Copart Inc. (CPRT, Financial) filed Quarterly Report for the period ended 2009-10-31.
Copart, Inc. 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. Copart Inc. has a market cap of $2.95 billion; its shares were traded at around $35.13 with a P/E ratio of 21.1 and P/S ratio of 4. Copart Inc. had an annual average earning growth of 19.7% over the past 10 years. GuruFocus rated Copart Inc. the business predictability rank of 4-star.
Service Revenues. Service revenues were approximately $153.8 million during the three months ended October 31, 2009 compared to $156.3 million for the same period last year, a decline of $2.6 million or 1.6%. The decline in service revenue was due to the reduction in average revenue per car and to the negative impact on recorded service revenues due to the change in the GBP to USD exchange rate. The decline in revenue per car lead to an $8.7 million reduction in service fee revenue which resulted from the reduction in the average selling price of vehicles relative the same quarter last year. Over 50% of our service revenue is tied in some manner to the ultimate selling price of the vehicle. We believe the decline in the average selling price was primarily due to: (i) the year over year decline in commodity pricing as we believe that commodity pricing, particularly the per ton price for crushed car bodies, has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and (ii) the general strengthening of the dollar as we believe a stronger dollar increases the purchase price of US vehicles paid for in our international buyers local currencies. Used car pricing, which we believe also has an impact on the average selling price of vehicles was up on a year over year basis and, we believe, had a positive impact. However, we do not have sufficient information to determine which vehicles are sold for scrap, dismantling, retailing or export and, accordingly, cannot quantify the specific impact that commodity pricing, foreign currency exchange rates and used car pricing had on the selling price of vehicles. The average dollar to pound exchange rate was 1.64 dollars to the pound and 1.79 dollars to the pound for the three months ended October 31, 2009 and 2008, respectively, and lead to a reduction in service revenue of $1.0 million. Growth in unit volume was driven primarily by an increase in the units sold on behalf of fleets and franchise and independent car dealerships and the migration to the agency model in the UK. The growth in unit volume generated $7.1 million in additional service revenue relative to last year.
Vehicle Sales. We have assumed certain contracts through our UK acquisitions that require us to act as a principal, purchasing vehicles from the insurance companies and reselling them for our own account. Vehicle sales revenues were approximately $31.7 million during the three months ended October 31, 2009 compared to $35.2 million for the same period last year, a decline of $3.5 million, or 10.1%. The decline in vehicle sales revenue was due to the reduced unit volume processed and the negative impact on recorded vehicle sales revenue due to the change in the GBP to USD exchange rate. The decline in unit volume was due primarily to the migration of certain contracts in the UK from a principal basis to a fee basis and lead to a reduction in revenue of $4.2 million. The decline in the average USD to GBP exchange rate lead to a reduction in vehicle sales revenue of $2.6 million. These declines were offset by the increase in the average sales price per transaction which lead to an increase of revenue of $3.3 million. The average selling price per transaction was up relative to the same quarter last year due primarily, we believe, to the continued beneficial impact of VB2, our Internet selling platform. We converted our UK sales to VB2 in our 2008 fiscal year. We believe commodity pricing and used car pricing also have an impact on the average selling price of vehicles. We believe commodity pricing, particularly the per ton price for crushed car bodies, has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and that used car pricing has an impact on the ultimate selling price of vehicles sold to rebuilders and retailers. However, we do not have sufficient information to determine movement in these influences in the UK market nor can we determine which vehicles are sold for scrap, dismantling, retailing or export, Accordingly, we cannot quantify the impact that commodity pricing and used car pricing had on the selling price of vehicles sold in the UK.
Cost of Vehicle Sales. The cost of vehicle sales were approximately $24.4 million during the three months ended October 31, 2009 compared to $29.9 million for the same period last year, a decline of approximately $5.5 million. Unit volume decline lead to a reduction of $3.6 million and was due primarily to the migration of certain contracts in the UK from a principal basis to a fee basis. Cost per unit sold was down marginally and represented less than a $0.1 million increase relative to last year. The beneficial impact on the cost of sales due to the change in the GBP to USD exchange rate was $1.9 million.
General and Administrative Expenses. General and administrative expenses, excluding depreciation and amortization, were approximately $23.9 million for the three months ended October 31, 2009 compared to $17.5 million for the same period last year, an increase of approximately $6.4 million. The growth in general and administrative costs was due primarily to: (i) increased advertising costs as we invested in events and media promotions to generate new member activity, (ii) the additional costs associated with the CEO and Presidents non-cash compensation package approved by the shareholders in April 2009 and (iii) the effect of legal settlements in both the current quarter and the same quarter last year. In the current quarter we have accrued for a detrimental legal settlement of $0.8 million. In the same quarter last year, we incurred a beneficial legal settlement of $1.0 million. The beneficial impact on general and administrative expenses due to the change in GBP to USD exchange rate was approximately $0.2 million
On March 6, 2008, we entered into an unsecured credit agreement with Bank of America, N.A. (the Credit Agreement) providing for a $175 million (reduced from $200 million pursuant to the terms of the Credit Agreement) revolving credit facility (the Credit Facility), including a $100 million foreign currency borrowing sublimit and a $50 million letter of credit sublimit. Amounts borrowed under the Credit Facility may be used for repurchases of stock, capital expenditures, working capital and other general corporate purposes. The Credit Facility matures, and all outstanding borrowings are due, on the fifth anniversary of the Credit Agreement, with annual reductions in availability of $25 million on each of the first three anniversaries of the Credit Agreement. Amounts borrowed under the Credit Facility may be repaid and re-borrowed until the maturity date and bear interest, at our option, at either Eurocurrency Rate plus 0.5% to 0.875%, depending of the leverage ratio, as defined in the Credit Agreement, at the end of the previous quarter or at the prime rate. A default interest rate applies on all obligations during an event of default under the Credit Facility at a rate per annum equal to 2.0% above the otherwise applicable interest rate. The Credit Facility requires us to pay a commitment fee on the unused portion of the Credit Facility. The commitment fee ranges from 0.075% to 0.15% depending on the leverage ratio as of the end on the previous quarter. The Credit Facility contains customary representations and warranties and places certain business operating restrictions on us relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, and dividends, distributions and redemptions of capital stock. In addition, the Credit Agreement provides for a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-defaults to certain other indebtedness, bankruptcy and insolvency defaults, material juRead the The complete ReportCPRT is in the portfolios of Richard Aster Jr of Meridian Fund, Ron Baron of Baron Funds, First Pacific Advisors of First Pacific Advisors, LLC, Chuck Royce of ROYCE & ASSOCIATES, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Jeremy Grantham of GMO LLC.
Copart, Inc. 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. Copart Inc. has a market cap of $2.95 billion; its shares were traded at around $35.13 with a P/E ratio of 21.1 and P/S ratio of 4. Copart Inc. had an annual average earning growth of 19.7% over the past 10 years. GuruFocus rated Copart Inc. the business predictability rank of 4-star.
Highlight of Business Operations:
We are partially self-insured for certain losses related to medical, general liability, workers compensation and auto liability. Our insurance policies are generally subject to a $250,000 deductible per claim, with the exception of our medical policy which is $150,000 per claim. In addition, each of our policies contains an aggregate stop loss which limits our ultimate exposure. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. The primary estimates used in the actuarial analysis include total payroll and revenue. Our estimates have not materially fluctuated from actual results. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our consolidated financial position, results of operations or cash flows could be impacted. The process of determining our insurance reserves requires estimates with various assumptions, each of which can positively or negatively impact those balances. The total amount reserved for all policies is approximately $6.4 million as of October 31, 2009. If the total number of participants in the medical plan changed by 10% we estimate that our medical expense would change by approximately $1.0 million and our medical accrual would change by approximately $200,000. If our total payroll changed by 10% we estimate that our workers compensation expense would change by approximately $100,000 and our accrual for workers compensation expenses would change by $100,000. A 10% change in revenue would change our insurance premium for the general liability and umbrella policy by less than $20,000.Service Revenues. Service revenues were approximately $153.8 million during the three months ended October 31, 2009 compared to $156.3 million for the same period last year, a decline of $2.6 million or 1.6%. The decline in service revenue was due to the reduction in average revenue per car and to the negative impact on recorded service revenues due to the change in the GBP to USD exchange rate. The decline in revenue per car lead to an $8.7 million reduction in service fee revenue which resulted from the reduction in the average selling price of vehicles relative the same quarter last year. Over 50% of our service revenue is tied in some manner to the ultimate selling price of the vehicle. We believe the decline in the average selling price was primarily due to: (i) the year over year decline in commodity pricing as we believe that commodity pricing, particularly the per ton price for crushed car bodies, has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and (ii) the general strengthening of the dollar as we believe a stronger dollar increases the purchase price of US vehicles paid for in our international buyers local currencies. Used car pricing, which we believe also has an impact on the average selling price of vehicles was up on a year over year basis and, we believe, had a positive impact. However, we do not have sufficient information to determine which vehicles are sold for scrap, dismantling, retailing or export and, accordingly, cannot quantify the specific impact that commodity pricing, foreign currency exchange rates and used car pricing had on the selling price of vehicles. The average dollar to pound exchange rate was 1.64 dollars to the pound and 1.79 dollars to the pound for the three months ended October 31, 2009 and 2008, respectively, and lead to a reduction in service revenue of $1.0 million. Growth in unit volume was driven primarily by an increase in the units sold on behalf of fleets and franchise and independent car dealerships and the migration to the agency model in the UK. The growth in unit volume generated $7.1 million in additional service revenue relative to last year.
Vehicle Sales. We have assumed certain contracts through our UK acquisitions that require us to act as a principal, purchasing vehicles from the insurance companies and reselling them for our own account. Vehicle sales revenues were approximately $31.7 million during the three months ended October 31, 2009 compared to $35.2 million for the same period last year, a decline of $3.5 million, or 10.1%. The decline in vehicle sales revenue was due to the reduced unit volume processed and the negative impact on recorded vehicle sales revenue due to the change in the GBP to USD exchange rate. The decline in unit volume was due primarily to the migration of certain contracts in the UK from a principal basis to a fee basis and lead to a reduction in revenue of $4.2 million. The decline in the average USD to GBP exchange rate lead to a reduction in vehicle sales revenue of $2.6 million. These declines were offset by the increase in the average sales price per transaction which lead to an increase of revenue of $3.3 million. The average selling price per transaction was up relative to the same quarter last year due primarily, we believe, to the continued beneficial impact of VB2, our Internet selling platform. We converted our UK sales to VB2 in our 2008 fiscal year. We believe commodity pricing and used car pricing also have an impact on the average selling price of vehicles. We believe commodity pricing, particularly the per ton price for crushed car bodies, has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and that used car pricing has an impact on the ultimate selling price of vehicles sold to rebuilders and retailers. However, we do not have sufficient information to determine movement in these influences in the UK market nor can we determine which vehicles are sold for scrap, dismantling, retailing or export, Accordingly, we cannot quantify the impact that commodity pricing and used car pricing had on the selling price of vehicles sold in the UK.
Cost of Vehicle Sales. The cost of vehicle sales were approximately $24.4 million during the three months ended October 31, 2009 compared to $29.9 million for the same period last year, a decline of approximately $5.5 million. Unit volume decline lead to a reduction of $3.6 million and was due primarily to the migration of certain contracts in the UK from a principal basis to a fee basis. Cost per unit sold was down marginally and represented less than a $0.1 million increase relative to last year. The beneficial impact on the cost of sales due to the change in the GBP to USD exchange rate was $1.9 million.
General and Administrative Expenses. General and administrative expenses, excluding depreciation and amortization, were approximately $23.9 million for the three months ended October 31, 2009 compared to $17.5 million for the same period last year, an increase of approximately $6.4 million. The growth in general and administrative costs was due primarily to: (i) increased advertising costs as we invested in events and media promotions to generate new member activity, (ii) the additional costs associated with the CEO and Presidents non-cash compensation package approved by the shareholders in April 2009 and (iii) the effect of legal settlements in both the current quarter and the same quarter last year. In the current quarter we have accrued for a detrimental legal settlement of $0.8 million. In the same quarter last year, we incurred a beneficial legal settlement of $1.0 million. The beneficial impact on general and administrative expenses due to the change in GBP to USD exchange rate was approximately $0.2 million
On March 6, 2008, we entered into an unsecured credit agreement with Bank of America, N.A. (the Credit Agreement) providing for a $175 million (reduced from $200 million pursuant to the terms of the Credit Agreement) revolving credit facility (the Credit Facility), including a $100 million foreign currency borrowing sublimit and a $50 million letter of credit sublimit. Amounts borrowed under the Credit Facility may be used for repurchases of stock, capital expenditures, working capital and other general corporate purposes. The Credit Facility matures, and all outstanding borrowings are due, on the fifth anniversary of the Credit Agreement, with annual reductions in availability of $25 million on each of the first three anniversaries of the Credit Agreement. Amounts borrowed under the Credit Facility may be repaid and re-borrowed until the maturity date and bear interest, at our option, at either Eurocurrency Rate plus 0.5% to 0.875%, depending of the leverage ratio, as defined in the Credit Agreement, at the end of the previous quarter or at the prime rate. A default interest rate applies on all obligations during an event of default under the Credit Facility at a rate per annum equal to 2.0% above the otherwise applicable interest rate. The Credit Facility requires us to pay a commitment fee on the unused portion of the Credit Facility. The commitment fee ranges from 0.075% to 0.15% depending on the leverage ratio as of the end on the previous quarter. The Credit Facility contains customary representations and warranties and places certain business operating restrictions on us relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, and dividends, distributions and redemptions of capital stock. In addition, the Credit Agreement provides for a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-defaults to certain other indebtedness, bankruptcy and insolvency defaults, material juRead the The complete ReportCPRT is in the portfolios of Richard Aster Jr of Meridian Fund, Ron Baron of Baron Funds, First Pacific Advisors of First Pacific Advisors, LLC, Chuck Royce of ROYCE & ASSOCIATES, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Jeremy Grantham of GMO LLC.
