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Emails reveal controversial business deal influenced
by governors staffE-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 office 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.
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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 office by the blind trust:
Although the property was managed in a blind trust, Deal still
signed off on the final 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 officials who say the firm 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 office has no involvement with this. None at all.
See EXHIBIT 3
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Likewise, Deal attorney Randy Evans told the AJC on 7/18/2013
that the Governor wasnt involved in the transaction but approved
the final agreement.
Deal attorney Randy Evans said the governor wasnt involved in
the negotiations, but approved the final agreement. Evans said
knowing about Coparts tax issues wouldnt have affected the final
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 office was deeply
involved in the governors personal business affairs prior to the
sale of Gainesville Salvage. Specifically, 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 financial 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 office but he did confirm the transaction to the
media.
See EXHIBIT 4
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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
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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 AMKristen Beystehner: McKenna Long & Aldridge
LLP
Page 1 of
2http://www.mckennalong.com/professionals-KristenBeystehner.html
Practices:
Corporate
Financing and Lending
Joint Ventures and StrategicAlliances
Mergers and Acquisitions
Private Equity, Hedge Fundsand Venture Capital
International
Canada-U.S. InternationalPractice
Civic Activities:
Pro Bono Partnership ofAtlanta, Board of Advisors
Everybody Wins! Power LunchProgram, Reading Mentor
Publications:
"Purchase Price Adjustments:Buyers (and Sellers)
Beware,"Financier Worldwide,November 2012 (co-authored with Gregory
Browand Ann-Marie McGaughey).
"See Ya Later, Gator:Assessing Whether PlacingPop-Up
Advertisements onAnother Company's WebsiteViolates Trademark Law,"
11J. Intell. Prop. L. 87, 2003.
Seminars and Presentations:
Kristen M. BeystehnerPartner - New
[email protected] vCard
230 Park Avenue17th FloorNew York, NY 10169
TEL: 212.905.8324 FAX: 212.922.1819
Atlanta303 Peachtree Street, NESuite 5300Atlanta, GA 30308
ALT TEL: 404.527.8525 ALT FAX: 404.527.4198
ExperienceKristen M. Beystehner focuses her practice on general
corporate counseling,with an emphasis on mergers and acquisitions.
In addition to mergers andacquisitions, her experience includes
working with clients to structure andimplement strategic alliance
relationships; advising clients in domestic andinternational
commercial contract negotiation; and assisting borrowers andlenders
in financing transactions. Ms. Beystehner regularly counsels
clientsregarding entity formation and organization, dissolutions
and liquidations, andcorporate governance matters. Ms. Beystehner
was recognized as a GeorgiaSuper Lawyers Rising Star in 2011 and
2012 and was selected by her peersas a member of Georgia Trends
Legal Elite.
While in law school, Ms. Beystehner served as Editor-in-Chief of
the Journal ofIntellectual Property Law. As an undergraduate, she
was a four-time varsityletter winner on the Northwestern University
womens golf team and a memberof the first team in the universitys
history to compete in the NCAA Division IWomens Golf
Championships.
Notable Engagements
Representation of Just Energy Group Inc. (TSX: JE) (NYSE: JE),
which isone of North Americas leading independent natural gas and
electricityretailers and providers of green energy, in connection
with its acquisition of
Menu
The Governors Office 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.
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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 4On 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 first 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.
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Gov. Deals office was successful in delaying press coverage
regarding
Coparts acquisition of Gainesville Salvage.Alhough the email
stream between the attorneys and the Governors office includes a
draft press release, we can find 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 7Social 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 find 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 first to the Governors hometown
paper, The Gainesville Times. Jimmy Allen confirmed the sale.
See EXHIBIT 8
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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 firm claiming an
inventory of more than 50,000 vehicles. The company, which operates
five 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 official filings 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 filed 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 first
mention of the sale in any official document from Copart:
On page 5 and page 31 of Coparts 10-K report to the SEC filed on
9/30/2013 for the fiscal 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 official 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 specific mention of the acquisition of
Gainesville Salvage.
See EXHIBIT 5
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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, andDesert 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 Davisonand 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 themeaning of Section 27A of the Securities Act
of 1933, as amended (the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, asamended, (the Exchange Act). All
statements other than statements of historical facts are statements
that could be deemed forward-looking statements. Insome 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 statementscontained in this Form
10-Q involve known and unknown risks, uncertainties and situations
that may cause our or our industry's actual results, level
ofactivity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed orimplied by these statements. These
forward-looking statements are made in reliance upon the safe
harbor provision of the Private Securities LitigationReform 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
thisForm 10-Q. We encourage investors to review these factors
carefully together with the other matters referred to herein, as
well as in the other documentswe 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
totime 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-lookingstatements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
You should not place undue reliance onthese 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.), theUnited 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 SecondGeneration Internet auction-style sales
technology, which we refer to as VB2. Vehicle sellers consist
primarily of insurance companies, but also includebanks and nancial
institutions, charities, car dealerships, eet operators and vehicle
rental companies. We sell the vehicles principally to licensed
vehicledismantlers, rebuilders, repair licensees, used vehicle
dealers and exporters and, at certain locations, to the general
public. The majority of the vehiclessold on behalf of insurance
companies are either damaged vehicles deemed a total loss or not
economically repairable by the insurance companies or arerecovered
stolen vehicles for which an insurance settlement with the vehicle
owner has already been made. We offer vehicle sellers a full range
ofservices 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 byvehicle 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, wederive 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, andother remarketing services. Revenues
from sellers are generally generated either on a xed fee contract
basis where we collect a xed amount for sellingeach vehicle
regardless of the selling price of the vehicle or, under our
Percentage Incentive Program, or PIP, where our fees are generally
based on apredetermined percentage of the vehicle sales price.
Under the consignment, or xed fee program, we generally charge an
additional fee for titleprocessing and special preparation.
Although sometimes included in the consignment fee, we may also
charge additional fees for the cost of transportingthe vehicle to
our facility, storage of the vehicle, and other incidental costs.
Under the consignment programs, only the fees associated with
vehicleprocessing are recorded in revenue, not the actual sales
price (gross proceeds). Sales transaction fees also include fees
charged to vehicle buyers forpurchasing vehicles, storage, loading
and annual registration. Transportation revenue includes charges to
sellers for towing vehicles under certaincontracts and towing
charges assessed to buyers for delivering vehicles. Purchased
vehicle revenue includes the gross sales price of the vehicle which
wehave purchased or are otherwise considered to own and is
primarily generated in the U.K.
16
See EXHIBIT 9
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On a May 31, 2013 investor call, Copart CEO A. Jayson Adair
said:
1/25/14, 5:33 PMCopart, Inc. (CPRT): Copart Management Discusses
Q3 2013 Results - Earnings Call Transcript - Seeking Alpha
Page 3 of
10http://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 thatwhole
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 ofmerging
with one of the other large players or hooking up with another
private equity company. And after he saw whatCopart'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 integratingit 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 goingto be
sitting down with all of our customers and finding out what they
like best about Copart and what they like best aboutQuad 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-winacross 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
ofquestions 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? Wasit a
auction or a negotiated deal? Why did they sell now? You talked a
little bit why to Copart but why now? And obviouslywe'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 throughoutthe country
had been settled and redistributed. And the owners of Quad Cities
including John, were looking what was bestfor their strategic
future and they were looking to team up to continue and accelerate
their growth. And actually werelooking for a partner who would be
able to help and assist in the growth of their company, separate
from a normalacquisition integration. And that opportunity came
together very quickly. Once we agreed philosophically how to handle
thetransaction, it was just a matter of working out the financials.
So it only took probably 3 to 4 months for the whole thing tocome
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 withthem
all the time and we lose to them. The insurance companies use them
because they like what they do. So we thinkthis 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 thatto 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 andthen
we're going to be looking at what we want to incorporate. So we
don't plan on changing anything for the foreseeablefuture 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 specific
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 filings where the
specific date of the sale is reported.
See EXHIBIT 11
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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 office in 2011.See EXHIBIT 2
Gainesville Salvage was not a profitable 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 financial
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
financial picture:
It has steadied because of this sale, Evans said of Deals
financial 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 financial 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 fighting a $74
million proposed assessment from the Georgia Department of Revenue
for nonpayment of sales and use tax on vehicles shipped
overseas.
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According to Coparts 10/31/2011 Form 10-Q filed 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
filing of its 10/31/2013 Form 10-Q filed on 12/10/2013, Copart,
Inc. continues to show the $73.8 million dollar proposed assessment
from the Georgia Department of Revenue:
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Goodwill represents the excess of cost over the fair market
value of assets acquired in business combinations. In recent
periods, the amount ofgoodwill 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 ofOctober 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 todetermine if impairment has occurred.
Additionally, interim reviews must be performed whenever events or
changes in circumstances indicate thatimpairment may have occurred.
If the testing performed indicates that impairment has occurred, we
are required to record a non-cash impairment chargefor the
difference between the carrying value of the goodwill or other
intangible assets and the implied fair value of the goodwill or
other intangible assetsin the period the determination is made. The
testing of goodwill and other intangible assets for impairment
requires us to make signicant estimates aboutour future performance
and cash ows, as well as other assumptions. These estimates can be
affected by numerous factors, including changes in thedenition of a
business segment in which we operate, changes in economic, industry
or market conditions, changes in business operations, changes
incompetition or potential changes in the share price of our common
stock and market capitalization. Changes in these factors, or
changes in actualperformance compared with estimates of our future
performance, could affect the fair value of goodwill or other
intangible assets, which may result in animpairment charge. For
example, continued deterioration in worldwide economic conditions
could affect these assumptions and lead us to determine thata
goodwill impairment is required with respect to our acquisitions in
the UK. We cannot accurately predict the amount or timing of any
impairment ofassets. Should the value of our goodwill or other
intangible assets become impaired, it could have a material adverse
effect on our operating results andcould 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
nancialcondition.
The Georgia Department of Revenue, or DOR, recently conducted a
sales and use tax audit of our operations in Georgia for the period
from January1, 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 assertedthat we failed to remit
sales taxes totaling $73.8 million, including penalties and
interest. In issuing the notice of proposed assessment, the DOR
stated itspolicy 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. registeredresellers 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
tocomply strictly with technical requirements for a Georgia
certicate of exemption but concluded that our sales for resale to
non-U.S. registered resellersshould 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 ourcondensed consolidated nancial statements. We
believe we have strong defenses to the DOR's notice of proposed
assessment and intend to defend thismatter. 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
beresolved 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 andDOR regulations are ambiguous on many of the
points at issue in the audit, and litigating and defending the
matter in Georgia could be expensive andtime-consuming and result
in substantial management distraction. If the matter were to be
resolved in a manner adverse to Copart, it could have a
materialadverse 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 thatcould 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
newpronouncements or new interpretations of existing accounting
standards that require changes to our accounting policies and
procedures. To date, we donot believe any new pronouncements or
interpretations have had a material adverse effect on our nancial
condition or results of operations, but futurepronouncements 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
hedgingarrangements and, consequently, foreign currency uctuations
may adversely affect our revenues and earnings. Should we choose to
engage in hedgingactivities 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
financial 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
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41http://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
fromJanuary 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 itasserted 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 ofassessment, and the DOR's policy position. In
particular, the Company's outside legal counsel has provided the
Company an opinion that its sales forresale 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 forresale 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 thepayment of this assessment in its consolidated
nancial statements. The Company believes it has strong defenses to
the DOR's notice of proposedassessment and intends to defend this
matter. The Company has led a request for protest or administrative
appeal with the State of Georgia. There can beno 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
substantialpayment to the Georgia DOR. The Company understands that
Georgia law and DOR regulations are ambiguous on many of the points
at issue in theaudit, and litigating and defending the matter in
Georgia could be expensive and time-consuming and result in
substantial management distraction. If thematter were to be
resolved in a manner adverse to the Company, it could have a
material adverse effect on the Company's consolidated results
ofoperations, 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 $ 286 Yard Operations Severance $ - $ - Relocation 18 39
Total yard operations $ 18 $ 39
The movements in the severance accrual are as follows (in
thousands):
Balance atJuly 31, 2013 Expense Payments
Balance atOctober 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 reviewedthe 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 monthsto reect the shorter useful
lives of these assets. Additionally, facility depreciation related
to the Company's IT operations, currently located in theCompany's
ofces in Faireld, CA, was accelerated as the department is
relocating to the Dallas, TX corporate headquarters. These changes
in estimateare accounted for on a prospective basis, resulting in
increased depreciation expense over the revised useful lives. These
changes will result in $2.8million in accelerated depreciation
expense to be recorded in scal 2014. These changes resulted in $1.7
million and $0.7 million in additionaldepreciation in the three
months ended October 31, 2013 and 2012, respectively.
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The Atlanta JournalConstitution
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 alucrative salvage yard.
Instead, the buyer's multimilliondollar tax woes have given fresh
ammunition to critics.
The Texasbased car auction firm that agreed to pay $3.2 million
each to Deal and his business partner Ken Cronanfor Gainesville
Salvage & Disposal is battling the state over nearly $74
million in disputed back taxes, and thecompany has been ramping up
its lobbying forces as it wages the 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 noknowledge of Copart's tax woes because the
property was run in a blind trust, which means the assets are
controlledby a third party.
"They will get no preferential treatment. The Department of
Revenue has jurisdiction over this and will deal with thatcase 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 divorcehimself
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
ofCitizens for Responsibility and Ethics in Washington. "It was
clear from the getgo that they wanted something, andthis may be
it."
The transaction will net Deal and Cronan roughly $3.2 million
each from the sale of the business and a 10year leaseon 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 nobid agreement with the
state to provide space for state employees to inspectrebuilt
salvaged cars. The Atlanta JournalConstitution reported in 2009
that Deal, then a congressman, intervened
See EXHIBIT 3
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Gov. Nathan Deal and his office 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.
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TheAssociatedPressState&LocalWire
January6,2011Thursday10:05PMGMT
Dealsetsupblindtrust,restructuresdebt
BYLINE:BySHANNONMcCAFFREY,AssociatedPress
SECTION:STATEANDREGIONAL
LENGTH:728words
DATELINE:ATLANTA
Gov.electNathanDealhasnamedapoliticalsupportertooverseemanyofhisassetswhilehe'sinofficeandhasrestructuredmorethan$1millioninpersonaldebtremainingfromafailedfamilybusinessventure.
TheRepublican'slawyer,RandyEvans,saidDealhassetupablindtrustforhisholdings,followingthroughonacampaignpledge.Butheisn'tputtingeverythinginit.
DealwillmaintaincontroloverhisGainesvillehomeandHabershamCountylandthathousedhisdaughterandsoninlaw'ssportinggoodsstore.Bothpropertiesareupforsaletohelppayoffsome$1.35millionindebtheincurredfrombackingthefailedNorthGeorgiabusiness,WilderOutdoors.
DealwillbesworninMonday.Histroubledfinancesbecameaflashpointinlastyear'scampaignafterrevelationsthathewasdeeplyindebtandhadinitiallyfailedtodisclosemillionsofdollarsinbusinessloans.
JimmyAllen,aTiftonbasedaccountantandDealpoliticalsupporter,willserveastrusteeofthegovernor'sassetsandactashissurrogateonbusinessmatters.DealistransferringhisshareofGainesvilleSalvageDisposalintothetrustaswellashisholdinginseverallimitedliabilitycompanies,Evanssaid.
Allencontributed$5,600toDeal'sgubernatorialbidandhiswifegave$3,600.AllenalsovolunteeredasanaccountantforDeal'scampaign,helpingtheGOPnomineeamendhisflawedfinancialdisclosureform.
Onewatchdoggroupsaidthearrangementraisesconcerns.
"Itwouldhavebeenbettertofindsomeoneneutral,ratherthanasupportertoappearbeyondreproach,"WilliamPerry,thenewexecutivedirectorofCommonCauseGeorgia,said.
PerryalsosaidthatthelandsalescouldbeadistractionforDealasheleadsthestate.Andbykeepingthepropertiesoutofthetrust,heopenshimselfuptoallegationsofpoliticalfavoritismwhenthesalesgothrough.
ButWashingtonD.C.basedattorneyBrettKappel,whohashandledblindtrustsformembersofCongress,saidthearrangementsseemedfairlytypical.
"It'snotunusualtopicksomeoneyouknowasupporterasthetrustee,"Kappelsaid."Coulditraiseeyebrowswiththepublic?Sure.Butit'snotunusual."
EvanssaidDealwassettingahighethicalbar.
"Hewillhavenocontroloverwhatgoesinthere,"Evanssaid.
userCross-Out
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AndEvanssaidplacingthelandDealhasonthemarketintoatrustwouldhavebeentoocomplicated.
"Itdidn'tmakesenseoftheyweregoingtobeimmediatelysoldtogothroughtheprocessoftransferringandsellingthem,"Evanssaid.
DealisalsokeepingaHabershamCountyhomeoutofthetrustthatheintendstousehisprimaryresidenceapartfromthegovernor'smansion.
TheWilderpropertyhasbeenundercontractsinceatleastOctober,butthesalehasnotgonethrough.TheGainesvillehomehasalsobeenonthemarketforsometimeforjustunder$1million.
DealhadbeenfacingaFeb.1deadlinetorepaytheroughly$2.2millionleftontheWilderOutdoorsloan,whichheandhiswifeSandrainheritedafterhisdaughterandsoninlawdeclaredbankruptcy.Whenthedebtwasrevealedduringthegeneralelectioncampaign,Dealvowedtomakegoodonthemoneyheowed.
TheDealshavesofarpaidoffabout$850,000,mainlythroughliquidatingalltheirretirementaccounts,Allensaid.
SouthCarolinaBankandTrustrestructuredtheremaining$1.35millionontheloan,pushingbackthematuritydateforaboutthreeyears,Allensaid.TheDealswillmakeanannualpaymentbutAllencouldnotsaywhatthatwas.Hecouldalsonotprovidetheinterestrate.
Inadditiontothe$1.35millioninWilderdebt,Dealandhiswifelistedtwomortgagesworth$810,000ontheirfinancialdisclosure.Additionally,GainesvilleSalvageDisposalowesabout$2million.
Asgovernor,hewilldrawasalaryofabout$140,000.He'ssettoearnfederalpensionofabout$52,000fromhis18yearsinCongress.TheDealsalsoreceiveabout$48,000ayearinSocialSecurity,recordsshow.
Dealhadpledgedduringhiscampaignforgovernortoplacehisassetsinablindtrust.Themanhe'sreplacingGov.SonnyPerduerefusedtodosoandhasfacedcriticismforconductinghisbusinessandmakinglandtransactionswhileinoffice.ButpreviousgovernorsinGeorgialikeZellMillerandRoyBarnescreatedblindtruststoavoidconflictswhileinoffice.
Online:
TransitionTeamofGov.electNathanDeal:
LOADDATE:January7,2011
LANGUAGE:ENGLISH
PUBLICATIONTYPE:Newswire
Copyright2011AssociatedPressAllRightsReserved
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TheAtlantaJournalConstitution
July4,2013ThursdayMainEdition
ETHICSDealsellssalvageyard
BYLINE:GregBluesteinStaff
SECTION:METRONEWSPg.1B
LENGTH:713words
HIGHLIGHT:Gainesvillebusinesscastanethicalcloudover2010campaign.
Gov.NathanDealhascuttieswithabusinessattheheartofanethicalcloudthatshroudedhislastcampaignashepreparestoaskvotersforasecondterminoffice.
Deal'sattorney,RandyEvans,saidWednesdaythatthegovernorandbusinesspartnerKenCronansoldGainesvilleSalvage&DisposaltoaTexasbasedauctionfirmforroughly$2millionapiece.Thecontractalsorequiresthefirm,Copart,topayDealandCronan$120,000eachannuallyover10yearstoleasetheland,whichthetwomenstillown.
Withthesale,Dealisseekingtoclosethechapterononeofhis2010campaign'sbiggestcontroversiesashemountsareelectionbidthatsofarfeaturesnoopponents.Italsoinjectsfreshcapitalintohisbankaccount,itselfafocusduringthecampaignasDealtriedtorepaybusinessloansforhisdaughter'sfailedsportinggoodsventure.
Thesalvagefirmonceheldalucrativenobidagreementwiththestatetoprovidespaceforstateemployeestoinspectrebuiltsalvagedcars.TheAtlantaJournalConstitutionreportedduringthelastgubernatorialcampaignthatDeal,thenacongressman,personallyintervenedwithstateofficialswhowantedtoopentheprogramtomorelocations.Thestoryledtoanethicscomplaintandacongressionalinvestigation.
Evanssaidthegovernorhadtriedtosellthebusinesssincehetookofficein2011.Althoughthepropertywasmanagedinablindtrust,Dealstillsignedoffonthefinalsale,hisattorneysaid.
"Therewasnoreason,ifyou'refullyvestedinbeingthegovernor,tohaveanotherbusinessoutthere,"Evanssaid."Oncehewaselectedherecognizedthatwasafulltimejobandhedidn'twantanysuggestionofacrossoverbetweenthetwo."
Thetiming,however,wasboundtoraisequestions.MelanieSloan,theexecutivedirectorofCitizensforResponsibilityandEthicsinWashington,alsoquestionedwhetheritwasafairdeal.
"It'sagoodthingifit'sinfactanarm'slengthtransaction,butIamskepticalthatthat'sthecase,"saidSloan,whoseorganizationfiledacomplaintclaimingDealviolatedcongressionalethicsrules.
EthicalquestionssurroundingthesalvageyardbecameacriticalissueduringDeal'srunforgovernor.
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TheAJCreportedin2009thatDealforyearshadanobidagreementwiththestatethatpaidthepartnersnearly$300,000ayearovera20yearagreement.TheAJCfoundthatDealandhisstafffoughttopreservethearrangement,tellingstateofficialsthatithelpedkeepunsafevehiclesoffGeorgia'sstreets.
ThestorypromptedaninvestigationbytheOfficeofCongressionalEthics,whichfoundthatDeal,whowasthenamemberoftheU.S.House,mighthaveviolatedfederalethicsrules.DealresignedfromCongressinMarch2010beforetheorganizationcouldmoveforward.Atthetime,Dealsaidhewantedtodevotehimselffulltimetothegovernor'srace.
EvanssaidnegotiationstosellthesalvagebusinesswereintheworksformonthsbeforethedealwasfinalizedonJune26.TheagreementalsogivesCopartanoptiontobuythelandfromDealandCronanfor$4.8millionattheendofthe10yearlease.
Copartisapubliclytradedonlinecarauctionfirmclaiminganinventoryofmorethan50,000vehicles.Thecompany,whichoperatesfivefacilitiesinGeorgiaanddozensmoreacrossthenation,isaggressivelyseekinganexpansion.ItsignedadealinMaytopurchaseSalvageParent,whichhas39locationsin14states.
TheagreementwithCopartgivesDealaninfusionofcashtodealwithhisfamilyfinances.Recordsshowthatthegovernorandhiswife,Sandra,owned90percentofafailedsportinggoodsstoreopenedbyhisdaughterandsoninlawbythetimeitclosed.Thefinancialwoesofthebusiness,whichforcedClintWilderandCarrieDealWildertofileforbankruptcy,becameanissueduringthe2010governor'srace.
Evanssaidthemoneywilllikelybeusedtorestructurethegovernor'sdebt,thoughhewouldnotsayhowmuchDealowes.
"Ithassteadiedbecauseofthissale,"EvanssaidofDeal'sfinancialsituation."Ifyouhaveaninfusionofafewmilliondollarsplusamonthlyrental,youcanonlyfeelit'sapositive.Ithinkhisfinancialfootingwillbestrongerthaneverandhe'llhaveGainesvilleSalvageinthehistorybooks."
LOADDATE:July4,2013
LANGUAGE:ENGLISH
PUBLICATIONTYPE:Newspapers
Copyright2013TheAtlantaJournalConstitution
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TheAtlantaJournalConstitution
July18,2013ThursdayMainEdition
NEWDETAILSTAXDISPUTESalvageyardsaleaheadacheforDeal
BYLINE:GregBluesteinStaff
SECTION:NEWSPg.1A
LENGTH:1002words
HIGHLIGHT:Firmthatboughtoutgovernor'sbusinessisbattlingoverbacktaxes.
Gov.NathanDealwashopingtoridhimselfofacontroversythatplaguedhislastcampaignwhenhesoldoffalucrativesalvageyard.Instead,thebuyer'smultimilliondollartaxwoeshavegivenfreshammunitiontocritics.
TheTexasbasedcarauctionfirmthatagreedtopay$3.2millioneachtoDealandhisbusinesspartnerKenCronanforGainesvilleSalvage&Disposalisbattlingthestateovernearly$74millionindisputedbacktaxes,andthecompanyhasbeenrampingupitslobbyingforcesasitwagesthelegalfight.
DealsaidTuesdayhehadnointentionofgettinginvolvedintheongoinglegalbattlebetweenthecompany,Copart,andDepartmentofRevenueofficialswhosaythefirmfailedtopaysalestaxonpartssales.HesaidhehadnoknowledgeofCopart'staxwoesbecausethepropertywasruninablindtrust,whichmeanstheassetsarecontrolledbyathirdparty.
"Theywillgetnopreferentialtreatment.TheDepartmentofRevenuehasjurisdictionoverthisandwilldealwiththatcasejustliketheydoothercases,"hesaid."Thegovernor'sofficehasnoinvolvementwiththis.Noneatall."
Butcritics,notingthatDealappointsthetaxdepartment'schief,sayitcouldprovehardforthegovernortodivorcehimselffromtheongoingtaxdispute.
"IknewtheCopartdealwastoogoodtobetrue.Anditdefinitelyis,"saidMelanieSloan,theexecutivedirectorofCitizensforResponsibilityandEthicsinWashington."Itwasclearfromthegetgothattheywantedsomething,andthismaybeit."
ThetransactionwillnetDealandCronanroughly$3.2millioneachfromthesaleofthebusinessanda10yearleaseontheland.
Itisthecompany'sfifthlocationinGeorgiaasitlookstoexpanditsfootprintinthismarket.
ThesalvageyardhaslongbeenthesourceofsteadyincomeandpoliticalcontroversyforDeal.
Thepartnersonceheldalucrativenobidagreementwiththestatetoprovidespaceforstateemployeestoinspectrebuiltsalvagedcars.TheAtlantaJournalConstitutionreportedin2009thatDeal,thenacongressman,intervened
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withstateofficialswhowantedtoopentheprogramtomorelocations.
Thestoryledtoanethicscomplaintandacongressionalinvestigation.
DealresignedfromCongressinMarch2010beforeanethicsorganizationcouldmoveforward,sayinghewantedtodevotehimselffulltimetothegovernor'srace.Afterhewaselected,heputthebusinessintheblindtrust.
Copart'sdisputeisoverwhetherpartssalestointernationalresellersaresubjecttoGeorgiasalestax.Astateauditfoundthecompanyowes$73.8millionintaxes,penaltiesandfeesaccumulatedbetween2007and2011.
ThecompanyisappealingbutsaidinaSecuritiesExchangeCommissionfilingthat"ambiguous"staterulesmeantheoutcomecouldgoeitherway.
Itwarnedinvestorsthat"litigatinganddefendingthematterinGeorgiacouldbeexpensiveandtimeconsumingandresultinsubstantialmanagementdistraction."Alosscouldhavea"materialadverseeffect"onthecompany'sbottomline,thefirmsaid.
Copart,whichdeclinedrepeatedrequestsforcomment,hassteppedupitsinterestinGeorgiapoliticsinthewakeofthetaxfight.
ThecompanyhadnolobbyistsonitspayrollherewhenitfirstdisclosedthedisputeinDecember2011.
Withinmonths,though,Coparthiredfourlobbyists,includinginfluentialveteransArthur"Skin"EdgeandTripMartin.Deal,forhispart,saidheisn'tawareofanylobbyingonCopart'sbehalf.
UnderthetermsofCopart'spurchaseagreement,DealandCronanwillgetroughly$2millionapieceforthesalvagebusinessandvehicles.ThecontractalsorequiresthefirmtopayDealandCronan$120,000eachannuallyover10yearstoleasetheland,andgivesCopartanoptiontobuythelandfor$4.8millionwhentheleaseagreementends.
DealattorneyRandyEvanssaidthegovernorwasn'tinvolvedinthenegotiationsbutapprovedthefinalagreement.EvanssaidknowingaboutCopart'staxissueswouldn'thaveaffectedthefinaldealeitherway.
"Wewalledoffanyissuesrelatingthestateandstatebusinesstoavoidanysuggestionthatithadorwouldhaveanyimpactonthetransaction,"EvanstoldtheAJC.
RecordsshowthatCronan,whodidn'treturncallsseekingcomment,hadprevioustiestoCopart.HewasamemberoftheusedpartsdivisionofthestateBoardofRegistrationofUsedMotorVehiclesinAugust2005whenitapprovedlicensesforthecompanytooperateinGeorgia.
Thegovernor'sofficewasparticularlysensitiveaboutthetimingofthesale,whichcomesashepreparestoaskvotersforasecondterm.
HefacesalikelyDemocraticopponentinNovemberandaGOPprimarychallengefromDaltonMayorDavidPennington,whosaidthelatest"ethicalcloud"distractsfocusfromGeorgia'seconomy.
Statetaxofficialsdeclinedrepeatedrequestsforcommentonthecase,butDeal'sofficesaiditwill"vigorouslypursuewhateverisowedthestate."
Somevotersstillhaveconcerns."I'mworriedCopartwillgetoffeasy,"saidJanetHudson,a69yearoldretiredsoftwareanalystfromHollySprings."Justthinkabouthowmanyteachersalariesthatmoneywouldpayfor."
BryanLong,directoroftheprogressivegroupBetterGeorgia,hintedatthechallengesaheadwhenhecalledforDealtorefuserentfromthecompanyuntilitpaysitsdebttothestate.
"CopartsolvedapoliticalandfinancialproblemforGov.Deal,whilethecompanyhasa$74millionproblemofitsownbeingdecidedbythestate,"saidLong,whosegroupoftenneedlesGOPleaders."IfGov.Dealweren'tinvolvedinthisbusinessdeal,evenhewouldbeoutraged."
Thegovernor,forhispart,seemedrelievedtoridhimselfofthebusinessasheratcheteduphisnextcampaign.Hesaidinanearlierinterviewthedecisiontosellthepropertywassimple.
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"Anytimeyouhaveagoodoffertosellyourbusiness,"hesaid,"that'sagoodbusinessdecision."
LearnmoreontheHallCountysalvageyardanditspoliticaleffectonGov.NathanDeal.
LOADDATE:July18,2013
LANGUAGE:ENGLISH
PUBLICATIONTYPE:Newspapers
Copyright2013TheAtlantaJournalConstitution
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EXHIBIT 4
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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; '[email protected]' 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:[email protected]]
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 [email protected]
From: Greg DePasquale [mailto:[email protected]] 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
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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 [email protected]
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
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If you ale not a named recipient, you are prohibited from allY
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otherwise/ any U.S. federal tax advice contained in this
communication, including attachme~ts, 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
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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
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EXHIBIT 5
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1/26/14, 9:45 AMKristen Beystehner: McKenna Long & Aldridge
LLP
Page 1 of
2http://www.mckennalong.com/professionals-KristenBeystehner.html
Practices:
Corporate
Financing and Lending
Joint Ventures and StrategicAlliances
Mergers and Acquisitions
Private Equity, Hedge Fundsand Venture Capital
International
Canada-U.S. InternationalPractice
Civic Activities:
Pro Bono Partnership ofAtlanta, Board of Advisors
Everybody Wins! Power LunchProgram, Reading Mentor
Publications:
"Purchase Price Adjustments:Buyers (and Sellers)
Beware,"Financier Worldwide,November 2012 (co-authored with Gregory
Browand Ann-Marie McGaughey).
"See Ya Later, Gator:Assessing Whether PlacingPop-Up
Advertisements onAnother Company's WebsiteViolates Trademark Law,"
11J. Intell. Prop. L. 87, 2003.
Seminars and Presentations:
Kristen M. BeystehnerPartner - New
[email protected] vCard
230 Park Avenue17th FloorNew York, NY 10169
TEL: 212.905.8324 FAX: 212.922.1819
Atlanta303 Peachtree Street, NESuite 5300Atlanta, GA 30308
ALT TEL: 404.527.8525 ALT FAX: 404.527.4198
ExperienceKristen M. Beystehner focuses her practice on general
corporate counseling,with an emphasis on mergers and acquisitions.
In addition to mergers andacquisitions, her experience includes
working with clients to structure andimplement strategic alliance
relationships; advising clients in domestic andinternational
commercial contract negotiation; and assisting borrowers andlenders
in financing transactions. Ms. Beystehner regularly counsels
clientsregarding entity formation and organization, dissolutions
and liquidations, andcorporate governance matters. Ms. Beystehner
was recognized as a GeorgiaSuper Lawyers Rising Star in 2011 and
2012 and was selected by her peersas a member of Georgia Trends
Legal Elite.
While in law school, Ms. Beystehner served as Editor-in-Chief of
the Journal ofIntellectual Property Law. As an undergraduate, she
was a four-time varsityletter winner on the Northwestern University
womens golf team and a memberof the first team in the universitys
history to compete in the NCAA Division IWomens Golf
Championships.
Notable Engagements
Representation of Just Energy Group Inc. (TSX: JE) (NYSE: JE),
which isone of North Americas leading independent natural gas and
electricityretailers and providers of green energy, in connection
with its acquisition of
Menu
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1/26/14, 9:45 AMKristen Beystehner: McKenna Long & Aldridge
LLP
Page 2 of
2http://www.mckennalong.com/professionals-KristenBeystehner.html
"Preparing for a Sale of theBusiness," ICLE
Presentation,November 2012.
Hudson Energy Services, a New Jersey-based and privately-held
electricand natural gas provider, and Fulcrum Retail Holdings, a
Texas-based andprivately-held retail electricity provider.
Representation of The Home Depot (NYSE: HD) in connection with
itsacquisition of MeasureComp, L.L.C. and CompuMeasure LLC,
whichprovide measurement and quote-building services.
Representation of Aarons, Inc. (NYSE: AAN), a leader in U.S.
sales andlease ownership and specialty retailer, in its purchase of
an 11.5%economic interest in Perfect Home Holdings Limited, a
privately-held UKrent-to-own company.
Representation of Toronto-based Herbal Magic Inc., which
operates over300 weight loss and nutrition centers throughout
Canada, in connectionwith its acquisition of LA Weight Loss, a
Pennsylvania-based weight lossand 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
companyproviding global corporate travel management services with
operations in90 countries and over $12 billion in sales, in
connection with its $475 millionsyndicated credit facility with ING
Bank N.V., acting as Agent, and INGBank and Bank of America, acting
as Issuing Banks. The senior creditfacility 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
equityfirm, in several portfolio company acquisitions, financings
and joint venturetransactions, with continued work post-closing,
including follow-onacquisitions, 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
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EXHIBIT 6
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EXHIBIT 7
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EXHIBIT 8
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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.NathanDealandbusinesspartnerKenCronanhavesoldtheirGainesvilleSalvageandDisposalbusinessinHallCounty.
JimmyAllen,trusteeforDeal'sblindtrust,whichincludesallhisassetsanddebts,confirmedthesaleWednesdayevening.Dealfacesreelectionnextyear.Inhisfirstrunforgovernorin2010,thebusinesswasthesourceofethicschargesmadeagainsttheformerHallCountycongressman.DealandCronanretainownershipofthelandThesalvagebusinesscontractedwiththestatetoprovidespaceforstateemployeestoinspectrebuiltvehicles.Allensaidhedecidedtosellthebusinessbecausehewasofferedagooddeal.Hedeclinedtonamethepurchaserortheprice.AttemptstoreachRandyEvans,Deal'sattorney,athisplaceofbusinessandthroughemailwereunsuccessful.'Thegovernor'sIguess69or70(heturns71onAug.25),'Allensaid.'Heprobablywouldn'tbeinabusinesslikethatforeveranywayandthepeoplethatcamealongthatwantedtobuyithadastronginterestinit,sowethoughtitwasagoodofferandjustdecidedtotakeitwhilewehadtheopportunityto.'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
Copyright2013NewstexLLCAllRightsReserved
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EXHIBIT 9
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1/25/14, 5:24 PMHTML
Page 1 of
39http://www.sec.gov/Archives/edgar/data/900075/000114544313001371/d30311.htm
10-Q 1 d30311.htm 10-Q
UNITED STATESSECURITIES 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 file number: 0-23255
COPART, INC.(Exact name of registrant as specified in its
charter)
Delaware 94-2867490 (State or other jurisdiction (I.R.S.
Employer of incorporation or organization) Identification No.)
14185 Dallas Parkway, Dallas, Texas 75254(Address of principal
executive offices) (Zip Code)
(972) 391-5000
Registrant's telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to suchfiling 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 Filerequired 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 suchshorter period that the registrant
was required to submit and post such files). YES ! NO "
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company.See definitions of "large
accelerated filer," "accelerated filer," and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ! Accelerated filer " Non-accelerated
filer " Smaller reporting company " (Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). YES " NO !
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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, andDesert 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 Davisonand 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 themeaning of Section 27A of the Securities Act
of 1933, as amended (the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, asamended, (the Exchange Act). All
statements other than statements of historical facts are statements
that could be deemed forward-looking statements. Insome 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 statementscontained in this Form
10-Q involve known and unknown risks, uncertainties and situations
that may cause our or our industry's actual results, level
ofactivity, performance or achievements to be materially different
from any future results, levels of activity, performance or
achievements expressed orimplied by these statements. These
forward-looking statements are made in reliance upon the safe
harbor provision of the Private Securities LitigationReform 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
thisForm 10-Q. We encourage investors to review these factors
carefully together with the other matters referred to herein, as
well as in the other documentswe file 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 filings with the SEC. We do not
undertake to update any forward-looking statement that may be made
from time totime by us or on our behalf.
Although we believe that, based on information currently
available to us and our management, the expectations reflected in
the forward-lookingstatements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
You should not place undue reliance onthese 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.), theUnited 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 SecondGeneration Internet auction-style sales
technology, which we refer to as VB2. Vehicle sellers consist
primarily of insurance companies, but also includebanks and
financial institutions, charities, car dealerships, fleet operators
and vehicle rental companies. We sell the vehicles principally to
licensed vehicledismantlers, rebuilders, repair licensees, used
vehicle dealers and exporters and, at certain locations, to the
general public. The majority of the vehiclessold on behalf of
insurance companies are either damaged vehicles deemed a total loss
or not economically repairable by the insurance companies or
arerecovered stolen vehicles for which an insurance settlement with
the vehicle owner has already been made. We offer vehicle sellers a
full range ofservices 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 byvehicle 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, wederive 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, andother remarketing services. Revenues
from sellers are generally generated either on a fixed fee contract
basis where we collect a fixed amount for sellingeach vehicle
regardless of the selling price of the vehicle or, under our
Percentage Incentive Program, or PIP, where our fees are generally
based on apredetermined percentage of the vehicle sales price.
Under the consignment, or fixed fee program, we generally charge an
additional fee for titleprocessing and special preparation.
Although sometimes included in the consignment fee, we may also
charge additional fees for the cost of transportingthe vehicle to
our facility, storage of the vehicle, and other incidental costs.
Under the consignment programs, only the fees associated with
vehicleprocessing are recorded in revenue, not the actual sales
price (gross proceeds). Sales transaction fees also include fees
charged to vehicle buyers forpurchasing vehicles, storage, loading
and annual registration. Transportation revenue includes charges to
sellers for towing vehicles under certaincontracts and towing
charges assessed to buyers for delivering vehicles. Purchased
vehicle revenue includes the gross sales price of the vehicle which
wehave purchased or are otherwise considered to own and is
primarily generated in the U.K.
16
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10-K 1 d30512.htm 10-K
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: July
31, 2013
OR
!! TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THESECURITIES EXCHANGE ACT OF 1934For 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) 391-5000Securities 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 SecuritiesAct. 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 theAct. Yes ! No
[X]
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As part of our overall expansion strategy, our objective is to
increase our revenues, operating profits, and market share in
thevehicle 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 innew and existing markets. We integrate our new
acquisitions into our global network and capitalize on certain
operating efficienciesresulting 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 orGreenfield
Date
Geographic Service Area
Homestead, Florida Greenfield September 2010 United
StatesHartford City, Indiana Acquisition March 2011 United
StatesAtlanta, Georgia Greenfield August 2011 United
StatesBurlington, North Carolina Greenfield July 2012 United
StatesWebster, New Hampshire Greenfield September 2012 United
StatesGainesville, Georgia Acquisition May 2013 United
StatesDavison, Michigan Acquisition May 2013 United StatesIonia,
Michigan Acquisition May 2013 United StatesKincheloe, Michigan
Acquisition May 2013 United StatesSalvage Parent, Inc.* Acquisition
May 2013 United StatesBirmingham, England Acquisition March 2011
United KingdomEdmonton, Canada Acquisition May 2012 CanadaCalgary,
Canada Acquisition May 2012 CanadaDubai, U.A.E. Acquisition August
2012 United Arab EmiratesEmbu, Brazil Acquisition November 2012
BrazilPirapora, Brazil Acquisition November 2012 BrazilOsasco,
Brazil Acquisition November 2012 BrazilCastelo Branco, Brazil
Acquisition November 2012 BrazilVila Jaguara, Brazil Acquisition
November 2012 BrazilEttlingen, Germany Acquisition November 2012
GermanyCordoba, 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
achievehigh net returns and broader access to buyers through our
national coverage and electronic commerce capabilities. By
utilizing ourexisting insurance company seller relationships, we
are able to build new seller relationships and pursue additional
supply agreementsin existing and new markets.
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Pursuant to ASC 350, IntangiblesGoodwill and Other, we are
required to annually test goodwill and intangible assets
withindefinite lives to determine if impairment has occurred.
Additionally, interim reviews must be performed whenever events or
changesin circumstances indicate that impairment may have occurred.
If the testing performed indicates that impairment has occurred, we
arerequired to record a non-cash impairment charge for the
difference between the carrying value of the goodwill or other
intangibleassets and the implied fair value of the goodwill or
other intangible assets in the period the determination is made.
The testing ofgoodwill and other intangible assets for impairment
requires us to make significant estimates about our future
performance and cashflows, as well as other assumptions. These
estimates can be affected by numerous factors, including changes in
the definition of abusiness segment in which we operate; changes in
economic, industry or market conditions; changes in business
operations; changes incompetition; or potential changes in the
share price of our common stock and market capitalization. Changes
in these factors, orchanges in actual performance compared with
estimates of our future performance, could affect the fair value of
goodwill or otherintangible assets, which may result in an
impairment charge. For example, continued deterioration in
worldwide economic conditionscould affect these assumptions and
lead us to determine that goodwill impairment is required with
respect to our acquisitions in NorthAmerica, 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 ourconsolidated 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
ofoperations 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
fromJanuary 1, 2007 through June 30, 2011. As a result of the
audit, the DOR issued a notice of proposed assessment for
uncollected salestaxes in which it asserted that we failed to remit
sales taxes totaling $73.8 million, including penalties and
interest. In issuing the noticeof 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, thenotice
of assessment, and the DORs policy position. In particular, our
outside legal counsel has provided us with an opinion that oursales
for resale to non-U.S. registered resellers should not be subject
to Georgia sales and use tax. In rendering its opinion, our
counselnoted that non-U.S. registered resellers are unable to
comply strictly with technical requirements for a Georgia
certificate of exemptionbut concluded that our sales for resale to
non-U.S. registered resellers should not be subject to Georgia
sales and use taxnotwithstanding 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 thepayment of
this assessment in our consolidated financial statements. We
believe we have strong defenses to the DORs notice ofproposed
assessment and intend to defend this matter. We have filed a
request for protest or administrative appeal with the State
ofGeorgia. There can be no assurance, however, that this matter
will be resolved in our favor or that we will not ultimately be
required tomake a substantial payment to the Georgia DOR. We
understand that Georgia law and DOR regulations are ambiguous on
many of thepoints at issue in the audit, and litigating and
defending the matter in Georgia could be expensive and
time-consuming and result insubstantial management distraction. If
the matter were to be resolved in a manner adverse to us, it could
have a material adverse effecton our consolidated results of
operations and financial position.
New accounting pronouncements or new interpretations of existing
standards could require us to make adjustments toaccounting
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 timeissue new
pronouncements or new interpretations of existing accounting
standards that require changes to our accounting policies
andprocedures. To date, we do not believe any new pronouncements or
interpretations have had a material adverse effect on
ourconsolidated results of operations and financial position, but
future pronouncements or interpretations could require a change
or
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contract vehicle towing, insurance, fuel, equipment maintenance
and repair, and costs of vehicles sold under purchase contracts.
Costsassociated with general and administrative expenses consist
primarily of executive management, accounting, data processing,
salespersonnel, 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
thebeginning of fiscal 2011 through July 31, 2013. All of these
acquisitions have been accounted for using the purchase method
ofaccounting.
As part of our overall expansion strategy of offering integrated
services to vehicle sellers, we anticipate acquiring and
developingfacilities in new regions, as well as the regions
currently served by our facilities. We believe that these
acquisitions and openingsstrengthen our coverage as we have
facilities located in North America, the U.K., the U.A.E., Germany,
Spain, and Brazil, and are ableto 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
Acquisitionor Greenfield
Date
Geographic Service Area
Homestead, Florida Greenfield September 2010 United
StatesHartford City, Indiana Acquisition March 2011 United
StatesAtlanta, Georgia Greenfield August 2011 United
StatesBurlington, North Carolina Greenfield July 2012 United
StatesWebster, New Hampshire Greenfield September 2012 United
StatesGainesville, Georgia Acquisition May 2013 United
StatesDavison, Michigan Acq