UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		for the quarterly period ended January 31, 2005

OR

o		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)

California		94-2867490
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

4665 Business Center Drive, Fairfield, CA 94534
(Address of principal executive offices with zip code)

Registrant’s telephone number, including area code: (707) 639-5000

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 of 1934 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 such filing requirements for the past 90 days.

YES ý NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ý NO o

Number of shares of Common Stock outstanding as of March 11, 2005: 90,179,165

Part 1 Financial Information

Item 1 Financial Statements

Copart, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	January 31, 2005		July 31, 2004
ASSETS

Current assets:
Cash and cash equivalents	$	—	$	5,720,100
Short-term investments	207,175,000		172,600,000
Accounts receivable, net	99,705,900		81,632,700
Vehicle pooling costs	28,705,600		23,966,200
Prepaid expenses and other assets	6,972,000		5,436,800
Property and equipment held for sale	478,500		3,755,100
Total current assets	343,037,000		293,110,900
Property and equipment, net	267,607,900		257,666,900
Intangibles and other assets, net	2,214,500		2,941,400
Goodwill	112,690,500		112,690,500
Land purchase options and other assets	6,540,000		6,613,400
Total assets	$	732,089,900	$	673,023,100

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank overdraft	870,000		—
Accounts payable and accrued liabilities	48,129,400		44,079,700
Deferred revenue	13,880,200		9,720,700
Income taxes payable	4,975,800		3,819,200
Deferred income taxes	6,781,700		5,438,400
Other current liabilities and debt	149,300		165,200
Total current liabilities	74,786,400		63,223,200
Deferred income taxes	6,091,300		6,354,800
Long-term debt, less current portion	4,900		8,900
Other liabilities	1,080,800		1,172,900
Total liabilities	81,963,400		70,759,800
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value - 180,000,000 shares authorized; 90,156,116 and 90,075,843 shares issued and outstanding at January 31, 2005 and July 31, 2004, respectively	268,759,500		267,276,000
Accumulated other comprehensive income	252,500		95,200
Retained earnings	381,114,500		334,892,100
Total shareholders’ equity	650,126,500		602,263,300
Total liabilities and shareholders’ equity	$	732,089,900	$	673,023,100

See accompanying notes to consolidated financial statements.

Copart, Inc., and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three months ended January 31,					Six months ended January 31,
	2005			2004		2005		2004

Revenues	$	110,014,500		$	92,634,900	$	214,124,400	$	184,101,500

Operating costs and expenses:
Yard and fleet	54,536,200			50,142,200		107,260,500		101,804,100
General and administrative	11,259,900			8,591,100		19,972,500		16,709,100
Depreciation and amortization	7,594,800			8,081,500		15,200,100		15,481,100
Total operating expenses	73,390,900			66,814,800		142,433,100		133,994,300
Operating income	36,623,600			25,820,100		71,691,300		50,107,200

Other income (expense):
Interest income, net	1,038,100			292,500		1,817,300		586,500
Gain (loss) on sale of fleet equipment	(108,500		)	1,948,000		16,700		1,948,000
Other income	931,500			647,100		2,001,500		1,258,000
Total other income	1,861,100			2,887,600		3,835,500		3,792,500
Income before income taxes	38,484,700			28,707,700		75,526,800		53,899,700

Income taxes	14,932,100			11,339,900		29,304,400		21,290,700
Net income	$	23,552,600		$	17,367,800	$	46,222,400	$	32,609,000

Basic net income per share	$	.26		$	.20	$	.51	$	.37
Weighted average shares outstanding	90,122,900			89,023,800		90,102,100		89,258,000

Diluted net income per share	$	.25		$	.19	$	.50	$	.36
Weighted average shares and dilutive potential common shares outstanding	93,121,200			91,484,900		92,888,700		91,322,200

See accompanying notes to consolidated financial statements.

Copart, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended January 31,
	2005			2004
Cash flows from operating activities:
Net income	$	46,222,400		$	32,609,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,200,100			15,481,100
Deferred rent	(92,100		)	(45,200		)
Gain on sale of property and equipment	(629,400		)	(1,822,800		)
Deferred income taxes	1,079,800			4,050,400
Changes in operating assets and liabilities:
Accounts receivable	(18,073,200		)	(23,257,800		)
Vehicle pooling costs	(4,739,400		)	(5,277,000		)
Prepaid expenses and other current assets	(1,535,200		)	(596,900		)
Land purchase options and other assets	73,400			1,150,000
Accounts payable and accrued liabilities	4,033,400			1,620,900
Deferred revenue	4,159,500			2,174,900
Income taxes	1,423,400			5,477,600
Net cash provided by operating activities	47,122,700			31,564,200

Cash flows from investing activities:
Purchase of short-term investments	(140,815,000		)	(36,750,000		)
Sale of short-term investments	106,240,000			50,380,000
Purchase of property and equipment	(25,303,100		)	(41,533,300		)
Proceeds from sale of property and equipment	4,882,600			9,197,100
Purchase of net current assets in connection with acquisitions	—			(154,000		)
Purchase of goodwill and intangible assets in connection with acquisitions	—			(685,500		)
Net cash used in investing activities	(54,995,500		)	(19,545,700		)

Cash flows from financing activities:
Proceeds from the exercise of stock options	556,200			570,400
Proceeds from the issuance of Employee Stock Purchase Plan shares	660,400			698,600
Repurchases of common stock	—			(10,723,100		)
Bank overdraft	870,000			—
Principal payments on notes payable	(3,500		)	(87,800		)
Net cash provided by (used in) financing activities	2,083,100			(9,541,900		)

Effect of exchange rate changes on cash	69,600			(14,600		)

Net (decrease) increase in cash and cash equivalents	(5,720,100		)	2,462,000

Cash and cash equivalents at beginning of period	5,720,100			5,391,400
Cash and cash equivalents at end of period	$	—		$	7,853,400

Supplemental disclosure of cash flow information:
Interest paid	$	800		$	2,100
Income taxes paid	$	26,801,300		$	11,759,000

See accompanying notes to consolidated financial statements.

Copart, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

January 31, 2005

(Unaudited)

NOTE 1 – General:

In the opinion of the management of Copart, Inc. (the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004 filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

NOTE 2 – Net Income Per Share:

There were no adjustments to net income in calculating diluted net income per share. The table below reconciles basic weighted shares outstanding to diluted weighted average shares outstanding:

	Three months ended January 31,		Six months ended January 31,
	2005	2004	2005	2004

Basic weighted shares outstanding	90,122,900	89,023,800	90,102,100	89,258,000

Effect of dilutive securities - stock options	2,998,300	2,461,100	2,786,600	2,064,200

Diluted weighted average shares outstanding	93,121,200	91,484,900	92,888,700	91,322,200

Options to purchase 1,500 and 1,531,000 shares of common stock at a weighted average price of $24.25 and $17.52 per share were outstanding during the quarters ended January 31, 2005 and 2004, respectively, and 48,000 and 1,978,750 shares of common stock at a weighted average price of $23.30 and $16.51 were outstanding during the six months ended January 31, 2005 and 2004, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

Note 3 - Short-term Investments:

Short-term investments consist of federal, state and municipal securities with readily determinable fair market values and original maturities in excess of three months. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities

represent the investment of cash that is available for current operations. The Company’s investments are classified as available-for-sale and accordingly are reported at fair value, with unrealized gains and losses reported as a component of shareholders' equity. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other than temporary. Realized gains and losses on investments are included in interest income.

As of January 31, 2005, the Company’s cash, cash equivalents and short-term investments consisted primarily of funds invested in money market accounts, which bear interest at a variable rate and auction rate securities rated AAA. Due to the average maturity and nature of the Company’s investment portfolio, we believe a sudden change in interest rates would not have a material effect on the value of our investment portfolio. As the interest rates on a material portion of our cash, cash equivalents and short-term investments are variable, a change in interest rates earned on our investment portfolio would impact interest income along with cash flows, but would not materially impact the fair market value of the related underlying instruments.

Short-term investments consist of the following:

	January 31, 2005		July 31, 2004
Available-for-sale securities:
Auction rate securities	$	207,175,000	$	172,600,000
Total short-term investments	$	207,175,000	$	172,600,000

NOTE 4 – Goodwill and Intangible Assets

The following table sets forth intangible assets by major asset class as of:

	January 31, 2005			July 31, 2004
Amortized intangibles:
Covenants not to compete	$	11,477,700		$	11,477,700
Accumulated amortization	(9,263,200		)	(8,536,300		)
Net intangibles	$	2, 214,500		$	2,941,400

Aggregate amortization expense on intangible assets was $318,900 and $416,400 for the three months and $726,900 and $831,900 for the six months ended January 31, 2005 and 2004, respectively. The average life of the covenants not to compete is approximately five years. Estimated amortization expense for each of the five succeeding fiscal years is as follows:

2005 (six months remaining)	$	540,900
2006	822,900
2007	570,900
2008	170,300
2009	85,200
Thereafter	24,300
Total	$	2,214,500

The change in the carrying amount of goodwill is as follows:

Balance as of August 1, 2003	$	109,113,800
Goodwill acquired during the period	3,634,500
Acquisition adjustment	(57,800		)
Impairment adjustment	—
Balance as of August 1, 2004	$	112,690,500
Goodwill acquired during the period	—
Impairment adjustment	—
Balance as of January 31, 2005	$	112,690,500

NOTE 5 – Stock-Based Compensation:

The Company accounts for its stock-based employee compensation plans using the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) (as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“ SFAS 148”). Accordingly, compensation cost is measured as the excess, if any, of the fair value of the Company’s stock at the date of the grant over the price the employee must pay to acquire the stock. Options granted to consultants and other non-employees are accounted for at fair value.

Pro forma information regarding net income and net income per share is required by SFAS No. 123, and has been determined as if the Company had accounted for options granted under its plans using the fair value method. For these purposes, the fair value of options issued under the plans was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: no dividend yield, volatility factor of the expected market price of the Company’s stock of 0.41, a forfeiture rate of 0.08, a weighted-average expected life of the options of five years and a risk-free interest rate of 3.5% and 3.3% for fiscal 2005 and 2004, respectively. The weighted average fair value of options granted was $4.98 for the three months ended January 31, 2004, and $4.69 and $3.51 for the six months ended January 31, 2005 and 2004, respectively. No options were granted in the second quarter of fiscal 2005. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future results.

For purposes of pro forma disclosures under SFAS 123 and SFAS 148, the estimated compensation expense related to option grants to employees that would have been recognized during the three and six months ended January 31, 2005 and 2004 is deducted from net income. The Company’s pro forma information related to option grants to employees as calculated in accordance with SFAS 123 and SFAS 148 is as follows:

	Three months ended January 31,						Six months ended January 31,
	2005			2004			2005			2004

Net income, as reported	$	23,552,600		$	17,367,800		$	46,222,400		$	32,609,000
Add: Stock-based employee compensation expense included in reported net income, net of related tax benefits	—			—			—			—
Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects	(673,400		)	(489,100		)	(1,317,900		)	(986,900		)

Pro forma net income	$	22,879,200		$	16,878,700		$	44,904,500		$	31,622,100

Net income per share:
Basic – as reported	$	0.26		$	0.20		$	0.51		$	0.37

Basic – pro forma	$	0.25		$	0.19		$	0.50		$	0.35

Diluted – as reported	$	0.25		$	0.19		$	0.50		$	0.36

Diluted – pro forma	$	0.25		$	0.18		$	0.48		$	0.35

NOTE 6 – Common Stock Repurchases:

In February 2003, the Company’s Board of Directors authorized the Company to repurchase up to nine million shares of its Common Stock. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the share repurchase program. The repurchases will be made at such times and in such amounts, as the Company deems appropriate and may be discontinued at any time. As of January 31, 2005, the Company had repurchased a total of 3,672,300 shares at a weighted average price of $8.49. The Company did not repurchase any shares during the quarters ended January 31, 2005 and October 31, 2004. The Company repurchased a total of 977,100 shares at a weighted average price of $10.974 during the fiscal year ending July 31, 2004.

NOTE 7 – Segment Reporting:

The Company’s two operating segments, salvage auction and public auction, are aggregated into one reportable segment given the similarities of economic characteristics between the operations represented by the facilities and the common nature of the products, customers and methods of revenue generation.

NOTE 8 – Acquisitions and Openings:

The Company made no acquisitions during the quarter ended January 31, 2005. In fiscal 2005, the Company opened a new facility in Strongsville, Ohio.

NOTE 9 – Comprehensive Income:

The following table reconciles net income to comprehensive income:

	Three months ended January 31,						Six months ended January 31,
	2005			2004			2005		2004
Net income, as reported	$	23,552,600		$	17,367,800		$	46,222,400	$	32,609,000
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	(18,500		)	(79,200		)	157,300		(14,600		)
Total other comprehensive income (loss)	(18,500		)	(79,200		)	157,300		(14,600		)
Comprehensive income	$	23,534,100		$	17,288,600		$	46,379,700	$	32,594,400

Note 10 – Reclassifications:

Certain prior period amounts have been reclassified to conform to current year presentation. The Company’s consolidated balance sheet as of January 31, 2005 reflects the classification of $207.2 million of auction rate securities as short-term investments; at July 31, 2004, $172.6 million had been classified as cash and cash equivalents and that amount has been reclassified to conform with the current period’s presentation.

Note 11 – Recent Accounting Pronouncement:

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R (Revised 2004), Share-Based Payment, which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on fair value. The Company currently discloses pro forma compensation expense quarterly and annually. Upon adoption, the pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The provisions of SFAS 123R are effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company is currently evaluating the method of adoption and the effect that the adoption of SFAS 123R will have on its financial position and results of operations. The Company does not anticipate the adoption will have a material impact on its consolidated financial statements.

ITEM 2- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 report 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 factors include those listed under the caption “Factors That May Affect Future Results” beginning on page 19 of this report and those discussed elsewhere in this report. We encourage investors to review these factors carefully.

Although we believe that, based on information currently available to Copart and its management, the expectations reflected 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.

Overview

We provide vehicle suppliers, primarily insurance companies, with a full range of services to process and sell salvage vehicles through auctions, principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters. 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. We offer vehicle suppliers a full range of services that expedite each stage of the salvage vehicle auction process and minimize administrative and processing costs. We generate revenues primarily from auction fees paid by vehicle suppliers and vehicle buyers as well as related fees for services such as towing and storage.

We process salvage vehicles principally on a consignment method, on either the Percentage Incentive Program (“PIP”) or on a fixed fee consignment basis. Using either consignment method, only the fees associated with vehicle processing are recorded in revenue.

For the three months ended January 31, 2005 and 2004, approximately 67% and 65%, respectively, and for the six months ended January 31, 2005 and 2004, approximately 66% and 64%, respectively, of the vehicles we sold were processed under PIP. The increase in PIP percentage is due to a contract change for dealer cars from fixed fee to PIP. Those vehicles not sold under the PIP program were processed under fixed fee agreements.

Due to a number of factors, including the timing and size of new acquisitions, market conditions, and acceptance of PIP by vehicle suppliers, the percentage of vehicles processed under these programs in future periods may vary.

Our revenues consist of salvage fees charged to vehicle suppliers and vehicle buyers, transportation revenue and purchased vehicle revenues. Salvage fees from vehicle suppliers include fees under PIP agreements and fixed fee programs where we charge for title processing, special preparation, storage and selling. Salvage fees also include fees charged to vehicle buyers for purchasing vehicles, storage and annual registration. Transportation revenue includes charges to suppliers for towing vehicles under fixed fee contracts. Transportation revenue also includes towing charges assessed to buyers for delivering vehicles. Purchased vehicle revenues are comprised of the price that buyers paid at our auctions for vehicles processed that we own.

Costs attributable to yard expenses consist primarily of operating personnel (which includes yard management, clerical and yard employees), rent, yard maintenance and security, contract vehicle towing, insurance,

equipment maintenance and repair, and costs of vehicles we sold under purchase contracts. Costs associated with general and administrative expenses consist primarily of executive, accounting, information technology development and data processing, sales personnel, human resources, professional fees and marketing expenses.

During fiscal 2004, we converted all of our salvage vehicle auction facilities to an Internet based auction-style model using our Virtual Bidding Second Generation (“VB²”) Internet sales technology. This process employs a two-step bidding process. The first step, called the preliminary bid, allows buyers to submit bids up to one hour before a real time virtual action begins. The second step allows buyers to bid against each other, and the high bidder from the preliminary bidding process, in a real time process over the Internet.

We believe the implementation of VB² across our salvage operations has increased the pool of available buyers for each sale and the added competition has increased the amount buyers are willing to pay for salvage from us. We also believe it has improved the efficiency of our operations. For the quarter ended January 31, 2005, sales of vehicles to buyers outside the state where the vehicle is located accounted for 47% of total vehicles sold; 25% of salvage vehicles were sold to out of state buyers and 22% were sold to buyers out of country. For the quarter ended January 31, 2004, sales of vehicles to buyers outside the state where the vehicle is located accounted for 41% of total vehicles sold; 25% of salvage vehicles were sold to out of state buyers and 16% were sold to buyers out of country.

The period-to-period comparability of our operating results and financial condition is substantially affected by business acquisitions and new openings made by us during such periods.

Acquisitions and New Operations

We have experienced significant growth as we have acquired or opened fifteen vehicle auction facilities since the beginning of fiscal 2003. All of the acquisitions have been accounted for using the purchase method of accounting.

As part of our overall expansion strategy of offering integrated service to vehicle suppliers, we anticipate acquiring and developing facilities in new regions, as well as the regions currently served by our facilities. As part of this strategy, in fiscal 2005 we opened a new facility in Strongsville, Ohio. In fiscal 2004, we acquired new facilities in or near Eugene, Oregon; Cleveland, Ohio and Anchorage, Alaska and opened new facilities in or near Toronto, Canada and Helena, Montana. In fiscal 2003, we acquired new facilities in or near Pittsburgh, Pennsylvania; Reno, Nevada and Richmond, Virginia and opened new facilities in or near Springfield, Missouri; Corpus Christi, Texas; Ft. Pierce, Florida; Rancho Cucamonga, California; Richmond, Virginia and Albany, New York. We believe that these acquisitions and openings strengthen our coverage as we have 108 facilities located in North America and are able to provide national coverage for our suppliers.

We seek to increase revenues and profitability by, among other things, (i) acquiring and developing new salvage vehicle auction facilities in key markets, (ii) pursuing national and regional vehicle supply agreements, (iii) expanding our service offerings to suppliers and buyers, (iv) increasing revenue and profitability at our public automobile auction facilities and (v) expanding the application of VB² into new markets. In addition, we implement our pricing structure and merchandising procedures and attempt to effect cost efficiencies at each of our acquired facilities by implementing our operational procedures, integrating our management information systems and redeploying personnel, when necessary.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent

assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to vehicle pooling costs, allowance for doubtful accounts, goodwill, income taxes and long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

We defer, in vehicle pooling costs, certain yard expenses associated with vehicles consigned to and received by us but not sold as of the balance sheet date. We quantify the deferred costs using a calculation that includes the number of vehicles at our facilities at the beginning and end of the period, the number of vehicles sold during the period and an allocation of certain yard expenses of the period. The primary expenses allocated and deferred are certain facility costs, labor, transportation, and vehicle processing costs. If our absolute costs and apportionment of those costs between warehousing and sales activities change, then yard expenses could increase or decrease correspondingly in the future. These costs are expensed as vehicles are sold in the subsequent periods on an average cost basis.

We maintain an allowance for doubtful accounts in order to provide for estimated losses resulting from disputed amounts billed to suppliers or buyers and the inability of our suppliers or buyers to make required payments. If billing disputes exceed expectations and/or if the financial condition of our suppliers or buyers were to deteriorate, additional allowances may be required.

We evaluate separately the impairment of goodwill of our salvage and our public auction operating segments, annually by comparing the fair value of the operating segment to its carrying value. Future adverse changes in market conditions or poor operating results of an operating segment could result in an inability to recover the carrying value of the investment, thereby requiring an impairment charge in the future.

We evaluate the realizability of our deferred tax assets on an ongoing basis. Generally accepted accounting principles require the assessment of the Company’s performance and other relevant factors when determining the need for a valuation allowance with respect to these deferred tax assets. The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance when, in certain taxable jurisdictions, the utilization of the tax asset is uncertain. Additional timing differences, future earning trends and/or tax strategies may occur which could warrant a need for establishing an additional valuation allowance or a reserve.

We are required to estimate income tax provisions and amounts ultimately payable or recoverable in numerous jurisdictions. Such estimates involve significant interpretations of regulations and are inherently very complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year.

We evaluate long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the estimated undiscounted future cash flows change in the future, we may be required to reduce the carrying amount of an asset in the future.

While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our results of operations could be impacted.

Results of Operations

Three Months Ended January 31, 2005 Compared to Three Months Ended January 31, 2004

Revenues were approximately $110.0 million during the three months ended January 31, 2005, an increase of approximately $17.4 million, or 19%, over the three months ended January 31, 2004. The increase was due to increased vehicle sales volume, new service revenue and higher fees resulting from increased auction proceeds per vehicle. The increase in gross proceeds per vehicle (the gross sales price of the vehicle at auction) yields higher revenue per car as buyer fees and certain seller fees, including those sold under the PIP program, are based on the gross proceeds per vehicle and generally increase as gross proceeds per vehicle grow. We believe the increase in proceeds per vehicle was the result of the introduction of Virtual Bidding Second Generation, which allows more buyers to participate in the auctions. Existing facilities contributed approximately $16.7 million of the revenue growth and new facilities in or near Cleveland, Ohio, Strongsville, Ohio and Anchorage, Alaska, contributed approximately $0.7 million of revenue growth.

Yard expenses were approximately $54.5 million during the three months ended January 31, 2005, an increase of approximately $4.4 million, or 9%, over the three months ended January 31, 2004. Yard expenses increased due principally to the cost of handling increased volume and the additional costs associated with three new yards. Yard expenses decreased to 50% of revenues during the three months ended January 31, 2005, as compared to 54% of revenues during the three months ended January 31, 2004. Yard expenses decreased as a percentage of revenue due in part to the generally fixed cost nature of Copart’s business.

General and administrative expenses were approximately $11.3 million during the three months ended January 31, 2005, an increase of approximately $2.7 million, or 31%, over the three months ended January 31, 2004. The increase was primarily due to increases in software development costs, technology hardware leasing costs, and information technology payroll costs, mainly associated with the development and deployment of VB², cost relating to Sarbanes-Oxley compliance, cost relating to the introduction of VB² into the wholesale auction industry and general corporate expansion. General and administrative expenses increased to 10% of revenues during the three months ended January 31, 2005, as compared to 9% of revenues during the three months ended January 31, 2004.

Depreciation and amortization expenses were approximately $7.6 million during the three months ended January 31, 2005, a decrease of approximately $0.5 million, or 6%, over the three months ended January 31, 2004. Depreciation decreased as certain depreciable assets became fully depreciated in the current period.

Total other income was approximately $1.9 million during the three months ended January 31, 2005, a decrease of approximately $1.0 million, or 36%, from the three months ended January 31, 2004. The decrease was due to a gain on sale of fleet equipment in the prior year quarter. The sale of the fleet equipment was associated with the Company’s decision to replace its company owned trucks with subhaulers for its towing services. Interest income increased approximately $0.7 million due to higher interest rates and a higher average cash balance. Other income, which consists primarily of rental income and gain on the sale of non fleet assets, increased approximately $0.3 million and was due primarily to a $0.3 million gain on the sale of equipment.

Our effective combined federal, state and local income tax rates for the three months ended January 31, 2005 and 2004 was approximately 39% and 40%, respectively. The decrease is due to certain adjustments and estimates affecting the current and deferred tax income liabilities and credits.

Due to the foregoing factors, we realized net income of approximately $23.6 million for the three months ended January 31, 2005, compared to net income of approximately $17.4 million for the three months ended January 31, 2004.

Six Months Ended January 31, 2005 Compared to Six Months Ended January 31, 2004

Revenues were approximately $214.1 million during the six months ended January 31, 2005, an increase of approximately $30.0 million, or 16%, over the six months ended January 31, 2004. The increase was due to increased vehicle sales volume, new service revenue and higher fees resulting from increased auction proceeds per vehicle. The increase in gross proceeds per vehicle (the gross sales price of the vehicle at auction) yields higher revenue per car as buyer fees and certain seller fees, including those sold under the PIP program, are based on the gross proceeds per vehicle and generally increase as gross proceeds per vehicle grow. We believe the increase in proceeds per vehicle was the result of the introduction of Virtual Bidding Second Generation, which allows more buyers to participate in the auctions. Existing facilities contributed approximately $28.7 million of revenue growth and new facilities in or near Cleveland, Ohio, Strongsville, Ohio and Anchorage, Alaska, contributed approximately $1.3 million of revenue growth.

Yard expenses were approximately $107.3 million during the six months ended January 31, 2005, an increase of approximately $5.5 million, or 5%, over the six months ended January 31, 2004. Yard expenses increased due principally to the cost of handling increased volume and the extra costs associated with three new yards. Yard expenses decreased to 50% of revenues during the six months ended January 31, 2005, as compared to 55% of revenues during the six months ended January 31, 2004. Yard expenses decreased as a percentage of revenue due in part to the generally fixed cost nature of Copart’s business.

General and administrative expenses were approximately $20.0 million during the six months ended January 31, 2005, an increase of approximately $3.3 million, or 20%, over the six months ended January 31, 2004. The increase was primarily due to increases in software development costs, technology hardware leasing costs, and information technology payroll costs, mainly associated with the development and deployment of VB², cost relating to Sarbanes-Oxley compliance, cost relating to the introduction of VB² into the wholesale auction industry and general corporate expansion. General and administrative expenses remained unchanged at 9% of revenues during the six months ended January 31, 2005, and January 31, 2004.

Depreciation and amortization expenses were approximately $15.2 million during the six months ended January 31, 2005, a decrease of approximately $0.3 million, or 2%, over the six months ended January 31, 2004. Depreciation decreased as certain depreciable assets became fully depreciated in the current period.

Total other income was approximately $3.8 million during the six months ended January 31, 2005, an increase of approximately $0.05 million, or 1%, from the six months ended January 31, 2004. During the six months ended January 31, 2005 the Company recognized a gain on sale of fleet equipment of $0.02 million, a decrease of $1.9 million over the six months ended January 31, 2004. The sale of the equipment is associated with the Company’s decision to replace its company owned trucks with subhaulers for its towing services. The more profitable trucks were sold in the prior year. Interest income increased approximately $1.2 million due to higher interest rates and a higher average cash balance. Other income, which consists primarily of rental income and gain on the sale of non fleet assets, increased approximately $0.7 million and was due primarily to a gains on the sale of real property and equipment.

Our effective combined federal, state and local income tax rates for the six months ended January 31, 2005 and 2004 was approximately 39% and 40%, respectively. The decrease is due to certain adjustments and estimates affecting the current and deferred tax income liabilities and credits.

Due to the foregoing factors, we realized net income of approximately $46.2 million for the six months ended January 31, 2005, compared to net income of approximately $32.6 million for the six months ended January 31, 2004.

Liquidity and Capital Resources

Historically, we have financed our growth through cash generated from operations, public offerings of common stock, the equity issued in conjunction with certain acquisitions and debt financing. Cash, cash equivalents and short-term investments increased by approximately $28.9 million from July 31, 2004 to January 31, 2005. Our liquidity and capital resources have not been materially affected by inflation. During the winter months, most of our facilities process 10% to 30% more vehicles than at other times of the year. This increased seasonal volume requires the increased use of our cash to pay out advances and handling costs of the additional business.

As of January 31, 2005, we had working capital of approximately $268.3 million, including short-term investments of approximately $207.2 million. Our primary source of cash is from the collection of sellers’ fees, buyers’ fees and reimbursable advances from the proceeds of auctioned salvage vehicles. As of January 31, 2005, our short-term investments included approximately $207.2 million of auction rate notes. Auction rate notes are variable rate bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days. Auction rate notes have interest rate resets through a modified Dutch auction, at predetermined short term intervals, usually every 7, 28 or 35 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid during a given period is based upon the interest rate determined during the prior auction. Although these notes are issued and rated as long-term bonds, they are priced and traded as short-term instruments because of the liquidity provided through the interest rate reset. We had historically classified these instruments as cash equivalents if the period between interest rate resets was 90 days or less based on our ability to either liquidate our holdings or roll our investment over to the next reset period.

Based upon the maturity dates associated with the underlying bonds, accordingly, we have reclassified our auction rate notes, previously classified as cash equivalent, to short-term marketable securities for the periods presented.

We believe that our currently available cash, cash equivalents and short-term investments, cash generated from operations and borrowing availability under our bank credit facilities and equipment leasing lines will be sufficient to satisfy our operating and working capital requirements for at least the next 12 months. However, if we experience significant growth in the future, we may be required to raise additional cash through the issuance of new debt or additional equity.

Operating Activities

Net cash provided by operating activities increased by $15.6 million to $47.1 million during the six months ended January 31, 2005 when compared to the same period in fiscal 2004, due to the profitability of the company and to the timing of routine changes in working capital items. The increase in profitability came in part due to increased vehicle sales volume, new service revenue and higher fees resulting from increased auction proceeds per vehicle. The increase in accounts receivables and vehicle pooling costs was in line with our seasonal growth in sales and inventory volume as most of our facilities process 10% to 30% more vehicles during the winter months.

Investing Activities

For the six months ended January 31, 2005, we purchased approximately $140.8 million in short-term investments. These purchases were offset by the sale of $106.2 million of short-term investments. We invest our cash in auction rate notes with ratings of AAA.

Capital expenditures (excluding those associated with fixed assets attributable to acquisitions) were approximately $25.3 million and $41.5 million for the six months ended January 31, 2005 and 2004, respectively. Our capital expenditures are related primarily to opening and improving facilities and acquiring yard equipment. We continue to expand and invest in new and existing facilities in order to handle increased volume and standardize the appearance of existing locations.

During the six months ended January 31, 2004, we used cash for the acquisition of an operation in Eugene, Oregon, which had an aggregate cash cost of approximately $0.8 million. During the six months ended January 31, 2005 we made no acquisitions.

Financing Activities

In February 2003, our Board of Directors authorized us to repurchase up to 9 million shares of our Common Stock. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the share repurchase program. The repurchases will be made at such times and in such amounts, as we deem appropriate and may be discontinued at any time. As of January 31, 2005, we had repurchased a total of 3,672,300 shares at a weighted average price of $8.49. We accounted for the repurchase of our Common Stock by charging Common Stock for $31,170,400. We have not repurchased any shares in fiscal 2005.

Lease, Purchase and Other Contractual Obligations

The following table summarizes our significant contractual obligations and commercial commitments as of January 31, 2005:

Payments Due By Period

Contractual Obligations (1)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Capital Leases	$	12,700	$	7,700	$	5,000	$	—	—
Operating Leases	$	107,459,500	$	22,838,900	$	34,137,200	$	20,426,000	$	30,057,400

Amount of Commitment Expiration Per Period

Commercial Commitments (2)	Total		Less than 1 year		1-3 years	3-5 years	More than 5 years

Letters of Credit	$	10,800,000	$	10,800,000	—	—	—

(1) Contractual obligations consist of long-term debt and future minimum lease payments under capital and operating leases, including off-balance sheet leases, used in the normal course of business.

(2) Commercial commitments include primarily letters of credit provided for insurance programs and certain business transactions.

Credit Facilities

On February 23, 2001, we entered into a credit facility with our existing banking syndicate. The facility provided by Wells Fargo Bank, Fleet National Bank and U.S. Bank National Association consists of an unsecured revolving reducing line of credit in the amount of $65 million that matures in 2006. As of January 31, 2005, we had available $54.2 million under this facility, after taking into account $10.8 million of outstanding letters of credit. We

are subject to customary covenants, including the following financial covenants: 1) ratio of funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA); 2) profitable operation; 3) leverage ratio and 4) interest coverage ratio. We are in compliance with all covenants.

Factors That May Affect Future Results

We depend on a limited number of major suppliers of salvage vehicles. The loss of one or more of these major suppliers could adversely affect our results of operations and financial condition, and an inability to increase our sources of vehicle supply could adversely affect our growth rates.

Historically, a limited number of vehicle suppliers have accounted for a substantial portion of our revenues. In the second quarter of fiscal 2005, vehicles supplied by our two largest suppliers accounted for approximately 12% and 8% of our revenues, respectively. Supplier arrangements are either written or oral agreements typically subject to cancellation by either party upon 30 to 90 days notice. Vehicle suppliers have terminated agreements with us in the past in particular markets, which has affected the pricing for auction services in those markets. There can be no assurance that our existing agreements will not be cancelled. Furthermore, there can be no assurance that we will be able to enter into future agreements with vehicle suppliers or that we will be able to retain our existing supply of salvage vehicles. A reduction in vehicles from a significant vehicle supplier or any material changes in the terms of an arrangement with a substantial vehicle supplier could have a material adverse effect on our results of operations and financial condition. In addition, a failure to increase our sources of vehicle supply could adversely affect our earnings and revenue growth rates.

Our strategic shift from live salvage auctions to an entirely Internet based sales model presents new risks, including substantial technology risks.

In fiscal 2004, we converted all our salvage auctions from a live auction process to an entirely Internet based auction-style model based on technology developed internally by us. The conversion represents a significant change in the way we conduct business and presents numerous risks, including our increased reliance on the availability and reliability of our network systems. In particular, we believe the conversion presents the following risks, among others:

• Our operating results in a particular period could be adversely affected in the event our networks are not operable for an extended period of time for any reason, as a result of Internet viruses, or as a result of any other technological circumstance that makes us unable to conduct our virtual sales.

• Our business is increasingly reliant on internally developed technology, and we have limited historic experience developing technologies or systems for large-scale implementation and use.

• The change in our business model may make it more difficult for management, investment analysts, and investors to model or predict our future operating results until sufficient historic data is available to evaluate the effect of the VB² implementation over a longer period of time and in different economic environments. For example, the shift to VB² has in recent periods had a favorable effect on yard expenses and an adverse effect on general and administrative expenses. Results to date are still preliminary, however, and it is difficult to predict the long-term effect of our VB² initiatives on operating results, particularly to the extent we are required to make additional commitments and devote additional resources to developing and improving our proprietary technologies.

• Our increasing reliance on proprietary technology subjects us to intellectual property risks, including the risk of third party infringement claims or the risk that we cannot establish or protect intellectual property rights in our technologies. We have filed patent applications for VB²in the United States, the Netherlands,

and Europe, but we cannot provide any assurances that patents will actually issue or that, if issued, the patent could not later be found to be unenforceable or invalid.

Factors such as mild weather conditions in the United States can have an adverse affect on our revenues and operating results as well as our revenue and earnings growth rates.

Mild weather conditions in the United States tend to result in a decrease in the available supply of salvage vehicles because traffic accidents decrease and fewer automobiles are damaged. Accordingly, mild weather can have an adverse effect on salvage vehicle inventories, which would be expected to have an adverse effect on our revenue and earnings and related growth rates and could have an adverse effect on our operating results. Conversely, our inventories will tend to increase in poor weather such as a harsh winter or as a result of adverse weather-related conditions such as flooding. During periods of mild weather conditions, our ability to increase our revenues and improve our operating results and related growth will be increasingly dependent on our ability to obtain additional vehicle suppliers and to compete more effectively in the market, each of which is subject to the other risks and uncertainties described in these sections.

The salvage vehicle auction industry is highly competitive and we may not be able to compete successfully.

We face significant competition for the supply of salvage vehicles and for the buyers of those vehicles. We believe our principal competitors include other vehicle auction companies with whom we compete directly in obtaining vehicles from insurance companies and other suppliers, and large vehicle dismantlers, who may buy salvage vehicles directly from insurance companies, bypassing the salvage auction process. Many of the insurance companies have established relationships with competitive auction companies and large dismantlers. Many of our competitors may have greater financial resources than us. Due to the limited number of vehicle suppliers, the absence of long-term contractual commitments between us and our suppliers and the increasingly competitive market environment, there can be no assurance that our competitors will not gain market share at our expense.

We may also encounter significant competition for local, regional and national supply agreements with vehicle suppliers. There can be no assurance that the existence of other local, regional or national contracts entered into by our competitors will not have a material adverse effect on our business or our expansion plans. Furthermore, we are likely to face competition from major competitors in the acquisition of salvage vehicle auction facilities, which could significantly increase the cost of such acquisitions and thereby materially impede our expansion objectives or have a material adverse effect on our results of operations. These potential new competitors may include consolidators of automobile dismantling businesses, organized salvage vehicle buying groups, automobile manufacturers, automobile auctioneers and software companies. While most vehicle suppliers have abandoned or reduced efforts to sell salvage vehicles directly without the use of service providers such as us, there can be no assurance that this trend will continue, which could adversely affect our market share, results of operations and financial condition. Additionally, existing or new competitors may be significantly larger and have greater financial and marketing resources than us; therefore, there can be no assurance that we will be able to compete successfully in the future.

Because the growth of our business has been due in large part to acquisitions and development of new salvage vehicle auction facilities, the rate of growth of our business and revenues may decline if we are not able to successfully complete acquisitions and development of new facilities.

We seek to increase our sales and profitability through the acquisition of other salvage vehicle auction facilities and the development of new salvage vehicle auction facilities. There can be no assurance that we will be able to:

• continue to acquire additional facilities on favorable terms;

• expand existing facilities in no growth regulatory environments;

• increase revenues and profitability at acquired and new facilities;

• maintain the historical revenue and earnings growth rates we have been able to obtain through facility openings and strategic acquisitions; or

• create new salvage vehicle auction facilities that meet our current revenue and profitability requirements.

As we continue to expand our operations, our failure to manage growth could harm our business and adversely affect our results of operations and financial condition.

Our ability to manage growth is not only dependent on our ability to successfully integrate new facilities, but also on our ability to:

• hire, train and manage additional qualified personnel;

• establish new relationships or expand existing relationships with vehicle suppliers;

• identify and acquire or lease suitable premises on competitive terms;

• secure adequate capital;

• maintain the supply of vehicles from vehicle suppliers; and

• compete successfully in the public automobile auction sector.

Our inability to control or manage these growth factors effectively could have a material adverse effect on our results of operations and financial condition.

We have limited experience in the public automobile auction business and may not be successful in our efforts to compete in this market, which may adversely affect our current growth strategy.

We have historically focused on the operation, acquisition and development of salvage vehicle auction facilities and only have limited experience in operating public automobile auction facilities. The public automobile auction market differs from the salvage vehicle auction market in that used vehicles in general working order are sold to the public. We intend to introduce VB² to our public auction business. We do not know to what extent VB² will prove as successful in the public auction market as it has in the salvage auction market. In particular, physical inspection of vehicles by prospective buyers could prove more important in the public auction market than in the salvage market. To the extent that VB² is not successful in the public automobile auction market, our growth strategy could be harmed.

Our annual and quarterly performance may fluctuate, causing the price of our stock to decline.

Our revenues and operating results have fluctuated in the past and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Factors that may affect our operating results include, but are not limited to, the following:

• fluctuations in the market value of salvage and used vehicles;

• the availability of salvage vehicles;

• variations in vehicle accident rates;

• buyer participation in the Internet bidding process;

• delays or changes in state title processing;

• changes in state or federal laws or regulations affecting salvage vehicles;

• changes in state laws affecting who may purchase salvage vehicles;

• our ability to integrate and manage our acquisitions successfully;

• the timing and size of our new facility openings;

• the announcement of new vehicle supply agreements by us or our competitors;

• severity of weather and seasonality of weather patterns;

• the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our business, operations and infrastructure;

• the availability and cost of general business insurance;

• labor costs and collective bargaining;

• availability of subhaulers at competitive rates;

• acceptance of buyers and sellers of our Internet-based model deploying VB², a proprietary Internet auction system;

• current levels of out of state and foreign demand for salvage vehicles may not continue;

• the introduction of a similar Internet product by a competitor; and

• the ability to obtain necessary permits to operate salvage auction facilities.

Due to the foregoing factors, our operating results in one or more future periods can be expected to fluctuate. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, the price of our common stock could decline substantially.

New accounting pronouncements or new interpretations of existing standards could require the Company to make adjustments in our accounting policies that could adversely affect our financial statements.

The Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the Securities and Exchange Commission, or other accounting organizations or governmental entities issue new pronouncements or new interpretations of existing accounting standards that require us to reconsider our internal accounting policies and procedures. To date, we do not believe any new pronouncements or interpretations have had an adverse effect on our financial condition or results of operations, but future pronouncements or interpretations could require us to change our policies or procedures. Moreover, we continually review our critical accounting policies in light of the accounting literature and changes in our operations.

Government regulation of the salvage vehicle auction industry may impair our operations, increase our costs of doing business and create potential liability.

Participants in the salvage vehicle auction industry are subject to, and may be required to expend funds to ensure compliance with a variety of U.S. or Canadian, federal, state, provincial and local governmental, regulatory and administrative rules, regulations, land use ordinances, licensure requirements and procedures, including those governing vehicle registration, the environment, zoning and land use. Failure to comply with present or future regulations or changes in interpretations of existing regulations may result in impairment of our operations and the imposition of penalties and other liabilities. At various times, we may be involved in disputes with local governmental officials regarding the development and/or operation of our business facilities. We believe that we are in compliance in all material respects with applicable regulatory requirements. We may be subject to similar types of regulations by federal, provincial, state, and local governmental agencies in new markets. In addition, new regulatory requirements or changes in existing requirements may delay or increase the cost of opening new facilities, may limit our base of salvage vehicle buyers and may decrease demand for our vehicles.

The operation of our auction facilities poses certain environmental risks, which could adversely affect our results of operations and financial condition.

Our operations are subject to federal, state, provincial and local laws and regulations regarding the protection of the environment. In the salvage vehicle auction industry, large numbers of wrecked vehicles are stored at auction facilities and, during that time, spills of fuel, motor oil and other fluids may occur, resulting in soil, surface water or groundwater contamination. Environmental issues resulting from fuel spills, oil spillage, or similar problems are also present at our public auction facilities. In addition, certain of our facilities generate and/or store petroleum products and other hazardous materials, including waste solvents and used oil. We could incur substantial expenditures for preventative, investigative or remedial action and could be exposed to liability arising from our operations, contamination by previous users of certain of our acquired facilities, or the disposal of our waste at off-site locations. Environmental laws and regulations could become more stringent over time and there can be no assurance that we or our operations will not be subject to significant costs in the future. Although we have obtained indemnification for pre-existing environmental liabilities from many of the persons and entities from whom we have acquired facilities, there can be no assurance that such indemnifications will be adequate. Any such expenditures or liabilities could have a material adverse effect on our results of operations and financial condition.

If we experience problems with our providers of fleet operations, our business could be harmed.

We rely upon independent subhaulers to pick up and deliver vehicles to and from our auction facilities. In addition, our failure to pick up and deliver vehicles in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business. Further, the increase in fuel cost may lead to increased prices charged by our independent subhaulers, which may significantly increase our cost. These costs may not be passed on to our sellers or buyers.

We are partially self-insured for certain losses.

We are partially self-insured for certain losses related to general liability, workers’ compensation and auto liability. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While we believe these estimates are reasonable based o the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our results of operations could be impacted. Further, we rely on independent experts to assist us in establishing the proper amount of reserves for anticipated payouts associated with these self-insured exposures. If these experts provide guidance based on erroneous assumptions, use models mathematically flawed or otherwise provide advice that is inaccurate or unrepresentative, then it could have an adverse impact on our results of operations.

Our executive officers, directors and their affiliates hold a large percentage of our stock and their interests may differ from other shareholders.

Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 23% of our common stock as of January 31, 2005. If they were to act together, these shareholders would have significant influence over most matters requiring approval by shareholders, including the election of directors, any amendments to our articles of incorporation and certain significant corporate transactions, including potential merger or acquisition transactions. In addition, without the consent of these shareholders, we could be delayed or prevented from entering into transactions that could be beneficial to us or our other investors. These shareholders may take these actions even if they are opposed by our other investors.

We have a shareholder rights plan, which could affect the price of our common stock and make it more difficult for a potential acquirer to purchase a large portion of our securities, to initiate a tender offer or a proxy contest, or to acquire us.

In March 2003, our board of directors adopted a shareholder rights plan, commonly known as a poison pill. The poison pill may discourage, delay, or prevent a third party from acquiring a large portion of our securities, initiating a tender offer or proxy contest, or acquiring us through an acquisition, merger, or similar transaction. Such an acquirer could be prevented from consummating one of these transactions even if our shareholders might receive a premium for their shares over then-current market prices.

If we lose key management or are unable to attract and retain the talent required for our business, we may not be able to successfully manage our business or achieve our objectives.

Our future success depends in large part upon the leadership and performance of our executive management team, all of whom are employed on an at-will basis and none of whom are subject to any agreements not to compete. If we lose the service of one or more of our executive officers or key employees, in particular Willis J. Johnson, our Chief Executive Officer, and A. Jayson Adair, our President, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives.

Compliance with new rules and regulations concerning corporate governance may be costly and time consuming.

The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, requires, among other things, that companies adopt new corporate governance measures and imposes comprehensive reporting and disclosure requirements, sets stricter independence and financial expertise standards for board and audit committee members and imposes increased civil and criminal penalties for companies, their chief executive officers and chief financial officers for securities law violations. In addition, the Nasdaq National Market, on which our common stock is traded, has adopted additional comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations. These new rules and regulations may also make it more difficult and more expensive for us to obtain director and officer liability insurance and make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee.

In the event we are unable to satisfy regulatory requirements relating to internal controls, or if these internal controls over financial reporting are not effective, our business and our stock price could suffer.

Section 404 of Sarbanes-Oxley requires companies to do a comprehensive and costly evaluation of their internal controls. As a result, during our fiscal year ending July 31, 2005, we will be required to perform an evaluation of our internal controls over financial reporting and have our auditor publicly attest to such evaluation. We have prepared an internal plan of action for compliance, which includes a timeline and scheduled activities with respect to preparation of such evaluation. Our efforts to comply with Section 404 and related regulations regarding our management’s required assessment of internal control over financial reporting and our independent auditors’ attestation of that assessment has required, and continues to require, the commitment of significant financial and managerial resources. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is no precedent available by which to measure compliance adequacy. If we fail to timely complete this evaluation, or if our auditors cannot timely attest to our evaluation, we could be subject to regulatory investigations or sanctions, costly litigation or a loss of public confidence in our internal controls, which could have an adverse effect on our business and our stock price.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal exposures to financial market risk are interest rate and foreign currency risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio of marketable securities. As of January 31, 2005, the Company’s cash, cash equivalents and short-tem investments consisted primarily of funds invested in money market accounts, which bear interest at a variable rate and auction rate securities rated AAA. Due to the average maturity and nature of the Company’s investment portfolio, we believe a sudden change in interest rates would not have a material effect on the value of our investment portfolio. As the interest rates on a material portion of our cash, cash equivalents and short-term investments are variable, a change in interest rates earned on our investment portfolio would impact interest income along with cash flows, but would not materially impact the fair market value of the related underlying instruments.

Our exposure to foreign currency risks relates to our operations in Canada, which have not been significant. We do not hedge our exposure to the Canadian dollar. We do not use derivative financial instruments for speculative or trading purposes.

ITEM 4 - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

Our management evaluated, with participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that material information we are required to disclose in reports that we file or submit under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Controls.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We are involved in litigation and damage claims arising in the ordinary course of business, such as actions related to injuries, property damage or handling or disposal of vehicles. Among this litigation is a lawsuit filed in Massachusetts against us which purports to be a class action on behalf of persons whose vehicles were disposed of by us as abandoned vehicles, which the claimant contends were disposed of without complying with state laws. Lawsuits filed in California against us and rental car company vehicle suppliers, which purported to be class actions on behalf of California residents who owned previously damaged rental car vehicles that were sold through our auctions on clean titles, have been dismissed without prejudice, and the individual claims have been settled and we have received dismissals with prejudice of all individual claims.

We are also involved in various governmental and administrative proceedings primarily relating to licensing and operation of our business. We provide for costs relating to these matters when a loss is probable and the amount may 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, the amount and timing of the resolution of such matters. While it is not feasible to determine the outcome of these matters, management believes that any ultimate liability will not have a material effect on our financial position, results of operations or cash flows.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The Annual Meeting of Shareholders of the Company was held on December 7, 2004 (the “Meeting”).

(b) The following directors were elected at the Meeting:

	Willis J. Johnson
	A. Jayson Adair
	Harold Blumenstein
	Steven D. Cohan
	James Grosfeld
	James E. Meeks
	Jonathan Vannini

(i)	Election of Directors	For	Withheld

	Willis J. Johnson	64,342,682	22,875,025
	A. Jayson Adair	63,645,861	23,571,846
	Harold Blumenstein	86,685,721	531,896
	Steven D. Cohan	64,116,478	23,101,229
	James Grosfeld	85,330,642	1,887,065
	James E. Meeks	64,331,770	22,885,937
	Jonathan Vannini	84,439,350	2,778,357

(ii)

Ratification of KPMG LLP as independent auditors for the Company for fiscal year 2005:

For	Against	Abstained	No Vote

84,256,902	2,748,826	211,979	-0-

The foregoing matters are described in more detail in the Company’s definitive proxy statement dated November 1, 2004 relating to the Meeting.

31.1		Certification of Willis J. Johnson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of William E. Franklin, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Willis J. Johnson, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of William E. Franklin, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	COPART, INC.


	/s/ William E. Franklin
	William E. Franklin, Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial and accounting officer)

Date: March 11, 2005

Description

PART I – Financial Information

Item 1 - Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Acquisitions and New Operations
Critical Accounting Policies and Estimates
Results of Operations
Liquidity and Capital Resources
Factors That May Affect Future Results

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Item 4 – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Changes in Internal Controls

PART II – Other Information

Item 1 – Legal Proceedings

Item 4 – Submission of Matters to a Vote of Security Holders

Item 6 – Exhibits
Signatures