson, A. Jayson
Adair, Michael A. Seebode, Steven D. Cohan and Paul A. Styer
*10.5 Indemnification Agreement, dated July 1, 1993, between the
Registrant and Willis J. Johnson, Marvin L. Schmidt, James E.
Meeks and Steven D. Cohan
*10.6 Indemnification Agreement, dated November 9, 1993, between the
Registrant and James Grosfeld
*10.7 Form of Indemnification Agreement to be entered into by the
Registrant and each of Harold Blumentstein and Patrick Foley
*10.8+ Employment Contract for Chief Executive, dated February 17, 1993,
between Willis J. Johnson and the Registrant
*10.9+ Employment Contract, dated August 1, 1992, between A. Jayson
Adair and the Registrant
28
*10.10+ Employment for Senior Executive, dated September 1, 1992, between
Paul A. Styer and the Registrant
*10.11 Employment Contract for Senior Executive, dated September 1,
1992, between James E. Meeks and the Registrant
*10.12 Common Stock Warrant, dated November 9, 1993, issued to James
Grosfeld
***10.13 Credit Agreement among Copart, Inc. and Wells Fargo Bank,
National Association, U.S. Bank of California and Wells Fargo
Bank, National Association, as Agent, dated May 1, 1995
****10.14 Agreement for Purchase and Sale of Assets of NER Auction Systems,
dated January 13, 1995, among Registrant, the list of Sellers as
set forth therein, Richard A. Polidori, Gordon VanValkenberg,
and Stephen Powers
*****10.15 Contract of Sale by and between the Stroh Companies, Inc. as
Seller and Copart, Inc. as Purchaser, dated April 4, 1996
10.16 Amended and Restated Credit Agreement among Copart, Inc. and
Wells Fargo Bank, National Association, U.S. Bank of California
and Fleet National Bank and Wells Fargo Bank,
National Association, as Agent, dated March 7, 1997
11.1 Copart, Inc. and Subsidiaries Computation of Net Income Per Share
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (See page 30 of this Form 10-K)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
(c) See response to Item 14(a)(3) above
(d) See response to Item 14(a)(2) above
- -------------------------
* Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-1, as amended (File No. 33- 74250).
+ Denotes a compensation plan in which an executive officer participates.
*** Incorporated by reference from exhibit to registrant's Form 10-K for its
fiscal year ended July 31, 1995, filed with the Securities and Exchange
Commission.
**** Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-3, as amended (File No. 33-91110) filed with the
Securities and Exchange Commission.
***** Incorporated by reference from exhibit to registrant's Form 10-K for its
fiscal year ended July 31, 1996, filed with the Securities and Exchange
Commission.
29
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 __, 1997 BY: _________________________________
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.
30
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.
Signature Capacity In Which Signed Date
--------- ------------------------ ----
____________________ Chief Executive Officer October __, 1997
Willis J. Johnson and acting
Chief Financial Officer
(Principal Executive,
Principal Financial and
Accounting Officer and Director)
____________________ President October __, 1997
A. Jayson Adair and Director
____________________ Director October __, 1997
James Grosfeld
____________________ Senior Vice President October __, 1997
Marvin L. Schmidt of Corporate Development
and Director
____________________ Director October __, 1997
Jonathan Vannini
____________________ Director October __, 1997
Harold Blumenstein
____________________ Executive Vice President October __, 1997
James E. Meeks and Director
31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Copart, Inc.:
We have audited the consolidated financial statements of Copart, Inc. and
subsidiaries as listed in Item 14(a). In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in Item 14(a). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Copart, Inc. and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1997, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
September 26, 1997
32
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
-------------------------------------
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 27,684,500 $ 13,026,200
Accounts receivable, net 31,337,100 29,992,000
Income taxes receivable - 742,200
Vehicle pooling costs 8,822,500 9,253,300
Inventory 278,700 1,456,400
Deferred income taxes 343,700 378,400
Prepaid expenses and other assets 2,825,200 2,450,800
------------- -------------
Total current assets 71,291,700 57,299,300
Property and equipment, net 28,787,900 26,204,200
Intangibles and other assets, net 75,259,900 74,562,300
------------- -------------
Total assets $ 175,339,500 $ 158,065,800
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,938,800 $ 772,800
Accounts payable and accrued liabilities 11,757,300 10,370,000
Deferred revenue 5,566,300 5,570,500
Income taxes payable 83,200 -
Other current liabilities 3,016,100 -
------------- -------------
Total current liabilities 22,361,700 16,713,300
Deferred income taxes 975,200 610,300
Long-term debt, less current portion 7,814,200 10,487,000
Other liabilities 1,374,000 4,010,200
------------- -------------
Total liabilities 32,525,100 31,820,800
------------- -------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
13,071,111 and 12,641,213 shares issued and outstanding at
July 31, 1997 and July 31, 1996, respectively 111,050,600 106,473,800
Retained earnings 31,763,800 19,771,200
------------- -------------
Total shareholders' equity 142,814,400 126,245,000
------------- -------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 175,339,500 $ 158,065,800
------------- -------------
------------- -------------
See accompanying notes to consolidated financial statements.
33
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended July 31,
------------------------------------------------------
1997 1996 1995
---- ---- ----
Revenues $ 126,275,900 $ 118,247,600 $ 58,116,700
-------------- -------------- --------------
Operating expenses:
Yard and fleet 89,393,500 83,541,800 37,753,400
General and administrative 10,566,100 10,907,500 5,704,400
Depreciation and amortization 7,463,300 5,996,700 3,397,900
-------------- -------------- --------------
Total operating expenses 107,422,900 100,446,000 46,855,700
-------------- -------------- --------------
Operating income 18,853,000 17,801,600 11,261,000
-------------- -------------- --------------
Other income (expense):
Interest expense (826,100) (450,800) (491,000)
Interest income 1,066,500 680,200 582,500
Other income 381,400 158,900 84,200
-------------- -------------- --------------
Total other income 621,800 388,300 175,700
-------------- -------------- --------------
Income before income taxes 19,474,800 18,189,900 11,436,700
Income taxes 7,482,200 7,004,500 4,542,400
-------------- -------------- --------------
Net income $ 11,992,600 $ 11,185,400 $ 6,894,300
-------------- -------------- --------------
-------------- -------------- --------------
Net income per share $ .90 $ .85 $ .65
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares and
equivalents outstanding 13,256,707 13,215,636 10,614,201
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes to consolidated financial statements.
34
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
----------------------------
Outstanding Retained Shareholders'
shares Amount Earnings Equity
------------- ------------- ------------- -------------
BALANCES AT JULY 31, 1994 8,753,157 $ 47,596,500 $ 1,691,500 $ 49,288,000
Shares issued for acquisitions 1,366,666 21,310,100 - 21,310,100
Shares issued in connection
with public offering 1,897,500 33,844,900 - 33,844,900
Exercise of stock options 156,100 269,100 - 269,100
Exercise of warrants and
related tax benefit 188,341 1,301,800 - 1,301,800
Shares issued for Employee
Stock Purchase Plan 10,460 207,400 - 207,400
Net Income - - 6,894,300 6,894,300
------------- ------------- ------------- -------------
BALANCES AT JULY 31, 1995 12,372,224 104,529,800 8,585,800 113,115,600
Shares issued for acquisitions 288 6,200 - 6,200
Exercise of stock options 157,508 586,600 - 586,600
Exercise of warrants and
related tax benefit 87,431 860,300 - 860,300
Shares issued for Employee
Stock Purchase Plan 21,062 434,200 - 434,200
Shares issued for software 2,700 56,700 - 56,700
Net Income - - 11,185,400 11,185,400
------------- ------------- ------------- -------------
BALANCES AT JULY 31, 1996 12,641,213 106,473,800 19,771,200 126,245,000
Exercise of stock options and
related tax benefit 45,400 1,147,000 - 1,147,000
Exercise of warrants and
related tax benefit 357,001 3,023,800 - 3,023,800
Shares issued for Employee
Stock Purchase Plan 27,497 406,000 - 406,000
Net Income - - 11,992,600 11,992,600
------------- ------------- ------------- -------------
BALANCES AT JULY 31, 1997 13,071,111 $ 111,050,600 $ 31,763,800 $ 142,814,400
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements.
35
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
------------------------------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,992,600 $ 11,185,400 $ 6,894,300
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,463,300 5,996,700 3,397,900
Deferred rent 404,300 991,200 19,000
Deferred income taxes 399,600 (270,100) 71,800
Gain on sale of assets (197,200) (62,300) (17,000)
Employee Stock Purchase Plan compensation 101,400 91,600 68,600
Changes in operating assets and liabilities:
Accounts receivable (827,500) (5,528,500) (4,905,500)
Vehicle pooling costs 671,900 (2,366,800) (1,487,100)
Inventory 1,177,700 1,796,000 (3,172,500)
Prepaid expenses and other current assets (580,000) (1,738,800) 503,400
Accounts payable and accrued liabilities 1,352,900 820,000 1,925,900
Deferred revenue (4,200) 248,000 751,900
Income taxes 2,624,100 118,100 1,168,900
-------------- -------------- --------------
Net cash provided by operating activities 24,578,900 11,280,500 5,219,600
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable - - 146,400
Purchase of property and equipment (7,285,600) (8,412,800) (5,055,800)
Proceeds from sale of property and equipment 1,853,800 516,600 17,000
Purchase of property and equipment in
connection with acquisitions (466,600) (174,500) (4,870,400)
Purchase of intangible assets in connection
with acquisitions (2,130,700) (2,296,800) (24,869,900)
Purchase of net current assets in connection
with acquisitions (839,900) (511,200) (8,562,500)
Purchase of software development costs (1,542,700) (672,100) -
Deferred preopening costs (456,100) (714,700) -
Other intangible asset additions (222,700) (123,500) -
-------------- -------------- --------------
Net cash used in investing activities (11,090,500) (12,389,000) (43,195,200)
-------------- -------------- --------------
CONTINUED ON NEXT PAGE
36
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
-------------------------------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 33,844,900
Proceeds from the exercise of stock options and warrants 2,372,100 586,600 269,100
Proceeds from issuance of Employee
Stock Purchase Plan shares 304,600 342,600 138,800
Proceeds from issuance of notes payable - - 20,525,700
Principal payments on notes payable (1,506,800) (573,700) (20,894,200)
-------------- -------------- --------------
Net cash provided by financing activities 1,169,900 355,500 33,884,300
-------------- -------------- --------------
Net increase (decrease) in cash and
and cash equivalents 14,658,300 (753,000) (4,091,300)
Cash and cash equivalents at beginning of year 13,026,200 13,779,200 17,870,500
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 27,684,500 $ 13,026,200 $ 13,779,200
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 826,100 $ 450,800 $ 491,000
-------------- -------------- --------------
-------------- -------------- --------------
Income taxes paid $ 4,864,900 $ 7,160,300 $ 3,298,400
-------------- -------------- --------------
-------------- -------------- --------------
See note 13 for noncash financing and investing activities.
See accompanying notes to consolidated financial statements.
37
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATION ACTIVITIES
Copart, Inc. and its subsidiaries (the "Company") provide vehicle suppliers
with a full range of services to process and sell salvage vehicles. The Company
auctions salvage vehicles, which are either damaged vehicles deemed a total loss
for insurance or business purposes or are recovered stolen vehicles for which an
insurance settlement with the vehicle owner has already been made.
Gross proceeds generated from auctioned vehicles were approximately
$537,657,000, $506,916,000, and $317,788,000, for the years ended July 31, 1997,
1996 and 1995, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company's
wholly-owned subsidiaries. Significant intercompany transactions and balances
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recorded at the date the vehicles are sold at auction.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
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.
INVENTORY
Inventories of purchased vehicles are stated at the lower of specific cost
or estimated realizable value.
DEFERRED PREOPENING COSTS
Costs related to the opening of new auction facilities, such as preopening
payroll and various training expenses, are deferred until the auction facilities
open and are amortized over the subsequent 12 months. These costs are included
in prepaid expenses and other assets.
38
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Assets acquired before July 31, 1991 are depreciated using
accelerated methods. For assets acquired subsequent to July 31, 1991,
depreciation expense is provided on the straight-line method over the estimated
useful lives of the related assets, generally five to nineteen years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or the useful lives of the respective assets.
INTANGIBLE ASSETS
Intangible assets consist of covenants not to compete, goodwill, options to
purchase leased property and other costs. Amortization, except for the options
to purchase leased property, is provided on the straight-line method over the
estimated lives which range from five to forty years. The Company continually
evaluates the recoverability of goodwill as well as other intangible assets by
assessing whether the amortization of the balance over the remaining life can be
recovered through expected and undiscounted future results. As part of this
review, the Company takes into consideration any events and circumstances which
might have diminished the fair values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximate fair value.
NET INCOME PER SHARE
Net income per share is computed by using the weighted-average number of
common shares and equivalents assumed to be outstanding during the periods.
Common stock options and warrants to purchase common stock were included in the
calculations of net income per share.
Fully diluted earnings per share is not presented since the amounts are
antidilutive or do not differ significantly from the primary earnings per share
presented
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.
ACCOUNTING FOR STOCK OPTIONS
Prior to August 1, 1996, the Company accounted for its stock option plan 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. On
August 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the 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
39
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions required by SFAS No. 123.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, EARNINGS PER SHARE. The statement specified the computation, presentation
and disclosure requirements for earnings per share and is effective for periods
ending after December 15, 1997, and will be adopted by Copart, Inc. in fiscal
year 1998.
In 1997, the FASB issued SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT
CAPITAL STRUCTURE. The statement is effective for periods ending after December
15, 1997. This statement will have no impact on Copart's disclosures within the
consolidated financial statements.
In 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which establishes standards for reporting and displaying comprehensive income
and its components. The statement is effective for fiscal years beginning after
December 15, 1997 and will be adopted by Copart, Inc. in fiscal year 1999.
In 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which establishes standards for the way that
public business enterprises are to report information about operating segments
in the annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. The statement is effective for periods beginning after
December 15, 1997, and will be adopted by Copart, Inc. in fiscal year 1999.
(2) ACQUISITIONS
FISCAL 1997 TRANSACTIONS
On January 10, 1997, the Company acquired certain assets of SALA Insurance
Salvage, Inc., of Baton Rouge, Louisiana. On March 28, 1997, the Company
acquired certain assets of Western Affiliated Salvage Pool and Auction of Salt
Lake City, Utah. The consideration paid for these acquisitions consisted of
$3,437,200 in cash. The acquired net assets consisted of accounts and advances
receivable, inventory, fixed assets, goodwill and covenants not to compete. The
acquisitions were accounted for using the purchase method of accounting, and the
operating results subsequent to the acquisition dates are included in the
Company's consolidated statements of income. The excess of the purchase price
over fair market value of the net identifiable assets acquired of $2,130,700 has
been recorded as goodwill and is being amortized on a straight-line basis over
40 years. In conjunction with the Salt Lake City acquisition, the Company
entered into a lease for the use of the facility.
FISCAL 1996 TRANSACTIONS
On August 1, 1995, the Company acquired certain assets of Mississippi
Salvage Disposal Company, Inc., of Jackson, Mississippi. On November 16, 1995,
the Company acquired certain assets of Sun City Salvage Pool, Inc., of El Paso,
Texas. The consideration paid for these acquisitions consisted of
40
$2,782,500 in cash. The Company also paid $200,000 for an option to purchase
land. The acquired net assets consisted of accounts and advances receivable,
inventory, fixed assets, goodwill and covenants not to compete. The
acquisitions were accounted for using the purchase method of accounting, and the
operating results subsequent to the acquisition dates are included in the
Company's consolidated statements of income. The excess of the purchase price
over fair market value of the net identifiable assets acquired of $1,746,800 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. In addition, the Company paid $125,000
in June 1996 for contingent consideration related to the fiscal 1994
Lufkin/Longview acquisitions, and paid $6,200 in stock consideration, in
November 1995, related to the fiscal 1995 St. Louis acquisition.
FISCAL 1995 TRANSACTIONS
On October 17, 1994, the Company acquired all of the stock of Kansas City
Salvage Pool, Inc. for $3,947,600 in cash and 93,104 shares of common stock
valued at $1,512,900. The acquisition was accounted for using the purchase
method, and the operating results subsequent to the acquisition date are
included in the Company's consolidated statements of income. The excess of the
purchase price over the fair value of the net identifiable assets acquired at
$4,689,200 has been recorded as goodwill and is being amortized on a
straight-line basis of 40 years. In conjunction with this acquisition, the
Company entered into a lease for the use of the facilities.
On November 13, 1994, the Company acquired certain assets of Auto Pools of
Oklahoma City and Tulsa, Inc., Auto Storage Pool, Inc., and Auto Pools of Tulsa,
Inc. of Oklahoma City and Tulsa, Oklahoma. On March 1, 1995, the Company
acquired certain assets of Missouri Auto Salvage Pool, Inc., of St. Louis,
Missouri. On April 7, 1995, the Company acquired certain assets and liabilities
of Mid-Ark Salvage Pool, Inc., of Conway and West Memphis, Arkansas. The
consideration paid for these acquisitions consisted of $4,391,300 in cash and
112,466 shares of common stock valued at $2,055,500. The Company also paid
$500,000 for options to purchase the St. Louis, Conway, and West Memphis
facilities. The acquired net assets consisted of accounts and advances
receivable, inventory, fixed assets, goodwill and covenants not to compete. The
acquisitions were accounted for using the purchase method of accounting, and the
operating results subsequent to the acquisition dates are included in the
Company's consolidated statements of income. The excess of the purchase price
over fair market value of the net identifiable assets acquired of $4,471,000 has
been recorded as goodwill and is being amortized on a straight-line basis
between 30 and 40 years. In conjunction with these acquisitions, the Company
entered into leases for the use of these facilities. In addition, the Company
paid $119,400 in May, 1995 for contingent consideration related to the fiscal
1994 Lufkin and Longview acquisitions.
On May 2, 1995, the Company acquired certain assets and liabilities of NER
Auction Group with 20 locations in 11 states in the northeast and great lakes
regions and Florida for $22,732,000 in cash and 1,161,103 shares of common stock
valued at $17,741,700. The Company also paid $2,000,000 for options to purchase
land and buildings at certain facilities. The acquisition was accounted for
using the purchase method, and the operating results subsequent to the
acquisition date are included in the Company's consolidated statements of
income. The excess of the purchase price over the fair value of the
identifiable net assets acquired of $31,615,200 has been recorded as goodwill
and is being amortized on a straight-line basis over 40 years. In conjunction
with this acquisition, the Company entered into leases for all of the
facilities.
41
The following unaudited pro forma financial information assumes the 1997
and 1996 acquisitions occurred at the beginning of fiscal 1996. These results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made at the
beginning of fiscal 1996, or of the results which may occur in the future.
YEARS ENDED JULY 31,
--------------------
1997 1996
---- ----
Revenues $126,796,000 $119,667,000
------------ ------------
------------ ------------
Operating income $ 18,988,000 $ 18,152,000
------------ ------------
------------ ------------
Net income $ 12,077,500 $ 11,404,700
------------ ------------
------------ ------------
Net income per share $ .91 $ .86
------------ ------------
------------ ------------
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
JULY 31,
--------
1997 1996
---- ----
Advance charges receivable $20,272,600 $17,785,800
Trade accounts receivable 10,274,500 11,515,400
Other receivables 889,000 789,800
----------- -----------
31,436,100 30,091,000
Less allowance for doubtful accounts 99,000 99,000
----------- -----------
$31,337,100 $29,992,000
----------- -----------
----------- -----------
Advance charges receivable represent 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:
JULY 31,
--------
1997 1996
---- ----
Transportation and other equipment $10,024,600 $11,488,100
Office furniture and equipment 5,204,700 4,361,600
Land, buildings and leasehold improvements 23,135,200 17,582,800
----------- -----------
38,364,500 33,432,500
Less accumulated depreciation and amortization 9,576,600 7,228,300
----------- -----------
$28,787,900 $26,204,200
----------- -----------
----------- -----------
Included in property and equipment as of July 31, 1997 and 1996, are
$939,100 and $1,330,600 respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $349,800 and $404,200 as
of July 31, 1997 and 1996, respectively.
42
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
JULY 31,
--------
1997 1996
---- ----
Covenants not to compete $ 5,212,500 $ 4,787,500
Goodwill 72,244,000 70,404,400
Options to purchase leased property 3,455,000 3,455,000
Other 2,363,000 1,025,200
----------- -----------
83,274,500 79,672,100
Less accumulated amortization 8,014,600 5,109,800
----------- -----------
$75,259,900 $74,562,300
----------- -----------
----------- -----------
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
JULY 31,
--------
1997 1996
---- ----
Trade accounts payable $ 527,800 $ 347,600
Accounts payable to insurance companies 8,392,500 7,810,100
Accrued payroll 1,789,300 1,455,400
Other accrued liabilities 1,047,700 756,900
------------ ------------
$ 11,757,300 $ 10,370,000
------------ ------------
------------ ------------
43
(7) LONG-TERM DEBT
Long-term debt consists of the following:
JULY 31,
--------
1997 1996
---- ----
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
Unsecured note payable to an individual, payable in
monthly installments of $33,000 through
September 1997 when the balances become due,
bearing interest at 10% 1,575,000 1,801,500
Notes payable under capital leases, secured by
equipment, payable in monthly installments
of $1,600 to $17,800 through July 1999,
bearing interest from 3.9% to 10.4% 500,500 908,300
Notes payable secured by land, payable in monthly
installments of $2,600 to $3,100, paid in 1997. -- 642,100
Unsecured notes payable to individuals, payable in
monthly installments of $3,300 to $5,000 through
February 2000, bearing interest at
10% to 12% 136,000 229,700
Notes payable to financial institutions, secured by
equipment, payable in monthly installments of
$1,400 to $3,200 through September 1999,
bearing interest from 8% to 9.5% $ 41,500 $ 178,200
---------- -----------
9,753,000 11,259,800
Less current portion 1,938,800 772,800
---------- -----------
$7,814,200 $10,487,000
---------- -----------
---------- -----------
The aggregate maturities of long-term debt are as follows:
YEARS ENDING JULY 31,
---------------------
1998 $ 1,938,800
1999 228,600
2000 85,600
2001 7,500,000
------------
$ 9,753,000
In May, 1995 Copart entered into a bank credit facility provided by Wells
Fargo Bank, N.A. and U.S. Bank of California which was amended in March, 1997 to
include Fleet National Bank (the "Bank Credit Facility"). The Bank Credit
Facility consists of an unsecured revolving reducing line of credit of $50
million which matures in February 2002. The amount available under the facility
reduces by $10 million in February 2000 and 2001, leaving the principal balance
available as follows: March 1, 2000, $40 million available; March 1, 2001, $30
million available; February 28, 2002, the line of credit matures. Amounts
outstanding under the Bank Credit Facility accrue interest at either the prime
rate most recently announced by Wells Fargo or at a rate based on LIBOR plus a
spread of 0.50%, subject to increases to a maximum
44
spread of 1.25% based on certain credit ratios. As of July 31, 1997, under the
facility there are no outstanding borrowings under this facility. The Company
is subject to customary covenants, including restrictions or payment of
dividends, with which it is in compliance.
(8) SHAREHOLDERS' EQUITY
The Company adopted the Copart, Inc. 1992 Stock Option Plan (the "Plan") as
amended, presently covering 1,500,000 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 40,000 shares of the Company's common stock are presently
reserved. In general, new non-employee directors will automatically receive
grants of non-qualified options to purchase 3,000 shares and subsequent grants
to purchase 1,500 shares at specified intervals.
The Company has authorized the issuance of 5,000,000 shares of preferred
stock, no par value, none of which are issued at July 31, 1997.
The Copart, Inc. Employee Stock Purchase Plan provides for the purchase of
up to 85,000 shares of common stock of the Company by employees pursuant to the
terms of the plan, as defined. Shares of common stock issued pursuant to the
plan during fiscal 1997 and 1996 were 27,497 and 21,062, respectively.
Additional compensation expense of $101,400, $91,600 and $68,600 was
recognized in fiscal 1997, 1996, and 1995 respectively.
At July 31, 1997, the Company has 36,396 outstanding warrants expiring in
1998 and 2000 to purchase shares of common stock at $2.04 per share.
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 of the Statement. 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 5 years and a risk-free interest rate of 6.6% and 6.7% for 1997 and
1996, respectively. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting period.
The Company's pro forma net income and net income per common share would
approximate the following:
45
As Reported Pro Forma
----------- -----------
Year Ended July 31, 1997:
Net Income $11,992,600 $11,867,300
----------- -----------
----------- -----------
Net Income per share $ .90 $ .90
----------- -----------
----------- -----------
Year Ended July 31, 1996:
Net Income $11,185,400 $11,179,400
----------- -----------
----------- -----------
Net Income per share $ .85 $ .85
----------- -----------
----------- -----------
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to awards
prior to 1995.
A summary of stock option activity for the years ended July 31, 1997 and 1996
follows:
1997 1996
---- ----
Weighted- Weighted-
average average
exercise exercise
Options price Options price
------- ----- ------- ------
Outstanding at beginning of year 845,500 $ 9.16 889,400 $ 7.62
Granted - - 149,000 13.48
Exercised ( 45,400) 5.42 (157,500) 3.76
Cancelled ( 44,325) 16.47 ( 35,400) 12.80
------- -------
Outstanding at year end 755,775 8.95 845,500 9.16
------- -------
------- -------
Options exercisable at year end 505,525 6.64 389,283 5.76
------- -------
------- -------
Weighted average fair value of
options granted during the year: $ - $ 8.49
------- -------
------- -------
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 31,1997 life price July 31, 1997 price
------- ------------ ---- ----- ------------- ------
1.00 - 2.00 312,666 5.44 $ 1.63 301,166 $ 1.62
12.00 - 15.00 326,150 8.16 12.44 146,750 12.21
17.00 - 23.44 116,959 7.65 18.77 57,609 18.66
--------- --------
755,775 7.49 $ 8.95 505,525 $ 6.64
--------- --------
--------- --------
46
(9) INCOME TAXES
Income tax expense (benefit) consists of:
Years ended July 31,
------------------------------------------
1997 1996 1995
---- ---- ----
Federal:
Current $ 6,390,300 $ 6,362,400 $ 4,031,200
Deferred 359,400 (233,800) 66,200
------------ ----------- ------------
6,749,700 6,128,600 4,097,400
------------ ----------- ------------
State:
Current 692,300 912,200 439,400
Deferred 40,200 (36,300) 5,600
------------ ----------- ------------
732,500 875,900 445,000
------------ ----------- ------------
$ 7,482,200 $ 7,004,500 $ 4,542,400
------------ ----------- ------------
------------ ----------- ------------
The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 34% to income before income tax expense and the actual
income tax expense follows:
Years ended July 31,
--------------------
1997 1996 1995
---- ---- ----
Income tax expense at statutory rate 34% 34% 34%
State income taxes, net of federal income tax benefit 3 4 3
Amortization of goodwill 1 1 1
Other -- -- 2
---- ---- ----
38% 39% 40%
---- ---- ----
---- ---- ----
47
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
Years ended July 31,
-----------------------------
1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable $ - $ 38,700
Accrued vacation 108,300 148,600
State taxes 235,400 317,200
Depreciation 182,100 -
----------- ----------
Total gross deferred tax assets 525,800 504,500
----------- ----------
Deferred tax liabilities:
Amortization of intangible assets (1,157,300) (424,000)
Accrual to cash basis accounting - (126,100)
Depreciation - (186,300)
----------- ----------
Total gross deferred tax libilities (1,157,300) (736,400)
----------- ----------
Net deferred tax libility $ (631,500) $ (231,900)
----------- ----------
----------- ----------
In fiscal 1997 and 1996, the Company recognized a tax benefit of
$1,798,700 and $860,300, respectively, upon the exercise of certain stock
warrants and options.
(10) MAJOR CUSTOMERS
One customer accounted for 16% of revenue in fiscal 1997 and 1996,
respectively, and two customers accounted for 37% of revenue in fiscal 1995. No
other customer accounted for more than 10% of revenues. No buyer of auto salvage
accounted for more than 10% of gross proceeds in any period.
(11) 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,
1997, 1996 and 1995 aggregated, $6,223,300, $5,536,400 and $2,833,600,
respectively.
The Company has operating leasing lines with certain financial
institutions of approximately $16,000,000 for the purpose of leasing yard and
fleet equipment of which approximately $5,500,000 was available as of July 31,
1997.
48
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
1997 are as follows:
CAPITAL OPERATING
YEARS ENDING JULY 31, LEASES LEASES
- --------------------- ------ ------
1998 $ 299,400 $ 9,576,100
1999 222,700 9,261,900
2000 -- 9,043,900
2001 -- 7,899,500
2002 -- 5,722,600
Thereafter -- 9,503,300
---------- ------------
522,100 $ 51,007,300
Less amount representing interest 21,600 ------------
---------- ------------
$ 500,500
----------
----------
COMMITMENT:
The Company has entered into agreements to acquire approximately $5
million of multi-vehicle transport trucks and forklifts.
CONTINGENCIES:
Copart 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 of Copart.
(12) RELATED PARTY TRANSACTIONS
The Company leases certain of its facilities from affiliates of the
Company under lease agreements. Rental payments under these leases aggregated
$388,800, $1,517,900 and $589,300 for the years ended July 31, 1997, 1996 and
1995, respectively, and expire on various dates through 2005.
An affiliate provided $380,300, $559,800 and $535,800 of tow services to
the Company in fiscal 1997, 1996 and 1995, respectively.
(13) NONCASH FINANCING AND INVESTING ACTIVITIES
In fiscal 1997, 1996 and 1995, 54,140, 94,607 and 210,673 warrants were
exercised in a non-cash transaction which resulted in the issuance of 46,953,
87,431 and 188,431 shares of common stock, respectively.
In fiscal 1996, 2,700 shares, valued at $56,700, were issued to an outside
consultant for services rendered in connection with the development of computer
software. In addition, 288 shares of common stock were issued as contingent
consideration related to the acquisition of the St. Louis facility.
In fiscal 1996 and 1995, the Company acquired (i) $62,900 and $21,310,100
of intangible assets through the issuance of common stock, respectively and (ii)
$599,800 and $133,100 of tangible assets through the issuance of notes payable
in connection with capital leases, respectively. In addition, in fiscal 1996,
the Company acquired real property for the purchase price of $10.5 million of
which $3 million was paid in cash, and $7.5 million was paid through the
issuance of a note payable.
49
(14) QUARTERLY INFORMATION (UNAUDITED)
FISCAL QUARTER
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
1997
Revenues $ 32,517,100 $ 30,364,500 $ 33,806,800 $ 29,587,500 $ 126,275,900
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Operating income $ 3,835,500 $ 4,955,300 $ 5,304,900 $ 4,757,300 $ 18,853,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income $ 2,336,800 $ 3,011,600 $ 3,298,000 $ 3,346,200 $ 11,992,600
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share $ .18 $ .23 $ .25 $ .25 $ .90
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
1996
Revenues $ 26,416,400 $ 26,071,100 $ 34,330,100 $ 31,430,000 $ 118,247,600
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Operating income $ 4,283,200 $ 4,881,200 $ 4,537,600 $ 4,099,600 $ 17,801,600
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income $ 2,617,700 $ 3,021,500 $ 2,789,100 $ 2,757,100 $ 11,185,400
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share $ .20 $ .23 $ .21 $ .21 $ .85
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
50
FORM 10-K
The Company will provide, without charge to each Shareholder, upon written
request a copy of its Form 10-K as required to be filed with the Securities
& Exchange Commission pursuant to rule 13a-1, under the Securities Exchange
Act of 1934. Your written request should be directed to: Chief Financial
Officer, Copart, Inc.
ANNUAL MEETING
The Annual meeting of Shareholders will be held at 5500 E. Second Street,
Benicia, California 94510 at 9:00 a.m. December 9, 1997.
51
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1997, 1996 AND 1995
Deductions
----------
Balance at Charged to costs Applications to Balance at
----------- ---------------- ---------------- -----------
Description and year beginning of year and expenses bad debt end of year
-------------------- ----------------- ------------ -------- -----------
Reserve for doubtful accounts:
July 31, 1997 $ 99,000 $ 96,300 $(96,300) $ 99,000
-------- -------- -------- --------
-------- -------- -------- --------
July 31, 1996 $ 99,000 -- -- $ 99,000
-------- -------- -------- --------
-------- -------- -------- --------
July 31, 1995 $ 80,000 $ 19,000 -- $ 99,000
-------- -------- -------- --------
-------- -------- -------- --------
52