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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
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 _____________
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 _____
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 14, 1996 was $164,300,000 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 14, 1996 registrant had outstanding 12,653,790 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 5, 1996 (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, 1995, Copart has acquired two auction 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. From July 31, 1990
through July 31, 1995, Copart grew from four auction facilities in northern
California to 42 auction facilities in 20 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 391,100 in fiscal 1996.
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 1996, over 90% were obtained from insurance company suppliers. Due to
the fragmented nature of the salvage vehicle auction industry, the Company
believes numerous opportunities exist to either open or acquire facilities
throughout the United States. *
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
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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
the vehicle or (ii) purchase vehicles from vehicle suppliers at a formula
price, based on a percentage of the vehicles' estimated pre-loss value, or
"actual cash value" ("ACV"), and auction the vehicles for their own account.
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
3
sale from the insured is required. Upon receipt of the appropriate
documentation from the state DMV or the insured, which is generally received
within 45 to 60 days of vehicle pick-up, the salvage vehicle auction company
auctions the vehicle. Vehicles are sold primarily through 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. 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 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
4
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
1996, approximately 25% of all salvage vehicles processed by Copart were
processed under the PIP. However, due to, among other factors, including the
timing and size of new acquisitions, market conditions, and acceptance of the
PIP by vehicle suppliers, the percentage of vehicles processed under the PIP
in future periods may vary.
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 69% of all salvage vehicles processed by
Copart in fiscal 1996, 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 1996 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.
COPART SALVAGE ASSET MANAGER-C-. Copart's Salvage Asset Manager (formerly
called the Copart Salvage Estimating Guide) provides vehicle suppliers with a
method for estimating the value of salvage vehicles based on Copart's
historical sales data. This computerized service illustrates the types and
severity of damage to vehicles and the resulting variances in salvage value
historically realized at Copart's auctions. By providing an estimate of a
damaged vehicle's residual salvage value, the Copart Salvage Asset Manager
enables an insurance adjuster to more accurately determine whether to repair
a damaged vehicle or declare it a total loss and aids the adjuster in
negotiations with the owner of an insured vehicle. As part of the Copart
Salvage Asset Manager service, the Company provides subscribers with the
right to participate in the Copart Guaranteed Bid System, whereby the Company
agrees to buy salvage vehicles at their salvage values calculated using the
Copart Salvage Asset Manager.
The Company believes that use of the Copart Salvage Asset Manager
(including participation in the Copart Guaranteed Bid System) will result in
increased vehicle volume from vehicle suppliers that use the Copart Salvage
Asset Manager.* Although not historically a significant portion of Copart's
business, in the event that the Copart Guaranteed Bid System becomes more
significant, the Company believes that its liquidity will not be adversely
affected, as the Company receives proceeds from the sale of such vehicles at
approximately the same time as it pays for vehicles under the Copart
Guaranteed Bid System.
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
- ----------------------------------
* 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.
5
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.
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,
1996, there were 26 VIS's at 20 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 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 (in each case, net of
applicable fees of the facility which processed the vehicle and without
buyer's fees) in substantially the same manner as for vehicles processed at
Copart facilities.
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.
6
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 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 49 facilities in 24 states at July 31, 1996.
The Company's multiple locations provide vehicle suppliers certain
advantages, including (i) a reduction in administrative time and effort, (ii)
a reduction in overall towing costs, (iii) the ability for adjusters to make
inspections of vehicles in their area, as opposed to traveling long
distances, (iv) the convenience to the insurance company's customers of
inspecting their vehicles and retrieving any personal belongings left in the
vehicle and (v) access to buyers in a broad geographic area.
GROWTH STRATEGY
The Company's growth strategy is to (i) 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.* Due
to the fragmented nature of the salvage vehicle auction industry, the Company
believes numerous opportunities exist to either open or acquire new
facilities throughout the United States.*
EXISTING MARKETS. The Company attempts to increase vehicle volume from
existing and new suppliers by promoting its ability to increase a supplier's
net returns and to provide a broad selection of services to suppliers. The
Company also believes that a portion of its sales growth in existing markets
has been attributable to recommendations from branch offices of an insurance
company supplier to other branch offices of the same insurance company.
Because a number of the Company's current insurance company suppliers are
large national companies with branch offices throughout the country, the
Company believes that such referrals provide the potential for future growth
in sales in existing, as well as new, geographic markets.*
NEW FACILITIES. Since its formation in 1982, Copart has expanded, primarily
through acquisition, from a single facility in Vallejo, California, to an
integrated network of 49 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
and Arizona.
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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
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.* In
accordance with the Company's growth strategy, Copart acquired five
facilities in or near Houston, Dallas, Longview and Lufkin, Texas and
Atlanta, Georgia and opened one facility in Portland, Oregon during fiscal
1994. 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. 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 numerous 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, (iii) making
available vehicle purchase programs which are designed to reduce vehicle
suppliers' administrative expenses and (iv) initiating the Company's
value-enhancing merchandising procedures. In addition, the Company attempts
to effect cost efficiencies at each of its acquired facilities through, among
other things, implementing the Company's operating procedures, integrating
the Company's management information systems and, when necessary, redeploying
personnel.
Before entering a new market, the Company seeks to establish vehicle
supply arrangements with one or more of the major insurers in the targeted
market. Often this is accomplished by targeting an insurance company in that
market with whom the Company does business in other geographic areas.
Additional factors which the Company considers when acquiring or opening a
new vehicle auction facility include relationships with vehicle suppliers,
market size, supply of salvaged vehicles, quality and location of facility,
growth potential and the region's potential for additional markets.
The Company strives to integrate its new facilities with minimum
disruption to the facility's existing suppliers. Consistent with industry
practice, most salvage vehicle auction companies, including those acquired by
the Company, operate exclusively on a fixed fee consignment basis. The
Company works with suppliers to tailor a vehicle disposition method to fit
their needs. Copart's fee structures and service programs for buyers are
implemented at a new facility gradually, providing Copart the opportunity to
gain knowledge of, and respond to, the existing market. The Company typically
attempts to retain all or most of the management at acquired facilities and
trains management at acquired facilities by rotating one or two managers from
other Company facilities through the new facility for short assignments. If a
new facility is opened or if management of an acquired facility needs
assistance in converting to the Copart system, the Company will assign an
integration team to the new facility, and, where necessary, transfer an
experienced facility manager.
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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.
8
The following chart sets forth facilities acquired or opened by Copart
since the beginning of fiscal 1992, through July 31, 1996.
ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
-------- ------------ -----------------------
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
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
Atlanta, Georgia July 1994 Georgia
Lufkin and Longview, Texas May 1994 East Texas, Southern Arkansas, Louisiana
Dallas, Texas March 1994 Northern Texas, Southern Oklahoma
Houston, Texas January 1994 Southern Texas, Louisiana
Portland, Oregon September 1993 Oregon, Southern Washington
Los Angeles, California July 1993 Greater Los Angeles
Seattle, Washington April 1993 Washington
Colton, California December 1992 San Bernardino, San Diego, California desert area
San Martin, California September 1992 San Francisco Bay area, San Jose, Monterey
Bakersfield, California November 1991 Southern Central Valley area of California
9
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
1996, 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 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. 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 1% of the Company's net revenues in fiscal 1996.
10
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.
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
11
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"), 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 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 the Company's
environmental consultant is preparing and submitting a Corrective Measure
Study. There can be no assurance that the actual 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.
12
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. The cost of this
ongoing monitoring is nominal.
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. 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.
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. For instance, vehicle inspections mandated by the
California Torres Bill (1994 California Senate Bill No. 1833) which were
suspended in 1995 because of demand which overwhelmed the inspectors are
scheduled to begin again in 1997, with no guarantee that vehicle inspection
waits will be shorter. Recently enacted legislation in Texas, with
inspection requirements similar to those enacted in California, could have a
material adverse effect on the Company's Texas operations.
- ----------------------------------
* 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
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 unique 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. 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's of new
acquisitions, the Company's MIS will serve its information management needs
for the foreseeable future.*
EMPLOYEES
As of July 31, 1996, the Company had approximately 1,030 full-time
employees, of whom approximately 620 were engaged in general and
administrative functions and approximately 410 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 1996, vehicles
supplied by Copart's largest supplier accounted for 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
- ----------------------------------
* 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.
14
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. 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 and the Company believes that in the future it will open a
greater number of new facilities than it has in the past. 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 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
30% of the issued and outstanding shares of Common Stock. This controlling
interest in the Company may also have the effect of making certain
transactions, such as mergers or tender offers involving the Company, more
difficult or impossible, absent the support of Mr. Johnson, and such other
existing shareholder.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31, 1996
are as follows:
NAME AGE POSITION
- ---- --- --------
Willis J. Johnson 49 Chief Executive Officer and Director
A. Jayson Adair 27 Executive Vice President and Director
James E. Meeks 47 Senior Vice President and Chief Operating Officer
Joseph M. Whelan 41 Senior Vice President and Chief Financial Officer
Paul A. Styer 40 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 Executive Vice President of the Company
since April 1995 and a director since September 1992. 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 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.
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.
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.
On April 18, 1996, Richard A. Polidori resigned his position as
President and a member of the Board of the Company.
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 15 June 1996 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 May 2005 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 3 November 1996 No
Phoenix, Arizona O 13 February 2001 Yes
Hammond, Indiana (5) O 19 September 2001 Right of first refusal
Woodinville, Washington (5) O 10 August 2001 No
Benicia, California (6) 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 expires on July 31, 1997. Thereafter, the Company and Richard
Polidori, the former principal owner of NER, intend to enter into a lease
relating to property owned by Mr. Polidori on Long Island with acreage, a
purchase option and a lease term as described.
(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) Opened after July 31, 1996.
(6) 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
seven state law causes of action. However, in that Order the Court invited
the Company to file a further summary judgment
18
motion based on certain copyright issues. The Company intends to file such a
motion by December 1996. No trial date has yet been set.
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, 1996, there
were 12,641,213 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, 1996, the Company had 259 shareholders of record.
1995 High Low
- ---- ---- ---
First Quarter 18 5/8 13 7/8
Second Quarter 20 15 3/8
Third Quarter 20 5/8 18
Fourth Quarter 23 5/8 19 1/8
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
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, 1996 and 1995 and for each of the three
years in the period ended July 31, 1996. The selected operating data for the
years ended July 31, 1993 and 1992 and the balance sheet data as of July 31,
1994, 1993 and 1992 are derived from audited consolidated financial statements
not included herein:
($ in 000s, except per share and
other data) 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
SELECTED OPERATING DATA
Revenues (1) $118,248 $ 58,117 $ 22,794 $10,436 $ 6,202
Operating income 17,802 11,261 4,112 1,422 834
Income before income taxes
and extraordinary item 18,190 11,437 3,710 729 882
Extraordinary item, net (2) -- -- (1,633) -- --
Net income 11,185 6,894 590 495 481
Per share:
Income before
extraordinary item $ 0.85 $ 0.65 $ 0.30 $ 0.07 $ 0.07
Extraordinary item, net -- -- (0.22) -- --
-------- -------- -------- ------- -------
Net income $ 0.85 $ 0.65 $ 0.08 $ 0.07 $ 0.07
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted average shares (000) 13,216 10,614 7,305 6,780 6,780
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
BALANCE SHEET DATA
Cash and cash equivalents (3) $ 13,026 $ 13,779 $ 17,871 $ 1,786 $ 538
Working capital (deficit) 40,586 32,756 21,890 2,941 (246)
Total assets 158,066 135,158 62,569 15,944 4,073
Total debt 11,260 3,734 4,019 8,575 1,244
Shareholders' equity 126,245 113,116 49,288 4,132 702
OTHER
Salvage vehicles processed 391,100 223,300 101,000 45,400 28,700
Gross proceeds (000) $506,916 $317,788 $144,397 $57,876 $35,269
Number of auction facilities 49 42 15 10 5
Notes
(1) See Note 2 to the Consolidated Financial Statements for a discussion of
acquistions.
(2) See Note 6 to the Consolidated Financial Statements for a discussion of
the extraordinary item.
(3) See Note 9 to the Consolidated Financial Statements for a discussion of
initial public offering.
20
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, 1996, 1995,
and 1994, approximately 25%, 28%, and 50% of the vehicles sold by Copart,
respectively, were processed under the PIP, and approximately 6%, 2% and less
than 1% of the vehicles sold by Copart, respectively, were processed pursuant
to the Purchase Program. The decrease in the percentage of vehicles sold
under the PIP 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. However, due to a number of factors, including the timing and size
of new acquisitions, market conditions, and acceptance of the PIP and/or
Purchase Program, by vehicle suppliers, the percentage of vehicles processed
under these programs in future periods may vary. In addition to auction fees
paid by vehicle suppliers and vehicle buyers, approximately 27%, 31%, and 38%
of Copart's revenues for the fiscal years ended July 31, 1996, 1995 and 1994,
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 results of the Company's operations reflect the increase in the
number of vehicles processed in the eastern United States, the sale of these
vehicles generated lower margins than those in Copart's operations in the
western, midwest and southwestern United States. The results also reflect
additional vehicles processed under purchase programs as part of the Company's
marketing thrust to secure new vehicle suppliers.
The period-to-period comparability of Copart's operating results and
financial condition is substantially affected by certain business acquisitions
and new openings made by Copart during such periods.
ACQUISITIONS AND NEW OPERATIONS
Copart has experienced significant growth as it acquired 38 salvage
vehicle auction facilities and established seven new facilities since the
beginning of fiscal 1992. 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 a period not to exceed 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 1996, Copart
21
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 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. In addition, Copart acquired five
facilities in or near Houston, Dallas, Lufkin and Longview, Texas; and
Atlanta, Georgia; and opened one facility in Portland, Oregon during fiscal
1994. 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,
-------------------
1996 1995 1994
---- ---- ----
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Yard and fleet 70.6 65.0 64.7
General and administrative 9.2 9.8 10.6
Depreciation and amortization 5.1 5.8 6.7
----- ----- -----
Total operating expenses 84.9 80.6 82.0
----- ----- -----
Operating income 15.1 19.4 18.0
Other income (expense) 0.3 0.3 (1.7)
----- ----- -----
Income before income taxes and extraordinary item 15.4 19.7 16.3
Income taxes 5.9 7.8 6.5
----- ----- -----
Income before extraordinary item 9.5 11.9 9.8
Extraordinary item, net -- -- (7.2)
----- ----- -----
Net income 9.5% 11.9% 2.6%
----- ----- -----
----- ----- -----
- ----------------------------------
* 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 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 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 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.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues were approximately $58.1 million during fiscal 1995, an increase
of approximately $35.3 million, or 155%, over fiscal 1994. Approximately
$24.3 million of the increase in revenues was the result of the acquisition of
the Houston, Dallas, Lufkin, Longview, Atlanta, Kansas City, Oklahoma City and
Tulsa, St. Louis, Conway and West Memphis and NER operations and the opening
of Copart's Portland facility. Existing yard revenues increased by
approximately $11.0 million, or 61%, over fiscal 1994, of which revenues from
Purchase Program vehicles accounted for approximately $7.6 million of the
increase. The remainder of the increase in revenues at existing operations
was primarily attributable to increased buyer fees of approximately 7% and
increased vehicle volume of approximately 12%.
23
Yard and fleet expenses were approximately $37.8 million during fiscal
1995, an increase of approximately $23.0 million, or 156%, over fiscal 1995.
Approximately $15.7 million of the increase was the result of the acquisition
of the Houston, Dallas, Lufkin, Longview, Atlanta, Kansas City, Oklahoma City
and Tulsa, St. Louis, Conway and West Memphis and NER operations and the
opening of Copart's Portland facility. 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
expense increased to 65.0% of revenues during fiscal 1995, as compared to
64.7% of revenues during fiscal 1994.
General and administrative expenses were approximately $5.7 million
during fiscal 1995, an increase of approximately $3.3 million, or 136%, over
fiscal 1994, due primarily to increased personnel expense resulting from
acquisitions and increased hiring in anticipation of additional growth.
General and administrative expenses decreased to 9.8% of revenues during
fiscal 1995, as compared to 10.6% of revenues during fiscal 1994 due to costs
being spread over a greater revenue base.
Depreciation and amortization expense was approximately $3.4 million
during fiscal 1995, an increase of approximately $1.9 million, or 123%, over
fiscal 1994. 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 $491,000 during fiscal 1995, a
decrease of $429,300 over fiscal 1994. This decrease was attributable to the
repayment in fiscal 1994 of the indebtedness incurred in the February 1993
debt financing with the proceeds from the IPO. In fiscal 1994, Copart
recognized an extraordinary item on the loss on extinguishment of debt
associated with the February 1993 debt financing, which is shown net of income
tax benefit.
The effective income tax rate of 40% applicable to fiscal 1995 is
consistent with the fiscal 1994 effective income tax rate.
Due to the foregoing factors, Copart realized net income of $6.9 million
for fiscal 1995, compared to income before extraordinary item of $2.2 million
fiscal 1994 as noted above.
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, 1996, Copart had working capital of approximately $40.6
million, including cash and cash equivalents of approximately $13.0 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 (the "Bank Credit Facility").
The Bank Credit Facility consists of a revolving line of credit of $10 million
which matures in November 1997 and a $18.5 million term loan facility which
matures in May 2002. The term loan amortizes on a straight-line basis over its
term. The Company may reborrow up to the unamortized principal amount of the
term loan. Amounts outstanding under the Bank
24
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 1.75%
subject to reductions based on certain credit ratios. The current spread has
been reduced to 1.25%. As of July 31, 1996, there are no outstanding
borrowings under this facility.
The Company has entered into various operating lease lines for the
purpose of leasing up to $10.5 million of yard and fleet equipment, of which
approximately $1.4 million was available as of July 31, 1996.
Copart generated cash from operations of approximately $11.3 million,
$5.2 million and $4.7 million in fiscal years 1996, 1995 and 1994,
respectively. The increase in cash from operations from fiscal 1994 to fiscal
1995 and from fiscal 1995 to fiscal 1996 reflects Copart's increased
profitability.
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 and 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.
Copart's principal use of cash in fiscal 1994 was for the acquisition of the
Houston, Lufkin, Longview and Atlanta operations, which had an aggregate cash
cost of approximately $11.3 million, and repayment of $7.0 million related to
the February 1993 debt financing.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $8.4 million, $5.1 million
and $2.1 million for fiscal 1996, 1995 and 1994, 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
$6.0 million of additional multi-vehicle transport trucks and forklifts and is
disposing certain older equipment.
In fiscal 1996 and 1995, the Company generated approximately $0.6 and
$0.3 million through the exercise of employee incentive stock options,
respectively. In fiscal 1995, the Company generated approximately $33.8
million of net cash primarily through the issuance of common stock in its
follow-on offering. In fiscal 1994, Copart generated approximately $24.5
million of net cash from financing activities, primarily through the issuance
in the IPO and private placement of Common Stock in the amount of
approximately $32.2 million reduced by principal payments on notes payable of
approximately $7.7 million.
Cash and cash equivalents decreased by approximately $0.8 million and
$4.1 million in fiscal 1996 and 1995, 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 equipment leasing lines of credit will be sufficient
to satisfy the Company's working capital requirements and fund openings
25
and acquisitions of new facilities for the next 12 months. * However, there
can be no assurance that the Company will not be required to seek additional
debt or equity financing prior to such time, depending upon the rate at which
the Company opens or acquires new facilities.
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 ACCOUNTANT 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."
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."
- ----------------------------------
* 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.
26
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............................... 31
Consolidated Balance Sheets at July 31, 1996 and 1995...... 32
Consolidated Statements of Income for the three years ended
July 31, 1996............................................. 33
Consolidated Statements of Shareholders' Equity for the
three years ended July 31, 1996........................... 34
Consolidated Statements of Cash Flows for the three years
ended July 31, 1996....................................... 35
Notes to Consolidated Financial Statements................. 37
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts..................... 50
All other schedules are omitted because they are not applicable or the
required information is shown in the 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
27
*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 an Copart, Inc. as Purchaser, dated
April 4, 1996
11.1 Copart, Inc. and Subsidiary Computation of Net
Income Per Share
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (See page 29 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.
28
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 28, 1996 BY: /s/ Willis J. Johnson
-----------------------------------
Willis J. Johnson
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Willis J. Johnson and Joseph M. Whelan
and each of them, as his true and lawful attorneys-in-fact and agents, 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 attorneys-in-fact and agents, and each of them,
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 attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
29
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
--------- ------------------------ ----
/s/ Willis J. Johnson Chief Executive Officer October 28, 1996
----------------------- (Principal Executive Officer)
Willis J. Johnson and Director
/s/ Joseph M. Whelan Senior Vice President and October 28, 1996
----------------------- Chief Financial Officer
Joseph M. Whelan (Principal Financial and
Accounting Officer)
/s/ A. Jayson Adair Executive Vice President October 28, 1996
----------------------- and Director
A. Jayson Adair
/s/ James Grosfeld Director October 28, 1996
-----------------------
James Grosfeld
/s/ Marvin L. Schmidt Senior Vice President October 28, 1996
----------------------- of Corporate Development
Marvin L. Schmidt and Director
/s/ Jonathan Vannini Director October 28, 1996
-----------------------
Jonathan Vannini
/s/ Harold Blumenstein Director October 28, 1996
-----------------------
Harold Blumenstein
30
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 the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year
period ended July 31, 1996, 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 27, 1996
31
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
----------------------
ASSETS 1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 13,026,200 $ 13,779,200
Accounts receivable, net 29,992,000 23,901,600
Income taxes receivable 742,200 --
Vehicle pooling costs 9,253,300 6,721,400
Inventory 1,456,400 3,252,400
Deferred income taxes 378,400 131,000
Prepaid expenses and other assets 2,450,800 209,300
------------- -------------
Total current assets 57,299,300 47,994,900
Property and equipment, net 26,204,200 13,082,000
Intangibles and other assets, net 74,562,300 74,081,100
------------- -------------
Total assets $ 158,065,800 $ 135,158,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 772,800 $ 582,700
Accounts payable and accrued liabilities 10,370,000 9,550,000
Deferred revenue 5,570,500 5,106,700
------------- -------------
Total current liabilities 16,713,300 15,239,400
Deferred income taxes 610,300 633,000
Long-term debt, less current portion 10,487,000 3,151,000
Other liabilities 4,010,200 3,019,000
------------- -------------
Total liabilities 31,820,800 22,042,400
------------- -------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
12,641,213 and 12,372,224 shares issued and outstanding
at July 31, 1996 and July 31, 1995, respectively 106,473,800 104,529,800
Retained earnings 19,771,200 8,585,800
------------- -------------
Total shareholders' equity 126,245,000 113,115,600
------------- -------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 158,065,800 $ 135,158,000
------------- -------------
------------- -------------
See accompanying notes to consolidated financial statements.
32
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended July 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
Revenues $ 118,247,600 $ 58,116,700 $ 22,793,700
------------- ------------- -------------
Operating expenses:
Yard and fleet 83,541,800 37,753,400 14,747,600
General and administrative 10,907,500 5,704,400 2,413,200
Depreciation and amortization 5,996,700 3,397,900 1,521,000
------------- ------------- -------------
Total operating expenses 100,446,000 46,855,700 18,681,800
------------- ------------- -------------
Operating income 17,801,600 11,261,000 4,111,900
------------- ------------- -------------
Other income (expense):
Interest expense (450,800) (491,000) (920,300)
Interest income 680,200 582,500 250,300
Other income 158,900 84,200 268,400
------------- ------------- -------------
Total other income (expense) 388,300 175,700 (401,600)
------------- ------------- -------------
Income before income taxes and
extraordinary item 18,189,900 11,436,700 3,710,300
Income taxes 7,004,500 4,542,400 1,487,900
------------- ------------- -------------
Income before extraordinary item 11,185,400 6,894,300 2,222,400
Extraordinary item - loss on
extinguishment of debt, net of income
tax benefit of $1,088,600 -- -- (1,632,800)
------------- ------------- -------------
Net income $ 11,185,400 $ 6,894,300 $ 589,600
------------- ------------- -------------
------------- ------------- -------------
Per share:
Income before extraordinary item $ 0.85 $ 0.65 $ 0.30
Extraordinary item -- -- (0.22)
------------- ------------- -------------
Net income $ 0.85 $ 0.65 $ 0.08
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares and equivalents
outstanding 13,215,636 10,614,201 7,304,851
------------- ------------- -------------
------------- ------------- -------------
See accompanying notes to consolidated financial statements.
33
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common stock
--------------------------------
Outstanding Retained Shareholders'
Shares Amount Earnings Equity
---------------- --------------- -------------- ---------------
BALANCES AT JULY 31, 1993 4,359,807 $ 3,030,200 $ 1,101,900 $ 4,132,100
Shares issued for acquisitions 1,021,750 12,405,000 -- 12,405,000
Shares issued in connection with
private placement 1,071,600 7,486,500 -- 7,486,500
Shares issued in connection with
initial public offering 2,300,000 24,674,800 -- 24,674,800
Net income -- -- 589,600 589,600
----------- ------------- ------------- -------------
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 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 acquisition 288 6,200 -- 6,200
Exercise of stock options 157,508 586,600 -- 586,600
Exercise of warrants 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
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements.
34
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 11,185,400 $ 6,894,300 $ 589,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,996,700 3,397,900 1,521,000
Amortization of OID -- -- 192,200
Loss on extinguishment of debt -- -- 2,721,400
Deferred rent 991,200 19,000 --
Deferred income taxes (270,100) 71,800 (49,900)
(Gain) loss on sale of assets (62,300) (17,000) 117,800
Employee stock purchase plan compensation 91,600 68,600 --
Changes in operating assets and liabilities:
Acounts receivable (5,528,500) (4,905,500) (1,677,500)
Vehicle pooling costs (2,366,800) (1,487,100) (730,900)
Inventory 1,796,000 (3,172,500) (79,900)
Prepaid expenses and other current assets (1,738,800) 503,400 (343,000)
Accounts payable and accrued liabilities 820,000 1,925,900 1,840,600
Deferred revenue 248,000 751,900 171,600
Income taxes 118,100 1,168,900 474,700
------------- ------------- -------------
Net cash provided by operating activities 11,280,500 5,219,600 4,747,700
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable -- 146,400 219,600
Purchase of property and equipment (8,412,800) (5,055,800) (2,058,600)
Proceeds from sale of property and equipment 516,600 17,000 107,500
Purchase of property and equipment in
connection with acquisitions (174,500) (4,870,400) (375,500)
Purchase of intangible assets in connection
with acquisitions (2,296,800) (24,869,900) (8,691,400)
Purchase of net current assets in connection
with acquisitions (511,200) (8,562,500) (2,331,500)
Purchase of software development costs (672,100) -- --
Deferred preopening costs (714,700) -- --
Other intangible asset additions (123,500) -- --
------------- ------------- -------------
Net cash used in investing activities (12,389,000) (43,195,200) (13,129,900)
------------- ------------- -------------
Continued on next page
35
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 33,844,900 32,161,300
Proceeds from exercise of stock options 586,600 269,100 --
Proceeds from issuance of Employee
Stock Purchase Plan Shares 342,600 138,800 --
Proceeds from issuance of notes payable -- 20,525,700 --
Principal payments on notes payable (573,700) (20,894,200) (7,694,700)
------------- ------------- -------------
Net cash provided by financing activities 355,500 33,884,300 24,466,600
------------- ------------- -------------
Net (decrease) increase in cash and
cash equivalents (753,000) (4,091,300) 16,084,400
Cash and cash equivalents at beginning of year 13,779,200 17,870,500 1,786,100
------------- ------------- -------------
Cash and cash equivalents at end of year $ 13,026,200 $ 13,779,200 $ 17,870,500
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 450,800 $ 491,000 $ 782,800
------------- ------------- -------------
------------- ------------- -------------
Income taxes paid $ 7,160,300 $ 3,298,400 $ 312,400
------------- ------------- -------------
------------- ------------- -------------
See note 14 for noncash financing and investing activities.
See accompanying notes to consolidated financial statements.
36
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996, 1995 AND 1994
(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
$506,916,000, $317,788,000 and $144,397,200, for the years ended July 31,
1996, 1995 and 1994, 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 and
delivered to the buyers.
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.
37
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, not to exceed 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.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes indicate that
the carrying amount of an asset may not be recoverable. Upon adoption, the
Company identified no long-lived assets or identifiable intangibles which
were impaired.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximates fair value as defined in SFAS
No. 107.
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.
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.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 will be
effective for fiscal years beginning after December 15, 1995, and will
require that the Company either recognize in its consolidated financial
statements costs on a
38
fair value basis related to its employee stock based compensation plans, such
as stock option and stock purchase plans, or make pro forma disclosures of
such costs in a note to the consolidated financial statements.
The Company expects to continue to use the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123,
to account for all of its employee stock-based compensation plans. The
adoption of SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of income or financial position.
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.
(2) ACQUISITIONS
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
$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 in a
straight-line basis over forty 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 and 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 receivables, inventory, fixed assets, goodwill and covenants not
to compete. The acquisitions were accounted for using the purchase
39
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 in a straight-line basis between thirty and forty 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
forty years. In conjunction with this acquisition, the Company entered into
leases for all of the facilities.
FISCAL 1994 TRANSACTIONS
On January 10, 1994, the Company acquired certain operating assets from
Yeates Company, Inc. (Houston Auction Pool) of Houston, Texas for $7,324,800
in cash. 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 of $6,009,000 has
been recorded as goodwill and is being amortized on a straight-line basis
over forty years. In conjunction with this acquisition, the Company has
entered into a lease for use of the facilities.
On March 16, 1994, the Company acquired all of the assets and liabilities
(including the assumption of an environmental liability for $3,000,000) of
North Texas Salvage Pool, Inc. for $200,000 in cash and, 979,583 shares of
common stock valued at $11,755,000. The Company also paid $25,000 for options
to purchase the land and buildings. 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 of $14,082,900 has been recorded as goodwill and is being
amortized on a straight-line basis over forty years. In conjunction with this
acquisition, the Company has entered into a lease for use of the facilities.
On May 1, 1994, the Company, through a wholly owned subsidiary, acquired
certain operating assets of the Lufkin and Longview Partnership of Lufkin and
Longview, Texas. On July 15, 1994, the Company, through a wholly owned
subsidiary, acquired certain operating assets of Hughes Auto Disposal, Inc.
of Atlanta, Georgia. The consideration paid for these acquisitions consisted
of cash of $3,630,000 and the issuance of 42,167 shares of the Company's
common stock. The acquired net assets consisted of accounts and advances
receivable, inventory, fixed assets, options to purchase the related land and
facilities, 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 purchase price over fair
value of the net identifiable assets acquired of $2,040,500 has been recorded
as goodwill and is being amortized on a straight-line basis between thirty
and forty years. In conjunction with the acquisitions, the Company entered
into leases for the use of the facilities. The lease pertaining to Hughes
Auto Disposal, Inc. acquisition contains a purchase option to acquire the
related land and facilities.
40
The following unaudited pro forma financial information assumes the 1996
and 1995 acquisitions, debt repayment and secondary offering occurred at the
beginning of fiscal 1995. 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 1995 or of the
results of which may occur in the future.
Years ended July 31,
--------------------
1996 1995
---- ----
Revenues $118,248,000 $ 84,820,000
------------ ------------
------------ ------------
Operating income $ 17,802,000 $ 15,852,000
------------ ------------
------------ ------------
Net income $ 11,185,000 $ 9,578,000
------------ ------------
------------ ------------
Net income per share $ 0.85 $ 0.72
------------ ------------
------------ ------------
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
July 31,
--------
1996 1995
---- ----
Accounts receivable $29,730,500 $21,947,100
Related party receivable 360,500 2,053,500
----------- -----------
30,091,000 24,000,600
Less allowance for doubtful accounts 99,000 99,000
----------- -----------
$29,992,000 $23,901,600
----------- -----------
----------- -----------
Accounts receivable includes trade accounts receivable and advance
charges. Trade accounts receivable include fees to be collected from
insurance companies and buyers. 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 and approximate $9.8 million and
$7.8 million as of July 31, 1996 and 1995, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31,
--------
1996 1995
---- ----
Transportation and other equipment $11,488,100 $10,185,700
Office furniture and equipment 4,361,600 2,668,500
Land, buildings and leasehold improvements 17,582,800 4,677,300
----------- -----------
33,432,500 17,531,500
Less accumulated depreciation 7,228,300 4,449,500
----------- -----------
$26,204,200 $13,082,000
----------- -----------
----------- -----------
41
Included in property and equipment as of July 31, 1996 and 1995, are
$1,330,600 and $663,700 respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $404,200 and $220,800
as of July 31, 1996 and 1995, respectively.
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
JULY 31,
--------
1996 1995
---- ----
Covenants not to compete $ 4,787,500 $ 4,462,500
Goodwill 70,404,400 68,395,800
Options to purchase leased property 3,455,000 3,255,000
Software 809,800 81,000
Other 215,400 322,500
------------ ------------
79,672,100 76,516,800
Less accumulated amortization 5,109,800 2,435,700
------------ ------------
$ 74,562,300 $ 74,081,100
------------ ------------
------------ ------------
(6) SUBORDINATED NOTES PAYABLE
In 1993, the Company consummated a private placement note financing of
$10 million and borrowed $7,000,000. In connection with this financing, the
Company issued 1,326,307 shares of common stock to the noteholders and
warrants to purchase 405,944 shares of common stock to a placement agent.
During fiscal 1994, the unamortized amounts of debt offering costs of $539,900
and original issue discount of $2,181,500 were written off in connection with
the repayment of the related debt and recorded as an extraordinary item.
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
JULY 31,
--------
1996 1995
---- ----
Trade accounts payable $ 347,600 $ 1,461,400
Accounts payable to insurance companies 7,810,100 4,860,600
Accrued payroll 1,455,400 1,000,700
Other accrued liabilities 756,900 2,227,300
------------ ------------
$ 10,370,000 $ 9,550,000
------------ ------------
------------ ------------
42
(8) LONG-TERM DEBT
Long-Term debt consists of the following:
JULY 31,
--------
1996 1995
---- ----
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 --
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% 1,801,500 2,006,500
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% 908,300 449,400
Notes payable secured by land, payable in
monthly installments of $2,600 to $3,100
through July 2000, bearing interest at 8% 642,100 657,400
Unsecured notes payable to individuals, payable
in monthly installments of $3,300 to $5,000
through February 2000, bearing interest at 10%
to 12% 229,700 346,900
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% 178,200 273,500
----------- -----------
11,259,800 3,733,700
Less current portion 772,800 582,700
----------- -----------
$10,487,000 $ 3,151,000
----------- -----------
----------- -----------
The aggregate maturities of long-term debt are as follows:
YEARS ENDING JULY 31,
- ---------------------
1997 $ 772,800
1998 2,031,200
1999 573,500
2000 382,300
2001 7,500,000
-----------
$11,259,800
-----------
-----------
The Company has entered into a bank credit facility which consists of a
revolving line of credit of $10 million which matures in November 1997 and a
$18.5 million term loan facility which matures in May 2002. The term loan
amortizes on a straight-line basis over its term. The Company may reborrow up
to the unamortized principal amount of the term loan. Amounts outstanding
under the bank credit facility accrue interest at either the prime rate or at
a rate based on LIBOR plus a spread of 1.75% subject to reductions based on
certain credit ratios. The current spread has been reduced to 1.25%. As of
July 31, 1996, there were no outstanding borrowings under this facility. The
Company is subject to customary covenants, including restrictions on payment
of dividends, under the facility, with which it is in compliance.
43
(9) SHAREHOLDERS' EQUITY
On May 24, 1995 the Company completed a secondary offering of 1,897,500
shares of common stock. Proceeds to the Company, net of related costs of the
offering, totaled $33,844,900. On March 17, 1994, the Company completed an
IPO of 2,300,000 shares of common stock. Proceeds to the Company, net of
related costs of the offering, totaled $24,674,800. In November 1993, in a
private placement financing to certain shareholders which generated proceeds
to the Company of $7,486,500, the Company issued 1,071,600 shares of common
stock and a warrant expiring in November 1998 to purchase 300,000 shares of
common stock at $7.00 per share.
In fiscal 1996, 1995 and 1994, the Company issued 288, 1,366,666 and
1,021,750 shares of common stock with a fair market value of $6,200,
$21,310,100 and $12,405,000 in connection with certain acquisitions,
respectively.
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.
1992 Stock Option Plan
----------------------
Incentive Non-qualified Director Price
stock options stock options Option Plan per share
------------- ------------- ----------- ---------
Outstanding at July 31, 1993 480,000 162,500 -- $ 1.00 - 2.00
Granted 214,000 20,000 6,000 12.00
--------- -------- ------- --------------
Outstanding at July 31, 1994 694,000 182,500 6,000 1.00 - 12.00
Exercised (156,100) -- -- 1.00 - 2.00
Granted 160,000 -- 3,000 17.00 - 21.13
--------- -------- ------- --------------
Outstanding at July 31, 1995 697,900 182,500 9,000 1.00 - 21.13
Canceled (33,100) -- (2,300) 2.00 - 21.13
Exercised (155,300) -- (2,200) 1.00 - 19.38
Granted 147,500 -- 1,500 12.50 - 23.44
--------- -------- ------- --------------
Outstanding at July 31, 1996 657,000 182,500 6,000 $ 1.00 - 23.44
--------- -------- ------- --------------
--------- -------- ------- --------------
Vested at July 31, 1996 210,900 177,200 3,900 $ 1.00 - 19.38
--------- -------- ------- --------------
--------- -------- ------- --------------
In March 1994, the Company authorized the issuance of 5,000,000 shares of
preferred stock, no par value, none of which are issued.
The Company adopted the Copart, Inc. Employee Stock Purchase Plan
effective January 1994. The 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
44
fiscal 1996 and 1995 were 21,062 and 10,460, respectively. Additional
compensation expense of $91,600 and $68,600 was recognized in fiscal 1996 and
1995, respectively.
At July 31, 1996, the Company has 100,584 outstanding warrants expiring
in 1997 to purchase shares of common stock at $2.04 per share in connection
with the financing described in note 6.
(10) INCOME TAXES
Income tax expense (benefit) consists of:
Years ended July 31,
--------------------
1996 1995 1994
---- ---- ----
Federal:
Current $ 6,362,400 $ 4,031,200 $ 1,261,500
Deferred (233,800) 66,200 (46,900)
------------ ------------ ------------
6,128,600 4,097,400 1,214,600
------------ ------------ ------------
State:
Current 912,200 439,400 276,300
Deferred (36,300) 5,600 (3,000)
------------ ------------ ------------
875,900 445,000 273,300
------------ ------------ ------------
$ 7,004,500 $ 4,542,400 $ 1,487,900
------------ ------------ ------------
------------ ------------ ------------
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,
--------------------
1996 1995 1994
---- ---- ----
Income tax expense at statutory rate 34% 34% 34%
State income taxes, net of federal income tax benefit 4 3 6
Amortization of goodwill 1 1 5
Other -- 2 (5)
---- ---- ----
39% 40% 40%
---- ---- ----
---- ---- ----
45
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,
-----------------------
1996 1995
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable $ 38,700 $ 30,200
Accrued vacation 148,600 125,500
State taxes 317,200 96,300
--------- ---------
Total gross deferred tax assets 504,500 252,000
--------- ---------
Deferred tax liabilities:
Amortization of goodwill (424,000) (202,100)
Accrual to cash basis accounting (126,100) (242,000)
Depreciation (186,300) (309,900)
--------- ---------
Total gross deferred tax liabilities (736,400) (754,000)
--------- ---------
Net deferred tax liability $(231,900) $(502,000)
--------- ---------
--------- ---------
In fiscal 1996 and 1995, the Company recognized a tax benefit of $860,300
and $1,301,800, respectively upon the exercise of certain stock warrants that
were issued to a placement agent in connection with the financing described
in note 6.
(11) MAJOR CUSTOMERS
One customer accounted for 16% of revenue in fiscal 1996, two customers
accounted for 37% of revenue in fiscal 1995, and three customers accounted for
approximately 53% of revenue in fiscal 1994. 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.
(12) COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases certain facilities under operating leases and has
either a right of first refusal to acquire or option to purchase certain
facilities at fair value. Facilities rental expense for the years ended July
31, 1996, 1995 and 1994 aggregated, $5,536,400, $2,833,600, and $1,615,900,
respectively.
The Company has operating leasing lines with certain financial
institutions of up to $10,500,000 for the purpose of leasing yard and fleet
equipment of which approximately $1,445,100 was available as of July 31, 1996.
46
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
1996 are as follows:
YEARS ENDING JULY 31, CAPITAL OPERATING
- --------------------- LEASES LEASES
------ ------
1997 $ 408,700 $ 6,448,700
1998 352,600 6,529,100
1999 213,100 6,339,600
2000 -- 6,083,300
2001 -- 4,751,700
Thereafter -- 10,472,700
---------- ------------
974,400 $ 40,625,100
Less amount representing interest 66,100 ------------
---------- ------------
$ 908,300
----------
----------
COMMITMENT:
The Company has entered into agreements to acquire approximately $6
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 addition, the Company is undergoing an
examination of its fiscal 1992 through 1994 federal income tax returns. In
the opinion of management, any ultimate liability with respect to these
actions will not materially affect the financial position of Copart.
(13) RELATED PARTY TRANSACTIONS
The Company leases certain of its facilities from affiliates of the
Company under lease agreements. Rental payments under these leases aggregated
$1,517,900, $589,300 and $149,100 for the years ended July 31, 1996, 1995 and
1994, respectively, and expire on various dates through 2005.
An affiliate provided $559,800, $535,800 and $562,800 of tow services to
the Company in fiscal 1996, 1995 and 1994, respectively.
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
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.
In fiscal 1996 and 1995, 94,607 and 210,673 warrants were exercised in a
non-cash transaction which resulted in the issuance of 87,431 and 188,431
shares of common stock, respectively.
47
In fiscal 1994, the Company acquired: (i) $14,957,000 of intangible
assets and $478,300 of tangible assets through the assumption of a note
payable on a capital lease, assumption of certain liabilities, and the
issuance of common stock; (ii) $300,000 of tangible assets through issuance of
a note payable; and (iii) $332,800 of tangible assets through issuance of
notes payable in connection of capital leases.
(15) QUARTERLY INFORMATION (UNAUDITED)
FISCAL QUARTER
--------------
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 $ 0.20 $ 0.23 $ 0.21 $ 0.21 $ 0.85
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
1995
Revenues $ 9,686,700 $ 10,983,500 $ 16,004,900 $ 21,441,600 $ 58,116,700
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Operating income $ 2,012,000 $ 2,530,100 $ 3,112,600 $ 3,606,300 $ 11,261,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income $ 1,262,100 $ 1,586,200 $ 1,900,700 $ 2,145,300 $ 6,894,300
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share $ 0.13 $ 0.16 $ 0.19 $ 0.17 $ 0.65
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
48
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 8:00 a.m. December 5, 1996.
49
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
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, 1996 $ 99,000 -- -- $ 99,000
--------- --------- --------- ---------
--------- --------- --------- ---------
July 31, 1995 $ 80,000 $ 19,000 -- $ 90,000
--------- --------- --------- ---------
--------- --------- --------- ---------
July 31, 1994 $ 39,400 $ 40,600 -- $ 80,000
--------- --------- --------- ---------
--------- --------- --------- ---------
50