01—Abstract
Summary
Summary of the 10-K filed October 1, 2012. Cited figures are marked; the original filing is the authoritative source.
Copart's fiscal 2012 10-K (year ended July 31, 2012) shows a company growing steadily while returning substantial capital to shareholders.
Revenue rose 6.0% to $924.2 milliona from $872.2 million, and operating income grew 8.0% to $286.4 million. Net income increased 9.5% to $182.1 million, and diluted EPS reached $1.39, up from $1.08. Service revenues, which drive the core insurance-salvage model, grew 6.2% on higher unit volume and higher average selling prices, helped by commodity and used-car price strength.
Vehicle sales, mostly from the U.K. principal-model business, rose 4.8%. Capital allocation was a major theme. Copart repurchased 8.9 million shares for $203.3 millionb during the year, and the board added 40 million shares to the buyback authorization, bringing the total to 98 million.
Share count fell from 132.0 million to 124.4 million, which lifted per-share results. The company funded its 2011 tender offer and buybacks with a $500 millionc term loan, which stood at $443.8 million at year-end. Total debt rose to $444.1 million from $375.8 million, and the company has paid no dividends since its 1994 IPO.
Liquidity is adequate, with $140.1 milliond in cash and $134.9 million in working capital. Key risks for investors include a pending $73.8 million Georgia sales tax assessment that the company has not reserved for, U.K. principal-model exposure that pressures gross margins, a planned ERP system conversion through fiscal 2014, and goodwill of $196.4 million tied largely to U.K. acquisitions. Growth continues through acquisitions and greenfield yards, with 155 facilities at year-end and a first Middle East acquisition in Dubai announced in August 2012.
02—Key points
Key Highlights
- Revenue grew 6.0% to $924.2 million, and operating income rose 8.0% to $286.4 million, with service revenues up 6.2% to $757.3 million.
- Diluted EPS increased to $1.39 from $1.08 (about 29%), supported by net income of $182.1 million and a shrinking share count.
- Copart repurchased 8.9 million shares for $203.3 million in fiscal 2012 and expanded its buyback authorization by 40 million shares to 98 million total; 48.2 million shares remain available.
- Total debt rose to $444.1 million from $375.8 million, mainly from the $500 million term loan used to fund the 2011 tender offer and buybacks; the swaps fix the rate on the loan.
- Insurance companies supplied 82% of vehicles processed, and no single customer exceeded 10% of revenue, though seller contracts are cancellable on 30 to 90 days' notice.
- A $73.8 million Georgia sales tax assessment is contested and unreserved; an adverse outcome could materially affect results.
- Goodwill of $196.4 million, largely from U.K. acquisitions, carries impairment risk, and the company is converting to a new ERP system through fiscal 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Copart Inc kept $0.20.
- Revenue$924.2M100.0%
- Cost of revenue−$137.0M14.8%
- Gross profit$787.2M85.2%
- Operating costs−$500.9M54.2%
- Operating income$286.4M31.0%
- Interest, other & tax−$104.2M11.3%
- Net income$182.1M19.7%
Where FY2012 revenue went
$924.2M- Operating costs: $500.9M, 54% of revenue
- Net income: $182.1M, 20% of revenue
- Cost of revenue: $137.0M, 15% of revenue
- Interest, other & tax: $104.2M, 11% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed October 1, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $924.19M$872.25M | +6.0% |
| Cost of Revenue | $136.97M$125.20M | +9.4% |
| Gross Profit | $787.22M$747.04M | +5.4% |
| Operating Income | $286.35M$265.29M | +7.9% |
| Interest Expense | $11.34M$4.08M | +178.1% |
| Net Income | $182.12M$166.38M | +9.5% |
| EPS (Basic) | $0.18$0.14 | +29.1% |
| EPS (Diluted) | $0.17$0.14 | +28.7% |
| Shares Outstanding (Basic) | 1.02M1.21B | −99.9% |
| Shares Outstanding (Diluted) | 1.05M1.23B | −99.9% |
05—Questions
Frequently Asked Questions
How strong was Copart's profitability in fiscal 2012?
Copart reported revenue of $924.2 million, operating income of $286.4 million (an operating margin of about 31%), and net income of $182.1 million. Diluted EPS was $1.39, compared with $1.08 in fiscal 2011. The effective tax rate fell to 34.5% from 36.9%, which helped earnings growth outpace revenue growth.
Why did share count and per-share results change so much?
Copart repurchased heavily in fiscal 2011, including a $19.00 per-share tender offer for 24.3 million shares, which cut shares outstanding from 168.7 million in 2010 to 132.0 million by July 2011. Buybacks continued in fiscal 2012, with 8.9 million shares repurchased and shares outstanding falling to 124.4 million. Because the share base is smaller, EPS growth exceeds net income growth.
What are the biggest risks investors should watch?
The most significant items are the unreserved $73.8 million Georgia sales tax assessment, U.K. principal-model contracts that depress gross margins and create inventory risk, dependence on insurance-company sellers whose contracts can be cancelled on 30 to 90 days' notice, and the ERP conversion. Goodwill of $196.4 million could be impaired if U.K. performance weakens, and foreign currency exposure to the British pound and Canadian dollar is not hedged.
How is Copart's balance sheet and liquidity position?
The company held $140.1 million in cash and equivalents and had working capital of $134.9 million at July 31, 2012. Total debt of $444.1 million consists mainly of a term loan due December 2015, which amortizes $18.8 million per quarter, and it is in compliance with all covenants. Management expects current cash and operating cash flow (operating cash flow was $229.7 million) to cover needs for at least 12 months. Stockholders' equity was $561.1 million.
Is Copart paying dividends or expanding internationally?
Copart has never paid a cash dividend since its 1994 IPO and intends to retain earnings, with buybacks and debt repayment as alternative uses of cash. Internationally, it operates 15 U.K. facilities and 4 Canadian facilities, and in August 2012 it acquired Ride Safely Middle East Auction in Dubai, its first acquisition outside North America and the U.K. Management says the acquisition was immaterial in amount.
06—Continue