What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2020-09-28 compared with 2019-09-30 · 499 added, 378 removed, 849 unchanged (51% of the section changed)

6 unchanged sentences

Our Disclosure Controls include some, but not all, components of our internal control over financial reporting.

Based upon the Controls Evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our Disclosure Controls were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission.

Management’s Report on Internal Control Over Financial Reporting

3 unchanged sentences

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

We have investments in unconsolidated affiliates.

Since we do not control or manage those affiliates, our controls and procedures with respect to those affiliates are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

Management assessed our internal control over financial reporting for the fiscal year ended July 31, 2020.

1 unchanged sentence

Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

This assessment is supported by testing and monitoring performed by our Finance department.

During our most recent fiscal quarter, management identified and remediated a material weakness related to ineffective information technology general controls (ITGCs) in the area of change-management over certain information technology (IT) systems that support our financial reporting processes.

The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results.

Further, based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.

The certifications of our principal executive officer and principal financial officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning our disclosure controls and procedures and internal controls over financial reporting.

40 unchanged sentences

Changes in Internal Control Over Financial Reporting

Except for the remediated material weakness discussed above, there have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Other Information

1 unchanged sentence

Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated by reference to the sections entitled “ Proposal Number One — Election of Directors ,” “Corporate Governance and Board of Directors” and “Related Person Transactions and Section 16(a) Beneficial Ownership Compliance” in our Proxy Statement.

Information required by this item is incorporated by reference to the proposal captioned “Election of Directors,” and the sections titled “Corporate Governance and Board of Directors” and “Related Person Transactions and Section 16(a) Beneficial Ownership Compliance” in our Proxy Statement.

Delinquent Section 16(a) Reports

There were no delinquent Section 16(a) Reports during fiscal 2020.

Code of Ethics

9 unchanged sentences

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference from the Proxy Statement (to be filed with the Securities and Exchange Commission within 120 days of our July 31, 2019 fiscal year end) under the heading “Related Person Transactions and Section 16(a) Beneficial Ownership Compliance,” “Corporate Governance and Board of Directors,” and “ Proposal Number One — Election of Directors .”

The information required by this item is incorporated herein by reference from the Proxy Statement (to be filed with the Securities and Exchange Commission within 120 days of our July 31, 2020 fiscal year end) under the heading “Related Person Transactions and Section 16(a) Beneficial Ownership Compliance,” “Corporate Governance and Board of Directors,” and under the proposal captioned “Election of Directors.”

Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference from the section captioned “Proposal Number Three — Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement (to be filed with the Securities and Exchange Commission within 120 days of our July 31, 2019 fiscal year end).

The information required by this item is incorporated herein by reference from the proposal captioned “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement (to be filed with the Securities and Exchange Commission within 120 days of our July 31, 2020 fiscal year end).

Exhibits, Financial Statement Schedules

The following documents are filed as part of this Form 10-K:

Financial statements:

(a) Financial statements:

Our consolidated financial statements at July 31, 2020 and 2019 and for each of the three years in the period ended July 31, 2020 and the notes thereto, together with the report of the independent registered public accounting firm on those consolidated financial statements are hereby filed as part of this annual report on Form 10-K.

Financial statement schedules:

(b) Financial statement schedules:

No financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

Exhibits are filed as part of this Report and are hereby incorporated by reference.

Refer to Exhibit Index included herein.

Form 10-K Summary

EXHIBIT INDEX

The following Exhibits are filed as part of, or incorporated by reference into this report.

Incorporated by reference herein

Number Description Form Date

3.1 Copart, Inc.

Certificate of Incorporation

Quarterly Report on Form 10-Q, (File No.

000-23255), Exhibit No.

3.1 February 25, 2016

3.2 Certificate of Amendment to the Copart, Inc.

Certificate of Incorporation

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

2 December 22, 2016

3.3 Bylaws of Copart, Inc.

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

3 December 22, 2016

4.1 Description of Capital Stock

Annual Report on Form 10-K (File No.

000-23255), Exhibit No.

4.1 September 30, 2019

10.1 * Copart Inc.

2007 Equity Incentive Plan, as Amended and Restated (2007 EIP)

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

1 December 22, 2016

10.2 * Form of Performance Share Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 December 12, 2007

10.3 * Form of Restricted Stock Unit Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.3 December 12, 2007

10.4 * Form of Stock Option Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.5 December 12, 2007

10.5 * Form of Restricted Stock Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.4 December 12, 2007

10.6 * Copart, Inc.

Executive Bonus Plan

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.13b August 3, 2006

10.7 * Amended and Restated Executive Officer Employment Agreement between the Registrant and William E.

Franklin, dated September 25, 2008

Quarterly Report on Form 10-Q (File No.

000-23255), Exhibit No.

10.1 December 10, 2008

10.8 * Form of Indemnification Agreement signed by executive officers and directors

Annual Report on Form 10-K (File No.

000-23255), Exhibit No.

10.17 October 1, 2012

10.9 Credit Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as administrative agent, dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 December 4, 2014

10.10 Security Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as collateral agent, dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.2 December 4, 2014

Incorporated by reference herein

Number Description Form Date

10.11 Note Purchase Agreement among the Registrant and each of the purchasers listed on Schedule B dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.3 December 4, 2014

10.12 * Copart, Inc.

2014 Employee Stock Purchase Plan

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 December 5, 2014

10.13 * Executive Officer Employment Agreement, effective January 4, 2016, between the Registrant and Jeffrey Liaw.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.26 November 23, 2015

10.14 First Amendment to Credit Agreement, dated as of March 15, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 March 17, 2016

10.15 Second Amendment to Credit Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 July 27, 2016

10.16 First Amendment to Note Purchase Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto and the purchasers party thereto.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.2 July 27, 2016

10.17 First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among Copart, certain subsidiaries of Copart.

the lenders party thereto, and Bank of America,N.A., as administrative agent.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

10.1 July 27, 2020

Incorporated by reference herein

Number Description Form Date

21.1 List of subsidiaries of Registrant

— Filed herewith

23.1 Consent of Independent Registered Public Accounting Firm

— Filed herewith

24.1 Power of Attorney (included on signature page) — Filed herewith

31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

— Filed herewith

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

— Filed herewith

32.1 (1) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

— Filed herewith

32.2 (1) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

— Filed herewith

101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Extension Definition

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).

(1) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

33-8238 and 34-47986, Final Rule:

Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act.

Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

* Management contract, plan or arrangement

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

6 unchanged sentences

/s/ J EFFREY L IAW

Jeffrey Liaw, President and Chief Financial Officer (Principle Financial and Accounting Officer and duly Authorized Officer)

Jeffrey Liaw, President and Chief Financial Officer (Principal Financial and Accounting Officer and duly Authorized Officer)

September 28, 2020

3 unchanged sentences

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Capacity in Which Signed

Chief Executive Officer (Principal Executive Officer and Director)

September 30, 2019

/s/ JEFFREY LIAW

President and Chief Financial Officer (Principal Financial and Accounting Officer)

September 30, 2019

Signature Capacity in Which Signed Date

JAYSON ADAIR Chief Executive Officer (Principal Executive Officer and Director) September 28, 2020

/s/ JEFFREY LIAW President and Chief Financial Officer (Principal Financial and Accounting Officer) September 28, 2020

/s/ WILLIS J.

Chairman of the Board

September 30, 2019

/s/ MATT BLUNT

September 30, 2019

JOHNSON Chairman of the Board September 28, 2020

/s/ MATT BLUNT Director September 28, 2020

/s/ STEVEN D.

September 30, 2019

/s/ DANIEL ENGLANDER

September 30, 2019

COHAN Director September 28, 2020

/s/ DANIEL ENGLANDER Director September 28, 2020

Daniel Englander

/s/ STEPHEN FISHER

September 30, 2019

/s/ STEPHEN FISHER Director September 28, 2020

Stephen Fisher

September 30, 2019

MEEKS Director September 28, 2020

MOREFIELD Director September 28, 2020

/s/ THOMAS N.

September 30, 2019

TRYFOROS Director September 28, 2020

Index to Consolidated Financial Statements

and Financial Statement Schedule

Consolidated Financial Statements

Consolidated Financial Statements Page Number

Report of Independent Registered Public Accounting Firm

30 unchanged sentences

Description of

As discussed in Note 10 to the consolidated financial statements, the Company has recorded a liability for unrecognized tax benefits resulting from uncertain tax positions, including accrued interest and penalties, of $35.1 million as of July 31, 2019.

the Matter As discussed in Note 12 to the consolidated financial statements, the Company has recorded a liability for unrecognized tax benefits resulting from uncertain tax positions, including accrued interest and penalties, of $45.0 million as of July 31, 2020.

The Company’s uncertain tax positions are subject to audit by federal, state and local taxing authorities, and the resolution of such audits may span multiple years.

7 unchanged sentences

Matter in Our

We tested the Company’s controls that address the risks of material misstatement relating to uncertain tax positions.

Audit We tested the Company’s controls that address the risks of material misstatement relating to uncertain tax positions.

For example, we tested controls over management’s identification of uncertain tax positions and its application of the recognition and measurement principles, including management’s review of the inputs and calculations of unrecognized tax benefits resulting from uncertain tax positions.

10 unchanged sentences

Current assets:

Cash and cash equivalents

Cash, cash equivalents, and restricted cash $ 477,718 $ 186,319

Accounts receivable, net 350,207 367,265

Vehicle pooling costs 73,684 76,548

Inventories 20,080 20,941

Income taxes receivable 26,740 19,526

2 unchanged sentences

Property and equipment, net 1,941,719 1,427,726

Operating lease right-of-use assets 118,455 —

Intangibles, net 47,772 55,156

Goodwill 343,622 333,321

Deferred income taxes 213 411

Other assets 39,721 43,836

Total assets $ 3,455,261 $ 2,547,617

LIABILITIES AND STOCKHOLDERS’ EQUITY

3 unchanged sentences

Income taxes payable 3,709 3,482

Current portion of revolving loan facility and capital lease obligations

Current portion of operating lease liabilities 24,821 —

Current portion of finance lease obligations 751 1,138

Total current liabilities 356,044 282,004

1 unchanged sentence

Income taxes payable 44,965 35,116

Long-term debt, revolving loan facility, and capital lease obligations, net of discount

Operating lease liabilities, net of current portion 95,584 —

Long-term debt and finance lease obligations, net of discount 397,036 400,091

Other liabilities 430 3,342

4 unchanged sentences

$0.0001 par value—5,000,000 shares authorized;

none issued — —

Common stock:

10 unchanged sentences

Year Ended July 31,

2020 2019 2018

Service revenues and vehicle sales:

9 unchanged sentences

Operating income 816,099 716,475 584,345

Other (expense) income:

Other expense:

Interest expense ( 20,230 ) ( 19,810 ) ( 20,368 )

4 unchanged sentences

Income tax expense 100,932 113,258 144,504

Net income 699,907 591,693 418,007

Net income attributable to noncontrolling interest — — 140

Net income attributable to Copart, Inc.

$ 699,907 $ 591,693 $ 417,867

Basic net income per common share $ 3.00 $ 2.57 $ 1.80

6 unchanged sentences

Year Ended July 31,

2020 2019 2018

Comprehensive income, net of tax:

Net income $ 699,907 $ 591,693 $ 418,007

Other comprehensive income:

3 unchanged sentences

Comprehensive income attributable to Copart, Inc.

$ 711,348 $ 567,092 $ 410,615

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

(in thousands, except share amounts)

Common Stock Accumulated

Comprehensive

Income (Loss)

Noncontrolling Interest

Stockholders’

Balances at July 31, 2016

Currency translation adjustment

Acquisition of noncontrolling interest

Exercise of stock options, net of repurchased shares

Employee stock-based compensation and related tax benefit

Shares issued for Employee Stock Purchase Plan

Shares Amount Retained

Earnings Noncontrolling Interest Stockholders’

Balances at July 31, 2017 230,488,296 $ 23 $ 453,349 $ ( 100,676 ) $ 745,370 $ 534 $ 1,098,600

Net income — — — — 417,867 140 418,007

Currency translation adjustment — — — ( 7,252 ) — — ( 7,252 )

5 unchanged sentences

Balances at July 31, 2018 233,898,841 23 526,858 ( 107,928 ) 1,162,146 — 1,581,099

Net income — — — — 591,693 — 591,693

Currency translation adjustment — — — ( 24,601 ) — — ( 24,601 )

5 unchanged sentences

Balances at July 31, 2019 229,790,268 23 572,559 ( 132,529 ) 1,338,328 — 1,778,381

Net income — — — — 699,907 — 699,907

Currency translation adjustment — — — 11,441 — — 11,441

Exercise of stock options, net of repurchased shares 5,401,963 1 68,570 — ( 100,382 ) — ( 31,811 )

Employee stock-based compensation — — 23,322 — — — 23,322

Shares issued for Employee Stock Purchase Plan 123,106 — 8,276 — — — 8,276

Balances at July 31, 2020 235,315,337 $ 24 $ 672,727 $ ( 121,088 ) $ 1,937,853 $ — $ 2,489,516

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Year Ended July 31,

2020 2019 2018

Cash flows from operating activities:

Net income $ 699,907 $ 591,693 $ 418,007

Adjustments to reconcile net income to net cash provided by operating activities:

9 unchanged sentences

Vehicle pooling costs 2,590 ( 16,418 ) ( 3,353 )

Prepaid expenses and other current assets

Inventories 1,348 ( 4,719 ) ( 3,959 )

Prepaid expenses and other current and non-current assets 141 ( 12,265 ) ( 706 )

Operating lease right-of-use assets and lease liabilities ( 572 ) — —

Accounts payable and accrued liabilities 41,648 11,126 53,320

9 unchanged sentences

Proceeds from sale of majority-owned subsidiary — — 1,796

Investment in unconsolidated affiliate

Net cash used in investing activities ( 601,208 ) ( 356,267 ) ( 288,476 )

5 unchanged sentences

Net repayments on revolving loan facility — — ( 231,000 )

Distributions to noncontrolling interest

Debt offering costs ( 2,814 ) — —

Payments of finance lease obligations ( 1,065 ) — —

Distribution to noncontrolling interest — — ( 235 )

Net cash used in financing activities ( 27,414 ) ( 370,304 ) ( 182,038 )

Effect of foreign currency translation 2,136 ( 8,276 ) ( 135 )

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net increase (decrease) in cash, cash equivalents, and restricted cash 291,399 ( 88,201 ) 64,420

Cash, cash equivalents, and restricted cash at beginning of period 186,319 274,520 210,100

Cash, cash equivalents, and restricted cash at end of period $ 477,718 $ 186,319 $ 274,520

Supplemental disclosure of cash flow information:

10 unchanged sentences

The Company provides vehicle sellers with a full range of services to process and sell vehicles over the internet through the Company’s Virtual Bidding Third Generation (“VB3”) internet auction-style sales technology.

Sellers are primarily insurance companies but also include banks, finance companies, charities, fleet operators, dealers and vehicles sourced directly from individual owners .

The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters;

however, at certain locations, the Company sells directly to the general public.

Sellers are primarily insurance companies but also include banks, finance companies, charities, fleet operators, dealers and from individuals.

The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters, and in some jurisdictions, the Company sells directly to the general public.

The majority of vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made.

The Company offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price through the online auction process.

In the United States (U.S.), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (U.A.E.), Oman, Bahrain, and Spain, the Company sells vehicles primarily as an agent and derives revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage.

In the United Kingdom (U.K.) and Germany, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account.

In the United States (“U.S.”), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (“U.A.E.”), Oman, and Bahrain, the Company sells vehicles primarily as an agent and derives revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage.

In the United Kingdom (“U.K.”), Germany, and Spain, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account.

In Germany and Spain, the Company also derives revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle’s residual value and/or to facilitate a sale for the insured.

6 unchanged sentences

Significant intercompany transactions and balances have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to current year presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Estimates include, but are not limited to, vehicle pooling costs;

3 unchanged sentences

and contingencies.

Actual results could differ from these estimates.

Actual results may differ from these estimates.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition .

ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

ASU 2014-09 was effective for annual and interim periods within those annual reporting periods beginning after December 15, 2017 and was effective for the Company beginning with the first quarter of fiscal year 2019.

ASU 2014-09 allows adoption with

either retrospective application to each period presented, or modified retrospective application, with the cumulative effect recognized as of the date of initial application.

The Company used the modified retrospective application with the cumulative effect as its transition method.

Upon adoption, service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction.

This timing of revenue recognition under ASU 2014-09 is consistent with the Company’s previous policy under ASC 605 for most service and vehicle sales revenue.

However, the adoption represents a change in the timing of revenue recognition for certain service revenues, such as inbound transportation and titling fees, which were previously recognized under ASC 605 when the services were performed, which generally occurred prior to auction.

Related costs to prepare the vehicles for auction, including inbound transportation and titling, are deferred and recognized at the time of revenue recognition.

This change resulted in a decrease to beginning retained earnings as of August 1, 2018, of $ 23.0 million as a result of the initial application of the standard and did not have a material impact to earnings.

This retained earnings adjustment related to adjustments to accounts receivable, vehicle pooling costs and deferred taxes upon adoption of the standard.

There were no contract liabilities on the consolidated balance sheets at July 31, 2019 .

The Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process.

Service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction, excluding annual registration fees.

Costs to prepare the vehicles for auction, including inbound transportation costs and titling fees, are deferred and recognized at the time of revenue recognition at auction.

There were no contract liabilities on the consolidated balance sheets at July 31, 2020 or July 31, 2019.

The Company’s disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of its revenues and cash flows are impacted by economic factors.

14 unchanged sentences

These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged.

The Company identified a separate performance obligation related to providing access to its online auction platform.

The Company also charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform.

Under the new standard, this fee will continue to be recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service.

The Company has a separate performance obligation related to providing access to its online auction platform as the Company charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform.

This fee is recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service.

No provision for returns has been established, as all sales are final with no right of return or warranty, although the Company provides for bad debt expense in the case of non-performance by its buyers or sellers.

7 unchanged sentences

Certain vehicles are purchased and remarketed on the Company’s own behalf.

The Company identified a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process.

Under the new standard, vehicle sales revenue will continue to be recognized on the auction date.

The Company has a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process.

Vehicle sales revenue is recognized on the auction date.

As the Company acts as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue.

13 unchanged sentences

Balance as of July 31, 2018 $ 11,840

Balance as of Capitalized contract assets during the period 4,130

Balance as of Costs amortized during the period ( 4,875 )

Balance as of Effect of foreign currency exchange rates ( 521 )

Balance as of July 31, 2019 $ 10,574

Capitalized contract assets during the period 2,875

6 unchanged sentences

The primary expenses allocated and deferred are inbound transportation costs, titling fees, certain facility costs, labor, and vehicle processing.

Upon the adoption of ASC 606 in fiscal 2019, the Company began deferring the inbound transportation costs and titling fees directly associated with the vehicles within its vehicle pooling costs.

If the allocation factors change, then yard operation expenses could increase or decrease correspondingly in the future.

3 unchanged sentences

dollar reporting currency.

The Canadian dollar, British pound, Brazilian real, European Union euro, U.A.E.

dirham, Omani rial, Bahraini dinar, and Indian rupee are the functional currencies of the Company’s foreign subsidiaries, as they are the primary currencies within the economic environment in which each subsidiary operates.

The British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E.

dirham, Omani rial, and Bahraini dinar are the functional currencies of the Company’s foreign subsidiaries as they are the primary currencies within the economic environment in which each subsidiary operates.

The original equity investment in the respective subsidiaries is translated at historical rates.

7 unchanged sentences

Cumulative loss on foreign currency translation as of July 31, 2019 $ ( 132,529 )

Loss on foreign currency translation

Gain on foreign currency translation 11,441

Cumulative loss on foreign currency translation as of July 31, 2020 $ ( 121,088 )

1 unchanged sentence

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in U.S.

In accordance with ASC 820, Fair Value Measurements and Disclosures , as amended by Accounting Standards Update 2011-04, the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions.

In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , as amended by Accounting Standards Update (“ASU”) 2011-04, the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions.

This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly.

Inputs that are generally unobservable.

Level I Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level II Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly.

Level III Inputs that are generally unobservable.

These inputs may be used with internally developed methodologies that result in management’s best estimate.

The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash, accounts receivable, accounts payable, accrued liabilities and Revolving Loan Facility approximated their fair values as of July 31, 2019 and 2018 , due to the short-term nature of those instruments and are classified within Level II of the fair value hierarchy.

The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, and Revolving Loan Facility approximated their fair values as of July 31, 2020 and 2019, due to the short-term nature of those instruments and are classified within Level II of the fair value hierarchy.

Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using quoted market prices of the underlying investments.

3 unchanged sentences

Yard Operations

Yard operations consists primarily of operating personnel (which includes yard management, clerical and yard employees) and their related benefits, rent, vehicle transportation, insurance, property related taxes, fuel, and equipment maintenance and repair.

Yard operations consists primarily of operating personnel (which includes yard management, clerical and yard employees) and their related benefits;

vehicle transportation;

property related taxes;

equipment maintenance and repair;

and marketing costs directly related to the auction process.

General and Administrative Expenses

General and administrative expenses consist primarily of executive, accounting, data processing, sales personnel, professional services, marketing expenses, and system maintenance and enhancements.

All advertising costs are expensed as incurred and are included in general and administrative expenses on the consolidated statements of income.

General and administrative expenses consist primarily of executive management;

data processing;

sales personnel;

professional services;

marketing expenses;

and system maintenance and enhancements.

All advertising costs are expensed as incurred and are included in yard operations expenses for costs directly related to the auction process and the remainder in general and administrative expenses on the consolidated statements of income.

Advertising expenses were $ 7.7 million, $ 7.5 million, and $ 5.9 million for the years ended July 31, 2020, 2019 and 2018, respectively.

Other (Expense) Income

Other (expense) income consists primarily of interest expense, interest income, gains and losses from the disposal of fixed assets, rental income, earnings from unconsolidated affiliates, and currency related gains and losses.

Other (expense) income consists primarily of interest expense;

interest income;

gains and losses from the disposal of fixed assets;

earnings from unconsolidated affiliates;

and currency related gains and losses.

Income Taxes and Deferred Tax Assets

4 unchanged sentences

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Excess tax benefits and deficiencies related to exercises of stock options are recognized as expense or benefit in the income statement as discrete items in the reporting period in which they occur.

The Company recognizes and measures uncertain tax positions in accordance with ASC740, Income Taxes , pursuant to which the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

Excess tax benefits and deficiencies related to exercises of stock options are recognized as expense or benefit in the consolidated statements of income as discrete items in the reporting period in which they occur.

The Company files annual income tax returns in multiple taxing jurisdictions.

A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved.

The Company recognizes and measures uncertain tax positions in accordance with ASC 740, Income Taxes (“ASC 740”), pursuant to which the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

2 unchanged sentences

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

The Company files annual income tax returns in multiple taxing jurisdictions.

A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved.

The Company believes that its reserves for income taxes reflect the most likely outcome.

The Company adjusts these reserves, as well as the related interest, where appropriate in light of changing facts and circumstances.

The Company accounted for the tax effects of the Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in the six months ended January 31, 2018 consolidated financial statements.

The Company completed its accounting as of January 31, 2019, within the one year measurement period from the enactment date.

Net Income Per Share

1 unchanged sentence

Diluted net income per share amounts were computed by dividing consolidated net income by the weighted average number of common shares outstanding plus dilutive potential common shares calculated for stock options outstanding during the period using the treasury stock method.

Cash and Cash Equivalents

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less at the time of purchase to be cash equivalents.

Cash and cash equivalents include cash held in checking, domestic certificates of deposit, and money market accounts.

Cash, cash equivalents, and restricted cash include cash held in checking, domestic certificates of deposit, and money market accounts.

The Company periodically invests its excess cash in money market funds and U.S.

Treasury Bills.

The Company’s cash and cash equivalents are placed with high credit quality financial institutions.

The Company’s cash, cash equivalents, and restricted cash are placed with high credit quality financial institutions.

Inventories of purchased vehicles are stated at the lower of cost or estimated realizable value.

5 unchanged sentences

Concentration of Credit Risk

Financial instruments, which subject the Company to potential credit risk, consist of its cash and cash equivalents, short-term investments and accounts receivable.

Financial instruments, which subject the Company to potential credit risk, consist of its cash, cash equivalents, and restricted cash, short-term investments and accounts receivable.

The Company adheres to its investment policy when placing investments.

6 unchanged sentences

Past-due account balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due.

The Company does not have off-balance sheet credit exposure related to its customers and to date, the Company has not experienced significant credit-related losses.

The Company does not have off-balance sheet credit exposure related to its customers and to date.

The Company has not experienced significant credit-related losses.

No single customer accounted for more than 10 % of the Company’s consolidated revenues for the years ended July 31, 2020, 2019 and 2018.

10 unchanged sentences

and 7 to 40 years or the lease term, whichever is shorter , for buildings and improvements.

Amortization of equipment under capital leases is included in depreciation expense.

In accordance with ASC 350-30-35, Intangibles—Goodwill and Other , goodwill is not amortized but is tested for potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist.

Amortization of equipment under finance leases is included in depreciation expense.

In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is not amortized but is tested for potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist.

The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit.

1 unchanged sentence

and International.

The Company has historically evaluated goodwill for impairment annually as of the beginning of the fourth quarter, or when an indicator of impairment exists.

The Company evaluates goodwill for impairment annually as of the beginning of the fourth quarter, or when an indicator of impairment exists.

The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of fiscal 2020 and 2019, did not result in an impairment charge.

1 unchanged sentence

industry and market considerations;

overall financial performance and relevant entity-specific events.

overall financial performance;

the impact of the COVID-19 pandemic;

and relevant entity-specific events.

Segments and Other Geographic Reporting

10 unchanged sentences

During the year ended July 31, 2018, the Company retired fully amortized capitalized software of $ 15.5 million, which were no longer being utilized.

Additionally, during the year ended July 31, 2017, the Company recognized a $ 19.4 million charge primarily related to fully impairing costs previously capitalized in connection with the development of business operating software.

Stock-Based Compensation

2 unchanged sentences

The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods.

ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The fair value of each option was estimated on the measurement date using the Black-Scholes Merton (BSM) option-pricing model utilizing the following assumptions:

The Company has elected to estimate forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The fair value of each option, without a market-based condition was estimated on the measurement date using the Black-Scholes Merton (“BSM”) option-pricing model.

For options that included a market-based condition the Monte Carlo simulation model was used.

The Black-Scholes Merton option-pricing model utilized the following assumptions:

2020 2019 2018

Expected life (in years) 5.4 — 5.7 5.3 — 6.6 5.3 — 6.9

24 unchanged sentences

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition .

On August 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts.

Results for reporting periods beginning August 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition .

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):

4 unchanged sentences

federal government's recently enacted tax bill, the Tax Cuts and Jobs Act.

The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods.

Early adoption is permitted.

The adoption of ASU 2018-02 will result in a reclassification from AOCI to retained earnings and will have no impact on the Company’s consolidated results of operations, financial position or cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350).

ASU 2017-04 amends the requirement that entities compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test.

As a result, entities should perform their annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment if the carrying amount exceeds the reporting unit’s fair value.

ASU 2017-04 is effective for annual periods beginning after December 15, 2019.

The Company’s adoption of ASU 2017-04 will not have a material impact on the Company’s consolidated results of operations and financial position.

The adoption of ASU 2018-02, in the first quarter of fiscal 2020, did not result in a reclassification from AOCI to retained earnings and did not have an impact on the Company’s consolidated results of operations, financial position, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , that supersedes all existing guidance on accounting for leases in ASC Topic 840.

2 unchanged sentences

ASU 2016-02 is effective for annual and interim periods within those annual reporting periods beginning after December 15, 2018 and adoption is to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients.

Most of the Company’s operating lease commitments are subject to the

new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the Company’s consolidated balance sheets.

The Company has evaluated the impact the adoption will have on the consolidated financial statements and is finalizing the calculation of its cumulative effect adjustment.

Policy elections and practical expedients that the Company expects to implement as part of adopting ASU 2016-02 include:

Most of the Company’s operating lease commitments are subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the Company’s consolidated balance sheets.

The Company implemented policy elections and practical expedients as part of adopting ASU 2016-02 including:

(i) excluding from the balance sheet leases with terms that are less than one year;

(ii) for agreements that contain both lease and non-lease components, combining these components together and accounting for them as a single lease;

(iii) the package of practical expedients, which allows the Company to avoid reassessing contracts that commenced prior to adoption that were properly evaluated under legacy GAAP;

and (iv) the policy election that eliminates the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance.

The adoption of ASU 2016-02 will result in the recording of a right-of-use asset and a lease liability in the first quarter of fiscal 2020, within a range of $ 120.0 million to $ 135.0 million as a result of the initial application of the standard and will not have a material impact to the Company’s consolidated results of operations.

(iii) the package of practical expedients, which allowed the Company to avoid reassessing contracts that commenced prior to adoption that were properly evaluated under legacy U.S.

and (iv) the policy election that eliminated the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance.

The adoption of ASU 2016-02 resulted in the recording of a right-of-use asset and a lease liability in the first quarter of fiscal 2020, as a result of the application of the standard and did not have a material impact to the Company’s consolidated results of operations.

See Note 4 — Leases for additional disclosures as a result of the adoption of the standard.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350).

ASU 2017-04 amends the requirement that entities compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test.

ASU 2017-04 is effective for annual periods beginning after December 15, 2019.

The Company’s adoption of ASU 2017-04 will not have a material impact on the Company’s consolidated results of operations and financial position.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326).

3 unchanged sentences

This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and must be applied on a modified retrospective basis.

The Company is continuing its assessment, which may identify additional impacts ASU 2016-13 may have on the Company’s consolidated results of operations, financial position, and related disclosures.

The Company’s adoption of ASU 2016-13 will not have a material impact on the Company’s consolidated results of operations and financial position.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes .

ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

It also clarifies and simplifies other aspects of the accounting for income taxes.

This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company’s adoption of ASU 2019-12 will not have a material impact on the Company’s consolidated results of operations and financial position.

NOTE 2 — Accounts Receivable, Net

4 unchanged sentences

Other receivables 2,120 2,098

356,597 372,207

Allowance for doubtful accounts ( 6,390 ) ( 4,942 )

7 unchanged sentences

Charged to costs and expenses 5,591 2,409 4,255

Deductions to bad debt

Write-offs to bad debt ( 4,143 ) ( 2,911 ) ( 3,122 )

Balance at end of year $ 6,390 $ 4,942 $ 5,444

2 unchanged sentences

(In thousands) 2020 2019

Land $ 1,235,315 $ 939,817

Buildings and improvements 932,976 686,615

Transportation and other equipment 274,422 236,282

Office furniture and equipment 70,926 63,200

Buildings and leasehold improvements

Software 52,621 39,434

2,566,260 1,965,348

Accumulated depreciation and amortization ( 624,541 ) ( 537,622 )

3 unchanged sentences

During the year ended July 31, 2018, the Company retired fully amortized capitalized software of $ 15.5 million, which were no longer being utilized.

NOTE 4 — Leases

The Company has both lessee and lessor arrangements.

The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification.

A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration.

The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment.

Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor.

Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion.

Leases - Lessee

The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which are recorded as right-of-use assets and lease liabilities.

Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value.

Certain leases also contain escalation clauses and renewal option clauses calling for increased rents.

Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease liabilities.

The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred.

The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease.

Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, insurance and maintenance costs, in addition to the lease payments.

At lease inception, the Company includes all renewals or option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease would impose an economic penalty.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term.

To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated in the Company’s leases.

Components of lease expense were as follows:

(In thousands) Year Ended July 31, 2020

Operating lease expense $ 31,628

Finance lease expense:

Amortization of right-of-use assets 882

Interest on finance lease liabilities 189

Short-term lease expense 8,555

Variable lease expense 1,635

Total lease expense $ 42,889

Facilities rental expense for the years ended July 31, 2019 and 2018 was $30.6 million and $45.6 million, respectively under ASC 840, Operating Leases.

The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (In thousands):

Lease Asset and Liabilities Balance Sheet Classification (In thousands) July 31, 2020

Operating lease right-of-use assets Operating lease right-of-use assets $ 118,455

Finance lease right-of-use assets Property and equipment, net 1,409

Total lease assets, net $ 119,864

Operating lease liabilities - current Current portion of operating lease liabilities $ 24,821

Finance lease liabilities - current Current portion of finance lease obligations 751

Operating lease liabilities - non-current Operating lease liabilities, net of current portion 95,584

Finance lease liabilities - non-current Long-term debt and finance lease obligations, net of discount 566

Total lease liabilities $ 121,722

The weighted-average remaining lease terms and discount rates as of July 31, 2020 were as follows:

Weighted-Average Remaining Lease Term (In years) Weighted-Average Discount Rate (1)

Operating leases 8.96 3.04 %

Finance leases 1.83 1.85 %

(1) The Company cannot determine the interest rate implicit in the Company’s leases.

Therefore, the discount rate represents the Company’s incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to the Company’s corporate credit rating for a secured or collateralized instrument.

Supplemental cash flow information related to leases as of July 31, 2020 were as follows (In thousands):

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows related to operating leases $ 29,799

Operating cash flows related to finance leases 187

Financing cash flows related to finance leases 1,065

Right-of-use assets obtained in exchange for new operating lease liabilities 42,860

Right-of-use assets obtained in exchange for new finance lease liabilities 2,899

The annual maturities of the Company’s lease liabilities as of July 31, 2020 were as follows:

Fiscal year (In thousands) Finance leases Operating leases

2021 $ 768 $ 27,718

2022 534 22,619

2023 24 19,355

2024 13 14,980

2025 — 10,156

Thereafter — 45,807

Total future lease commitments $ 1,339 $ 140,635

imputed interest ( 22 ) ( 20,230 )

Present value of lease liabilities $ 1,317 $ 120,405

Leases - Lessor

The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease.

Certain leases also contain escalation clauses and renewal option clauses calling for increased rents.

Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the straight-line rental income.

The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as earned.

Future lease payments receivable under operating leases with terms greater than one year as of July 31, 2020 were as follows:

Fiscal year (In thousands) Operating leases

Thereafter 16,995

Total future lease payments receivable $ 46,081

The cost of the leased space was $ 64.8 million as of July 31, 2020.

The accumulated depreciation associated with the leased assets was $ 0.9 million as of July 31, 2020.

Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet.

Rental income from these operating leases for the year ended July 31, 2020, was $ 6.2 million, and is included within Service revenues on the consolidated statements of income.

NOTE 5 — Goodwill

2 unchanged sentences

Beginning balance $ 333,321 $ 337,235

Goodwill adjustments and acquisitions during the period

Acquisitions during the period 5,713 563

Effect of foreign currency exchange rates 4,588 ( 4,477 )

4 unchanged sentences

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

Weighted Average

Amount Accumulated

Amortization Net

Book Value Weighted Average

Remaining Useful

Life (in years)

July 31, July 31, July 31, July 31,

(In thousands, except remaining useful life) 2020 2019 2020 2019 2020 2019 2020 2019

1 unchanged sentence

Supply contracts and customer relationships $ 50,600 $ 49,109 $ ( 16,780 ) $ ( 11,900 ) $ 33,820 $ 37,209 8 9

Trade names 23,635 23,501 ( 10,075 ) ( 8,010 ) 13,560 15,491 6 7

Licenses and databases 7,630 7,688 ( 7,238 ) ( 5,232 ) 392 2,456 3 2

Covenants not to compete

Total Intangibles $ 81,865 $ 80,298 $ ( 34,093 ) $ ( 25,142 ) $ 47,772 $ 55,156

1 unchanged sentence

During the year ended July 31, 2018, the Company recognized a $ 1.1 million charge primarily related to fully impairing a supply contract in the International segment.

Intangible amortization expense for the next five fiscal years based upon July 31, 2019 intangible assets is expected to be as follows:

(In thousands)

Intangible amortization expense for the next five fiscal years based upon July 31, 2020 intangible assets is expected to be as follows (In thousands):

Thereafter 17,101

Total future intangible amortization expense $ 47,772

2 unchanged sentences

(In thousands) 2020 2019

Trade accounts payable

Accounts payable to sellers $ 92,013 $ 68,427

Buyer deposits and prepayments 89,020 73,421

Trade accounts payable 40,906 45,520

Accrued compensation and benefits 42,053 41,400

Taxes payable 17,036 3,881

Accrued insurance 9,315 8,507

1 unchanged sentence

Total accounts payable and accrued expenses $ 318,530 $ 270,918

The Company is required to charge for and to collect value added taxes ("VAT") on its sales on behalf of the various international taxing authorities.

The Company records VAT that the Company has billed to the buyers as VAT payable.

In addition, the Company is required to pay VAT on our purchases.

The Company records VAT that is charged by its vendors as VAT receivable.

The Company is required to file VAT returns on at least a quarterly basis with the various international taxing authorities and are entitled to claim the VAT charged by the Company's vendors as VAT credit and these credits can be applied to the Company's VAT payables billed to the buyers.

Accordingly, these VAT payables and receivables are presented as net amounts for financial statement purposes.

The Company is partially self-insured for certain losses related to general liability, workers’ compensation and auto liability.

10 unchanged sentences

The Amendment to Credit Agreement extended the amortization period for the Term Loan and decreased the quarterly amortization payments for that loan to $ 7.5 million per quarter.

The Amendment to Credit Agreement additionally reduced the pricing levels under the Credit Agreement to a range of 0.15 % to 0.30 % in the

case of the commitment fee, 1.125 % to 2.0 % in the case of the applicable margin for LIBOR loans, and 0.125 % to 1.0 % in the case of the applicable margin for base rate loans, based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

The Amendment to Credit Agreement additionally reduced the pricing levels under the Credit Agreement to a range of 0.15 % to 0.30 % in the case of the commitment fee, 1.125 % to 2.0 % in the case of the applicable margin for LIBOR loans, and 0.125 % to 1.0 % in the case of the applicable margin for base rate loans, based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

The Company borrowed the entire $ 93.8 million principal amount of the Incremental Term Loan concurrent with the closing of the Amendment to Credit Agreement.

4 unchanged sentences

The Second Amendment to Credit Agreement reduced the pricing levels under the Credit Agreement to a range of 0.125 % to 0.20 % in the case of the commitment fee, 1.00 % to 1.75 % in the case of the applicable margin for LIBOR loans, and 0.0 % to 0.75 % in the case of the applicable margin for base rate loans, in each case depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

On July 21, 2020, the Company entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of America, N.A., as administrative agent.

The First Amended and Restated Credit Agreement amends certain terms of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15, 2016, as amended by the Second Amendment to Credit Agreement, dated as July 21, 2016.

The First Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $ 200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $ 1,050.0 million, and (b) an extension of the termination date of the revolving credit facility under the Credit Agreement from July 21, 2021 to July 21, 2023 .

The First Amended and Restated Credit Agreement additionally increased the pricing levels under the Credit Agreement to a range of 0.25 % to 0.35 % in the case of the commitment fee, 1.50 % to 2.25 % in the case of the applicable margin for Eurodollar Rate Loans, and 0.50 % to 1.25 % in the case of the applicable margin for base rate loans, in

each case depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

The principal purposes of these financing transactions were to increase the size and availability under the Company’s Revolving Loan Facility and to provide additional long-term financing.

The proceeds are being used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company’s expansion strategies in domestic and international markets.

The proceeds may be used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company’s expansion strategies in domestic and international markets.

The Revolving Loan Facility under the Credit Agreement bears interest, at the election of the Company, at either (a) the Base Rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day;

(ii) the Federal Funds Rate in effect on such date plus 0.50 %;

or (iii) the LIBOR rate plus 1.0 % , in each case plus an applicable margin ranging from 0.0 % to 0.75 % based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter;

or (b) the LIBOR rate plus an applicable margin ranging from 1.00 % to 1.75 % depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

Interest is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the LIBOR rate.

The interest rate as of July 31, 2019 on the Company’s Revolving Loan Facility was the one month LIBOR rate of 2.22 % plus an applicable margin of 1.00 % .

or (iii) the Eurodollar Rate plus 1.0 %, subject to an interest rate floor of 0.75 %, in each case plus an applicable margin ranging from 0.50 % to 1.25 % based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter;

or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50 % to 2.25 % depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter.

Interest is due and payable in arrears, at the end of each calendar quarter for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of Eurodollar Rate Loans.

The interest rate as of July 31, 2020 on the Company’s Revolving Loan Facility was the Eurodollar Rate of 0.75 % plus an applicable margin of 1.50 %.

The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure.

Accordingly, the carrying value approximates fair value at July 31, 2019 , and was classified within Level II of the fair value hierarchy.

Accordingly, the carrying value approximated fair value at July 31, 2020, and was classified within Level II of the fair value hierarchy.

Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21, 2023 .

3 unchanged sentences

The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Credit Agreement.

Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the Second Amendment to Credit Agreement, dated July 21, 2016 , among the Company, the subsidiary guarantors from time to time party thereto, and Bank of America, N.A., as collateral agent.

Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the First Amended and Restated Credit Agreement, dated July 21, 2020, among the Company, the subsidiary guarantors from time to time party thereto, and Bank of America, N.A., as collateral agent.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions.

The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio.

total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50 :1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million ;

The Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25 :1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50 :1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million ;

provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment.

4 unchanged sentences

The Company was in compliance with all covenants related to the Credit Agreement as of July 31, 2020.

Related to the execution of the First Amended and Restated Credit Agreement, the Company incurred $ 2.8 million in costs, which was capitalized as debt issuance fees.

The debt discount is amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability.

Note Purchase Agreement

20 unchanged sentences

The Company was in compliance with all covenants related to the Note Purchase Agreement as of July 31, 2020.

Related to the execution of the Credit Agreement, First Amendment to Credit Agreement, Second Amendment to Credit Agreement, and the Note Purchase Agreement, the Company incurred $ 3.4 million in costs, of which $ 2.0 million was capitalized as debt issuance fees and $ 1.4 million was recorded as a reduction of the long-term debt proceeds as a debt discount.

Both the debt issuance fees and debt discount are amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability.

As of July 31, 2020, future payments on the Revolving Loan Facility and Note Purchase Agreement were as follows:

(In thousands)

(In thousands) July 31, (1)

Thereafter 300,000

Total future payments $ 400,000

Currently there are no outstanding balances on the Revolving Loan Facility and none are currently expected based on management’s intent of the use of the Revolving Loan Facility, which may change on a quarter by quarter basis.

(1) Currently there are no outstanding balances on the Revolving Loan Facility.

NOTE 9 – Fair Value Measures

The following table summarizes the fair value of the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis based on inputs used to derive their fair values:

July 31, 2019

July 31, 2018

(In thousands)

Fair Value Total

Significant Observable Inputs

Fair Value Total

Significant Observable Inputs

The following table summarizes the carrying values and fair values of the Company’s financial instruments that were not carried at fair value in the consolidated balance sheets:

July 31, 2020 July 31, 2019

(In thousands) Carrying Value Total Fair Value Total Carrying Value Total Fair Value Total

Cash equivalents $ 11,483 $ 11,483 $ 12,389 $ 12,389

Total Assets $ 11,483 $ 11,483 $ 12,389 $ 12,389

Long-term fixed rate debt, including current portion $ 399,698 $ 449,731 $ 399,638 $ 411,510

1 unchanged sentence

During the year ended July 31, 2020, no transfers were made between any levels within the fair value hierarchy.

The fair value of the Senior Notes is based on the discounted value of each interest and principal payment calculated utilizing market interest rates of similar types of borrowing arrangements and was classified within Level II of the fair value hierarchy.

See Note 1 — Summary of Significant Accounting Policies and Note 8 — Long-Term Debt .

NOTE 10 — Net Income Per Share

The table below reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:

Year Ended July 31,

(In thousands) 2020 2019 2018

Weighted average common shares outstanding 233,202 230,489 231,793

Effect of dilutive securities — stock options 5,454 9,964 10,084

Weighted average common and dilutive potential common shares outstanding 238,656 240,453 241,877

There were no material adjustments to net income required in calculating diluted net income per share.

Excluded from the dilutive earnings per share calculation were 1,575,167 ;

and 4,788,004 options to purchase the Company’s common stock for the years ended July 31, 2020, 2019 and 2018, respectively, because their inclusion would have been anti-dilutive.

NOTE 11 — Stockholders’ Equity

The Company has authorized the issuance of 400 million shares of common stock, with a par value of $ 0.0001 , of which 235,315,337 shares were issued and outstanding at July 31, 2020.

As of July 31, 2019 and 2018 , the Company had reserved 20,502,335 and 25,621,327 shares of common stock, respectively, for the issuance of options granted under the Company’s stock option plans and 1,426,698 and 1,603,741 shares of common stock, respectively, for the issuance of shares under the Copart, Inc.

As of July 31, 2020 and 2019, the Company had reserved 12,977,173 and 20,502,335 shares of common stock, respectively, for the issuance of options, restricted stock or restricted stock units granted under the Company’s stock option plans and 1,303,592 and 1,426,698 shares of common stock, respectively, for the issuance of shares under the Copart, Inc.

Employee Stock Purchase Plan (“ESPP”).

5 unchanged sentences

Subject to applicable securities laws, such repurchases will be made at such times and in such amounts as the Company deems appropriate and may be discontinued at any time.

For fiscal 2019 , the Company repurchased 7,635,596 shares of its common stock under the program at a weighted average price of $ 47.81 per share totaling $ 365.0 million .

For fiscal 2020 and 2018, the Company did not repurchase any shares of its common stock under the program.

For fiscal 2019, the Company repurchased 7,635,596 shares of its common stock under the program at a weighted average price of $ 47.81 per share totaling $ 365.0 million.

As of July 31, 2020, the total number of shares repurchased under the program was 114,549,198 , and 81,450,802 shares were available for repurchase under the program.

During fiscal 2018 and 2017 , certain executive officers and members of the Company’s Board of Directors exercised stock options through cashless exercises.

During fiscal 2019 , the Company’s former President exercised all of his vested stock options through a cashless exercise.

In fiscal 2018, certain members of the Company’s Board of Directors exercised stock options through cashless exercises.

In fiscal 2019, the Company’s former President exercised all of his vested stock options through a cashless exercise.

In fiscal 2020, the Company's Chief Executive Officer exercised all of his vested stock options through a cashless exercise.

A portion of the options exercised were net settled in satisfaction of the exercise price.

The Company remitted $ 45.6 million , no amounts and $ 134.6 million for the years ended July 31, 2019 , 2018 and 2017 , respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements.

The Company remitted $ 101.3 million, $ 45.6 million, and no amounts for the years ended July 31, 2020, 2019 and 2018, respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements.

The exercised stock options, utilizing a cashless exercise, are summarized in the following table:

Options Exercised

Weighted Average Exercise Price

Shares Net Settled for Exercise

Shares Withheld for Taxes (1)

Net Shares to Employees

Weighted Average Share Price for Withholding

Employee Stock Based Tax Withholding (in 000s)

Period Options Exercised Weighted Average Exercise Price Shares Net Settled for Exercise Shares Withheld for Taxes (1)

Net Shares to Employees Weighted Average Share Price for Withholding Employee Stock Based Tax Withholding (in 000s)

FY 2018—Q2 80,000 $ 6.54 11,996 — 68,004 $ 43.60 $ —

FY 2019—Q3 3,000,000 17.81 945,162 806,039 1,248,799 56.53 45,565

FY 2020—Q1 4,000,000 17.81 865,719 1,231,595 1,902,686 82.29 101,348

(1) Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against the Company’s stock repurchase program.

29 unchanged sentences

The total compensation expense recognized by the Company over the five year service period for these options was $ 38.8 million.

recognized $ 4.3 million , $ 7.2 million , and $ 7.5 million in compensation expenses for these grants in the years ended July 31, 2019 , 2018 and 2017 , respectively.

The Company recognized no expense, $ 4.3 million, and $ 7.2 million in compensation expenses for these grants in the years ended July 31, 2020, 2019 and 2018, respectively.

In June 2020, the Compensation Committee of the Company’s Board of Directors, approved the grant to A.

Jayson Adair, the Company’s Chief Executive Officer of nonqualified stock options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $ 85.04 per share, which equaled the closing price of the Company’s common stock on June 12, 2020, the effective date of grant.

The grant was made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for five years .

The option will become exercisable over five years , subject to continued service by Mr.

Adair, with 20% vesting on June 12, 2021, and the balance vesting monthly over the subsequent four years.

Separate and apart from the time-based vesting schedule, the options are also subject to market based vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common stock on the NASDAQ Global Select Market is greater than or equal to $ 106.30 per share (which is an amount equivalent to 125 % of the exercise price of the options) for a period of 20 consecutive trading days.

The option held by Mr.

Adair will become fully vested, assuming continued service by Mr.

Adair on June 12, 2025.

The fair value of each option at the date of grant using the Monte Carlo simulation model was $ 25.47 , with an expected life of 7.64 years, a risk-free interest rate of 0.71 %, estimated volatility of 25.2 %, and no expected dividends.

The total estimated compensation expense to be recognized by the Company over the five year estimated service period for these options is $ 25.5 million.

The following table details stock-based compensation recognized by the Company for stock options and restricted stock awards:

8 unchanged sentences

A summary of the status of the Company’s non-vested shares from stock option awards and its activity during the year ended July 31, 2020 was as follows:

(In thousands, except per share amounts)

(In thousands, except per share amounts) Shares Weighted

Average Grant-

2 unchanged sentences

Grants of non-vested shares 1,175 24.89

Vested ( 1,874 ) 9.98

Forfeitures or expirations ( 207 ) 7.82

1 unchanged sentence

The following is a summary of activity for the Company’s stock options for the year ended July 31, 2020:

(In thousands, except per share and term data)

Exercise Price

Weighted Average

Contractual Term

(In thousands, except per share and term data) Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (In years) Aggregate Intrinsic Value

Outstanding as of July 31, 2019 14,552 $ 26.29 6.04 $ 745,592

Grants of options 1,175 85.45

Exercises ( 7,461 ) 19.15

Forfeitures or expirations ( 207 ) 29.95

7 unchanged sentences

The fair value of options vested for the years ended July 31, 2020, 2019 and 2018 was $ 19.2 million, $ 21.3 million and $ 19.1 million, respectively.

The following table summarizes stock options outstanding and exercisable as of July 31, 2020:

(In thousands, except per share amounts) Options Outstanding Options Exercisable

Range of Exercise Prices Number Weighted

Life Weighted

Price Number Weighted

$ 12.48 — $ 17.64 259 2.53 $ 14.26 258 $ 14.25

$ 17.73 — $ 27.93 3,138 4.90 19.81 3,045 19.64

$ 30.97 — $ 36.32 1,393 7.12 35.69 573 35.73

$ 43.96 — $ 88.58 3,269 8.62 66.81 880 56.87

Outstanding as of July 31, 2020 8,059 6.72 $ 41.44 4,756 $ 28.17

The Company recognizes compensation expense for restricted stock awards on a straight-line basis over the requisite service period of the award.

The following is a summary of activity for the Company’s restricted stock for the for the year ended July 31, 2020:

(In thousands, except per share data)

Restricted Shares

Weighted Average Grant Date Fair Value

(In thousands, except per share data) Restricted Shares Weighted Average Grant Date Fair Value

Outstanding as of July 31, 2019 134 $ 56.62

3 unchanged sentences

Outstanding as of July 31, 2020 105 $ 69.86

The following table summarizes stock options outstanding and exercisable as of July 31, 2019 :

(In thousands, except per share amounts)

Options Outstanding

Options Exercisable

Range of Exercise Prices

$17.73–$17.81

$18.06–$34.78

$36.32–$77.51

Outstanding as of July 31, 2019

NOTE 12 — Income Taxes

2 unchanged sentences

(In thousands) 2020 2019 2018

$ 740,171 $ 634,874 $ 501,961

International 60,668 70,077 60,550

3 unchanged sentences

(In thousands) 2020 2019 2018

Current $ 53,942 $ 59,848 $ 109,804

Deferred 21,019 27,779 17,094

74,961 87,627 126,898

Current 12,095 12,720 9,100

Deferred 565 702 ( 111 )

12,660 13,422 8,989

International:

Current 13,333 12,508 8,820

Deferred ( 22 ) ( 299 ) ( 203 )

13,311 12,209 8,617

Income tax expense $ 100,932 $ 113,258 $ 144,504

7 unchanged sentences

Compensation and fringe benefits (1)

Provisional transition tax

( 11.2 ) % ( 6.4 ) % ( 3.5 ) %

GILTI, FDII, and transition tax ( 0.3 ) % ( 0.7 ) % 2.2 %

Deferred tax remeasurement — % — % ( 0.8 ) %

9 unchanged sentences

Accrued compensation and benefits 13,217 18,397

State taxes 460 559

Accrued other 4,763 3,312

19 unchanged sentences

The Act included a one-time tax on accumulated unremitted earnings of the Company’s foreign subsidiaries (“Transition Tax”).

SEC Staff Accounting Bulletin No.

118 allows the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act has not been completed.

Provisional amounts must be adjusted within one year from the enactment date of the Act.

As of July 31, 2018, the Company recorded a $ 12.4 million provisional Transition Tax charge.

No adjustment to the provisional Transition Tax charge was made in the first quarter of fiscal year 2019.

The Company completed its accounting for the tax effects of the enactment of the Tax Act during the three months ended January 31, 2019, and recorded a discrete decrease in tax expense of $ 1.1 million , whose effect on the Company’s effective tax rate was immaterial.

In fiscal 2018, the Company recorded a $ 12.4 million Transition Tax charge.

The Act reduced the federal statutory tax rate from 35.0 % to 21.0 %, effective January 1, 2018, which results in federal statutory tax rates for the Company of 21.0 %, 21.0 %, and 26.9 % for fiscal years 2020, 2019 and 2018, respectively.

In fiscal year 2018 the Company recorded a $ 4.3 million benefit to remeasure deferred taxes as of the enactment date of the Act to reflect the federal statutory rate reduction.

The Act contains Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impact the Company in fiscal year 2019.

In fiscal year 2019, the Company completed its accounting for the tax effects of the enactment of the Tax Act and recorded a discrete decrease in tax expense of $ 1.1 million, whose effect on the Company’s effective tax rate was immaterial.

The Act contains Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impacted the Company in fiscal year 2019.

The GILTI provisions effectively subject income earned by the Company's foreign subsidiaries to current U.S.

3 unchanged sentences

The Act also includes a favorable tax treatment for certain Foreign Derived Intangible Income (“FDII”), effective for the Company starting August 1, 2018.

The Company’s estimate for both GILTI and FDII did not materially impact the effective income tax rate or income tax expense for the fiscal year ended July 31, 2019 .

The Company’s estimate for both GILTI and FDII did not materially impact the effective income tax rate or income tax expense for the fiscal year ended July 31, 2020 or 2019.

As of July 31, 2020 and 2019, the Company had foreign operating losses and a U.S.

7 unchanged sentences

The valuation allowance for deferred tax assets primarily related to operating losses in certain international jurisdictions and certain tax credits that are unlikely to be realized.

As of July 31, 2019 and 2018 , if recognized, the portion of liabilities for unrecognized tax benefits resulting from uncertain tax positions that would favorably affect the Company’s effective tax rate w as $ 22.0 million and $ 16.0 million , respectively.

It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes;

however, an estimate of the range of the possible change cannot be made at this time.

The following table summarizes the activities related to the Company’s unrecognized tax benefits resulting from uncertain tax positions:

8 unchanged sentences

Ending balance $ 36,123 $ 27,537 $ 21,322

It is the Company’s continuing practice to recognize interest and penalties related to income tax matters in income tax expense.

As of July 31, 2020 and 2019, if recognized, the portion of liabilities for unrecognized tax benefits resulting from uncertain tax positions that would favorably affect the Company’s effective tax rate was $ 29.0 million and $ 22.0 million , respectively.

It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes;

however, an estimate of the range of the possible change cannot be made at this time.

The Company recognizes interest and penalties related to income tax matters in income tax expense.

As of July 31, 2020, 2019 and 2018, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 8.9 million, $ 7.6 million and $ 6.0 million, respectively.

2 unchanged sentences

The Company is currently under examination by certain taxing authorities in the U.S.

for fiscal years from 2014.

for fiscal years between 2014 and 2018.

At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position.

The Act eliminated any additional federal tax upon repatriation of outside basis difference primarily resulted from undistributed foreign earnings;

however, those undistributed earnings may still be subject to foreign withholding taxes if they are repatriated.

As of July 31, 2019 , the Company's foreign subsidiaries have accumulated undistributed earnings of $ 165.0 million .

No deferred tax liability has been recognized for the repatriation of these earnings or any residual outside basis difference as the Company intends to permanently reinvest them.

The Act significantly lowered the additional federal income tax upon the repatriation of undistributed earnings generated by our foreign subsidiaries.

As the Company determined these undistributed foreign earnings along with any additional outside basis differences were indefinitely reinvested as of July 31, 2020, no deferred tax was therefore provided.

Although the Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings, which were $ 163.0 million as of July 31, 2020, nevertheless, it is not practical to estimate the amount of deferred tax liability related to the entire outside basis differences due to the complexity of the calculation and the uncertainty regarding assumptions necessary to compute the tax.

The Company’s effective income tax rates were 12.6 %, 16.1 %, and 25.7 % for fiscal 2020, 2019 and 2018, respectively.

The Company’s U.S.

federal statutory tax rate for fiscal year 2019 is 21.0 % and was favorably impacted by $10.2 million of discrete tax items related to amending previously filed income tax returns.

federal statutory tax rate for fiscal year 2020 was 21.0 % and was negatively impacted by $ 1.7 million of discrete tax items related to amending previously filed income tax returns.

The effective tax rate for the fiscal year ending July 31, 2019, was computed based on a reduced blended U.S.

federal statutory tax rate of 21.0 % and was favorably impacted by $ 10.2 million of discrete tax items related to amending previously filed income tax returns.

The effective tax rate for the fiscal year ending July 31, 2018, was computed based on a reduced blended U.S.

federal statutory tax rate of 26.9 % and included the effects of the Act.

The tax rates in the prior years were also impacted from the result of recognizing excess tax benefits from the exercise of employee stock options of $ 46.1 million , $ 21.3 million and $ 107.6 million , for the years ended July 31, 2019 , 2018 and 2017 , respectively.

NOTE 11 — Net Income Per Share

The table below reconciles basic weighted shares outstanding to diluted weighted average shares outstanding:

Year Ended July 31,

(In thousands)

Weighted average common shares outstanding

Effect of dilutive securities — stock options

Weighted average common and dilutive potential common shares outstanding

There were no material adjustments to net income required in calculating diluted net income per share.

Excluded from the dilutive earnings per share calculation were 3,045,000 ;

and 3,058,808 options to purchase the Company’s common stock for the years ended July 31, 2019 , 2018 and 2017 , respectively, because their inclusion would have been anti-dilutive.

The tax rates were also impacted from the result of recognizing excess tax benefits from the exercise of employee stock options of $ 92.5 million, $ 46.1 million and $ 21.3 million, for the years ended July 31, 2020, 2019 and 2018, respectively.

NOTE 13 — Segments and Other Geographic Reporting

4 unchanged sentences

Year Ended July 31, 2020

(In thousands)

United States

International

(In thousands) United States International Total

Service revenues $ 1,714,724 $ 232,416 $ 1,947,140

5 unchanged sentences

Operating income $ 748,777 $ 67,322 $ 816,099

Depreciation and amortization

Depreciation and amortization, excluding debt costs $ 90,635 $ 10,755 $ 101,390

Capital expenditures, including acquisitions 568,472 35,202 603,674

Total assets 2,901,158 554,103 3,455,261

Goodwill 262,423 81,199 343,622

Year Ended July 31, 2019

(In thousands)

United States

International

(In thousands) United States International Total

Service revenues $ 1,537,431 $ 218,263 $ 1,755,694

4 unchanged sentences

General and administrative 151,854 30,013 181,867

Impairment of long-lived assets

Operating income $ 640,794 $ 75,681 $ 716,475

Depreciation and amortization

Depreciation and amortization, excluding debt costs $ 75,135 $ 9,760 $ 84,895

Capital expenditures, including acquisitions 311,472 63,156 374,628

Total assets 2,094,592 453,025 2,547,617

Goodwill 256,998 76,323 333,321

Year Ended July 31, 2018

(In thousands)

United States

International

(In thousands) United States International Total

Service revenues $ 1,385,238 $ 193,264 $ 1,578,502

6 unchanged sentences

Operating income $ 514,887 $ 69,458 $ 584,345

Depreciation and amortization

Depreciation and amortization, excluding debt costs $ 67,779 $ 10,819 $ 78,598

Capital expenditures, including acquisitions 255,868 40,829 296,697

Total assets 1,856,058 451,640 2,307,698

Goodwill 256,434 80,801 337,235

NOTE 14 — Commitments and Contingencies

The Company leases certain facilities and certain equipment under non-cancelable capital and operating leases.

In addition to the minimum future lease commitments presented below, the leases generally require the Company to pay property taxes, insurance, maintenance and repair cost which are not included in the table because the Company has determined these items are not material.

Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value.

Certain leases also contain escalation clauses and renewal option clauses calling for increased rents.

Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, rent expense is recognized on a straight-line basis over the lease term in accordance with ASC 840, Operating Leases.

The future minimum lease commitments for the next five fiscal years, under non-cancelable capital and operating leases with initial or remaining lease terms in excess of one year were as follows:

Years Ending July 31, (In thousands)

Capital Leases

Operating Leases

Amount relating to interest

Facilities rental expense for the years ended July 31, 2019 , 2018 and 2017 was $ 30.6 million , $ 45.6 million and $ 26.8 million , respectively.

Yard operations equipment rental expense for the years ended July 31, 2019 , 2018 and 2017 was $ 1.8 million , $ 2.8 million and $ 2.9 million , respectively.

Letters of Credit

14 unchanged sentences

NOTE 16 — Related Party Transactions

There were no amounts due to or from related parties as of July 31, 2019 and 2018 that are not separately or previously disclosed.

There were no amounts due to or from related parties as of July 31, 2020 and 2019.

NOTE 17 — Employee Benefit Plan

3 unchanged sentences

The Company matches 20 % of employee contributions up to 15 % of employee salary deferral.

The Company recognized expenses of $ 1.7 million for the year ended July 31, 2019 , and $ 0.9 million for the years ended July 31, 2018 and 2017 , respectively, related to this plan.

The Company recognized expenses of $ 1.9 million, $ 1.7 million, and $ 0.9 million, for the years ended July 31, 2020, 2019 and 2018, respectively, related to this plan.

The Company also sponsors an additional defined contribution plan for its U.K.

2 unchanged sentences

The Company matches up to 5 % of employee contributions.

The Company recognized expenses of $ 0.9 million , for the year ended July 31, 2019 , and $ 0.7 million for the years ended July 31, 2018 , and 2017 , respectively, related to this plan.

The Company recognized expenses of $ 1.2 million, $ 0.9 million, and $ 0.7 million for the years ended July 31, 2020, 2019 and 2018, respectively, related to this plan.

NOTE 18 — Quarterly Financial Information (Unaudited) (1)

Fiscal Quarter

Fiscal Year 2019 (In thousands, except per share data)

Fiscal Year 2020 (In thousands, except per share data) First Second Third Fourth

Total revenue $ 554,424 $ 575,140 $ 550,360 $ 525,659

Gross profit 254,869 259,889 242,613 250,431

Operating income 205,391 209,892 195,101 205,715

1 unchanged sentence

Net income attributable to Copart, Inc.

218,180 168,707 147,487 165,533

Basic net income per common share $ 0.94 $ 0.73 $ 0.63 $ 0.70

1 unchanged sentence

Fiscal Quarter

Fiscal Year 2018 (In thousands, except per share data)

Fiscal Year 2019 (In thousands, except per share data) First Second Third Fourth

Total revenue $ 461,368 $ 484,898 $ 553,116 $ 542,575

Gross profit 195,918 208,226 251,579 242,619

Operating income 151,440 164,739 207,494 192,802

1 unchanged sentence

Net income attributable to Copart, Inc.

114,083 131,373 192,741 153,496

Basic net income per common share $ 0.49 $ 0.57 $ 0.85 $ 0.67

2 unchanged sentences

therefore, the sum of the earnings per share amounts for the quarters may not equal the total for the year.

NOTE 18 — Subsequent Events

Exercise of Stock Options

In September 2019, A.

Jayson Adair, the Company’s Chief Executive Officer, exercised through a cashless exercise, options to acquire an aggregate of 4,000,000 shares of the Company’s common stock subject to options outstanding under the Company’s stand-alone stock option agreements dated April 14, 2009.

As a result of the cashless exercise, a portion of the options exercised were net settled in satisfaction of the exercise price and the executive’s tax withholding obligations.

The Company issued the executive a net number of 1,902,686 shares of its common stock.

All shares surrendered to satisfy the exercise price and tax withholding obligations were canceled.

EXHIBIT INDEX

The following Exhibits are filed as part of, or incorporated by reference into this report.

Incorporated by reference herein

Certificate of Incorporation

Quarterly Report on Form 10-Q, (File No.

000-23255), Exhibit No.

February 25, 2016

Certificate of Amendment to the Copart, Inc.

Certificate of Incorporation

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

December 22, 2016

Bylaws of Copart, Inc.

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

December 22, 2016

Description of Capital Stock

Filed herewith

2007 Equity Incentive Plan, as Amended and Restated (2007 EIP)

Current Report on Form 8-K, (File No.

000-23255), Exhibit No.

December 22, 2016

Form of Performance Share Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 12, 2007

Form of Restricted Stock Unit Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 12, 2007

Form of Stock Option Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 12, 2007

Form of Restricted Stock Award Agreement for use with 2007 EIP

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 12, 2007

Executive Bonus Plan

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

August 3, 2006

Amended and Restated Executive Officer Employment Agreement between the Registrant and William E.

Franklin, dated September 25, 2008

Quarterly Report on Form 10-Q (File No.

000-23255), Exhibit No.

December 10, 2008

Form of Indemnification Agreement signed by executive officers and directors

Annual Report on Form 10-K (File No.

000-23255), Exhibit No.

October 1, 2012

Incorporated by reference herein

Standard Industrial/Commercial single tenant lease-net dated February 3, 2013 between Garden Centura, L.P.

and the Registrant

Annual Report on Form 10-K (File No.

000-23255), Exhibit No.

October 1, 2012

Credit Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as administrative agent, dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 4, 2014

Security Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as collateral agent, dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 4, 2014

Note Purchase Agreement among the Registrant and each of the purchasers listed on Schedule B dated as of December 3, 2014

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 4, 2014

2014 Employee Stock Purchase Plan

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

December 5, 2014

Executive Officer Employment Agreement, effective January 4, 2016, between the Registrant and Jeffrey Liaw.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

November 23, 2015

First Amendment to Credit Agreement, dated as of March 15, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

March 17, 2016

Second Amendment to Credit Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

July 27, 2016

First Amendment to Note Purchase Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.

party thereto and the purchasers party thereto.

Current Report on Form 8-K (File No.

000-23255), Exhibit No.

July 27, 2016

Incorporated by reference herein

List of subsidiaries of Registrant

Filed herewith

Consent of Independent Registered Public Accounting Firm

Filed herewith

Power of Attorney (included on signature page)

Filed herewith

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Extension Definition

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

33-8238 and 34-47986, Final Rule:

Management contract, plan or arrangement

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures