What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-09-28 compared with 2022-09-27 · 83 added, 113 removed, 366 unchanged (35% of the section changed)

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Secondly, because of the special role we play in responding to catastrophic weather events, we believe we contribute to disaster recovery and resilience in the communities we serve.

For example, we mobilized our people, entered into emergency leases, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in the New York metropolitan area in the wake of Hurricane Ida in the fall of 2021.

For example, we mobilized our people, entered into emergency leases, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in South Florida in the wake of Hurricane Ian in the fall of 2022.

We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3.

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Nonetheless, we believe the long-term trend of increases in total loss frequency will continue.

In the near term changes in used car prices and repair cost, may tend to reduce total loss frequency and thereby affect our growth rate.

In the near term changes in used car prices and repair cost, are inversely related but may impact total loss frequency and thereby affect our growth rate.

Used car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average age of cars on the road.

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The factors that can influence repair costs, used car pricing, and auction returns are many and varied and we cannot predict their movements with precision.

Beginning in March 2020, our business and operations began to experience the impact of the worldwide COVID-19 pandemic.

In materially all of our jurisdictions, we have been deemed by local authorities an essential business because our operations ensure the removal of vehicles from repair shops, impound yards, and streets and highways, enabling the critical function of road infrastructure.

As a result, we have continued to operate our facilities as well as our online-only auctions, while following appropriate health and safety protocols to ensure safe working conditions for our employees as well as for our sellers, buyers, and other business partners with whom we come in contact.

From a financial perspective, our operating results were adversely affected by lower processed vehicle volume, but these adverse effects were more than offset by corresponding increases in vehicle average sales prices.

Although we initially saw substantial declines in vehicle assignments following the onset of the COVID-19 pandemic, which we attribute principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the globe, we have generally seen vehicle assignment volumes steadily recovering;

however additional subsequent shelter-in-place orders have occasionally stalled or regressed the assignment volume commensurate with the severity and duration of such orders.

We cannot predict how the pandemic will continue to develop, whether and to what extent new shelter-in-place orders will be issued, or to what extent the pandemic may have longer term unanticipated impacts on our markets, including, for example, the risk of long-term reductions in miles driven.

Although we have been deemed an “essential business” in the jurisdictions in which we operate and have largely been able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time.

We adjusted, but did not make material modifications to, our operating expenses to be able to continue providing employment for our employees, service to our sellers, and process incoming vehicles for sale in future quarters.

The pandemic may have an adverse effect on our future revenues, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets.

We believe that the longer-term impact on our business will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations;

additional outbreaks of COVID-19 in one or more of our geographic markets;

a reduction in miles driven due to one or more factors relating to the COVID-19 pandemic;

the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used and salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sale prices obtained at auction for the vehicles assigned to us for remarketing;

further government actions in response to COVID-19 outbreaks that restrict business activity or travel;

disruptions of governmental administrative operations due to COVID-19 outbreaks that adversely impact our core business activities, such as vehicle title processing;

and deteriorating economic conditions generally, and the potential availability, among other things, of vaccines or treatments, none of which we can predict.

For a further discussion of risks to our business and operating results arising from the pandemic, please see the section of this Annual Report on Form 10-K captioned “Risk Factors.”

Operating Costs and Expenses:

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and system maintenance and enhancements.

Other (Expense) Income:

Other (expense) income consists primarily of interest expense on long-term debt, see Notes to Consolidated Financial Statements, Note 9 — Long-Term Debt;

Other Income (Expense):

Other income (expense) consists primarily of interest income on Treasury bills, interest expense on long-term debt, see Notes to Consolidated Financial Statements, Note 9 — Long-Term Debt;

foreign exchange rate gains and losses;

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(xii) our capital expenditures;

and (xiii) other macroeconomic factors such as COVID-19.

and (xiii) other macroeconomic factors.

These factors are further discussed in the Results of Operations and Risk Factors sections of this Annual Report on Form 10-K.

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United States Locations Date

Fort Wayne, Indiana February 2020

Concord, North Carolina March 2020

Salt Lake City, Utah May 2020

Redding, California August 2020

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Punta Gorda, Florida

Anchorage, Alaska August 2022

Rapid City, South Dakota August 2022

Kansas City, Missouri September 2022

Grenada, Mississippi January 2023

Windham, New England March 2023

Las Vegas West, Nevada June 2023

Akron, Ohio July 2023

Wayland, Michigan July 2023

International Locations Geographic Service Area Date

Niederlehme, Brandenburg (Berlin) Germany November 2019

Pilsting, Bavaria (Munich) Germany December 2019

São Paulo, São Paulo Brazil May 2020

Bruchmühlbach-Miesau, Rhineland-Palatinate (Mannheim) Germany February 2021

Mallorca, Balearic Islands Spain April 2021

Halifax, Novia Scotia Canada April 2022

Barcelona, Spain Spain September 2021

Halifax, Novia Scotia Canada April 2022

Brasília, Brazil Brazil September 2022

Büdingen, Hesse Germany January 2023

Ottawa, Ontario Canada February 2023

The following table sets forth the operational facilities obtained through business acquisitions from August 1, 2020 through July 31, 2023:

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(iii) increasing our service offerings;

and (iv) expanding the application of VB3 into new markets.

and (iv) expanding the application of

VB3 into new markets.

In addition, we implement our pricing structure and auction procedures, and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures, integrating our management information systems, and redeploying personnel, when necessary.

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Operating income 39 % 39 % 42 %

Total other expense (1) % (1) % (1) %

Total other income (expense) 3 % (1) % (1) %

Income before income taxes 42 % 38 % 41 %

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The growth in the U.S.

was driven primarily by (i) an increase in revenue per car partially driven by the scarcity of vehicles due to global supply chain disruptions and (ii) an increase in volume resulting from higher miles driven due to the reopening of the United States economy.

Excluding the unfavorable impact of $8.3 million due to changes in foreign currency exchange rates, primarily from the change in the British pound and European Union euro to U.S.

dollar exchange rates net against favorable change in Brazilian real to U.S.

dollar exchange, the growth in International was driven primarily by an increase in revenue per car partially driven by the scarcity of vehicles due to global supply chain disruptions and an increase in volume resulting from higher miles driven due to the reopening of the International economies.

was driven primarily by (i) an increase in revenue per car due to higher auction selling prices, which we believe is due to a change in mix of vehicles sold and restrictions within the global supply chain for automobiles and (ii) an increase in volume.

The growth in International, excluding the unfavorable impact of $22.6 million due to changes in foreign currency exchange rates, primarily from the change in the European Union euro, Canadian dollar and British pound to U.S.

dollar exchange rates, netting against a favorable impact of the Brazilian real to the U.S.

dollar exchange rate, was driven primarily by an increase in revenue per car due to a change in mix of vehicles sold and an increase in volume.

The following table presents a comparison of vehicle sales for fiscal 2023, 2022 and 2021:

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Vehicle Sales.

The increase in vehicle sales for fiscal 2022 of $247.2 million, or 61.7% as compared to fiscal 2021 came from (i) an increase in the U.S.

The increase in vehicle sales for fiscal 2023 of $23.5 million, or 3.6% as compared to fiscal 2022 came from (i) a decrease in the U.S.

of $64.0 million and (ii) an increase in International of $87.5 million.

The increase in the U.S.

was primarily the result of increased volume and higher average auction selling prices, which we believe was due to a change in the mix of vehicles sold, increased demand and reduced supply.

Excluding an unfavorable impact of $13.9 million due to changes in foreign currency exchange rates, primarily from the unfavorable change in the British pound and European Union euro to the U.S.

dollar exchange rate, the increase in International was primarily the result of higher average auction selling prices and an increase in volume resulting from higher miles driven due to the reopening of the International economies and restrictions within the global supply chain for automobiles.

The decline in the U.S.

was primarily the result of a decrease in volume as a result of a proactive approach to mitigate principle unit exposure, offset by higher average auction selling prices, which was primarily due to a change in the mix of vehicles sold.

The increase in International, excluding an unfavorable impact of $21.5 million due to changes in foreign currency exchange rates, which was driven primarily from the unfavorable change in the European Union euro, Canadian dollar and British pound to U.S.

dollar exchange rates, was primarily the result of higher average auction selling prices, which largely was due to a change in mix of vehicles sold combined with increased prices resulting from the restrictions within the global supply chain for automobiles and an increase in volume.

The following table presents a comparison of yard operations expense for fiscal 2023, 2022 and 2021:

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The increase in yard operations expenses for fiscal 2023 of $208.5 million, or 15.9% as compared to fiscal 2022 resulted from (i) an increase in the U.S.

of $274.9 million, and (ii) increase in international of $31.3 million.

of $168.5 million, and (ii) an increase in international of $40.0 million.

Excluding depreciation and amortization, the increase in the U.S.

compared to the same period last year relates to an increase in volume as a result of the reopening of the United States economy combined with an increase in the cost to process each car.

The increase in cost to process each car was driven by increased subhaul costs, and labor costs, combined with an increase in premiums for catastrophic event related to subhaul, labor costs incurred from overtime, and increased travel, lodging, and equipment lease cost associated with Hurricane Ida.

The increase in International was primarily driven by the increase in volume following the reopening of economies and the increase in subhaul and fuel costs and combined with an favorable impact of $6.0 million due to a positive change in British pound and European Union euro to U.S.

dollar exchange rate net against the unfavorable changes in the Brazilian real to U.S.

dollar exchange rate.

Included in yard operations expenses were depreciation and amortization expenses with increase year over year from depreciating new and expanded facilities placed into service in the U.S.

compared to the same period last year relates to an increase in the cost to process each car combined with an increase in volume.

The increase in cost to process each car was driven by increased subhaul costs primarily related to the fluctuation of fuel costs, and labor costs, combined with an increase in premiums for catastrophic related subhaul, labor costs incurred from overtime, and increased travel and lodging associated with Hurricane Ian.

The increase in International, excluding a favorable impact of $12.1 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S.

dollar exchange rate offset by an unfavorable change in the Brazilian real to U.S.

dollar exchange rate, was primarily due to an increase in the cost to process each car which is driven by an increase in subhaul, fuel and labor costs combined with an increase in volume.

Included in yard operations expenses were depreciation and amortization expenses which increased year over year due to the depreciation of new and expanded facilities placed into service in U.S.

and International locations.

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Cost of Vehicle Sales .

The increase in cost of vehicle sales for fiscal 2022 of $239.1 million, or 69.1% as compared to fiscal 2021 was the result of (i) an increase in the U.S.

The increase in cost of vehicle sales for fiscal 2023 of $29.3 million, or 5.0% as compared to fiscal 2022 was the result of (i) a decrease in the U.S.

of $54.2 million and (ii) an increase in International of $83.5 million.

The increase in the U.S.

was primarily the result of increased volume and higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand;

and reduced supply.

Excluding the favorable impact of $12.8 million due to changes in foreign currency exchange rates, primarily from the a positive change in the British pound and European Union euro to U.S.

dollar exchange rate, the increase in International was primarily the result of higher average purchase prices and an increase in volume, which we believe was due to a change in the mix of vehicles sold, increased demand;

and reduced supply.

The decrease in the U.S.

was primarily the result of a decrease in volume as a result of a proactive approach to mitigate principal unit exposure, offset by higher average purchase prices, which was primarily due to increased demand and a change in the mix of vehicles sold.

The increase in International, excluding the favorable impact of $17.8 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S.

dollar exchange rates, was primarily driven by higher average purchase prices due to the change in mix of vehicles sold and higher volume.

The following table presents a comparison of general and administrative expenses for fiscal 2023, 2022 and 2021:

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of $9.6 million, and (ii) an increase in International of $9.6 million.

The increase in the U.S.

of $21.0 million resulted from increases in stock compensation, labor costs, legal costs, and travel costs.

Excluding depreciation and amortization, the increase in the U.S.

of $12.2 million resulted from increases in, labor costs, outside services and travel costs offset by a decrease in legal costs.

The increase in International, excluding a favorable impact of $2.7 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S.

dollar exchange rate offset by an unfavorable change in the Brazilian real to U.S.

dollar exchange rate, resulted from increases in stock compensation, labor costs, legal costs, travel costs, and marketing costs.

The decrease in depreciation and amortization expenses resulted primarily from fully depreciating certain intangible and technology assets in the U.S.

and International locations.

Excluding depreciation and amortization, the increase in International resulted primarily higher labor costs and increased legal costs including a favorable impact of $1.5 million due to changes in foreign currency exchange rates, primarily from the change in the British pound, and European Union euro to U.S.

dollar exchange rate, net against unfavorable changes in the Brazilian real to U.S.

dollar exchange rate.

The following table summarizes total other expenses and income taxes for fiscal 2023, 2022 and 2021:

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(In thousands) 2023 2022 2021 Change % Change Change % Change

Total other expenses (34,043) (14,580) (15,260) (19,463) (133.5) % 680 4.5 %

Total other income (expenses) $ 67,759 $ (34,043) $ (14,580) $ 101,802 299.0 % $ (19,463) (133.5) %

Income taxes 316,587 250,824 185,351 65,763 26.2 % 65,473 35.3 %

Other Expenses.

The increase in total other expenses for fiscal 2022 of $19.5 million, or 133.5% as compared to fiscal 2021 was primarily due to costs associated with a one time extinguishment of debt of $16.7 million in the period and an increase in currency losses.

The increase in total other income for fiscal 2023 of $101.8 million, or 299.0% as compared to fiscal 2022 was primarily due to higher interest income earned from Treasury Bills, realized and unrealized foreign currency gains, net against a decrease in interest expense and decrease of extinguishment of debt offset by losses from equity method investments.

Income Taxes.

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federal statutory tax rate of 21.0%.

The effective tax rate for fiscal year ending July 31, 2022 was unfavorably impacted by $8.2 million of discrete tax adjustments made in connection with finalizing our fiscal year 2021 tax return.

The effective tax rate for fiscal year ending July 31, 2023 was favorably impacted by $1.5 million of discrete tax adjustments made in connection with finalizing our fiscal year 2022 tax return.

The effective tax rate for fiscal year ending July 31, 2022 was unfavorably impacted by $8.2 million of discrete tax adjustments made in connection with finalizing our fiscal year 2021 tax return and favorably impacted by $17.0 million of discrete tax items related to amending previously filed income tax returns.

The effective tax rates in the current and prior year were also impacted by the recognition of excess tax benefits from the exercise of employee stock options of $21.0 million and $14.3 million for fiscal years 2023 and 2022, respectively.

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Acquisitions — (106,604) (5,000) 106,604 100.0 % (101,604) (2,032.1) %

Cash, cash equivalents, and restricted cash and working capital increased $336.0 million and $480.0 million at July 31, 2022, respectively, as compared to July 31, 2021.

Cash, cash equivalents, and restricted cash increased primarily due to cash generated from operations and proceeds from stock option exercises, partially offset by capital expenditures the retirement of 100% of the Senior Notes under the Note Purchase Agreement.

Working capital increased primarily from cash generated from operations and timing of cash receipts and payments, partially offset by capital expenditures and certain income tax benefits related to stock option exercises.

Cash, cash equivalents, and restricted cash decreased $426.8 million and working capital increased $1,008.3 million at July 31, 2023, as compared to July 31, 2022.

Cash, cash equivalents, and restricted cash decreased primarily due to the purchase of held to maturity securities of $1,406.6 million as at July 31, 2023, offset by cash generated from operations and proceeds from stock option exercises.

Cash equivalents consisted of bank deposits, certificates of deposit, U.S.

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Historically, we have financed our growth through cash generated from operations, public offerings of common stock, equity issued in conjunction with certain acquisitions, and debt financing.

Our primary source of cash generated by operations is from the collection of service fees and reimbursable advances from the proceeds of vehicle sales.

Our primary source of cash generated by operations

is from the collection of service fees and reimbursable advances from the proceeds of vehicle sales.

We expect to continue to use cash flows from operations to finance our working capital needs and to develop and grow our business.

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These alternative potential uses include additional stock repurchases, the payment of dividends, and acquisitions.

For further detail, see Notes to Consolidated Financial Statements, Note 9 — Long-Term Debt and Note 12 — Stockholders’ Equity and under the subheadings “ Credit Agreement ” and “ Note Purchase Agreement ” below.

For further detail, see Notes to Consolidated Financial Statements, Note 9 — Long-Term Debt and Note 12 — Stockholders’ Equity and under the subheadings “ Credit Agreement ” below.

Our business is seasonal as inclement weather during the winter months increases the frequency of accidents and consequently, the number of cars involved in accidents which the insurance companies salvage rather than repair.

winter months, most of our facilities process 5% to 20% more vehicles than at other times of the year.

During the winter months, most of our facilities process 5% to 20% more vehicles than at other times of the year.

Severe weather events, including but not limited to tornadoes, floods, hurricanes, and hailstorms, can also impact our volumes.

These increased volumes require the increased use of our cash to pay out advances and handling costs of the additional business.

We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements the foreseeable future.

We expect to acquire or develop additional locations and expand some of our current facilities in the foreseeable future.

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and (v) most importantly, has the appropriate zoning for our business.

As of July 31, 2022, $96.7 million of the $1.4 billion of cash, cash equivalents, and restricted cash was held by our foreign subsidiaries.

As of July 31, 2023, $145.5 million of the $957.4 million of cash, cash equivalents, and restricted cash was held by our foreign subsidiaries.

If these funds are needed for our operations in the U.S., the repatriation of these funds could still be subject to the foreign withholding tax following the U.S.

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Net cash provided by operating activities increased for fiscal 2023 as compared to fiscal 2022 due to improved cash operating results primarily from an increase in service and vehicle sales revenues, partially offset by an increase in yard operations and general and administrative expenses, and changes in operating assets and liabilities.

The change in operating assets and liabilities was primarily the result of an increase in funds received in accounts receivable of $29.8 million and a increase in cash generated from the sale of inventory of $13.8 million, partially offset by net income taxes receivable of $36.6 million primarily related to excess tax benefits from stock option exercises and an investment in solar investment tax credit, and decreases in funds used to pay accounts payable of $8.3 million.

Net cash used in investing activities decreased for fiscal 2022 as compared to fiscal 2021 due primarily to decreases in capital expenditures net against an increase in acquisitions and proceeds from the sale of assets.

The change in operating assets and liabilities was primarily the result of an increase in funds received in income tax receivable of $63.1 million, inventory of $37.4 million, deferred revenue of $6.5 million and income tax payable of $21.8 million, partially offset by accounts receivable of $25.5 million, accounts payable of $18.3 million, and vehicle pooling costs of $7.4 million.

Net cash used in investing activities increased for fiscal 2023 as compared to fiscal 2022 due primarily to the purchase of held to maturity securities and an increase in capital expenditures net against proceeds from the sale of assets.

Our capital expenditures are primarily related to acquiring land, opening and improving facilities, capitalized software development costs for new software for internal use and major software enhancements, acquiring yard equipment, and lease buyouts of certain facilities.

We continue to develop, expand, and invest in new and existing facilities and standardize the appearance of existing locations.

As of July 31, 2022, we have no material non-cancelable commitments for future capital expenditures.

Capitalized software development costs were $12.0 million, $13.6 million, and $13.2 million for fiscal 2022, 2021 and 2020, respectively.

If, at any time it is determined that capitalized software provides a reduced economic benefit, the unamortized portion of the capitalized development costs will be impaired.

See Notes to Consolidated Financial Statements, Capitalized Software Costs in Note 1 — Summary of Significant Accounting Policies.

Net cash used in financing activities increased in fiscal 2022 as compared to fiscal 2021 due primarily to lower payments for employee stock-based tax withholdings as discussed in further detail under the subheading “Stock Repurchases” and the Notes to Consolidated Financial Statements, Note 12 — Stockholders’ Equity and the retirement of 100% of the Senior Notes under the Note Purchase Agreement as discussed in, Note 9 — Long-Term Debt , partially offset by a decrease in proceeds from the exercise of stock options .

As of the year ended July 31, 2023, we have no material non-cancelable commitments for future capital expenditures.

Net cash provided by (used in) financing activities changed from a use of cash to providing cash in fiscal 2023 as compared to fiscal 2022 due primarily to an increase in proceeds from the exercise of stock options and a reduction in principal payments on long term debt as discussed in further detail in the Notes to Consolidated Financial Statements, Note 12 — Stockholders’ Equity.

For a discussion of fiscal 2022 as compared to fiscal 2021, please refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended July 31, 2022, filed with the SEC on September 27, 2022 .

Stock Repurchases

On September 22, 2011, our Board of Directors approved an 80 million share increase in the stock repurchase program, bringing the total current authorization to 196 million shares.

On September 22, 2011, our Board of Directors approved a 320 million share increase in the stock repurchase program, bringing the total current authorization to 784 million shares.

The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions.

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For fiscal 2023, 2022, and 2021, we did not repurchase any shares of our common stock under the program.

As of July 31, 2022, the total number of shares repurchased under the program was 114,549,198 and 81,450,802 shares were available for repurchase under our program.

In fiscal 2020, our Chief Executive Officer (now Co-CEO) exercised all of his vested stock options through a cashless exercise.

As of July 31, 2023, the total number of shares repurchased to date under the program was 458,196,792, and subject to applicable limitations under Delaware law, 325,803,208 shares were available for repurchase under our program.

In fiscal 2021, certain employees exercised stock options through a cashless exercise.

In fiscal 2022, no employees exercised stock options through a cashless exercise.

In fiscal 2022 and 2023, no employees exercised stock options through a cashless exercise.

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

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FY 2021—Q4 360,000 4.43 49,464 117,396 193,140 32.25 3,786

FY 2021—Q4 90,000 17.73 12,366 29,349 48,285 129.01 3,786

FY 2022 — — — — — — —

FY 2023 — — — — — — —

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

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Dollar denominated borrowings with a Secured Overnight Financing Rate (”SOFR”) interest rate, and (g) changing the pricing levels with respect to the revolving loans as further described below.

We had no outstanding borrowings under the Revolving Loan Facility as of July 31, 2022 or 2021.

We had $11.0 million and $0.0 million outstanding borrowings under the Revolving Loan Facility as of July 31, 2023 and July 31, 2022, respectively.

The Credit Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Credit Agreement as of July 31, 2023.

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We may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes.

On May 24, 2022, the Company retired 100% of the Senior Notes .

The Company paid $420.6 million to retire the Senior Notes which included an additional $16.8 million make-whole payment, to the holders of the Senior Notes, and $3.8 million in accrued interest.

On May 24, 2022, we retired 100% of the Senior Notes .

We paid $420.6 million to retire the Senior Notes which included an additional $16.8 million make-whole payment, to the holders of the Senior Notes, and $3.8 million in accrued interest.

For further detail on both the Credit Agreement and Note Purchase Agreement, see Notes to Consolidated Financial Statements, Note 9 — Long-Term Debt .

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Within this revenue category, our primary performance obligation is the auctioning of consigned vehicles through an online auction process.

These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle;

These auction and auction related services may include a combination of vehicle purchasing fees, vehicle

listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle;

transportation fees for the cost of transporting the vehicle to or from our facility;

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We do not take ownership of these consigned vehicles which are stored at our facilities located throughout the U.S.

and at its international locations.

and international locations.

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

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The contract asset costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within general and administrative expenses in the accompanying consolidated statements of income.

Uncertain Tax Positions

In determining net income for financial statement purposes, we must make certain estimates and judgments in the calculation of tax provisions and the resultant tax liabilities.

In the ordinary course of global business, there may be transactions and calculations where the ultimate tax outcome is uncertain.

In addition, our actual and forecasted earnings are subject to change due to economic, political and other conditions, such as new COVID-19 variants.

Our effective tax rates could be affected by numerous factors such as changes in our business operations;

acquisitions;

entry into new businesses and geographies;

intercompany transactions;

the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates;

losses incurred in jurisdictions for which we are not able to realize related tax benefits;

the applicability of special tax regimes;

changes in foreign currency exchange rates;

changes in our stock price;

changes to our forecasts of income and loss and the mix of jurisdictions to which they relate;

changes in our deferred tax assets and liabilities and their valuation;

changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework;

and other laws and accounting rules in various jurisdictions.

In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals.

The calculation of tax liabilities involves dealing with uncertainties in the interpretation and application of complex tax laws, and significant judgment is necessary to (i) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (ii) measure the amount of tax benefit that qualifies for recognition.

Development in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

We recognize potential liabilities for anticipated tax audit issues in the U.S.

and other tax jurisdictions based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due.

Although we believe the estimates are reasonable, no assurance can be given

that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals.

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

In determining net income for financial statement purposes, we must make certain estimates and judgments in the

calculation of tax provisions and the resultant tax liabilities.

Deferred income tax assets and liabilities are recognized based on differences between the financial reporting and income tax basis of assets and liabilities and are measured using the tax rates and laws enacted at the time of such determination.

We regularly review our deferred tax assets for recoverability and a valuation allowance is provided when it is more likely than not that some portion of a deferred tax asset will not be realized.

In assessing the need for a valuation allowance, we make estimates and assumptions regarding projected future taxable income, the reversal of deferred tax liabilities and implementation of tax planning strategies.

Changes in our assumptions could cause an increase or decrease to the valuation allowance resulting in an increase or decrease in our effective tax rate.

We recognize liabilities when we determine a tax position is not more likely than not to be sustained upon examination by the tax authorities.

We use significant judgment in determining whether a tax position's technical merits are more likely than not to be sustained and in measuring the amount of tax benefit that qualifies for recognition.

We recognize penalties and interest accrued related to income taxes as a component of the provision for income taxes.

Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals.

We recognize liabilities, if any, related to global low-taxed intangible income (“GILTI”) in the year in which the liability arises and not as a deferred tax liability.

Recently Issued Accounting Standards

1 unchanged sentence

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 7. Management’s Discussion and Analysis