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E-mail records obtained by Better Georgia through an Oct. 8, 2013 open records request reveal Georgia Gov. Nathan Deal’s chief-of-staff and other high-level state employees in the governor’s office were actively involved with Copart’s attorney and the governor’s key mergers and acquisitions attorney in advance of the sale of the governor’s private business.
This new information is contrary to prior representations by the governor’s personal attorney and statements from the governor and his staff.
Titolo originale
Nathan Deal Media Report: Emails reveal controversial business deal influenced by governor’s staff
E-mail records obtained by Better Georgia through an Oct. 8, 2013 open records request reveal Georgia Gov. Nathan Deal’s chief-of-staff and other high-level state employees in the governor’s office were actively involved with Copart’s attorney and the governor’s key mergers and acquisitions attorney in advance of the sale of the governor’s private business.
This new information is contrary to prior representations by the governor’s personal attorney and statements from the governor and his staff.
E-mail records obtained by Better Georgia through an Oct. 8, 2013 open records request reveal Georgia Gov. Nathan Deal’s chief-of-staff and other high-level state employees in the governor’s office were actively involved with Copart’s attorney and the governor’s key mergers and acquisitions attorney in advance of the sale of the governor’s private business.
This new information is contrary to prior representations by the governor’s personal attorney and statements from the governor and his staff.
by governors staff E-mail records obtained by Better Georgia through an Oct. 8, 2013 open records request reveal Georgia Gov. Nathan Deals chief-of-staff and other high-level state employees in the governors offce were actively involved with Coparts attorney and the governors key mergers and acquisitions attorney in advance of the sale of the governors private business. This new information is contrary to prior representations by the governors personal attorney and statements from the governor and his staff. Gov. Deals staff misled the public regarding the extent of their involvement in the sale of Gainesville Salvage. After Nathan Deal became governor, he and his attorney, Randy Evans, assured the public that the governors private business, including Gainesville Salvage, would be handled though a blind trust. On 1/6/2011, Gov. Deal attorney Randy Evans told the Associated Press: Jimmy Allen, a Tifton-based accountant and Deal political supporter, will serve as trustee of the governors assets and act as his surrogate on business matters. Deal is transferring his share of Gainesville Salvage Disposal into the trust as well as his holding in several limited liability companies, Evans said. See EXHIBIT 1 On 7/4/2013, Gov. Deal attorney Randy Evans told the Atlanta Journal-Constitution that the sale of Gainesville Salvage was managed outside the governors offce by the blind trust: Although the property was managed in a blind trust, Deal still signed off on the fnal sale, his attorney said. There was no reason, if youre fully vested in being the governor, to have another business out there, Evans said. Once he was elected he recognized that was a full-time job and he didnt want any suggestion of a crossover between the two. See EXHIBIT 2 On 7/18/2013, the AJC reported that Gov. Deal denied knowledge that Copart owed the state $74 million in back taxes because the property was run in a blind trust: Deal said Tuesday he had no intention of getting involved in the ongoing legal battle between the company, Copart, and Department of Revenue offcials who say the frm failed to pay sales tax on parts sales. He said he had no knowledge of Coparts tax woes because the property was run in a blind trust, which means the assets are controlled by a third party. They will get no preferential treatment. The Department of Revenue has jurisdiction over this and will deal with that case just like they do other cases, he said. The governors offce has no involvement with this. None at all. See EXHIBIT 3 Likewise, Deal attorney Randy Evans told the AJC on 7/18/2013 that the Governor wasnt involved in the transaction but approved the fnal agreement. Deal attorney Randy Evans said the governor wasnt involved in the negotiations, but approved the fnal agreement. Evans said knowing about Coparts tax issues wouldnt have affected the fnal deal either way. We walled off any issues relating the state and state business to avoid any suggestion that it had or would have any impact on the transaction, Evans told the AJC. See EXHIBIT 3 Now, as a result of an open records request, we know that, contrary to what they claimed, the Governors offce was deeply involved in the governors personal business affairs prior to the sale of Gainesville Salvage. Specifcally, the governors top aides, including Chief of Staff Chris Riley worked in an effort to control the content of public information regarding the sale. NOTE: Jimmy Allen, who was disclosed as the fnancial manager of Gainesville Salvage on behalf of Gov. Deal, was never mentioned anywhere in the email stream. He was never copied on the emails from the governors offce but he did confrm the transaction to the media. See EXHIBIT 4 Gov. Deal used government resources for personal gain. Emails show that the Governors Chief of Staff and other high-level staff, on state time, using state resources, including computers and email, consulted on the distribution of public information for the sale of Gainesville Salvage, the governors personal business, to Copart, Inc., a publicly traded company involved in a $74 million tax dispute with the state. The Governors lawyers at McKenna, Long and Aldridge, his Chief of Staff, Deputy Chief of Staff for Communications and Executive Counsel were all involved in editing a press release prepared by Copart, Inc. announcing the sale. See EXHIBIT 4 On Friday, May 3, 2013, at 5:21 p.m., Greg DePasquale, attorney for Copart, Inc, sent an email to Kristen Beystehner, partner at McKenna, Long and Aldridge. He included a draft press release regarding the acquisition of Gainesville Salvage. Hi, Kristen. Below is the draft release. Let me know if your client has any objections. Best, Greg Ms. Beystehners client was Gov. Nathan Deal. She focuses her practice on general corporate counseling, with an emphasis on mergers and acquisitions. See EXHIBIT 5 1/26/14, 9:45 AM Kristen Beystehner: McKenna Long & Aldridge LLP Page 1 of 2 http://www.mckennalong.com/professionals-KristenBeystehner.html Practices: Corporate Financing and Lending Joint Ventures and Strategic Alliances Mergers and Acquisitions Private Equity, Hedge Funds and Venture Capital International Canada-U.S. International Practice Civic Activities: Pro Bono Partnership of Atlanta, Board of Advisors Everybody Wins! Power Lunch Program, Reading Mentor Publications: "Purchase Price Adjustments: Buyers (and Sellers) Beware," Financier Worldwide, November 2012 (co- authored with Gregory Brow and Ann-Marie McGaughey). "See Ya Later, Gator: Assessing Whether Placing Pop-Up Advertisements on Another Company's Website Violates Trademark Law," 11 J. Intell. Prop. L. 87, 2003. Seminars and Presentations: Kristen M. Beystehner Partner - New York kbeystehner@mckennalong.com Download vCard 230 Park Avenue 17th Floor New York, NY 10169 TEL: 212.905.8324 FAX: 212.922.1819 Atlanta 303 Peachtree Street, NE Suite 5300 Atlanta, GA 30308 ALT TEL: 404.527.8525 ALT FAX: 404.527.4198 Experience Kristen M. Beystehner focuses her practice on general corporate counseling, with an emphasis on mergers and acquisitions. In addition to mergers and acquisitions, her experience includes working with clients to structure and implement strategic alliance relationships; advising clients in domestic and international commercial contract negotiation; and assisting borrowers and lenders in financing transactions. Ms. Beystehner regularly counsels clients regarding entity formation and organization, dissolutions and liquidations, and corporate governance matters. Ms. Beystehner was recognized as a Georgia Super Lawyers Rising Star in 2011 and 2012 and was selected by her peers as a member of Georgia Trends Legal Elite. While in law school, Ms. Beystehner served as Editor-in-Chief of the Journal of Intellectual Property Law. As an undergraduate, she was a four-time varsity letter winner on the Northwestern University womens golf team and a member of the first team in the universitys history to compete in the NCAA Division I Womens Golf Championships. Notable Engagements Representation of Just Energy Group Inc. (TSX: JE) (NYSE: JE), which is one of North Americas leading independent natural gas and electricity retailers and providers of green energy, in connection with its acquisition of Menu The Governors Offce staff was interfacing with the McKenna acquisitions lawyer, Ms. Beystehner, who was handing the sale and acquisition of the governors private business. Throughout the email stream, Jimmy Allen is never copied, nor mentioned. On Friday, May 10, 2013, at 1:08 pm, Ms. Beystehner forwarded the May 3, 2013 email with the draft release from Coparts lawyer to Gov. Deals Deputy Chief of Staff for Communications, Brian Robinson. On Friday, May 10, 2013 at 1:10 pm, Brian Robinson forwarded the email from Ms. Beystehner to Chris Riley and Ryan Teague, the governors inhouse executive counsel. Chris Riley, Gov. Deals chief of staff, tried to hide details about the sale of the governors private business. In advance of the sale, the Governors Chief of Staff, interacting with the Governors private attorneys and counsel for Copart, edited Coparts press release to remove Gainesville as much as possible and make it appear more metro Atlanta. See EXHIBIT 4 On Friday, May 10, 2013 at 1:13 p.m., Chris Riley sent an email to Ryan Teague and Randy Evans: This doesnt incorporate the edits I made last Friday night. See EXHIBIT 4 Note: This makes clear that the Governors Chief of Staff had a copy of the draft release at least as of May 3, 2013, the day Coparts lawyer frst emailed Ms. Beystehner. We were not provided with documentation of when Mr. Riley received the draft release, although it was part of our request. On Friday, May 10, 2013 at 8:50 pm, Chris Riley sent an email to Ms. Beystehner and copied Randy Evans. This email reads as follows: Kristen, Sorry I thought Ken had sent them to you. I am trying to remove Gainesville as much as possible and make it appear more metro Atlanta. That is all See EXHIBIT 4 It appears that there is an email missing that Chris Riley is responding to in this email chain. It is not clear who Ken is, or why Chris Riley was trying to remove Gainesville as much as possible. Ken Cronan is Gov. Deals business partner with Gainesville Salvage, although it is unclear whether he is the Ken referenced here. Gov. Deals offce was successful in delaying press coverage regarding Coparts acquisition of Gainesville Salvage. Alhough the email stream between the attorneys and the Governors offce includes a draft press release, we can fnd no record that Copart released the statement announcing the acquisition. Instead, on May 15, 2013, Copart, Inc. posted on Twitter: The Tweet was cross-posted on Facebook on the same date: See EXHIBIT 6 See EXHIBIT 7 Social media posts never mention Copart acquired the new yard, only that the company opened one. Despite searches on PRNewswire, BusinessWire, NASDAQ and Coparts own public release website, we cannot fnd that the press release Chris Riley objected to ever surfaced. The sale was not reported in Georgia press until July 3, 2013, when the information was released frst to the Governors hometown paper, The Gainesville Times. Jimmy Allen confrmed the sale. See EXHIBIT 8 Gov. Deals attorney obscured date of Gainesville Salvage transaction. On 7/4/2013, Gov. Deal attorney Randy Evans told the AJC that the sale of Gainesville Salvage closed on June 26, 2013: Evans said negotiations to sell the salvage business were in the works for months before it closed June 26. The agreement also gives Copart an option to buy the land from Deal and Cronan for $4.8 million at the end of the 10-year lease. Copart is a publicly traded online car auction frm claiming an inventory of more than 50,000 vehicles. The company, which operates fve facilities in Georgia and dozens more across the nation, is aggressively seeking an expansion. It signed a deal in May to purchase Salvage Parent, which has 39 locations in 14 states. See EXHIBIT 2 However, Coparts offcial flings with the SEC, the statements of Coparts CEO during a May 31, 2013 investor call and the companys posts in social media support the conclusion that Copart acquired the assets of Gainesville Salvage on May 14, 2013. On page 16 of the companys 4/30/2013 10-Q report fled on 6/5/2013 to the SEC, Copart, Inc. reported that they acquired the assets of Gainesville Salvage on May 14, 2013. This is the frst mention of the sale in any offcial document from Copart: On page 5 and page 31 of Coparts 10-K report to the SEC fled on 9/30/2013 for the fscal year ending July 31, 2013, the company reported that it acquired the assets of Gainesville Salvage in May, 2013. See EXHIBIT 10 On May 15, 2013, on their offcial Twitter feed, Copart, Inc. posted the following tweet stating, Copart has opened a new yard, Atlanta North, in Gainesville, Georgia. Check out the inventory. Note that the tweet makes no specifc mention of the acquisition of Gainesville Salvage. See EXHIBIT 5 1/25/14, 5:24 PM HTML Page 17 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544313001371/d30311.htm NOTE 14 - Subsequent Events On May 14, 2013, the Company purchased the assets of Gainesville Salvage Disposal, a salvage vehicle auction company located in Gainesville, GA. On May 30, 2013, the Company acquired Salvage Parent, Inc., which conducts business primarily as Quad City Salvage Auction, Crashed Toys, and Desert View Auto Auction. Combined, these businesses operate at thirty-nine locations in 14 states. On May 31, 2013, the Company purchased the assets of Auto Salvage Auction, Inc., a salvage vehicle auction company with locations in Davison and Ionia, MI. The aggregate purchase price for these acquisitions, which closed subsequent to the quarter, was approximately $77.0 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part I, Item 1A."Risk Factors" of this Form 10-Q and those discussed elsewhere in this Form 10-Q. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as in the other documents we le with the Securities and Exchange Commission, or SEC. We may from time to time make additional written and oral forward-looking statements, including statements contained in our lings with the SEC. We do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf. Although we believe that, based on information currently available to us and our management, the expectations reected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. In addition, historical information should not be considered an indicator of future performance. Overview We are a leading provider of online auctions and vehicle remarketing services in the United States (U.S.), Canada, the United Kingdom (U.K.), the United Arab Emirates (U.A.E.), Brazil and Germany. We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the Internet through our Virtual Bidding Second Generation Internet auction-style sales technology, which we refer to as VB 2 . Vehicle sellers consist primarily of insurance companies, but also include banks and nancial institutions, charities, car dealerships, eet operators and vehicle rental companies. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, to the general public. The majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. We offer vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price. In the U.S. and Canada (North America), the U.A.E. and Brazil we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services such as towing and storage. In the U.K., we operate both on a principal basis, purchasing the salvage vehicle outright from the insurance companies and reselling the vehicle for our own account, and as an agent. In Germany, we derive revenue from sales listing fees for listing vehicles on behalf of many German insurance companies. Our revenues consist of sales transaction fees charged to vehicle sellers and vehicle buyers, transportation revenue, purchased vehicle revenues, and other remarketing services. Revenues from sellers are generally generated either on a xed fee contract basis where we collect a xed amount for selling each vehicle regardless of the selling price of the vehicle or, under our Percentage Incentive Program, or PIP, where our fees are generally based on a predetermined percentage of the vehicle sales price. Under the consignment, or xed fee program, we generally charge an additional fee for title processing and special preparation. Although sometimes included in the consignment fee, we may also charge additional fees for the cost of transporting the vehicle to our facility, storage of the vehicle, and other incidental costs. Under the consignment programs, only the fees associated with vehicle processing are recorded in revenue, not the actual sales price (gross proceeds). Sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles, storage, loading and annual registration. Transportation revenue includes charges to sellers for towing vehicles under certain contracts and towing charges assessed to buyers for delivering vehicles. Purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own and is primarily generated in the U.K. 16 See EXHIBIT 9 On a May 31, 2013 investor call, Copart CEO A. Jayson Adair said: 1/25/14, 5:33 PM Copart, Inc. (CPRT): Copart Management Discusses Q3 2013 Results - Earnings Call Transcript - Seeking Alpha Page 3 of 10 http://seekingalpha.com/article/1474011-copart-management-discusses-q3-2013-results-earnings-call-transcript?page=2 has been very successful in competing against ourselves and Insurance Auto Auctions. And so this acquisition brings that whole leadership team into the company. John Lindell[ph] , who's the CEO of the company, said it best when we were talking to customers, that he had a choice of merging with one of the other large players or hooking up with another private equity company. And after he saw what Copart's working on, what we're doing, he said there was no question in his mind, he wanted to hitch his horse to Copart. And that's really exciting for us. We're looking forward to all the things that they do and learning about that and integrating it into our company. Some other points that I would just make about the company is that John will remain CEO of Quad Cities, and we're going to be sitting down with all of our customers and finding out what they like best about Copart and what they like best about Quad Cities and raising the bar in terms of the level of service that we bring to all of our customers. So really it's a win-win across the board on that. We also announced or I should say we also acquired in the quarter -- or not in the quarter, but in the recent months, Gainesville Salvage in Georgia. And that gives us another location in the Georgia market. So I'm sure there's a ton of questions as I said Vinny Mitz, our President's here. And so he's going to step in, do some of the questions as well. And at this time I'll turn it over to the operator for questions. Question-and-Answer Session Operator [Operator Instructions] We'll go right to our first question from Bob Labick, CJS Securities. Robert Labick - CJS Securities, Inc. Just wondering if you could maybe give us a little more history of the acquisition, how long you were talking to them? Was it a auction or a negotiated deal? Why did they sell now? You talked a little bit why to Copart but why now? And obviously we'd love to know any of the terms of the deal, or how big they are and then that kind of stuff if you would tell us that. Vincent W. Mitz Sure. This is Vinny. The deal came together very, very quickly. After some recent national RFPs, market share throughout the country had been settled and redistributed. And the owners of Quad Cities including John, were looking what was best for their strategic future and they were looking to team up to continue and accelerate their growth. And actually were looking for a partner who would be able to help and assist in the growth of their company, separate from a normal acquisition integration. And that opportunity came together very quickly. Once we agreed philosophically how to handle the transaction, it was just a matter of working out the financials. So it only took probably 3 to 4 months for the whole thing to come together. William E. Franklin Bob, this is Will. Let me add just a little color to that, too. Quad Cities is a serious player in our space. We compete with them all the time and we lose to them. The insurance companies use them because they like what they do. So we think this is a win for us to be able to understand what they do well and incorporate that into our offerings as well. Robert Labick - CJS Securities, Inc. And could you -- I mean, maybe give some specifics on what they do well, better than Copart? And how you can bring that to the rest of your yards? A. Jayson Adair Well, that's exactly what we're doing right now. We're in a period where we're going to be analyzing all their process and then we're going to be looking at what we want to incorporate. So we don't plan on changing anything for the foreseeable future right now until we get all that figured out. William E. Franklin The May 14, 2013 acquisition was actually not in the quarter Mr. Adair was reporting on, which ended on April 30, 2013. The specifc date of the acquisition of Gainesville Salvage, was, however, reported in the notes of that quarterly report, released on June 5, 2013 as a Subsequent Event. This is the only place in any of Coparts flings where the specifc date of the sale is reported. See EXHIBIT 11 A Texas-based company that owes Georgia $74 million made Georgias bankrupt governor a millionaire. On Wednesday, July 3, 3013, Randy Evans told the AJC that since 2011, Gov. Deal has tried to sell Gainesville Salvage. Evans said the governor had tried to sell the business since he took offce in 2011. See EXHIBIT 2 Gainesville Salvage was not a proftable company. In fact, the company was costing the governor money. He was going into debt to support its operation. On 1/6/2011, Shannon McAffrey reported for the Associated Press that Gainesville Salvage and Disposal owed approximately $2 million. In addition to the $1.35 million in Wilder debt, Deal and his wife listed two mortgages worth $810,000 on their fnancial disclosure. Additionally, Gainesville Salvage Disposal owes about $2 million. See EXHIBIT 1 The AJC reported on July 17, 2013 that Copart agreed to pay Deal and his partner, Ken Cronan, $2 million each for the business, plus $20,000 per month for 10 years as a lease on the land, with an option to buy the land at the end of 10 years. The sale of the cash-strapped auto salvage business was important to the governor. On July 3, 2013, Randy Evans told the AJC that the sale of Gainesville Salvage had improved the governors fnancial picture: It has steadied because of this sale, Evans said of Deals fnancial situation. If you have an infusion of a few million dollars plus a monthly rental, you can only feel its a positive. I think his fnancial footing will be stronger than ever and hell have Gainesville Salvage in the history books. See EXHIBIT 2 During the same period of time when the Governor was attempting to sell Gainesville Salvage, Copart, Inc. was fghting a $74 million proposed assessment from the Georgia Department of Revenue for nonpayment of sales and use tax on vehicles shipped overseas. According to Coparts 10/31/2011 Form 10-Q fled on 12/12/2011, the Georgia Department of Revenue audited Copart for the period 1/1/2007-6/30/2011 and issued a proposed assessment of $73.8 million: Copart still owes Georgia nearly $74 million dollars. As of the fling of its 10/31/2013 Form 10-Q fled on 12/10/2013, Copart, Inc. continues to show the $73.8 million dollar proposed assessment from the Georgia Department of Revenue: 1/25/14, 9:54 PM HTML Page 32 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544311001231/d28860_10-q.htm Goodwill represents the excess of cost over the fair market value of assets acquired in business combinations. In recent periods, the amount of goodwill on our balance sheet has increased substantially, principally as a result of a series of acquisitions we have made in the UK since 2007. As of October 31, 2011, the amount of goodwill on our balance sheet subject to future impairment testing was $197.1 million. Pursuant to FASB ASC 350, Intangibles-Goodwill and Other, we are required to annually test goodwill and intangible assets with indenite lives to determine if impairment has occurred. Additionally, interim reviews must be performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made. The testing of goodwill and other intangible assets for impairment requires us to make signicant estimates about our future performance and cash ows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in the denition of a business segment in which we operate, changes in economic, industry or market conditions, changes in business operations, changes in competition or potential changes in the share price of our common stock and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of our future performance, could affect the fair value of goodwill or other intangible assets, which may result in an impairment charge. For example, continued deterioration in worldwide economic conditions could affect these assumptions and lead us to determine that a goodwill impairment is required with respect to our acquisitions in the UK. We cannot accurately predict the amount or timing of any impairment of assets. Should the value of our goodwill or other intangible assets become impaired, it could have a material adverse effect on our operating results and could result in our incurring net losses in future periods. An adverse outcome of a pending Georgia sales tax audit could have a material adverse effect on our results of operations and nancial condition. The Georgia Department of Revenue, or DOR, recently conducted a sales and use tax audit of our operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that we failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax. We have engaged a Georgia law rm and outside tax advisors to review the conduct of our business operations in Georgia, the notice of assessment, and the DOR's policy position. In particular, our outside legal counsel has provided us with an opinion that our sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, our counsel noted that non-U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certicate of exemption but concluded that our sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply. Based on the opinion from our outside law rm and advice from outside tax advisors, we have not provided for the payment of this assessment in our condensed consolidated nancial statements. We believe we have strong defenses to the DOR's notice of proposed assessment and intend to defend this matter. We have led a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in our favor or that we will not ultimately be required to make a substantial payment to the Georgia DOR. We understand that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to Copart, it could have a material adverse effect on our results of operations and condensed consolidated nancial statements. New accounting pronouncements or new interpretations of existing standards could require us to make adjustments to accounting policies that could adversely affect the consolidated nancial statements. The Financial Accounting Standards Board, the Public Company Accounting Oversight Board, and the SEC, from time to time issue new pronouncements or new interpretations of existing accounting standards that require changes to our accounting policies and procedures. To date, we do not believe any new pronouncements or interpretations have had a material adverse effect on our nancial condition or results of operations, but future pronouncements or interpretations could require a change or changes in our policies or procedures. Fluctuations in foreign currency exchange rates could result in declines in our reported revenues and earnings. Our reported revenues and earnings are subject to uctuations in currency exchange rates. We do not engage in foreign currency hedging arrangements and, consequently, foreign currency uctuations may adversely affect our revenues and earnings. Should we choose to engage in hedging activities in the future we cannot be assured our hedges will be effective or 32 See EXHIBIT 12 Had the company prevailed in their legal dispute with the GDOR, or had GDOR determined that the assessment was in error, the company would not continue to show this matter as pending in their fnancial statements. Gov. Deal has pledged to do nothing to collect these back taxes, even as he pockets Coparts rent every month. From the AJC, 1/18/13: See EXHIBIT 13 1/28/14, 2:38 PM HTML Page 16 of 41 http://www.sec.gov/Archives/edgar/data/900075/000114544313002257/d30731_10q.htm Governmental Proceedings The Georgia Department of Revenue, or DOR, conducted a sales and use tax audit of the Company's operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that the Company failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax. The Company has engaged a Georgia law rm and outside tax advisors to review the conduct of its business operations in Georgia, the notice of assessment, and the DOR's policy position. In particular, the Company's outside legal counsel has provided the Company an opinion that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, the Company's counsel noted that non- U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certicate of exemption but concluded that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply. Based on the opinion from the Company's outside law rm and advice from outside tax advisors, the Company has adequately provided for the payment of this assessment in its consolidated nancial statements. The Company believes it has strong defenses to the DOR's notice of proposed assessment and intends to defend this matter. The Company has led a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in the Company's favor or that the Company will not ultimately be required to make a substantial payment to the Georgia DOR. The Company understands that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to the Company, it could have a material adverse effect on the Company's consolidated results of operations, nancial position and cash ows. NOTE 12 - Restructuring The Company relocated its corporate headquarters to Dallas, Texas in 2012. The restructuring-related costs are as follows (in thousands):
Three Months Ended October 31, 2013 2012 General and Administrative Severance $ 1,569 $ 286 Relocation 58 - Total general and administrative $ 1,627
$ 39 The movements in the severance accrual are as follows (in thousands):
Balance at July 31, 2013 Expense Payments Balance at October 31, 2013 Severance $2,224 $1,569 $150 $3,643 The Company started transitioning its data center to a third party managed data center during the year ended July 31, 2013. The Company reviewed the useful life of certain assets related to its data centers and determined they should be revised from an average of 60 months to an average of 45 months to reect the shorter useful lives of these assets. Additionally, facility depreciation related to the Company's IT operations, currently located in the Company's ofces in Faireld, CA, was accelerated as the department is relocating to the Dallas, TX corporate headquarters. These changes in estimate are accounted for on a prospective basis, resulting in increased depreciation expense over the revised useful lives. These changes will result in $2.8 million in accelerated depreciation expense to be recorded in scal 2014. These changes resulted in $1.7 million and $0.7 million in additional depreciation in the three months ended October 31, 2013 and 2012, respectively. 15 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281-1%29&hide 1/3 1 of 1 DOCUMENT The Atlanta Journal-Constitution July 18, 2013 Thursday Main Edition NEW DETAILS TAX DISPUTE; Salvage yard sale a headache for Deal BYLINE: Greg Bluestein; Staff SECTION: NEWS; Pg. 1A LENGTH: 1002 words HIGHLIGHT: Firm that bought out governor's business is battling over back taxes. Gov. Nathan Deal was hoping to rid himself of a controversy that plagued his last campaign when he sold off a lucrative salvage yard. Instead, the buyer's multimillion-dollar tax woes have given fresh ammunition to critics. The Texas-based car auction firm that agreed to pay $3.2 million each to Deal and his business partner Ken Cronan for Gainesville Salvage & Disposal is battling the state over nearly $74 million in disputed back taxes, and the company has been ramping up its lobbying forces as it wages t he legal fight. Deal said Tuesday he had no intention of getting involved in the ongoing legal battle between the company, Copart, and Department of Revenue officials who say the firm failed to pay sales tax on parts sales. He said he had no knowledge of Copart's tax woes because the property was run in a blind trust, which means the assets are controlled by a third party. "They will get no preferential treatment. The Department of Revenue has jurisdiction over this and will deal with that case just like they do other cases," he said. "The governor's office has no involvement with this. None at all." But critics, noting that Deal appoints the tax department's chief, say it could prove hard for the governor to divorce himself from the ongoing tax dispute. "I knew the Copart deal was too good to be true. And it definitely is," said Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington. "It was clear from the get-go that they wanted something, and this may be it." The transaction will net Deal and Cronan roughly $3.2 million each from the sale of the business and a 10-year lease on the land. It is the company's fifth location in Georgia as it looks to expand its footprint in this market. The salvage yard has long been the source of steady income --- and political controversy --- for Deal. The partners once held a lucrative no-bid agreement with the state to provide space for state employees to inspect rebuilt salvaged cars. The Atlanta Journal-Constitution reported in 2009 that Deal, then a congressman, intervened See EXHIBIT 3 Gov. Nathan Deal and his offce staff are paid by the State of Georgia. Taxpayers should not pay Gov. Deals top aides to manage the governors personal business especially when the business is supposedly walled off and in a blind trust. EXHIBIT 1 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281%29&hideSo 1/2 1of1DOCUMENT TheAssociatedPressState&LocalWire January6,2011Thursday10:05PMGMT Dealsetsupblindtrust,restructuresdebt BYLINE:BySHANNONMcCAFFREY,AssociatedPress SECTION:STATEANDREGIONAL LENGTH:728words DATELINE:ATLANTA Gov.electNathanDealhasnamedapoliticalsupportertooverseemanyofhisassetswhilehe'sinofficeandhas restructuredmorethan$1millioninpersonaldebtremainingfromafailedfamilybusinessventure. TheRepublican'slawyer,RandyEvans,saidDealhassetupablindtrustforhisholdings,followingthroughona campaignpledge.Butheisn'tputtingeverythinginit. DealwillmaintaincontroloverhisGainesvillehomeandHabershamCountylandthathousedhisdaughterandson inlaw'ssportinggoodsstore.Bothpropertiesareupforsaletohelppayoffsome$1.35millionindebtheincurred frombackingthefailedNorthGeorgiabusiness,WilderOutdoors. DealwillbesworninMonday.Histroubledfinancesbecameaflashpointinlastyear'scampaignafterrevelationsthat hewasdeeplyindebtandhadinitiallyfailedtodisclosemillionsofdollarsinbusinessloans. JimmyAllen,aTiftonbasedaccountantandDealpoliticalsupporter,willserveastrusteeofthegovernor'sassets andactashissurrogateonbusinessmatters.DealistransferringhisshareofGainesvilleSalvageDisposalintothe trustaswellashisholdinginseverallimitedliabilitycompanies,Evanssaid. Allencontributed$5,600toDeal'sgubernatorialbidandhiswifegave$3,600.Allenalsovolunteeredasan accountantforDeal'scampaign,helpingtheGOPnomineeamendhisflawedfinancialdisclosureform. Onewatchdoggroupsaidthearrangementraisesconcerns. "Itwouldhavebeenbettertofindsomeoneneutral,ratherthanasupportertoappearbeyondreproach,"William Perry,thenewexecutivedirectorofCommonCauseGeorgia,said. PerryalsosaidthatthelandsalescouldbeadistractionforDealasheleadsthestate.Andbykeepingthe propertiesoutofthetrust,heopenshimselfuptoallegationsofpoliticalfavoritismwhenthesalesgothrough. ButWashingtonD.C.basedattorneyBrettKappel,whohashandledblindtrustsformembersofCongress,saidthe arrangementsseemedfairlytypical. "It'snotunusualtopicksomeoneyouknowasupporterasthetrustee,"Kappelsaid."Coulditraiseeyebrowswith thepublic?Sure.Butit'snotunusual." EvanssaidDealwassettingahighethicalbar. "Hewillhavenocontroloverwhatgoesinthere,"Evanssaid. 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281%29&hideSo 2/2 AndEvanssaidplacingthelandDealhasonthemarketintoatrustwouldhavebeentoocomplicated. "Itdidn'tmakesenseoftheyweregoingtobeimmediatelysoldtogothroughtheprocessoftransferringandselling them,"Evanssaid. DealisalsokeepingaHabershamCountyhomeoutofthetrustthatheintendstousehisprimaryresidenceapart fromthegovernor'smansion. TheWilderpropertyhasbeenundercontractsinceatleastOctober,butthesalehasnotgonethrough.The Gainesvillehomehasalsobeenonthemarketforsometimeforjustunder$1million. DealhadbeenfacingaFeb.1deadlinetorepaytheroughly$2.2millionleftontheWilderOutdoorsloan,whichhe andhiswifeSandrainheritedafterhisdaughterandsoninlawdeclaredbankruptcy.Whenthedebtwasrevealed duringthegeneralelectioncampaign,Dealvowedtomakegoodonthemoneyheowed. TheDealshavesofarpaidoffabout$850,000,mainlythroughliquidatingalltheirretirementaccounts,Allensaid. SouthCarolinaBankandTrustrestructuredtheremaining$1.35millionontheloan,pushingbackthematuritydate foraboutthreeyears,Allensaid.TheDealswillmakeanannualpaymentbutAllencouldnotsaywhatthatwas.He couldalsonotprovidetheinterestrate. Inadditiontothe$1.35millioninWilderdebt,Dealandhiswifelistedtwomortgagesworth$810,000ontheirfinancial disclosure.Additionally,GainesvilleSalvageDisposalowesabout$2million. Asgovernor,hewilldrawasalaryofabout$140,000.He'ssettoearnfederalpensionofabout$52,000fromhis18 yearsinCongress.TheDealsalsoreceiveabout$48,000ayearinSocialSecurity,recordsshow. Dealhadpledgedduringhiscampaignforgovernortoplacehisassetsinablindtrust.Themanhe'sreplacingGov. SonnyPerduerefusedtodosoandhasfacedcriticismforconductinghisbusinessandmakinglandtransactions whileinoffice.ButpreviousgovernorsinGeorgialikeZellMillerandRoyBarnescreatedblindtruststoavoid conflictswhileinoffice. Online: TransitionTeamofGov.electNathanDeal: LOADDATE:January7,2011 LANGUAGE:ENGLISH PUBLICATIONTYPE:Newswire Copyright2011AssociatedPress AllRightsReserved EXHIBIT 2 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Tagged+Documents+%281-1%29&hide 1/2 1of1DOCUMENT TheAtlantaJournalConstitution July4,2013Thursday MainEdition ETHICS Dealsellssalvageyard BYLINE:GregBluesteinStaff SECTION:METRONEWSPg.1B LENGTH:713words HIGHLIGHT:Gainesvillebusinesscastanethicalcloudover2010campaign. Gov.NathanDealhascuttieswithabusinessattheheartofanethicalcloudthatshroudedhislastcampaignashe preparestoaskvotersforasecondterminoffice. Deal'sattorney,RandyEvans,saidWednesdaythatthegovernorandbusinesspartnerKenCronansold GainesvilleSalvage&DisposaltoaTexasbasedauctionfirmforroughly$2millionapiece.Thecontractalso requiresthefirm,Copart,topayDealandCronan$120,000eachannuallyover10yearstoleasetheland,whichthe twomenstillown. Withthesale,Dealisseekingtoclosethechapterononeofhis2010campaign'sbiggestcontroversiesashe mountsareelectionbidthatsofarfeaturesnoopponents.Italsoinjectsfreshcapitalintohisbankaccount,itselfa focusduringthecampaignasDealtriedtorepaybusinessloansforhisdaughter'sfailedsportinggoodsventure. Thesalvagefirmonceheldalucrativenobidagreementwiththestatetoprovidespaceforstateemployeesto inspectrebuiltsalvagedcars.TheAtlantaJournalConstitutionreportedduringthelastgubernatorialcampaignthat Deal,thenacongressman,personallyintervenedwithstateofficialswhowantedtoopentheprogramtomore locations.Thestoryledtoanethicscomplaintandacongressionalinvestigation. Evanssaidthegovernorhadtriedtosellthebusinesssincehetookofficein2011.Althoughthepropertywas managedinablindtrust,Dealstillsignedoffonthefinalsale,hisattorneysaid. "Therewasnoreason,ifyou'refullyvestedinbeingthegovernor,tohaveanotherbusinessoutthere,"Evanssaid. "Oncehewaselectedherecognizedthatwasafulltimejobandhedidn'twantanysuggestionofacrossover betweenthetwo." Thetiming,however,wasboundtoraisequestions.MelanieSloan,theexecutivedirectorofCitizensfor ResponsibilityandEthicsinWashington,alsoquestionedwhetheritwasafairdeal. "It'sagoodthingifit'sinfactanarm'slengthtransaction,butIamskepticalthatthat'sthecase,"saidSloan,whose organizationfiledacomplaintclaimingDealviolatedcongressionalethicsrules. EthicalquestionssurroundingthesalvageyardbecameacriticalissueduringDeal'srunforgovernor. 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Tagged+Documents+%281-1%29&hide 2/2 TheAJCreportedin2009thatDealforyearshadanobidagreementwiththestatethatpaidthepartnersnearly $300,000ayearovera20yearagreement.TheAJCfoundthatDealandhisstafffoughttopreservethe arrangement,tellingstateofficialsthatithelpedkeepunsafevehiclesoffGeorgia'sstreets. ThestorypromptedaninvestigationbytheOfficeofCongressionalEthics,whichfoundthatDeal,whowasthena memberoftheU.S.House,mighthaveviolatedfederalethicsrules.DealresignedfromCongressinMarch2010 beforetheorganizationcouldmoveforward.Atthetime,Dealsaidhewantedtodevotehimselffulltimetothe governor'srace. Evanssaidnegotiationstosellthesalvagebusinesswereintheworksformonthsbeforethedealwasfinalizedon June26.TheagreementalsogivesCopartanoptiontobuythelandfromDealandCronanfor$4.8millionattheend ofthe10yearlease. Copartisapubliclytradedonlinecarauctionfirmclaiminganinventoryofmorethan50,000vehicles.Thecompany, whichoperatesfivefacilitiesinGeorgiaanddozensmoreacrossthenation,isaggressivelyseekinganexpansion.It signedadealinMaytopurchaseSalvageParent,whichhas39locationsin14states. TheagreementwithCopartgivesDealaninfusionofcashtodealwithhisfamilyfinances.Recordsshowthatthe governorandhiswife,Sandra,owned90percentofafailedsportinggoodsstoreopenedbyhisdaughterandsonin lawbythetimeitclosed.Thefinancialwoesofthebusiness,whichforcedClintWilderandCarrieDealWildertofile forbankruptcy,becameanissueduringthe2010governor'srace. Evanssaidthemoneywilllikelybeusedtorestructurethegovernor'sdebt,thoughhewouldnotsayhowmuchDeal owes. "Ithassteadiedbecauseofthissale,"EvanssaidofDeal'sfinancialsituation."Ifyouhaveaninfusionofafew milliondollarsplusamonthlyrental,youcanonlyfeelit'sapositive.Ithinkhisfinancialfootingwillbestrongerthan everandhe'llhaveGainesvilleSalvageinthehistorybooks." LOADDATE:July4,2013 LANGUAGE:ENGLISH PUBLICATIONTYPE:Newspapers Copyright2013TheAtlantaJournalConstitution EXHIBIT 3 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281-1%29&hide 1/3 1of1DOCUMENT TheAtlantaJournalConstitution July18,2013Thursday MainEdition NEWDETAILSTAXDISPUTE SalvageyardsaleaheadacheforDeal BYLINE:GregBluesteinStaff SECTION:NEWSPg.1A LENGTH:1002words HIGHLIGHT:Firmthatboughtoutgovernor'sbusinessisbattlingoverbacktaxes. Gov.NathanDealwashopingtoridhimselfofacontroversythatplaguedhislastcampaignwhenhesoldoffa lucrativesalvageyard.Instead,thebuyer'smultimilliondollartaxwoeshavegivenfreshammunitiontocritics. TheTexasbasedcarauctionfirmthatagreedtopay$3.2millioneachtoDealandhisbusinesspartnerKenCronan forGainesvilleSalvage&Disposalisbattlingthestateovernearly$74millionindisputedbacktaxes,andthe companyhasbeenrampingupitslobbyingforcesasitwagesthelegalfight. DealsaidTuesdayhehadnointentionofgettinginvolvedintheongoinglegalbattlebetweenthecompany,Copart, andDepartmentofRevenueofficialswhosaythefirmfailedtopaysalestaxonpartssales.Hesaidhehadno knowledgeofCopart'staxwoesbecausethepropertywasruninablindtrust,whichmeanstheassetsarecontrolled byathirdparty. "Theywillgetnopreferentialtreatment.TheDepartmentofRevenuehasjurisdictionoverthisandwilldealwiththat casejustliketheydoothercases,"hesaid."Thegovernor'sofficehasnoinvolvementwiththis.Noneatall." Butcritics,notingthatDealappointsthetaxdepartment'schief,sayitcouldprovehardforthegovernortodivorce himselffromtheongoingtaxdispute. "IknewtheCopartdealwastoogoodtobetrue.Anditdefinitelyis,"saidMelanieSloan,theexecutivedirectorof CitizensforResponsibilityandEthicsinWashington."Itwasclearfromthegetgothattheywantedsomething,and thismaybeit." ThetransactionwillnetDealandCronanroughly$3.2millioneachfromthesaleofthebusinessanda10yearlease ontheland. Itisthecompany'sfifthlocationinGeorgiaasitlookstoexpanditsfootprintinthismarket. ThesalvageyardhaslongbeenthesourceofsteadyincomeandpoliticalcontroversyforDeal. Thepartnersonceheldalucrativenobidagreementwiththestatetoprovidespaceforstateemployeestoinspect rebuiltsalvagedcars.TheAtlantaJournalConstitutionreportedin2009thatDeal,thenacongressman,intervened 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281-1%29&hide 2/3 withstateofficialswhowantedtoopentheprogramtomorelocations. Thestoryledtoanethicscomplaintandacongressionalinvestigation. DealresignedfromCongressinMarch2010beforeanethicsorganizationcouldmoveforward,sayinghewantedto devotehimselffulltimetothegovernor'srace.Afterhewaselected,heputthebusinessintheblindtrust. Copart'sdisputeisoverwhetherpartssalestointernationalresellersaresubjecttoGeorgiasalestax.Astateaudit foundthecompanyowes$73.8millionintaxes,penaltiesandfeesaccumulatedbetween2007and2011. ThecompanyisappealingbutsaidinaSecuritiesExchangeCommissionfilingthat"ambiguous"staterulesmean theoutcomecouldgoeitherway. Itwarnedinvestorsthat"litigatinganddefendingthematterinGeorgiacouldbeexpensiveandtimeconsumingand resultinsubstantialmanagementdistraction."Alosscouldhavea"materialadverseeffect"onthecompany's bottomline,thefirmsaid. Copart,whichdeclinedrepeatedrequestsforcomment,hassteppedupitsinterestinGeorgiapoliticsinthewakeof thetaxfight. ThecompanyhadnolobbyistsonitspayrollherewhenitfirstdisclosedthedisputeinDecember2011. Withinmonths,though,Coparthiredfourlobbyists,includinginfluentialveteransArthur"Skin"EdgeandTripMartin. Deal,forhispart,saidheisn'tawareofanylobbyingonCopart'sbehalf. UnderthetermsofCopart'spurchaseagreement,DealandCronanwillgetroughly$2millionapieceforthesalvage businessandvehicles.ThecontractalsorequiresthefirmtopayDealandCronan$120,000eachannuallyover10 yearstoleasetheland,andgivesCopartanoptiontobuythelandfor$4.8millionwhentheleaseagreementends. DealattorneyRandyEvanssaidthegovernorwasn'tinvolvedinthenegotiationsbutapprovedthefinalagreement. EvanssaidknowingaboutCopart'staxissueswouldn'thaveaffectedthefinaldealeitherway. "Wewalledoffanyissuesrelatingthestateandstatebusinesstoavoidanysuggestionthatithadorwouldhaveany impactonthetransaction,"EvanstoldtheAJC. RecordsshowthatCronan,whodidn'treturncallsseekingcomment,hadprevioustiestoCopart.Hewasamember oftheusedpartsdivisionofthestateBoardofRegistrationofUsedMotorVehiclesinAugust2005whenitapproved licensesforthecompanytooperateinGeorgia. Thegovernor'sofficewasparticularlysensitiveaboutthetimingofthesale,whichcomesashepreparestoask votersforasecondterm. HefacesalikelyDemocraticopponentinNovemberandaGOPprimarychallengefromDaltonMayorDavid Pennington,whosaidthelatest"ethicalcloud"distractsfocusfromGeorgia'seconomy. Statetaxofficialsdeclinedrepeatedrequestsforcommentonthecase,butDeal'sofficesaiditwill"vigorously pursuewhateverisowedthestate." Somevotersstillhaveconcerns."I'mworriedCopartwillgetoffeasy,"saidJanetHudson,a69yearoldretired softwareanalystfromHollySprings."Justthinkabouthowmanyteachersalariesthatmoneywouldpayfor." BryanLong,directoroftheprogressivegroupBetterGeorgia,hintedatthechallengesaheadwhenhecalledforDeal torefuserentfromthecompanyuntilitpaysitsdebttothestate. "CopartsolvedapoliticalandfinancialproblemforGov.Deal,whilethecompanyhasa$74millionproblemofitsown beingdecidedbythestate,"saidLong,whosegroupoftenneedlesGOPleaders."IfGov.Dealweren'tinvolvedin thisbusinessdeal,evenhewouldbeoutraged." Thegovernor,forhispart,seemedrelievedtoridhimselfofthebusinessasheratcheteduphisnextcampaign.He saidinanearlierinterviewthedecisiontosellthepropertywassimple. 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=3&docRange=Current+Document+%281-1%29&hide 3/3 "Anytimeyouhaveagoodoffertosellyourbusiness,"hesaid,"that'sagoodbusinessdecision." LearnmoreontheHallCountysalvageyardanditspoliticaleffectonGov.NathanDeal. LOADDATE:July18,2013 LANGUAGE:ENGLISH PUBLICATIONTYPE:Newspapers Copyright2013TheAtlantaJournalConstitution EXHIBIT 4 Brumlow, Brandi From: Sent: To: Cc: Subject: Kristen, Riley, Chris Friday, May 10, 2013 8:50PM Beystehner, Kristen Randy Evans Re: Copart/Recovery Services- Press Release I DRAFT Sorry I thonght Ken had sent them to yon. I am trying to remove Gainesville as much as possible and make it appear to be more metro Atlanta. That is all. For Immediate Release Copart Acquires Salvage Auto Facility near Atlanta, Georgia Dallas, TX..,. Co part, Inc. (NASDAQ: CPRT) today announced that it has acquired Gainesville Salvage Disposal, a 30-acre salvage vehicle site north of Atlanta. ' The addition of this facility will complement Copart's existing presence in Georgia. With locations in Savannah, Tifton and now with its fourth facility in the Atlanta area, Copart continues to expand its reach throughout the state. 'This additional facility in Georgia will further broaden our network allowing us to better serve our customers". said Copart's Chief Executive Officer Jay Adair. "The ability to have 4 locations in the metro Atlanta area will help us to reduce towing cost and cycle times for all our customers in the Atlanta metropolitan area. 11 1 "Brun,low, Brandi From: Riley, Chris Sent: Friday, May 10, 2013 1:13 PM To: Subject: Robinson, Brian; Teague, Ryan; 'revans@mckennalong.com' Re: Copart!Recovery Services - Press Release I DRAFT This does not incorporate the edits I made last Friday night. Chris Riley From: Robinson, Brian Sent: Friday, May 10, 2013 01:10PM Eastern Standard Time To: Teague; Ryan; Riley, Chris Subject: FW: CopartiRecovery Services - Press Release I DRAFT From: Beystehner, Kristen [mailto:kbeystehner@mckennalong.com] Sent: Friday, May 10, 2013 1:08 PM To: Robinson, Brian Cc: Evans, Randy Subject: FW: CopartiRecovery Services - Press Release I DRAFT Brian- the draft press release is in the body of the email below. Kristen Kristen M. Beystehner I Partner McKenna Long & Aldridge LLP 303 Peachtree Street I Suite 5300 ! Atlanta, GA 30308 Tel: 404.527.8525 J Fax: 404.527.8925 1 kbeystehner@mckennalong.com From: Greg DePasquale [mailto:Greg.DePasquale@Copart.Com] Sent: Friday, May 03, 2013 5:21 PM To: Beystehner, Kristen Cc: susan Hogan Subject: draft press release Hi Kristin, Below is the draft release. Please let me know if your client has any objections. Best, Greg For Immediate Release Copart Acquires Salvage Auto Facility near Atlanta, Georgia Dallas, TX- Co part, Inc. (NASDAQ: CPRT) today announced that it has acquired Gainesville Salvage Disposal, a 30-acre salvage vehicle site north of Atlanta in Gainesville, Georgia. 1 The addition of this facility will complement Co part's existing presence in Georgia. With locations in Savannah, Tifton and now with its fourth facility in the Atlanta area, Copart continues to expand its reach throughout the state. "This additional facility in Georgia will further broaden our network allowing us to better serve our customers". said Co part's Chief Executive Officer Jay Adair. "The ability to have a presence in Gainesville, Georgia will help us to reduce towing cost and cycle times for all our customers in Northeast Georgia. Beginning May 22, 2013, Co part's new Atlanta North facility will auction inventory every Wednesday at 10 a.m. EDT. All Copart auctions are held online at Copart.com through the company's patented VB2 auction technology. About Co part: Copart, founded in 1982, provides vehicle sellers with a full range of remarketing services to process and sell salvage and clean title vehicles to dealers, dismantlers, rebuilders, exporters and, in some states, to end users. Copart remarkets the vehicles through Internet sales utilizing its patented VB2 technology. Copart sells vehicles on behalf of insurance companies, banks, finance companies, fleet operators, dealers, car dealerships and others as well as cars sourced from the general public. The company currently operates 164 facilities in the United States, Canada, the United Kingdom, Brazil, Germany and the United Arab Emirates. 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. For more information, or to become a member, visit Copart.com. Contact: Deana Lot!, Assistant to the Chief Financial Officer (972) 391-5094 deana.lott@copart.com Greg DePasquale VP Legal I Asst. General Counsel Cop ali 14185 Dallas Parkway, Suite 300 Dallas, TX 75254 (972) 391-5033 Office (916) 715-0479 Mobile (972) 386-6736 Fax CONFIDENTIALITY NOTICE: This e-mail and any attachments contain information from the law firm of McKenna Long & Aldridge LLP, alld are intended solely for the use of the named recipient or recipients. This e-mail may contain privileged attorney/client communications or work product. A11y dissemination of this e- mail by allyone other than an intended recipient is strictly prohibited. If you ale not a named recipient, you are prohibited from allY fmiher viewing of the e-mail or allY attachments or from making allY use of the e-mail or attachments. If you believe you have received this e-mail in error, notify the sender immediately and pennanently delete the e-mail, allY attachments, alld all copies thereof from any drives or storage media and destroy allY printouts of the e-mail or attachments. IRS Circular 230 Disclosure: To comply with certain U.S. Treasury regulations, we inform you that, unless expressly stated otherwise/ any U.S. federal tax advice contained in this communication, including was not intended or written to be used, C!-Dd cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on such taxpayer by the Internal Revenue Service. 2 Brumlow, Brandi From: Sent: To: Subject: Daily News Clips Gov. Nathan Deal Monday, July 8, 2013 Good Morning! ND Gov. Deal's Communications Office Monday, July 08, 2013 8:55AM Gov. Deal's Communications Office News Clips 7/8 1. CLATL: First Slice 7/7/13: Deal gets out of the auto salvage business 2. WSB Radio: Interim report shows some improvement in DeKalb 3. Rome News-Tribune: Analysis: New education lobby aims to change political dynamic in Ga. 4. Crowd Sourcing: Georgia gets part of the bigger innovation economic picture right 5. AJC: Deal: State GOP can prove its message matters to minorities 6. AJC: Panel to review Ellis case can expect a fight 7. AJC: Commonsense Common Core's political risk 8. AJC: Businesses hail delay in health law mandate 9. AJC: Del<alb school board receives positive accreditation update 10. AJC: Votes can wait as candidates focus on donations 11. AJC: Monday Conversation: Schools 12. AJC: Deal sells controversial salvage yard as he prepares for 2014 election GANews 1. SaportaReport: Georgia seeks to be arbitration center for international business disputes 2. AJC: Georgia's income rank falls to '79 level 3. Atlanta Business Chronicle: Coke No.3 in "Most Patriotic" brand survey 4. AJC: Southern hospitality: Atlanta offers opportunities for those in service industries 5. AJC: Delta hiring 225 flight attendants 6. AJC: Ga. Starbucks plant on track for 2014 completion 7. Atlanta Business Chronicle: So much rain could hurt Georgia crops 8. Red and Black: Georgia develops first nationally accredited environmental education program 9. Rome News-Tribune: Analysis: New education lobby aims to change political dynamic in Ga. GA Politics 1. AJC: Tea party split over solar power heats up key utility vote 2. AJC: Votes can wait as candidates focus on donations 3. AJC: Applications for grants could cover 75 percent of kids at risk of becoming criminals 4. AJC: When doctors sell out, hospitals cash in 5. AJC: DeKalb schools' Heery lawsuit big by many measures 6. Walker Messenger: Column by Johnny Isakson: Why I love community newspapers 7. AP: Abortion: Potential GOP divider in Ga. Senate race 8. Athens Banner-Herald: Jones: New education group comes to Georgia 9. The Macon Telegraph: Political Notebook: Brother, can you spare a road? 10. AP: GOP has tough choices on Voting Rights Act 11. Fox News Latino: Georgia & Alabama Still See Undocumented Workers Despite Strict Immigration Laws 12. Huffington Post: Crime Making A Comeback As A Political issue 13. AJC: City court dismissed 14,500 cases because officers didn't show 1 EXHIBIT 5 1/26/14, 9:45 AM Kristen Beystehner: McKenna Long & Aldridge LLP Page 1 of 2 http://www.mckennalong.com/professionals-KristenBeystehner.html Practices: Corporate Financing and Lending Joint Ventures and Strategic Alliances Mergers and Acquisitions Private Equity, Hedge Funds and Venture Capital International Canada-U.S. International Practice Civic Activities: Pro Bono Partnership of Atlanta, Board of Advisors Everybody Wins! Power Lunch Program, Reading Mentor Publications: "Purchase Price Adjustments: Buyers (and Sellers) Beware," Financier Worldwide, November 2012 (co- authored with Gregory Brow and Ann-Marie McGaughey). "See Ya Later, Gator: Assessing Whether Placing Pop-Up Advertisements on Another Company's Website Violates Trademark Law," 11 J. Intell. Prop. L. 87, 2003. Seminars and Presentations: Kristen M. Beystehner Partner - New York kbeystehner@mckennalong.com Download vCard 230 Park Avenue 17th Floor New York, NY 10169 TEL: 212.905.8324 FAX: 212.922.1819 Atlanta 303 Peachtree Street, NE Suite 5300 Atlanta, GA 30308 ALT TEL: 404.527.8525 ALT FAX: 404.527.4198 Experience Kristen M. Beystehner focuses her practice on general corporate counseling, with an emphasis on mergers and acquisitions. In addition to mergers and acquisitions, her experience includes working with clients to structure and implement strategic alliance relationships; advising clients in domestic and international commercial contract negotiation; and assisting borrowers and lenders in financing transactions. Ms. Beystehner regularly counsels clients regarding entity formation and organization, dissolutions and liquidations, and corporate governance matters. Ms. Beystehner was recognized as a Georgia Super Lawyers Rising Star in 2011 and 2012 and was selected by her peers as a member of Georgia Trends Legal Elite. While in law school, Ms. Beystehner served as Editor-in-Chief of the Journal of Intellectual Property Law. As an undergraduate, she was a four-time varsity letter winner on the Northwestern University womens golf team and a member of the first team in the universitys history to compete in the NCAA Division I Womens Golf Championships. Notable Engagements Representation of Just Energy Group Inc. (TSX: JE) (NYSE: JE), which is one of North Americas leading independent natural gas and electricity retailers and providers of green energy, in connection with its acquisition of Menu 1/26/14, 9:45 AM Kristen Beystehner: McKenna Long & Aldridge LLP Page 2 of 2 http://www.mckennalong.com/professionals-KristenBeystehner.html "Preparing for a Sale of the Business," ICLE Presentation, November 2012. Hudson Energy Services, a New Jersey-based and privately-held electric and natural gas provider, and Fulcrum Retail Holdings, a Texas-based and privately-held retail electricity provider. Representation of The Home Depot (NYSE: HD) in connection with its acquisition of MeasureComp, L.L.C. and CompuMeasure LLC, which provide measurement and quote-building services. Representation of Aarons, Inc. (NYSE: AAN), a leader in U.S. sales and lease ownership and specialty retailer, in its purchase of an 11.5% economic interest in Perfect Home Holdings Limited, a privately-held UK rent-to-own company. Representation of Toronto-based Herbal Magic Inc., which operates over 300 weight loss and nutrition centers throughout Canada, in connection with its acquisition of LA Weight Loss, a Pennsylvania-based weight loss and nutrition business with centers located throughout the U.S. Representation of UK and Netherlands-based Reed Elsevier (NYSE: RUK) and its subsidiaries in a variety of transactions across North America, including Canada and Mexico. Representation of BCD Travel B.V., a privately owned Dutch company providing global corporate travel management services with operations in 90 countries and over $12 billion in sales, in connection with its $475 million syndicated credit facility with ING Bank N.V., acting as Agent, and ING Bank and Bank of America, acting as Issuing Banks. The senior credit facility involved the pledge of security located in the U.S., the UK, Canada, Belgium, the Netherlands and Germany. Representation of Valor Equity Partners, a Chicago-based private equity firm, in several portfolio company acquisitions, financings and joint venture transactions, with continued work post-closing, including follow-on acquisitions, implementation of management equity plans and other on- going operational matters. Education J.D., University of Georgia School of Law, cum laude, 2004 B.A., Northwestern University, with honors, 2001 Bar Admissions Georgia New York EXHIBIT 6 EXHIBIT 7 EXHIBIT 8 1/28/2014 Nexis: Delivery Status http://w3.nexis.com/new/delivery/PrintWorking.do?delFmt=QDS_EF_HTML&zipDelivery=false&estPage=2&docRange=Tagged+Documents+%281-1%29&hide 1/1 1of1DOCUMENT GaPundit July4,2013Thursday6:33PMEST Gov.DealsellsGainesvilleautosalvagebusiness LENGTH:235words Jul04,2013(GaPundit:http://www.gapundit.comDeliveredbyNewstex) GaPundit: Gov.NathanDealandbusinesspartnerKenCronanhavesoldtheirGainesvilleSalvageandDisposalbusinessin HallCounty. JimmyAllen,trusteeforDeal'sblindtrust,whichincludesallhisassetsanddebts,confirmedthesaleWednesday evening. Dealfacesreelectionnextyear.Inhisfirstrunforgovernorin2010,thebusinesswasthesourceofethicscharges madeagainsttheformerHallCountycongressman. DealandCronanretainownershipoftheland Thesalvagebusinesscontractedwiththestatetoprovidespaceforstateemployeestoinspectrebuiltvehicles. Allensaidhedecidedtosellthebusinessbecausehewasofferedagooddeal.Hedeclinedtonamethepurchaseror theprice. AttemptstoreachRandyEvans,Deal'sattorney,athisplaceofbusinessandthroughemailwereunsuccessful. 'Thegovernor'sIguess69or70(heturns71onAug.25),'Allensaid.'Heprobablywouldn'tbeinabusinesslikethat foreveranywayandthepeoplethatcamealongthatwantedtobuyithadastronginterestinit,sowethoughtitwas agoodofferandjustdecidedtotakeitwhilewehadtheopportunityto.' viaGov.DealsellsGainesvilleautosalvagebusiness[1]. GeorgiaPunditGeorgiaPolitics,CampaignsandElections[2] [1]:http://www.gainesvilletimes.com/section/6/article/85762/[2]:http://gapundit.com LOADDATE:July12,2013 LANGUAGE:English PUBLICATIONTYPE:WebBlog JOURNALCODE:GAPU117413 Copyright2013NewstexLLC AllRightsReserved EXHIBIT 9 1/25/14, 5:24 PM HTML Page 1 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544313001371/d30311.htm 10-Q 1 d30311.htm 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) !! Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended April 30, 2013 OR "" Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission le number: 0-23255 COPART, INC. (Exact name of registrant as specied in its charter)
Delaware 94-2867490 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identication No.) 14185 Dallas Parkway, Dallas, Texas 75254 (Address of principal executive ofces) (Zip Code) (972) 391-5000 Registrant's telephone number, including area code N/A (Former name, former address and former scal year, if changed since last report) Indicate by check mark whether the registrant (1) has led all reports required to be led 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 le such reports), and (2) has been subject to such ling requirements for the past 90 days. YES ! NO " Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such les). YES ! NO " Indicate by check mark whether the registrant is a large accelerated ler, an accelerated ler, a non-accelerated ler, or a smaller reporting company. See denitions of "large accelerated ler," "accelerated ler," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated ler ! Accelerated ler "
Non-accelerated ler " Smaller reporting company " (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as dened in Rule 12b-2 of the Exchange Act). YES " NO ! 1/25/14, 5:24 PM HTML Page 17 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544313001371/d30311.htm NOTE 14 - Subsequent Events On May 14, 2013, the Company purchased the assets of Gainesville Salvage Disposal, a salvage vehicle auction company located in Gainesville, GA. On May 30, 2013, the Company acquired Salvage Parent, Inc., which conducts business primarily as Quad City Salvage Auction, Crashed Toys, and Desert View Auto Auction. Combined, these businesses operate at thirty-nine locations in 14 states. On May 31, 2013, the Company purchased the assets of Auto Salvage Auction, Inc., a salvage vehicle auction company with locations in Davison and Ionia, MI. The aggregate purchase price for these acquisitions, which closed subsequent to the quarter, was approximately $77.0 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part I, Item 1A."Risk Factors" of this Form 10-Q and those discussed elsewhere in this Form 10-Q. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as in the other documents we le with the Securities and Exchange Commission, or SEC. We may from time to time make additional written and oral forward-looking statements, including statements contained in our lings with the SEC. We do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf. Although we believe that, based on information currently available to us and our management, the expectations reected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. In addition, historical information should not be considered an indicator of future performance. Overview We are a leading provider of online auctions and vehicle remarketing services in the United States (U.S.), Canada, the United Kingdom (U.K.), the United Arab Emirates (U.A.E.), Brazil and Germany. We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the Internet through our Virtual Bidding Second Generation Internet auction-style sales technology, which we refer to as VB 2 . Vehicle sellers consist primarily of insurance companies, but also include banks and nancial institutions, charities, car dealerships, eet operators and vehicle rental companies. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, to the general public. The majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. We offer vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price. In the U.S. and Canada (North America), the U.A.E. and Brazil we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services such as towing and storage. In the U.K., we operate both on a principal basis, purchasing the salvage vehicle outright from the insurance companies and reselling the vehicle for our own account, and as an agent. In Germany, we derive revenue from sales listing fees for listing vehicles on behalf of many German insurance companies. Our revenues consist of sales transaction fees charged to vehicle sellers and vehicle buyers, transportation revenue, purchased vehicle revenues, and other remarketing services. Revenues from sellers are generally generated either on a xed fee contract basis where we collect a xed amount for selling each vehicle regardless of the selling price of the vehicle or, under our Percentage Incentive Program, or PIP, where our fees are generally based on a predetermined percentage of the vehicle sales price. Under the consignment, or xed fee program, we generally charge an additional fee for title processing and special preparation. Although sometimes included in the consignment fee, we may also charge additional fees for the cost of transporting the vehicle to our facility, storage of the vehicle, and other incidental costs. Under the consignment programs, only the fees associated with vehicle processing are recorded in revenue, not the actual sales price (gross proceeds). Sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles, storage, loading and annual registration. Transportation revenue includes charges to sellers for towing vehicles under certain contracts and towing charges assessed to buyers for delivering vehicles. Purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own and is primarily generated in the U.K. 16 EXHIBIT 10 1/25/14, 5:22 PM Page 1 of 93 http://www.sec.gov/Archives/edgar/data/900075/000114544313001938/d30512.htm 10-K 1 d30512.htm 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: July 31, 2013 OR !! TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-23255 Copart, Inc. (Exact name of registrant as specified in its charter) Delaware 94-2867490 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 14185 Dallas Parkway, Suite 300, Dallas, Texas (Address of principal executive offices) 75254 (Zip code) Registrants telephone number, including area code: (972) 391-5000 Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered Common Stock, $0.0001 par value The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No ! Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ! No [X] 1/25/14, 5:22 PM Page 8 of 93 http://www.sec.gov/Archives/edgar/data/900075/000114544313001938/d30512.htm As part of our overall expansion strategy, our objective is to increase our revenues, operating profits, and market share in the vehicle sales industry. To implement our growth strategy, we intend to continue to do the following: Acquire and Develop New Vehicle Storage Facilities in Key Markets Including Foreign Markets Our strategy is to offer integrated services to vehicle sellers on a national or regional basis by acquiring or developing facilities in new and existing markets. We integrate our new acquisitions into our global network and capitalize on certain operating efficiencies resulting from, among other things, the reduction of duplicative overhead and the implementation of our operating procedures. The following table sets forth facilities that we have acquired or opened from August 1, 2010 through July 31, 2013: Locations
Acquisition or Greenfield
Date
Geographic Service Area Homestead, Florida Greenfield September 2010 United States Hartford City, Indiana Acquisition March 2011 United States Atlanta, Georgia Greenfield August 2011 United States Burlington, North Carolina Greenfield July 2012 United States Webster, New Hampshire Greenfield September 2012 United States Gainesville, Georgia Acquisition May 2013 United States Davison, Michigan Acquisition May 2013 United States Ionia, Michigan Acquisition May 2013 United States Kincheloe, Michigan Acquisition May 2013 United States Salvage Parent, Inc.* Acquisition May 2013 United States Birmingham, England Acquisition March 2011 United Kingdom Edmonton, Canada Acquisition May 2012 Canada Calgary, Canada Acquisition May 2012 Canada Dubai, U.A.E. Acquisition August 2012 United Arab Emirates Embu, Brazil Acquisition November 2012 Brazil Pirapora, Brazil Acquisition November 2012 Brazil Osasco, Brazil Acquisition November 2012 Brazil Castelo Branco, Brazil Acquisition November 2012 Brazil Vila Jaguara, Brazil Acquisition November 2012 Brazil Ettlingen, Germany Acquisition November 2012 Germany Cordoba, Spain Acquisition June 2013 Spain
*
Salvage Parent, Inc. conducts business primarily as Quad City Salvage Auction, Crashed Toys, and Desert View Auto Auctions. Combined, these businesses operate at 39 locations in 14 states. 5 Pursue National and Regional Vehicle Supply Agreements Our broad national presence enhances our ability to enter into local, regional or national supply agreements with vehicle sellers. We actively seek to establish national and regional supply agreements with insurance companies by promoting our ability to achieve high net returns and broader access to buyers through our national coverage and electronic commerce capabilities. By utilizing our existing insurance company seller relationships, we are able to build new seller relationships and pursue additional supply agreements in existing and new markets. 1/25/14, 5:22 PM Page 26 of 93 http://www.sec.gov/Archives/edgar/data/900075/000114544313001938/d30512.htm Pursuant to ASC 350, IntangiblesGoodwill and Other, we are required to annually test goodwill and intangible assets with indefinite lives to determine if impairment has occurred. Additionally, interim reviews must be performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made. The testing of goodwill and other intangible assets for impairment requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in the definition of a business segment in which we operate; changes in economic, industry or market conditions; changes in business operations; changes in competition; or potential changes in the share price of our common stock and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of our future performance, could affect the fair value of goodwill or other intangible assets, which may result in an impairment charge. For example, continued deterioration in worldwide economic conditions could affect these assumptions and lead us to determine that goodwill impairment is required with respect to our acquisitions in North America, U.K., Brazil, Germany, U.A.E. or Spain. We cannot accurately predict the amount or timing of any impairment of assets. Should the value of our goodwill or other intangible assets become impaired, it could have a material adverse effect on our consolidated results of operations and could result in our incurring net losses in future periods. An adverse outcome of a pending Georgia sales tax audit could have a material adverse effect on our consolidated results of operations and financial condition. The Georgia Department of Revenue, or DOR, conducted a sales and use tax audit of our operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that we failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the 23 DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax. We have engaged a Georgia law firm and outside tax advisors to review the conduct of our business operations in Georgia, the notice of assessment, and the DORs policy position. In particular, our outside legal counsel has provided us with an opinion that our sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, our counsel noted that non-U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certificate of exemption but concluded that our sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply. Based on the opinion from our outside law firm and advice from outside tax advisors, we have adequately provided for the payment of this assessment in our consolidated financial statements. We believe we have strong defenses to the DORs notice of proposed assessment and intend to defend this matter. We have filed a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in our favor or that we will not ultimately be required to make a substantial payment to the Georgia DOR. We understand that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to us, it could have a material adverse effect on our consolidated results of operations and financial position. New accounting pronouncements or new interpretations of existing standards could require us to make adjustments to accounting policies that could adversely affect the consolidated financial statements. The Financial Accounting Standards Board, the Public Company Accounting Oversight Board, and the SEC, from time to time issue new pronouncements or new interpretations of existing accounting standards that require changes to our accounting policies and procedures. To date, we do not believe any new pronouncements or interpretations have had a material adverse effect on our consolidated results of operations and financial position, but future pronouncements or interpretations could require a change or 1/25/14, 5:22 PM Page 34 of 93 http://www.sec.gov/Archives/edgar/data/900075/000114544313001938/d30512.htm contract vehicle towing, insurance, fuel, equipment maintenance and repair, and costs of vehicles sold under purchase contracts. Costs associated with general and administrative expenses consist primarily of executive management, accounting, data processing, sales personnel, human resources, professional fees, research and development and marketing expenses. Acquisitions and New Operations We have experienced significant growth in facilities as we have acquired 55 facilities and established four new facilities since the beginning of fiscal 2011 through July 31, 2013. All of these acquisitions have been accounted for using the purchase method of accounting. As part of our overall expansion strategy of offering integrated services to vehicle sellers, we anticipate acquiring and developing facilities in new regions, as well as the regions currently served by our facilities. We believe that these acquisitions and openings strengthen our coverage as we have facilities located in North America, the U.K., the U.A.E., Germany, Spain, and Brazil, and are able to provide national coverage for our sellers. The following table sets forth facilities that we have acquired or opened from August 1, 2010 through July 31, 2013: Locations
Acquisition or Greenfield
Date
Geographic Service Area Homestead, Florida Greenfield September 2010 United States Hartford City, Indiana Acquisition March 2011 United States Atlanta, Georgia Greenfield August 2011 United States Burlington, North Carolina Greenfield July 2012 United States Webster, New Hampshire Greenfield September 2012 United States Gainesville, Georgia Acquisition May 2013 United States Davison, Michigan Acquisition May 2013 United States Ionia, Michigan Acquisition May 2013 United States Kincheloe, Michigan Acquisition May 2013 United States Salvage Parent, Inc.* Acquisition May 2013 United States Birmingham, England Acquisition March 2011 United Kingdom Edmonton, Canada Acquisition May 2012 Canada Calgary, Canada Acquisition May 2012 Canada Dubai, U.A.E. . Acquisition August 2012 United Arab Emirates Embu, Brazil Acquisition November 2012 Brazil Pirapora, Brazil Acquisition November 2012 Brazil Osasco, Brazil Acquisition November 2012 Brazil Castelo Branco, Brazil Acquisition November 2012 Brazil 31 Locations
Acquisition or Greenfield
Date
Geographic Service Area Vila Jaguara, Brazil Acquisition November 2012 Brazil Ettlingen, Germany Acquisition November 2012 Germany Cordoba, Spain Acquisition June 2013 Spain
*
Salvage Parent, Inc. conducts business primarily as Quad City Salvage Auction, Crashed Toys, and Desert View Auto Auctions. Combined, these businesses operate at 39 locations in 14 states. EXHIBIT 11 1/25/14, 5:32 PM Copart, Inc. (CPRT): Copart Management Discusses Q3 2013 Results - Earnings Call Transcript - Seeking Alpha Page 1 of 10 http://seekingalpha.com/article/1474011-copart-management-discusses-q3-2013-results-earnings-call-transcript?page=2 Copart Management Discusses Q3 2013 Results - Earnings Call Transcript Executives A. Jayson Adair - Chief Executive Officer and Director William E. Franklin - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance Vincent W. Mitz - President and Director Analysts Robert Labick - CJS Securities, Inc. Scott L. Stember - Sidoti & Company, LLC Bret David Jordan - BB&T Capital Markets, Research Division William R. Armstrong - CL King & Associates, Inc., Research Division Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division Gary F. Prestopino - Barrington Research Associates, Inc., Research Division Copart (CPRT) Q3 2013 Earnings Call May 31, 2013 11:00 AM ET Operator Good day, everyone, and welcome to the Copart, Inc. Third Quarter Physical (sic) [Fiscal] 2013 Earnings Conference Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I'd like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir. A. Jayson Adair Yes, thank you. Good morning. As you can tell, I'm a little hoarse from a pretty heavy week of talking a little too much. So this morning, I'm going to turn it over to Will Franklin who will go through his prepared remarks and then he'll turn it back over to me. I'll go through some of the stuff on our deal and then I want to point out as well, I've got Vinny Mitz who is our President, on the call today to answer some of the questions because as you can tell, I need to let me my voice rest a little bit. So with that, I'm going to turn it over to Will. Thank you. William E. Franklin All right. Thank you, Jay, and good morning, everyone. Before we begin our comments, I'd like to remind everyone on the call that our remarks will contain forward-looking statements, including statements concerning our views of trends in our business. These statements are neither promises nor guarantees and are subject to certain risk and uncertainties that could cause final results to differ substantially from those projected or implied by our statements and comments. The company expressly disclaims any obligation to update or revise these statements and comments. For a more complete discussion of the risks that could affect our business, please review management's discussion and analysis and the risk factors contained in our 10-Q, 10-K and other SEC filings. 1/25/14, 5:33 PM Copart, Inc. (CPRT): Copart Management Discusses Q3 2013 Results - Earnings Call Transcript - Seeking Alpha Page 3 of 10 http://seekingalpha.com/article/1474011-copart-management-discusses-q3-2013-results-earnings-call-transcript?page=2 has been very successful in competing against ourselves and Insurance Auto Auctions. And so this acquisition brings that whole leadership team into the company. John Lindell[ph] , who's the CEO of the company, said it best when we were talking to customers, that he had a choice of merging with one of the other large players or hooking up with another private equity company. And after he saw what Copart's working on, what we're doing, he said there was no question in his mind, he wanted to hitch his horse to Copart. And that's really exciting for us. We're looking forward to all the things that they do and learning about that and integrating it into our company. Some other points that I would just make about the company is that John will remain CEO of Quad Cities, and we're going to be sitting down with all of our customers and finding out what they like best about Copart and what they like best about Quad Cities and raising the bar in terms of the level of service that we bring to all of our customers. So really it's a win-win across the board on that. We also announced or I should say we also acquired in the quarter -- or not in the quarter, but in the recent months, Gainesville Salvage in Georgia. And that gives us another location in the Georgia market. So I'm sure there's a ton of questions as I said Vinny Mitz, our President's here. And so he's going to step in, do some of the questions as well. And at this time I'll turn it over to the operator for questions. Question-and-Answer Session Operator [Operator Instructions] We'll go right to our first question from Bob Labick, CJS Securities. Robert Labick - CJS Securities, Inc. Just wondering if you could maybe give us a little more history of the acquisition, how long you were talking to them? Was it a auction or a negotiated deal? Why did they sell now? You talked a little bit why to Copart but why now? And obviously we'd love to know any of the terms of the deal, or how big they are and then that kind of stuff if you would tell us that. Vincent W. Mitz Sure. This is Vinny. The deal came together very, very quickly. After some recent national RFPs, market share throughout the country had been settled and redistributed. And the owners of Quad Cities including John, were looking what was best for their strategic future and they were looking to team up to continue and accelerate their growth. And actually were looking for a partner who would be able to help and assist in the growth of their company, separate from a normal acquisition integration. And that opportunity came together very quickly. Once we agreed philosophically how to handle the transaction, it was just a matter of working out the financials. So it only took probably 3 to 4 months for the whole thing to come together. William E. Franklin Bob, this is Will. Let me add just a little color to that, too. Quad Cities is a serious player in our space. We compete with them all the time and we lose to them. The insurance companies use them because they like what they do. So we think this is a win for us to be able to understand what they do well and incorporate that into our offerings as well. Robert Labick - CJS Securities, Inc. And could you -- I mean, maybe give some specifics on what they do well, better than Copart? And how you can bring that to the rest of your yards? A. Jayson Adair Well, that's exactly what we're doing right now. We're in a period where we're going to be analyzing all their process and then we're going to be looking at what we want to incorporate. So we don't plan on changing anything for the foreseeable future right now until we get all that figured out. William E. Franklin EXHIBIT 12 1/25/14, 9:54 PM HTML Page 1 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544311001231/d28860_10-q.htm 10-Q 1 d28860_10-q.htm 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) !! Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 31, 2011 OR "" Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission le number: 0-23255
COPART, INC.
(Exact name of registrant as specied in its charter)
California 94-2867490
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identication Number) 4665 Business Center Drive, Faireld, CA 94534 (Address of principal executive ofces with zip code) Registrant's telephone number, including area code: (707) 639-5000 Indicate by check mark whether the registrant (1) has led all reports required to be led 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 le such reports), and (2) has been subject to such ling requirements for the past 90 days. YES ! NO " Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such les). YES ! NO " Indicate by check mark whether the registrant is a large accelerated ler, an accelerated ler, a non-accelerated ler, or a smaller reporting company. See denitions of "large accelerated ler," "accelerated ler," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated ler ! Accelerated ler "
Non-accelerated ler " Smaller reporting company "
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as dened in Rule 12b-2 of the Exchange Act). YES " NO ! Number of shares of Common Stock outstanding as of December 6, 2011: 65,094,982 1/25/14, 9:54 PM HTML Page 12 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544311001231/d28860_10-q.htm dismissed or settled, the EEOC will le a lawsuit in Federal Court on behalf of all former employees and applicants of Copart who were denied employment because of the Company's policy. The Company believes that its practices are not unlawful and intend to continue to vigorously defend this action. On April 23, 2010, Deborah Hill led suit against the Company in the Twentieth Judicial Circuit of Collier County, Florida, alleging negligent destruction of evidence in connection with a stored vehicle that suffered damage due to a re at our facility in Florida where the vehicle was being stored. Relief sought is for compensatory damages, costs and interest allowed by law. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit. On September 21, 2010, Robert Ortiz and Carlos Torres led suit against Copart in Superior Court of San Bernardino County, San Bernardino District, which purported to be a class action on behalf of persons employed by the Company in the positions of facilities managers and assistant general managers in California at any time since the date four years prior to September 21, 2010. The complaint alleges failure to pay wages and overtime wages, failure to provide meal breaks and rest breaks, in violation of various California Labor and Business and Professional Code sections, due to alleged misclassication of facilities managers and assistant general managers as exempt employees. Relief sought includes class certication, injunctive relief, damages according to proof, restitution for unpaid wages, disgorgement of ill-gotten gains, civil penalties, attorney's fees and costs, interest, and punitive damages. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit. On February 12, 2011, Jose E. Brizuela led suit against the Company in Superior Court, San Bernardino County, San Bernardino District, which purports to be class action on behalf of persons employed by Copart paid on a hourly basis in California at any time since the date four years prior to February 14, 2011. The complaint alleges failure to pay all earned wages due to an alleged practice of rounding of hours worked to the detriment of the employees. Relief sought includes class certication, injunctive relief, unpaid wages, waiting time penalty-wages, interest, and attorney's fees and costs of suit. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit. On August 10, 2011, Glenn A. Mangis and Lynn Brown-Mangis, husband and wife, led suit against the Company in the Superior Court of Washington for Pierce County, alleging exposure to asbestos during the course of his employment as a carpenter, electrician and laborer; and as a direct result of said exposure, Plaintiff developed mesothelioma. Plaintiff's wife is alleging loss of spousal relationship as a result. On October 18, 2011, Plaintiff led a Stipulation and Order of Dismissal of Copart. All claims against Copart were dismissed without prejudice and without costs as to any party to the matter. The Company provides for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. The Company believes that any ultimate liability will not have a material effect on our consolidated nancial position, results of operations or cash ows. However, the amount of the liabilities associated with these claims, if any, cannot be determined with certainty. Copart maintains insurance which may or may not provide coverage for claims made against the Company. There is no assurance that there will be insurance coverage available when and if needed. Additionally, the insurance that Copart carries requires that the Company pay for costs and/or claims exposure up to the amount of the insurance deductibles negotiated when insurance is purchased. Governmental Proceedings The Georgia Department of Revenue, or DOR, recently conducted a sales and use tax audit of the Company's operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that the Company failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax. The Company has engaged a Georgia law rm and outside tax advisors to review the conduct of its business operations in Georgia, the notice of assessment, and the DOR's policy position. In particular, the Company's outside legal counsel has provided the Company an opinion that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, the Company's counsel noted that non- U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certicate of exemption but concluded that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply. Based on the opinion from the Company's outside law rm and advice from outside tax advisors, the Company has not provided for the payment of this assessment in its consolidated nancial statements. The Company believes it has strong defenses to the DOR's notice of proposed assessment and intends to defend this matter. The Company has led a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in the 12 1/25/14, 9:54 PM HTML Page 13 of 39 http://www.sec.gov/Archives/edgar/data/900075/000114544311001231/d28860_10-q.htm Company's favor or that the Company will not ultimately be required to make a substantial payment to the Georgia DOR. The Company understands that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to the Company, it could have a material adverse effect on the Company's results of operations and consolidated nancial statements. NOTE 11 - Income Taxes The Company applies the provisions of the accounting standard for uncertain tax positions to its income taxes. For benets to be realized, a tax position must be more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benet that is greater than 50 percent likely of being realized upon ultimate settlement. As of October 31, 2011, the total gross unrecognized tax benet was $24.7 million, including interest and penalty. As of October 31, 2011, the gross amounts of the Company's liabilities for unrecognized tax benets were classied as long-term income taxes payable and as long-term receivables, respectively, in the accompanying condensed consolidated balance sheet. Over the next twelve months, the Company's existing positions will continue to generate an increase in liabilities for unrecognized tax benets, as well as a likely decrease in liabilities as a result of the lapse of the applicable statute of limitations and the conclusion of income tax audits. The expected decrease in liabilities relating to unrecognized tax benets will have a positive effect on the Company's consolidated results of operations and nancial position when realized. The Company recognized interest and penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued for the three months ended October 31, 2011 was $0.5 million. The Company les income tax returns in the US federal jurisdiction, various states, Canada and the United Kingdom. The Company is currently under audit by the states of Connecticut and Florida for scal years 2007, 2008 and 2009. The Company is no longer subject to US federal and state income tax examination for scal years prior to 2008, with the exception of Connecticut and Florida. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company's consolidated results of operations and nancial position. The Company has not provided for US federal income and foreign withholding taxes from undistributed earnings of its foreign operations, because the Company intends to reinvest such earnings indenitely in the operations and potential acquisitions related to its foreign operations. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to US income taxes (subject to an adjustment for foreign tax credits). It is not practical to determine the income tax liability that might be incurred if these earnings were to be distributed. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resultant US income tax liability. NOTE 12 - Credit Facility The Company entered into a Credit Facility Agreement (Credit Facility) in December 2010 that provides on an unsecured basis: (i) a $100.0 million revolving credit facility, including a $100.0 million alternative currency borrowing sublimit and a $50.0 million letter of credit sublimit (Revolving Credit) and (ii) a term loan facility of $400.0 million (Term Loan). On September 29, 2011, the Company amended the credit agreement increasing the amount of the term loan facility from $400.0 million to $500.0 million The Term Loan, which at October 31, 2011 was $500.0 million, amortizes $18.8 million plus interest each quarter beginning December 31, 2011 with all outstanding borrowings due on December 14, 2015. All amounts borrowed under the Term Loan may be prepaid without premium or penalty. Amounts borrowed under the Credit Facility bear interest, subject to certain restrictions, at a uctuating rate based on (i) the Eurocurrency Rate, (ii) the Federal Funds Rate or (iii) the Prime Rate as described in the Credit Facility. The Company has entered into an interest rate swap to exchange its variable interest rate payments commitment for xed interest rate payments on $375 million, the notional amount, of the Term Loan balance which, at October 31, 2011 totaled $500.0 million. The swap agreement xed the Company's interest rate, with respect to the notional amount of our term debt, at 85 basis points plus the Applicable Rate as outlined in the Credit Facility. The remainder of the Company's Term Loan bears interest at a uctuating Eurocurrency Rate plus the Applicable Rate. At October 31, 2011 the Eurocurrency Rate was.28% and the Applicable rate was 1.75%. The Applicable Rate can uctuate between 1.5% and 2.0% depending on the Company's consolidated net leverage ratio (as dened in the Credit Facility). Amounts borrowed under the Revolving Credit may be repaid and reborrowed until the maturity date, which is December 14, 2015. The Credit Facility requires the Company to pay a commitment fee on the unused portion of the Revolving 13 EXHIBIT 13 1/28/14, 2:38 PM HTML Page 1 of 41 http://www.sec.gov/Archives/edgar/data/900075/000114544313002257/d30731_10q.htm 10-Q 1 d30731_10q.htm 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) !! Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 31, 2013 OR "" Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission le number: 0-23255 COPART, INC. (Exact name of registrant as specied in its charter)
Delaware 94-2867490 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identication No.) 14185 Dallas Parkway, Dallas, Texas 75254 (Address of principal executive ofces) (Zip Code) (972) 391-5000 Registrant's telephone number, including area code N/A (Former name, former address and former scal year, if changed since last report) Indicate by check mark whether the registrant (1) has led all reports required to be led 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 le such reports), and (2) has been subject to such ling requirements for the past 90 days. YES ! NO " Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such les). YES ! NO " Indicate by check mark whether the registrant is a large accelerated ler, an accelerated ler, a non-accelerated ler, or a smaller reporting company. See denitions of "large accelerated ler," "accelerated ler," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated ler ! Accelerated ler "
Non-accelerated ler " Smaller reporting company " 1/28/14, 2:38 PM HTML Page 16 of 41 http://www.sec.gov/Archives/edgar/data/900075/000114544313002257/d30731_10q.htm Governmental Proceedings The Georgia Department of Revenue, or DOR, conducted a sales and use tax audit of the Company's operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that the Company failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax. The Company has engaged a Georgia law rm and outside tax advisors to review the conduct of its business operations in Georgia, the notice of assessment, and the DOR's policy position. In particular, the Company's outside legal counsel has provided the Company an opinion that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, the Company's counsel noted that non- U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certicate of exemption but concluded that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply. Based on the opinion from the Company's outside law rm and advice from outside tax advisors, the Company has adequately provided for the payment of this assessment in its consolidated nancial statements. The Company believes it has strong defenses to the DOR's notice of proposed assessment and intends to defend this matter. The Company has led a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in the Company's favor or that the Company will not ultimately be required to make a substantial payment to the Georgia DOR. The Company understands that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to the Company, it could have a material adverse effect on the Company's consolidated results of operations, nancial position and cash ows. NOTE 12 - Restructuring The Company relocated its corporate headquarters to Dallas, Texas in 2012. The restructuring-related costs are as follows (in thousands):
Three Months Ended October 31, 2013 2012 General and Administrative Severance $ 1,569 $ 286 Relocation 58 - Total general and administrative $ 1,627
$ 39 The movements in the severance accrual are as follows (in thousands):
Balance at July 31, 2013 Expense Payments Balance at October 31, 2013 Severance $2,224 $1,569 $150 $3,643 The Company started transitioning its data center to a third party managed data center during the year ended July 31, 2013. The Company reviewed the useful life of certain assets related to its data centers and determined they should be revised from an average of 60 months to an average of 45 months to reect the shorter useful lives of these assets. Additionally, facility depreciation related to the Company's IT operations, currently located in the Company's ofces in Faireld, CA, was accelerated as the department is relocating to the Dallas, TX corporate headquarters. These changes in estimate are accounted for on a prospective basis, resulting in increased depreciation expense over the revised useful lives. These changes will result in $2.8 million in accelerated depreciation expense to be recorded in scal 2014. These changes resulted in $1.7 million and $0.7 million in additional depreciation in the three months ended October 31, 2013 and 2012, respectively. 15