01—Abstract
Summary
Summary of the 10-K filed September 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Copart (CPRT) closed fiscal 2011 (year ended July 31, 2011) with revenues of $872.2 milliona, up 12.9% from $772.9 million in fiscal 2010, and operating income of $265.3 million, up 11% from $239.1 million.
Net income rose to $166.4 millionb, or $2.17 per diluted share, versus $151.6 million, or $1.78, a year earlier. Growth was driven by higher service revenue (up 12.7% to $723.6 million) on increased unit volume, stronger used car and scrap metal pricing, and UK expansion. Part of the revenue increase reflects an accounting change (ASU 2009-13) that accelerated $14.4 million of service revenue and $13.5 million of yard expenses, so underlying growth was somewhat lower than reported.
The most significant change in the balance sheet was a capital structure shift. Copart repurchased $739.6 millionc of stock in fiscal 2011, including a January 2011 tender offer for 12.2 million shares at $38.00, funded by a $400 million term loan. Shares outstanding fell from 84.4 million to 66.0 million, and shareholders' equity dropped from $1.09 billion to $555 million.
Total debt rose to about $376 million, and cash fell to $74 milliond from $268 million. Management states current cash and operating cash flow are sufficient for the next 12 months, and it notes an additional 20 million share buyback authorization approved after year end.
Key risks for investors include a $73.8 million Georgia sales tax assessment that management contests and has not accrued, a pending EEOC investigation of its criminal background check policy, dependence on insurance company sellers (about 82% of vehicles), and UK operations that partly run on a principal basis, which weighs on gross margin. The company is also relocating its headquarters from Fairfield, CA to Dallas, TX over the next two years and converting to a new ERP system through fiscal 2013.
02—Key points
Key Highlights
- Revenue grew 12.9% to $872.2 million and operating income grew 11.0% to $265.3 million in fiscal 2011; diluted EPS rose to $2.17 from $1.78.
- Service revenue reached $723.6 million (83% of total), up 12.7%, supported by higher unit volume, rising scrap metal and used car prices, and UK growth; fiscal 2011 includes a $14.4 million one-time acceleration of revenue from ASU 2009-13.
- Aggressive capital return: $739.6 million in buybacks, including a $462.5 million tender offer at $38.00 per share, cut shares outstanding by about 22% to 66.0 million.
- Leverage increased sharply: $400 million term loan borrowed in January 2011 (outstanding $375.1 million at year end) versus under $1 million of debt a year earlier; shareholders' equity fell to $555 million.
- Cash and equivalents declined to $74.0 million from $268.2 million, though operating cash flow strengthened to $242.9 million (up 22%).
- Material contingent liability: Georgia Department of Revenue asserts $73.8 million in uncollected sales taxes; management believes it has strong defenses and has not accrued any payment.
- Expansion continues: 153 facilities at year end (134 US, 2 Canada, 17 UK), with acquisitions of Hewitt and Barodge; a 20 million share increase to the repurchase program was approved in September 2011, bringing total authorization to 49 million shares.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Copart Inc kept $0.19.
- Revenue$872.2M100.0%
- Cost of revenue−$125.2M14.4%
- Gross profit$747.0M85.6%
- Operating costs−$481.8M55.2%
- Operating income$265.3M30.4%
- Interest, other & tax−$98.9M11.3%
- Net income$166.4M19.1%
Where FY2011 revenue went
$872.2M- Operating costs: $481.8M, 55% of revenue
- Net income: $166.4M, 19% of revenue
- Cost of revenue: $125.2M, 14% of revenue
- Interest, other & tax: $98.9M, 11% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed September 28, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $872.25M$772.88M | +12.9% |
| Cost of Revenue | $125.20M$104.67M | +19.6% |
| Gross Profit | $747.04M$668.21M | +11.8% |
| Operating Expenses | $606.96M$533.81M | +13.7% |
| Operating Income | $265.29M$239.07M | +11.0% |
| Interest Expense | $4.08M$216K | +1788.0% |
| Net Income | $166.38M$151.63M | +9.7% |
| EPS (Basic) | $0.14$0.11 | +22.2% |
| EPS (Diluted) | $0.14$0.11 | +21.3% |
| Shares Outstanding (Basic) | 1.21B1.35B | −10.1% |
| Shares Outstanding (Diluted) | 1.23B1.36B | −9.8% |
05—Questions
Frequently Asked Questions
How did Copart perform financially in fiscal 2011?
Copart grew revenue 12.9% to $872.2 million and operating income 11.0% to $265.3 million. Net income rose to $166.4 million, and diluted EPS increased to $2.17 from $1.78. Part of the growth reflects a one-time $14.4 million revenue acceleration from a new accounting standard, net of $13.5 million in related expenses.
What drove the drop in shareholders' equity and the increase in debt?
Copart spent $739.6 million repurchasing stock, mainly through a January 2011 tender offer for 12.2 million shares at $38.00 each. It funded the tender offer with a $400 million term loan due December 2015, which left $375.1 million outstanding at July 31, 2011. Equity fell to $555 million from $1.09 billion, while the company maintained covenant compliance.
What is the most significant legal or regulatory risk disclosed?
The Georgia Department of Revenue issued a notice of proposed assessment for $73.8 million in uncollected sales taxes, including penalties and interest, for January 2007 through June 2011. Management relies on an outside counsel opinion that the sales are not taxable and has not accrued the assessment, but the company warns that an adverse outcome could materially affect results. Separately, the EEOC is investigating its criminal background check hiring policy and may file a federal suit.
What are the main risks to the business model?
Copart depends on insurance companies for about 82% of vehicles processed, and seller contracts can be cancelled on 30 to 90 days' notice. UK operations partly run on a principal basis, which lowers gross margin percentages and adds inventory risk. Results also depend on used car and scrap prices, accident frequency tied to weather and fuel costs, and foreign currency movements, since the company does not hedge.
What changes are planned for the company's operations and structure?
Copart will relocate its corporate headquarters from Fairfield, California to Dallas, Texas over the next two years and create divisional processing centers in Fairfield, Grand Prairie, and Hartford. It is also converting its primary management information system to a new standard ERP system in phases through fiscal 2013. Management expects restructuring and conversion costs but has not quantified future amounts beyond $1.4 million in fiscal 2011.
06—Continue