Item 15. Exhibits and Financial Statement Schedules

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

						Page
(a)		1.		Financial Statements: Index to Consolidated Financial Statements
				Report of Independent Registered Public Accounting Firm			59
				Consolidated Balance Sheets at July 31, 2008 and 2007			60
				Consolidated Statements of Income for the three years ended July 31, 2008, 2007 and 2006			61
				Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended July 31, 2008, 2007 and 2006			62
				Consolidated Statements of Cash Flows for the years ended July 31, 2008, 2007 and 2006			63
				Notes to Consolidated Financial Statements			64
		2.		Financial Statement Schedules: All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
		3.		Exhibits: The following Exhibits are filed as part of, or incorporated by reference into this report.

Number			Description
	3.1		Amended and Restated Articles of Incorporation of the registrant(4)
	3.1b		Certificate of Amendment of Articles of Incorporation(4)
	3.2		Bylaws of the registrant, as amended(3)
	3.2b		Certificate of Amendment of Bylaws(12)
	3.3		Certificate of Determination of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Copart, Inc.(8)
	3.4		Certificate of Amendment of Bylaws(10)
	4.1		Preferred Stock Rights Agreement, dated as of March 6, 2003, between the Company and Equiserve Trust Company, N.A., including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively.(8)
	10.1*		Copart, Inc. 1992 Stock Option Plan, as amended(2)
	10.2*		1994 Employee Stock Purchase Plan (as amended December 8, 2003) with form of Subscription Agreement(11)
	10.3*		1994 Director Option Plan, with form of Subscription Agreement(11)
	10.4*		Copart, Inc. 2001 Stock Option Plan(6)
	10.5		Form of Indemnification Agreement, signed by Executive Officers and Directors and the registrant(7)
	10.6		General lease dated as of December 29, 1997 between Robert Arthur Gomes and Robert Paul Gomes and Copart of Connecticut, Inc.(7)
	10.7		Standard Industrial/Commercial single-tenant lease-net dated as of December 23, 1998 between Wickland Oil Martinez and the registrant(7)

	10.8		Lease agreement dated as of September 14, 2001 between Woodmich L.L.C. and the registrant(7)
	10.10		Aircraft lease dated as of April 11, 2002 between Fleet Capital Corporation and the registrant(7)
	10.11		Amendment No. 1 dated November 1, 2004, to Stock Option Agreement dated as of October 6, 2003 between the registrant and Marvin L. Schmidt(13)
	10.12*		Copart Inc. 2007 Equity Incentive Plan(15)
	10.13		Form of Performance Share Award Agreement(15)
	10.14		Form of Restricted Stock Unit Award Agreement(15)
	10.15		Form Restricted Stock Award Agreement(15)
	10.16		Form of Stock Option Award Agreement(15)
	10.17		Credit Agreement, dated as of March 6, 2008, by and between Copart, Inc. and Bank of America, N.A.(16)
	14.01		Code of Ethics for Principal Executive and Senior Financial Officers (adopted September 30, 2003)(9)
	14.02		Copart, Inc. Code of Business Conduct (as amended June 5, 2007)(14)
	21.1		List of subsidiaries of registrant**
	23.1		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm**
	24.1		Power of Attorney (included on page 58)
	31.1		Certification of Willis J. Johnson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
	31.2		Certification of William E. Franklin, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
	32.1		Certification of Willis J. Johnson, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
	32.2		Certification of William E. Franklin, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

(1)

Incorporated by reference from exhibit to registrant's Registration Statement on Form S-1, originally filed on January 19, 1994, as amended (File No. 33-74250).

(2)

Incorporated by reference from exhibit to registrant's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 31, 1999.

(3)

Incorporated by reference from exhibit to registrant's Form 10-K for its fiscal year ended July 31, 1995, filed with the Securities and Exchange Commission on October 21, 1995.

(4)

Incorporated by reference from exhibit to registrant's Form 10-K for its fiscal year ended July 31, 2000, filed with the Securities and Exchange Commission on October 26, 2000.

(5)

Incorporated by reference from exhibit to registrant's Form 10-Q for the quarter ended January 31, 2001, filed with the Securities and Exchange Commission on March 16, 2001.

(6)

Incorporated by reference from exhibit to registrant's Form 10-Q for the quarter ended January 31, 2002, filed with the Securities and Exchange Commission on March 18, 2002.

(7)

Incorporated by reference from exhibit to registrant's Form 10-K for its fiscal year ended July 31, 2002, filed with the Securities and Exchange Commission on October 29, 2002.

(8)

Incorporated by reference from exhibit to registrant's Form 8-A12/G filed with the Securities and Exchange Commission on March 11, 2003.

(9)

Incorporated by reference from exhibit to registrant's Form 10 K for its fiscal year ended July 31, 2003, filed with the Securities and Exchange Commission on October 17, 2003.

(10)

Incorporated by reference from exhibit to registrant's Form 10-Q for the quarter ended October 31, 2003, filed with the Securities and Exchange Commission on December 15, 2003.

(11)

Incorporated by reference from exhibit to registrant's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 6, 2004.

(12)

Incorporated by reference from exhibit to registrant's Form 10-K for its fiscal year ended July 31, 2004, filed with the Securities and Exchange Commission on October 14, 2004.

(13)

Incorporated by reference from exhibit to registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2004.

(14)

Incorporated by reference from exhibit to registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2007.

(15)

Incorporated by reference from exhibit to registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2007.

(16)

Incorporated by reference from exhibit to registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2008.

Denotes a compensation plan in which an executive officer participates

**

Filed herewith

(b)

Exhibits. See response to Item 15(a)(3) above.

(c)

Financial Statement Schedule. See response to Item 15(a)(2) above.

**SIGNATURES **

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

		Registrant
		COPART, INC.
		By:		/s/ WILLIS J. JOHNSON Willis J. Johnson Chief Executive Officer
September 29, 2008
		COPART, INC.
		By:		/s/ WILLIAM E. FRANKLIN William E. Franklin Chief Financial Officer
September 29, 2008

**POWER OF ATTORNEY **

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Willis J. Johnson and William E. Franklin, and each of them, as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

Signature		Capacity in Which Signed		Date
/s/ WILLIS J. JOHNSON Willis J. Johnson		Chief Executive Officer (Principal Executive Officer and Director)		September 29, 2008
/s/ WILLIAM E. FRANKLIN William E. Franklin		Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)		September 29, 2008
/s/ A. JAYSON ADAIR A. Jayson Adair		President and Director		September 29, 2008
/s/ JAMES E. MEEKS James E. Meeks		Director		September 29, 2008
/s/ STEVEN D. COHAN Steven D. Cohan		Director		September 29, 2008
/s/ DANIEL ENGLANDER Daniel Englander		Director		September 29, 2008
/s/ BARRY ROSENSTEIN Barry Rosenstein		Director		September 29, 2008
/s/ THOMAS W. SMITH Thomas W. Smith		Director		September 29, 2008

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM **

The Board of Directors and Shareholders of Copart, Inc.

We have audited the accompanying consolidated balance sheets of Copart, Inc. as of July 31, 2008 and 2007, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended July 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Copart, Inc. at July 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2008, in conformity with US generally accepted accounting principles.

As discussed in Note 1 to the Consolidated Financial Statements, effective August 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Copart, Inc.'s internal control over financial reporting as of July 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 25, 2008 expressed an unqualified opinion thereon.

		/s/ ERNST & YOUNG LLP

Sacramento, California September 25, 2008

**COPART, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

**

				July 31, 2008			July 31, 2007
ASSETS
Current assets:
	Cash and cash equivalents			$	38,954		$	107,621
	Short-term investments				—			102,625
	Accounts receivable, net				111,705			109,895
	Vehicle pooling costs				30,787			28,842
	Inventories				5,334			5,999
	Income taxes receivable				19,041			3,208
	Prepaid expenses and other assets				6,932			5,518
		Total current assets			212,753			363,708
Restricted cash and investments					—			9,148
Property and equipment, net					510,340			420,664
Intangibles, net					21,901			27,442
Goodwill					177,164			161,645
Deferred income taxes					2,319			7,785
Land purchase options and other assets					31,770			24,208
		Total assets		$	956,247		$	1,014,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities			$	88,883		$	85,082
	Book overdraft				17,502			9,256
	Deferred revenue				14,518			13,897
	Income taxes payable				4,005			3,930
	Deferred income taxes				2,768			3,219
	Other current liabilities				576			474
		Total current liabilities			128,252			115,858
Deferred income taxes					14,044			13,998
Income taxes payable					12,219			—
Other liabilities					2,736			3,878
		Total liabilities			157,251			133,734
Commitments and contingencies
Shareholders' equity:
	Common stock, no par value—180,000,000 shares authorized; 83,274,995 and 88,333,677 shares issued and outstanding at July 31, 2008 and 2007, respectively				316,673			206,126
Accumulated other comprehensive income					833			4,447
Retained earnings					481,490			670,293
		Total shareholders' equity			798,996			880,866
		Total liabilities and shareholders' equity		$	956,247		$	1,014,600

See accompanying notes to consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

**

				Years Ended July 31,
				2008			2007			2006
Revenues				$	784,848		$	560,680		$	528,571
Operating costs and expenses:
	Yard operations				462,589			293,898			298,023
	General and administrative				84,342			63,637			58,986
		Total operating expenses			546,931			357,535			357,009
		Operating income			237,917			203,145			171,562
Other income (expense):
	Interest expense				(209	)		(83	)		(72	)
	Interest income				7,761			13,727			8,182
	Other income, net				4,181			2,848			1,634
	Equity in losses of unconsolidated entity				—			(2,216	)		(6,784	)
		Total other income			11,733			14,276			2,960
		Income from continuing operations before income taxes			249,650			217,421			174,522
Income taxes					92,718			81,083			61,862
		Income from continuing operations			156,932			136,338			112,660
Discontinued operations:
		Loss from discontinued operations, net of income tax effects			—			—			(15,713	)
		Net income		$	156,932		$	136,338		$	96,947
Earnings per share—basic
		Income from continuing operations		$	1.80		$	1.50		$	1.24
		Loss from discontinued operations			—			—			(0.17	)
Basic net income per share				$	1.80		$	1.50		$	1.07
Weighted average common shares outstanding					87,412			90,651			90,372
Earnings per share—diluted
		Income from continuing operations		$	1.75		$	1.46		$	1.21
		Loss from discontinued operations			—			—			(0.17	)
Diluted net income per share				$	1.75		$	1.46		$	1.04
Diluted weighted average common shares outstanding					89,858			93,455			92,925

See accompanying notes to consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

(in thousands, except share amounts)

**

			Common Stock
			Accumulated Other Comprehensive Income (Loss)
			Outstanding Shares			Amount			Retained Earnings			Shareholders' Equity
Balances at July 31, 2005				90,337,643		$	272,017		$	354		$	437,008		$	709,379
	Net income			—			—			—			96,947			96,947
	Currency translation adjustment			—			—			(391	)		—			(391	)
	Comprehensive income															96,556
	Exercise of stock options, net of repurchased shares			389,800			5,421			—			—			5,421
	Employee share-based compensation and related tax benefit			—			5,847			—			—			5,847
	Shares issued for Employee Stock Purchase Plan			83,765			1,640			—			—			1,640
	Shares repurchased			(366,000	)		(8,873	)		—			—			(8,873	)
Balances at July 31, 2006				90,445,208			276,052			(37	)		533,955			809,970
	Net income			—			—			—			136,338			136,338
	Currency translation adjustment			—			—			4,484			—			4,484
	Comprehensive income															140,822
	Exercise of stock options, net of repurchased shares			817,140			10,867			—			—			10,867
	Employee share-based compensation and related tax benefit			—			7,244			—			—			7,244
	Shares issued for Employee Stock Purchase Plan			66,734			1,542			—			—			1,542
	Shares repurchased			(2,995,405	)		(89,579	)		—			—			(89,579	)
Balances at July 31, 2007				88,333,677			206,126			4,447			670,293			880,866
	Net income			—			—			—			156,932			156,932
	Currency translation adjustment			—			—			(3,614	)		—			(3,614	)
	Comprehensive income															153,318
	Exercise of stock options, net of repurchased shares			1,500,632			12,675			—			—			12,675
	Employee share-based compensation and related tax benefit			—			23,298			—			—			23,298
	Shares issued for Employee Stock Purchase Plan			56,450			1,711			—			—			1,711
	Share repurchase adjustment (Note 1)			—			95,449			—			(95,449	)		—
	Shares repurchased			(6,615,764	)		(22,586	)		—			(246,665	)		(269,251	)
	Adoption of FIN 48			—			—			—			(3,621	)		(3,621	)
Balances at July 31, 2008				83,274,995		$	316,673		$	833		$	481,490		$	798,996

See accompanying notes to consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) **

							Years Ended July 31,
							2008			2007			2006
Cash flows from operating activities:
	Net income						$	156,932		$	136,338		$	96,947
	Adjustments to reconcile net income to net cash provided by operating activities:
		Loss from discontinued operations						—			—			17,950
		Depreciation and amortization						42,804			37,089			31,456
		Allowance for doubtful accounts						349			416			548
		Deferred rent						(505	)		161			242
		Share-based compensation						6,356			3,424			3,530
		Loss on sale of property and equipment						123			219			655
		Deferred income taxes						5,690			(8,948	)		(4,120	)
		Equity in loss of unconsolidated entity						—			2,216			6,784
		Changes in operating assets and liabilities, net of effects from acquisitions:
			Accounts receivable					270			(2,416	)		(10,865	)
			Vehicle pooling costs					(784	)		1,104			(1,840	)
			Inventories					1,489			1,361			(419	)
			Prepaid expenses and other current assets					(991	)		1,388			1,463
			Land purchase options and other assets					(7,795	)		695			948
			Accounts payable and accrued liabilities					1,208			8,648			3,631
			Deferred revenue					619			(1,799	)		2,918
			Income taxes receivable					(21,674	)		(875	)		(2,064	)
			Income taxes payable					9,972			3,032			(7,248	)
				Net cash provided by operating activities from continuing operations				194,063			182,053			140,516
				Net cash provided by operating activities from discontinued operations				—			—			688
					Net cash provided by operating activities			194,063			182,053			141,204
Cash flows from investing activities:
	Purchases of short-term investments							(154,360	)		(921,750	)		(717,120	)
	Sales of short-term investments							256,985			967,850			568,395
	Restricted cash and purchases of short-term investments							9,148			(9,148	)		—
	Issuance of long term notes receivable							—			(2,250	)		—
	Purchases of property and equipment							(113,364	)		(76,847	)		(97,036	)
	Proceeds from sale of property and equipment							7,220			26,598			9,556
	Purchase of assets and liabilities in connection with acquisitions, net of cash acquired							(38,229	)		(120,014	)		(22,976	)
	Investment in unconsolidated entity							—			—			(8,892	)
				Net cash used in by investing activities from continuing operations				(32,600	)		(135,561	)		(268,073	)
				Net cash provided by investing activities from discontinued operations				—			—			158
					Net cash used in investing activities			(32,600	)		(135,561	)		(267,915	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options							12,675			10,865			5,421
	Proceeds from the issuance of Employee Stock Purchase Plan shares							1,711			1,542			1,640
	Repurchases of common stock							(269,251	)		(89,579	)		(8,873	)
	Excess tax benefit from share-based payment arrangements							16,942			3,820			2,317
	Change in book overdraft							8,246			4,721			4,180
	Principal payments on notes payable							—			(2,033	)		—
				Net cash (used in) provided by financing activities from continuing operations				(229,677	)		(70,664	)		4,685
				Net cash provided by financing activities from discontinued operations				—			—			—
					Net cash (used in) provided by financing activities			(229,677	)		(70,664	)		4,685
Effect of foreign currency translation								(453	)		668			(492	)
Net decrease in cash and cash equivalents								(68,667	)		(23,504	)		(122,518	)
Cash and cash equivalents at beginning of period								107,621			131,125			253,643
Cash and cash equivalents at end of period							$	38,954		$	107,621		$	131,125
Supplemental disclosure of cash flow information:
	Interest paid						$	117		$	16		$	—
	Cash paid for income taxes						$	85,010		$	84,247		$	71,542
Non-cash notes receivable from sales of discontinued operations							$	—		$	—		$	10,389

See accompanying notes to consolidated financial statements.

(1) Summary of Significant Accounting Policies

Basis of Presentation and Description of Business

Copart, Inc. was incorporated under the laws of the State of California in 1982. The consolidated financial statements of Copart, Inc. (the Company) include the accounts of the parent company and its wholly owned subsidiaries, including its foreign wholly owned subsidiaries Copart Canada, Inc. (Copart Canada) and Copart, UK (Copart UK). Significant intercompany transactions and balances have been eliminated in consolidation. Copart Canada was incorporated in January 2003 and Copart UK was incorporated in June 2007. Investments in companies in which the Company exercises significant influence, but the Company does not control (generally 20% to 50% ownership interest), are accounted for under the equity method of accounting. 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 Second Generation (VB2) Internet auction-style sales technology. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, we sell 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 remarketing services that expedite each stage of the salvage vehicle sales process and minimize administrative and processing costs and maximize the ultimate sales price.

Use of Estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 are used for, but not limited to, vehicle pooling costs, self-insured reserves, allowance for doubtful accounts, income taxes, revenue recognition, share-based compensation, long-lived asset impairment calculations and contingencies. Actual results could differ from those estimates.

Foreign Currency Translation

The functional currency of the Company is the US dollar. The Canadian dollar and the British pound are the functional currencies of the Company's subsidiaries, Copart Canada, and Copart UK, respectively, as they are the primary currencies within the economic environment in which each subsidiary operates. Assets and liabilities of the respective subsidiary's operations are translated into US dollars at period-end exchange rates, and revenues and expenses are translated into US dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary's financial statements are reported in other comprehensive income.

Fair Value of Financial Instruments

The amounts recorded for financial instruments in the Company's consolidated financial statements, which include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair values as of July 31, 2008 and 2007 due to the short-term nature of those instruments.

(1) Summary of Significant Accounting Policies (Continued)

Revenue Recognition

The Company provides a portfolio of services to its sellers and buyers that facilitate the sale and delivery of a vehicle from seller to buyer. These vehicle remarketing services include the ability to use its Internet sales technology and vehicle delivery, loading, title processing, preparation and storage. The Company evaluates multiple-element arrangements relative to the Company's buyer and seller agreements in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), which addresses accounting for multiple-element arrangements, and Staff Accounting Bulletin No. 104 Revenue Recognition (SAB104), which addresses revenue recognition for units of accounting.

The remarketing services the Company provides to the seller of a vehicle involve disposing of a vehicle on the seller's behalf and under most of the Company's current North American contracts, collecting the proceeds from the buyer. The Company is not entitled to any seller fees until the Company has collected the sales proceeds from the buyer for the seller and, accordingly, the Company recognizes revenue for seller services after service delivery and cash collection.

In certain cases, seller fees are not contingent upon collection of the seller proceeds from the buyer. However, the Company has determined that it is not able to separate the services into separate units of accounting because the Company does not have fair value for undelivered items. As a result, the Company does not recognize seller fees until the final seller service has been delivered, which occurs upon collection of the sales proceeds from the buyer for the seller.

Vehicle sales, where the Company purchases and remarkets vehicles on its own behalf are recognized in accordance with SAB 104 on the sale date, which is typically the point of high bid acceptance. Upon high bid acceptance, a legal binding contract is formed with the buyer, and the Company records the gross sales price as revenue.

The Company provides a number of services to the buyer of the vehicle, charging a separate fee for each service. Each of these services has been assessed under the criteria of EITF 00-21 to determine whether the Company has met the requirements to separate them into units of accounting within a multi-element arrangement. The Company has concluded that the sale service and the post-sale services are separate units of accounting. The fees for the auction service are recognized upon completion of the sale, and the fees for the post-sale services are recognized upon successful completion of those services using the residual method.

The Company also charges buyers an annual registration fee for the right to participate in its vehicle sales program, which is recognized ratably over the term of the arrangement, and relist and late-payment fees, which are recognized upon receipt of payment by the buyer. No provision for returns has been established, as all sales are final with no right of return, although the Company provides for bad debt expense in the case of non-performance by its sellers.

Yard Operations

Yard operations consist primarily of operating personnel (which includes yard management, clerical and yard employees), rent, contract vehicle towing, insurance, fuel and equipment maintenance and repair.

General and Administrative Expenses

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

(1) Summary of Significant Accounting Policies (Continued)

Advertising

All advertising costs are expensed as incurred and are included in general and administrative expenses on the Consolidated Statements of Income. Advertising expenses were $1.7 million, $0.7 million and $1.8 million in fiscal 2008, 2007 and 2006, respectively.

Other income

Other income consists primarily of interest income, gain and losses from the disposal of fixed assets, rental income and losses in an unconsolidated equity investment.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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.

The Company adopted the provisions of Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109 (FIN 48), as of August 1, 2007. For benefits to be realized, a tax position must be more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

As a result of the Company's adoption of FIN 48, the Company recognized a $3.6 million cumulative decrease to retained earnings. The Company also recognized a liability for unrecognized tax benefits of $13.3 million, of which $9.1 million (net of tax) would reduce the Company's effective tax rate if recognized in future periods. The interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. As of August 1, 2007, the Company had $2.6 million of accrued interest and penalties included in unrecognized tax benefits.

Net Income Per Share

Basic net income per share amounts were computed by dividing consolidated net income by the weighted average number of common shares outstanding during the period. 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, Cash Equivalents and Short-Term Investments

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 and money market accounts. Short-term investments consist primarily of AAA-rated auction rate securities with readily determinable fair market values and with original maturities in excess of three months. Auction rate securities are principally variable rate securities tied to short-term interest rates. Auction rate securities have interest rate resets through a modified Dutch auction, at predetermined short-term intervals, usually every 7, 28 or 35 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid

(1) Summary of Significant Accounting Policies (Continued)

during a given period is based upon the interest rate determined during the prior auction. Although these instruments are issued and rated as long-term securities, they are priced and traded as short-term securities because of the liquidity provided through the interest rate reset. As of July 31, 2008, the Company had no short-term investments.

The Company has classified its entire investment portfolio as available-for-sale. The Company views its available-for-sale securities as available for use in its current operations. The Company has classified auction rate securities as short-term, even though the stated maturity may be one year or more beyond the current balance sheet date. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported as a component of Shareholders' Equity and Comprehensive Income. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other than temporary. Realized gains and losses on investments are included in interest income.

Book Overdraft

As a result of maintaining a consolidated cash management system, the company utilizes controlled disbursement bank accounts. These accounts are funded as checks are presented for payment, not when checks are issued. The resulting book overdraft position is included in current liabilities.

Inventory

Inventories of purchased vehicles are stated at the lower of cost or estimated realizable value. Cost includes our cost of acquiring ownership of the vehicle. The cost of vehicles sold are charged to yard operations as sold.

Vehicle Pooling Costs

The Company defers in vehicle pooling costs certain yard and fleet expenses associated with vehicles consigned to and received by the Company but not sold as of the balance sheet date. The Company quantifies the deferred costs using a calculation that includes the number of vehicles at its facilities at the beginning and end of the period, the number of vehicles sold during the period and an allocation of certain yard operation costs of the period. The primary expenses allocated and deferred are certain facility costs, labor, transportation, and vehicle processing. If the allocation factors change, then yard and fleet expenses could increase or decrease correspondingly in the future. These costs are expensed as vehicles are sold in the subsequent periods on an average cost basis.

The operating results for the year ended July 31, 2006 were adversely affected by incremental costs, characterized as "abnormal" in Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, incurred as a result of hurricanes Katrina and Rita. These additional inventory-type costs, characterized as "abnormal" and charged to yard operations costs, were approximately $0.5 million and $14.1 million for the years ended July 31, 2007 and 2006, respectively. These costs included the additional subhauling, payroll, equipment and facilities expenses directly related to the operating conditions created by the hurricanes.

These costs did not include normal expenses associated with the increased unit volume created by the hurricanes, which are deferred until the sale of the units and are recognized as vehicle pooling costs on the balance sheet. As of July 31, 2007, all of the incremental salvage vehicles received as a result of the hurricanes had been sold.

(1) Summary of Significant Accounting Policies (Continued)

Accounts Receivable

Accounts receivable, which consist primarily of advance charges due from insurance companies and the gross sales price of the vehicle due from buyers, are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash.

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. The Company adheres to its investment policy when placing investments. The investment policy has established guidelines to limit the Company's exposure to credit expense by placing investments with high credit quality financial institutions, diversifying its investment portfolio, limiting investments in any one issuer or pooled fund and placing investments with maturities that maintain safety and liquidity. The Company places its cash and cash equivalents with high credit quality financial institutions. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand and, therefore, the Company believes that the financial risks associated with these financial instruments are minimal.

The Company performs ongoing credit evaluations of its customers, and generally does not require collateral on its accounts receivable. The Company estimates its allowances for doubtful accounts based on historical collection trends, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectibility of those balances and the allowance is adjusted accordingly. Past-due account balances are written off when the Company's internal collection efforts have been unsuccessful in collecting the amount 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.

In fiscal 2008, 2007 and 2006, State Farm Insurance accounted for 10%, 11% and 14%, respectively of the Company's revenues. At July 31, 2008 and 2007, State Farm Insurance accounted for 11% of accounts receivable. No other single customer accounted for more than 10% of our revenues for any period presented and at July 31, 2008 and 2007, no other single customer accounted for more than 10% of the Company's trade receivables.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and amortization. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the respective improvements, which is between 5 and 10 years. Significant improvements, which substantially extend the useful lives of assets are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of: 3 to 7 years for transportation and other equipment; 3 to 10 years for office furniture and equipment; and 15 to 40 years or the lease term, whichever is shorter, for buildings and improvements.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, a long-lived asset is initially measured at the lower of its carrying amount or fair value. An impairment loss is recognized when the estimated undiscounted future cash flows

(1) Summary of Significant Accounting Policies (Continued)

expected to be generated from the use of the asset are less than the carrying amount of the asset. The impairment loss is then calculated by comparing the carrying amount with its fair value, which is usually estimated using discounted cash flows expected to be generated from the use of the asset.

Goodwill and Other Identifiable Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, 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 performed its annual impairment test for goodwill during the fourth quarter utilizing a market value approach. The impairment test for identifiable intangible assets not subject to amortization is also performed annually or when impairment indicators exist, and consists of a comparison of the fair value of the intangible asset with its carrying amount. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate other long-lived assets.

Retained Insurance Liabilities

The Company is partially self-insured for certain losses related to medical, general liability, workers' compensation and auto liability. The Company's liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. While the Company believes these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from the Company's estimates, the Company's financial position, results of operations or cash flows could be impacted.

Share-Based Compensation

Effective August 1, 2005, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors based on estimated fair value. The Company adopted SFAS No. 123(R) using the modified-prospective transition method. Under this transition method, share-based compensation cost recognized in the fiscal years ended July 31, 2008, 2007 and 2006 includes share-based compensation expense for all share-based payment awards granted prior to, but not yet vested as of August 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 Accounting for Stock-Based Compensation, and share-based compensation expense for all share-based payment awards granted subsequent to August 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the input assumptions can materially affect their fair value estimate, it is the Company's opinion that the existing models do not necessarily provide a reliable single measure of the fair value of the employee stock options.

(1) Summary of Significant Accounting Policies (Continued)

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following assumptions:

		July 31, 2008			July 31, 2007			July 31, 2006
Expected life (in years)			4.7 - 6.7			4.7 - 6.7			4.9 - 6.5
Risk-free interest rate			3.4 - 4.4	%		4.6 - 4.9	%		4.2 - 5.0	%
Estimated volatility factor			31 - 32	%		31 - 32	%		36 - 42	%
Expected dividends			0	%		0	%		0	%
Weighted-average fair value at grant date		$	13.81		$	10.17		$	10.74

Expected life—The Company's expected life represents the period that the Company's share-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share-based awards.

Estimated volatility factor—The Company uses the trading history and implied volatility of its common stock in determining an estimated volatility factor when using the Black-Scholes option-pricing formula to determine the fair value of options granted.

Expected dividend—The Company has not declared dividends. Therefore, the Company uses a zero value for the expected dividend value factor when using the Black-Scholes option- pricing formula to determine the fair value of options granted.

Risk-free interest rate—The Company bases the risk-free interest rate used in the Black-Scholes option-pricing formula on the implied yield currently available on US Treasury zero-coupon issues with the same or substantially equivalent remaining term.

Estimated forfeitures—When estimating forfeitures, the Company considers voluntary and involuntary termination behavior as well as analysis of actual option forfeitures.

Net cash proceeds from the exercise of stock options were approximately $12.7 million, $10.9 million and $5.4 million for the years ended July 31, 2008, 2007, and 2006, respectively. The Company realized an income tax benefit of approximately $16.9 million, $3.8 million, and $2.3 million from stock option exercises during the years ended July 31, 2008, 2007, and 2006, respectively. In accordance with SFAS 123(R), the Company presents excess tax benefits from disqualifying dispositions of the exercise of incentive stock options, vested prior to August 1, 2005, if any, as financing cash flows rather than operating cash flows.

Comprehensive Income

Comprehensive income includes all changes in shareholders' equity during a period from non-shareholder sources.

Segment Reporting

The Company operates in a single segment providing vehicle sellers, primarily insurance companies, with a full range of services to process and sell salvage vehicles over the Internet through its Virtual Bidding Second Generation (VB2) Internet auction-style sales technology (refer to Note 14).

(1) Summary of Significant Accounting Policies (Continued)

Reclassifications

For the year ended July 31, 2008, the Company recorded a $95 million reclassification between its common stock and retained earnings accounts in accordance with Accounting Principles Board Opinion No. 6, Status of Accounting Research Bulletins.

The Company recorded a $17.5 million and $9.3 million reclassification on the consolidated balance sheets for the years ending July 31, 2008 and 2007, respectively. The Company recorded an $8.2 million, $4.7 million and $4.2 million reclassification on the consolidated statements of cash flows for the years ending July 31, 2008, 2007 and 2006, respectively. These reclassifications were made to reflect the correction in accounting for book overdraft. The reclassifications had no impact on the Company's consolidated statements of income or consolidated statements of shareholders' equity and comprehensive income.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential impact on its consolidated results of operations and financial position.

In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities to fiscal periods beginning after November 15, 2008. As a result, the Company has delayed application of SFAS 157 to its nonfinancial assets and nonfinancial liabilities, which include assets and liabilities acquired in connection with a business combination, goodwill and intangible assets. The Company is currently evaluating the impact of SFAS 157 for nonfinancial assets and liabilities on its consolidated results of operations and financial position

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred: for example, debt issue costs. The fair value election is irrevocable and generally made on an instrument- by- instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of fiscal 2009. The Company is currently determining whether fair value accounting is appropriate for any of its eligible items and cannot estimate the impact, if any, which SFAS 159 will have on its consolidated results of operations and financial position.

In December 2007, the EITF issued Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 is effective for financial statements issued for fiscal years beginning after

(1) Summary of Significant Accounting Policies (Continued)

December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. EITF 07-1 requires that transactions with third parties (i.e., revenue generated and costs incurred by the partners) should be reported in the appropriate line item in each company's financial statement pursuant to the guidance in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. EITF 07-1 also includes enhanced disclosure requirements regarding the nature and purpose of the arrangement, rights and obligations under the arrangement, accounting policy, amount and income statement classification of collaboration transactions between the parties. The Company is currently evaluating the impact that EITF 07-1 will have on its consolidated results of operations and financial position.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (SFAS 141(R)) which provides revised guidance on the accounting for acquisitions of businesses. This standard changes the current guidance to require that all acquired assets, liabilities, minority interest and certain contingencies be measured at fair value, and certain other acquisition-related costs be expensed rather than capitalized. SFAS 141(R) will apply to acquisitions that are effective after December 31, 2008, and application of the standard to acquisitions prior to that date is not permitted. In the event of an acquisition, the Company will need to evaluate whether or not SFAS 141(R) will have a material impact on its consolidated results of operations and financial position.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, (SFAS 160) which provides guidance on the presentation of minority interests in the financial statements. This standard requires that minority interest be presented as a component of equity rather than as a "mezzanine" item between liabilities and equity, and also requires that minority interests be presented as a separate caption in the income statement. This standard also requires all transactions with minority interest holders, including the issuance and repurchase of minority interests, be accounted for as equity transactions unless a change in control of the subsidiary occurs. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not believe SFAS 160 will have a material impact on its consolidated results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under SFAS 161, entities are required to provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS 133 for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the potential impact on its consolidated results of operations and financial position.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. During fiscal 2009, the Company will be evaluating the impact of the pending adoption of FSP FAS 142-3 on its fiscal year 2010 consolidated results of operations and financial condition.

(2) Acquisitions

Fiscal 2008 Transactions

In April 2008, the Company completed the acquisition of Simpson Bros. (York) Holdings Limited, a UK limited liability company (Simpson), which operates one location in York, England. Simpson's primary business activity was the dismantling of automobiles and the sales of salvaged auto parts. In February 2008, the Company completed the purchase of AG Watson Auto Salvage & Motors Spares (Scotland) Limited (AG Watson) which operates two salvage locations in Scotland and two salvage locations in northern England. In August 2007, the Company completed the acquisition of Century Salvage Sales Limited (Century), a vehicle salvage disposal company with three facilities located in the UK. In April 2008, the Company acquired Bob Lowe Salvage Pool, Inc. Bob Lowe Salvage Pool, Inc. operated one salvage location near Sikeston, Missouri. These acquisitions were completed because of their strategic fit and have been accounted for using the purchase method in accordance with SFAS No. 141, Business Combinations, which has resulted in the recognition of goodwill in the Company's consolidated financial statements. This goodwill arises because the purchase price for the acquisitions reflect a number of factors including future earnings and cash flow potential; the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers; the competitive nature of the process by which the Company acquired the businesses; and because of the complementary strategic fit and resulting synergies they bring to existing operations. In accordance with SFAS 141, the assets acquired and liabilities assumed have been recorded at their estimated fair values. The consideration paid for these acquisitions consisted of approximately $38.2 million in cash, net of cash acquired. The acquired net assets consisted principally of accounts receivable, inventories and vehicle pooling costs, property and equipment, goodwill, accounts payable, deferred tax liabilities, taxes payable, and covenants not to compete. The acquisitions were accounted for using the purchase method of accounting, and the operating results subsequent to the acquisition dates are included in the Company's consolidated statements of income. The excess of the purchase price over the fair market value of the net identifiable assets acquired of $13.9 million has been recorded as goodwill. The Company estimates the entire goodwill balance relating to these acquisitions will be deductible for tax purposes. In addition, the Company paid $0.6 million for covenants not to compete relating to these acquisitions, which are being amortized over five years.

The accompanying consolidated financial statements reflect a combined preliminary allocation of the purchase price for these acquisitions, which is summarized as follows (in thousands):

Tangible assets:
	Cash		$	18,417
	Accounts receivable			2,951
	Inventories and vehicle pooling cost			2,579
	Property and equipment			21,968
	Other tangible assets			437
Total tangible assets				46,352
Total intangible assets				4,848
Goodwill				13,903
Liabilities assumed:
	Accounts payable			(3,093	)
	Deferred tax liability			(2,964	)
	Taxes payable			(2,400	)
Total liabilities assumed				(8,457	)
Net assets acquired			$	56,646

(2) Acquisitions (Continued)

Pro-forma Financial Information

Pro forma financial information for the fiscal 2008 acquisitions does not result in a significant change from actual results.

Fiscal 2007 Transactions

In June 2007, the Company completed the acquisition of Universal Salvage plc (Universal) (the Acquisition). Universal, based in the UK, operates seven salvage yards in the UK and is a leading service provider to the motor insurance and automotive industries. Universal specializes in the disposal of accident-damaged, End-of-Life and fee-based non-salvage vehicles. The Acquisition was completed because of its strategic fit with the North American business. The Acquisition has been accounted for using the purchase method in accordance with SFAS No. 141, which has resulted in the recognition of goodwill in the Company's consolidated financial statements. This goodwill arises because the purchase price for Universal reflects a number of factors including its future earnings and cash flow potential; the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the process by which the Company acquired the business; and because of the complementary strategic fit and resulting synergies it brings to existing operations.

In accordance with SFAS No. 141, Universals' net assets acquired and liabilities assumed have been recorded at their fair value. The aggregate purchase price of $120.0 million based on currency exchange rates on June 14, 2007 was funded from the Company's available cash resources. In addition, the Company assumed liabilities of $35.8 million, which included outstanding indebtedness of Universal totaling approximately $4.5 million.

The accompanying consolidated financial statements reflect the final allocation of the purchase price, which is summarized as follows (in thousands):

Tangible assets:
	Cash		$	16
	Accounts receivable			9,834
	Inventories and vehicle pooling cost			7,914
	Property and equipment			65,178
Total tangible assets				82,942
Total intangible assets				22,192
Goodwill				50,693
Liabilities assumed:
	Accounts payable			(16,058	)
	Current maturities of long-term debt			(2,231	)
	Long-term debt			(2,296	)
	Deferred tax liability			(14,912	)
	Other			(316	)
Total liabilities assumed				(35,813	)
Net assets acquired			$	120,014

The Company has allocated approximately $22.2 million to identifiable intangible assets. The intangible assets include finite lived supply contracts, tradenames, software, licenses and databases, which are being amortized over their estimated useful lives, ranging from one to ten

(2) Acquisitions (Continued)

years. Goodwill of $50.7 million recognized in the Acquisition is not expected to be deductible for tax purposes.

The Company has included the operating results of Universal in its consolidated financial statements from the date of acquisition.

Pro-forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and the results of Universal prior to the Acquisition, on a pro forma basis, as though the companies had been combined as of August 1, 2005 for each period presented. Pro forma financial information for our other acquisitions have not been presented, as the effects were not material to our historical consolidated financial statements either individually or in aggregate. The pro forma financial information for all periods presented also includes the business combination accounting effect on conforming Universal's revenue recognition policy to the Company's, adjustments related to the fair value of acquired inventory and fixed assets, amortization charges from acquired intangible assets, and related tax effects of these adjustments. The following pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results (unaudited, in thousands, except per share amounts):

		Years Ended July 31,
		2007			2006
Total revenues		$	643,181		$	621,501
Operating income		$	204,930		$	167,307
Income before income taxes		$	215,747		$	169,546
Net income		$	133,222		$	94,612
Earnings per share		$	1.47		$	1.05
Diluted earnings per share		$	1.43		$	1.02

Fiscal 2006 Transactions

During fiscal 2006, the Company made the following three acquisitions: Auto Auction Associates of Montana, Inc., Heartland Insurance Pool, Inc. and Central Penn Sales, LLC. These three companies consisted of seven separate facilities. The consideration paid for these acquisitions consisted of $23.0 million in cash. The acquired net assets consisted of accounts and advances receivable, vehicle pooling costs, fixed assets, land, buildings, goodwill, and covenants not to compete. The acquisitions were accounted for using the purchase method of accounting, and the operating results subsequent to the acquisition dates are included in the Company's consolidated statements of income. These new facilities contributed $6.9 million of revenues during fiscal 2006. The excess of the purchase price over the fair market value of the net identifiable assets acquired of $19.0 million has been recorded as goodwill. The Company estimates the entire goodwill balance relating to these acquisitions will be deductible for tax purposes. In addition, the Company paid $1.3 million for covenants not to compete relating to these acquisitions, which are being amortized over five to seven years. In conjunction with the Central Penn Sales acquisition, the Company entered into leases for the use of these facilities at fair value.

Pro forma financial information for the fiscal 2006 acquisitions does not result in a significant change from actual results.

(3) Discontinued Operations and Goodwill Impairment

During fiscal 2006, the Company adopted a formal plan to discontinue the operations of Motors Auction Group (MAG) and dispose of or convert the related assets. The MAG yards to be converted into salvage facilities will continue to be included in the results of continuing operations on the income statements.

Under SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test or on an interim basis if certain indicators are present. The discontinuation of an operating segment is one of those indicators. Accordingly, goodwill was tested for impairment in accordance with the provisions of SFAS No. 142 during the second quarter of 2006. The Company used a combination of valuation techniques, which included consideration of market-based approaches and an income approach, in determining the fair value of the Company's applicable reporting unit in the interim impairment test of goodwill.

The impairment test indicated that the carrying value of the MAG goodwill exceeded its implied fair value. The corresponding write-down of goodwill of $21.8 million to its fair value was reported as a component of discontinued operations in the accompanying consolidated statements of income. The Company also determined that the value of the remaining MAG covenants not to compete was impaired and recorded an impairment charge in the amount of $0.5 million. This write-down of covenants not to compete is also reported as a component of discontinued operations in the accompanying consolidated statements of income.

During the second quarter of fiscal 2006, the Company sold the business and related assets of one of the MAG locations for approximately $0.1 million. During the third quarter, the Company sold the business and related assets including the real estate of a second MAG location. The Company received a $12 million promissory note from the buyer as purchase consideration. The promissory note is reflected in land purchase options and other assets at its net present value in the accompanying consolidated balance sheet at July 31, 2008 and 2007. The promissory note bears interest at 7% per annum. Interest only payments on the note are due monthly until maturity on May 28, 2011, at which time the balance of the note is due in full. The note receivable is collateralized by the real estate and is personally guaranteed by the buyer. The buyer is in compliance with the terms of the promissory note and the Company believes the note amount is fully recoverable. The consideration was allocated to the real estate, based on an appraisal, and to the business in proportion to their estimated fair values. The portion of the consideration allocated to the real estate sale totaled $7.1 million. The Company deferred a gain on the sale of the real estate of approximately $2.5 million that will be recognized upon payment of the principal balance of the note receivable. The remaining consideration of $4.9 million is allocated to the sale of the business. The Company recognized a gain on the sale of the business of approximately $3.0 million, which is included in the results of the discontinued operations. During the fourth quarter of fiscal 2006, the Company sold the remainder of the business and related assets excluding the real estate of another MAG location. The Company received a $1.2 million promissory note and $0.2 million in cash from the buyer as purchase consideration. The buyer is in compliance with the terms of the promissory note and the Company believes the note amount is fully recoverable. The promissory note is reflected in land purchase options and other assets at its net present value in the accompanying consolidated balance sheet at July 31, 2007 and 2006. The Company recognized a gain on the sale of the business of approximately $1.3 million, which is included in the results of discontinued operations. As of July 31, 2006, no MAG locations remained. Three of the original six MAG locations were sold and three were converted into salvage facilities.

(3) Discontinued Operations and Goodwill Impairment (Continued)

Summarized results of operations for MAG is set forth below (in thousands):

		Years Ended July 31,
		2008			2007			2006
Revenues		$	—		$	—		$	6,351
Loss before income taxes			—			—			(17,950	)
Income tax expense			—			—			2,237
Net loss from discontinued operations		$	—		$	—		$	(15,713	)

The net carrying values of the assets that were sold, and the related goodwill and other intangibles that were impaired, during fiscal 2006 totaled approximately $28.7 million as of July 31, 2005. This balance consisted of approximately $23.1 million of goodwill, $5.0 million of property and equipment and $0.6 million of intangibles.

(4) Short-term Investments

Short-term investments consist of the following (in thousands):

			July 31,
			2008			2007
Available-for-sale securities:
	Auction rate securities		$	—		$	102,625
			$	—		$	102,625

(5) Accounts Receivable, Net

Accounts receivable consists of the following (in thousands):

		July 31,
		2008			2007
Advance charges receivable		$	74,319		$	72,628
Trade accounts receivable			39,492			37,891
Other receivables			494			1,627
			114,305			112,146
Less allowance for doubtful accounts			(2,600	)		(2,251	)
		$	111,705		$	109,895

Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the Company will be reimbursed when the vehicle is sold. Trade accounts receivable includes fees and gross proceeds to be collected from insurance companies and buyers.

(5) Accounts Receivable, Net (Continued)

The movements in the allowance for doubtful accounts is as follows (in thousands):

Description and Fiscal Year		Balance at Beginning of Year			Charged to Costs And Expenses			Deductions Applications to Bad Debt			Balance at End of Year
Allowance for doubtful accounts:
July 31, 2008		$	2,251		$	1,174		$	(825	)	$	2,600
July 31, 2007		$	1,820		$	2,097		$	(1,666	)	$	2,251
July 31, 2006		$	1,272		$	1,555		$	(1,007	)	$	1,820

(6) Property and Equipment, Net

Property and equipment consists of the following (in thousands):

		July 31,
		2008			2007
Transportation and other equipment		$	61,349		$	23,847
Office furniture and equipment			48,269			44,534
Land			261,320			218,144
Buildings and leasehold improvements			333,154			296,860
			704,092			583,385
Less accumulated depreciation and amortization			(193,752	)		(162,721	)
		$	510,340		$	420,664

Depreciation expense on property and equipment was approximately $37.2 million, $35.0 million and $30.8 million for the fiscal years ended July 31, 2008, 2007 and 2006 respectively.

(7) Goodwill

The change in carrying amount of goodwill is as follows (in thousands):

Balance as of July 31, 2006		$	112,291
Goodwill relating to Universal acquisition during the period (refer Note 2)			49,354
Balance as of July 31, 2007			161,645
Goodwill relating to acquisitions during the period (refer Note 2)			13,903
Purchase price allocation adjustments			1,616
Balance as of July 31, 2008		$	177,164

In accordance with the guidance in SFAS No. 142, goodwill is not amortized. Instead, it is tested for impairment on an annual basis or more frequently upon the occurrence of circumstances that indicate that goodwill may be impaired. The Company's annual impairment tests were performed in the fourth quarter of fiscal 2008 and 2007. The annual results of these tests indicated that goodwill was not impaired. The assessment measured the amount by which the carrying amount of goodwill exceeded the market value of the Company's sole reporting unit. Refer to Note 3, for additional discussion related to the impairment of goodwill from discontinued operations recognized during fiscal 2006. As of July 31, 2008, the cumulative amount of goodwill impairment losses recognized totaled $21.8 million

(8) Intangibles, Net

Intangible assets consists of the following (in thousands, except remaining useful life):

		July 31 , 2008
		Gross carrying Amount			Accumulated amortization			Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete		$	10,697		$	(9,347	)		2
Supply contracts			25,239			(5,539	)		5
Software			840			(173	)		1
Licenses and databases			388			(204	)		1
		$	37,164		$	(15,263	)

		July 31 , 2007
		Gross carrying Amount			Accumulated amortization			Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete		$	10,071		$	(8,887	)		3
Supply contracts			21,889			(421	)		6
Tradename			2,964			(35	)		10
Software			1,780			(202	)		1
Licenses and databases			318			(35	)		1
		$	37,022		$	(9,580	)

Aggregate amortization expense on intangible assets was approximately $5.8 million, $1.4 million and $0.7 million for the fiscal years ended July 31, 2008, 2007, and 2006, respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2008 intangible assets is expected to be as follows (in thousands):

2009		$	4,867
2010			4,778
2011			4,499
2012			4,045
2013			3,505

(9) Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following (in thousands):

		July 31,
		2008			2007
Trade accounts payable		$	13,193		$	13,392
Accounts payable to insurance companies			37,294			39,421
Accrued insurance			5,172			4,312
Accrued compensation and benefits			18,012			16,824
Other accrued liabilities			15,212			11,133
		$	88,883		$	85,082

The Company is partially self-insured for certain losses related to general liability, workers' compensation and auto liability. Accrued insurance liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data, including the severity of our frequency of claims, actuarial estimates and is reviewed periodically by management to ensure that the liability is appropriate.

(10) Long-Term Debt

On March 6, 2008, the Company entered into an unsecured credit agreement with Bank of America, N.A. (the Credit Agreement) providing for a $200 million revolving credit facility (the Credit Facility), including a $100 million foreign currency borrowing sublimit and a $50 million letter of credit sublimit. Amounts borrowed under the Credit Facility may be used for repurchases of stock, capital expenditures, working capital and other general corporate purposes. The Credit Facility matures and all outstanding borrowings are due on the fifth anniversary of the Credit Agreement (the Maturity Date), with annual reductions in availability of $25 million on each of the first three anniversaries of the Credit Agreement. Amounts borrowed under the Credit Facility may be repaid and reborrowed until the Maturity Date and bear interest, at the Company's option, at either Eurocurrency Rate plus 0.5% to 0.875%, depending of the leverage ratio, as defined in the Credit Agreement, at the end of the previous quarter or at the US Prime Rate. A default interest rate applies on all obligations during an event of default under the Credit Facility at a rate per annum equal to 2.0% above the otherwise applicable interest rate. The Credit Facility requires the Company to pay a commitment fee on the unused portion of the Credit Facility. The commitment fee ranges from 0.075% to 0.15% depending on the leverage ratio as of the end on the previous quarter. The Credit Facility contains customary representations and warranties and places certain business operating restrictions on the Company relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, and dividends, distributions and redemptions of capital stock. In addition, the Credit Agreement provides for a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-defaults to certain other indebtedness, bankruptcy and insolvency defaults, material judgments, invalidity of the loan documents and events constituting a change of control. The Credit Facility is guaranteed by the Company's material domestic subsidiaries. As of July 31, 2008, there was no outstanding balance under the Credit Facility.

As part of our acquisition of Universal on June 14, 2007, the Company acquired three credit facilities with National Westminster Bank Plc. The first facility provides approximately $8.0 million in overdraft protection and working capital. The second and third facilities of approximately $6.0 and

(10) Long-Term Debt (Continued)

$10.0 million, respectively, provide liquidity for acquisitions and investments. Each of these facilities carries an interest rate of the bank's index, which was 5.75% at July 31, 2008, plus .75% and is collateralize by real property. At July 31, 2008, there were no amounts borrowed under these facilities.

(11) Shareholders' Equity

General

The Company has authorized the issuance of 180 million shares of common stock, no par value, of which approximately 83,274,995 shares were issued and outstanding at July 31, 2008. As of July 31, 2008 and 2007, the Company has reserved 4,253,053 and 1,337,337 shares of common stock, respectively, for the issuance of options granted under the Company's stock option plans and 926,175 and 982,626 shares of common stock, respectively, for the issuance of shares under the Copart, Inc. Employee Stock Purchase Plan (ESPP). The Company has authorized the issuance of 5 million shares of preferred stock, no par value, none of which were issued or outstanding at July 31, 2008.

Stock Repurchase

In October 2007, the Company's Board of Directors approved a 20 million share increase in its stock repurchase program bringing the total current number of shares authorized for repurchase to 29 million shares. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the share repurchase program. 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 the year ended July 31, 2008, the Company repurchased 6,615,764 shares at a weighted average price of $40.70. For the year ended July 31, 2007, the Company repurchased 2,995,405 shares at a weighted average price of $29.91. For the year ended July 31, 2006, the Company repurchased 366,000 shares at a weighted average price of $24.24. The total number of shares repurchased under the program as of July 31, 2008 was 13,649,469, leaving 15,350,531 million available under the repurchase program.

Employee Stock Purchase Plan

The ESPP provides for the purchase of up to an aggregate of 2.5 million shares of common stock of the Company by employees pursuant to the terms of the ESPP. The Company's ESPP was adopted by the Board of Directors and approved by the shareholders in 1994. The ESPP was amended and restated in 2003 and again approved by the shareholders. Under the ESPP, employees of the Company who elect to participate have the right to purchase common stock at a 15 percent discount from the lower of the market value of the common stock at the beginning or the end of each six month offering period. The ESPP permits an enrolled employee to make contributions to purchase shares of common stock by having withheld from their salary an amount up to 10 percent of their compensation (which amount may be increased from time to time by the Company but may not exceed 15% of compensation). No employee may purchase more than $25,000 worth of common stock (calculated at the time the purchase right is granted) in any calendar year. The Compensation Committee of the Board of Directors administers the ESPP. The number of shares of common stock issued pursuant to the ESPP during each of fiscal 2008, 2007 and 2006 was 56,450, 66,734 and 83,765, respectively. As of July 31, 2008, 1,573,825 shares of common stock have been issued pursuant to the ESPP and 926,175 shares remain available for purchase under the ESPP.

(11) Shareholders' Equity (Continued)

Stock Options

In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (Plan), presently covering an aggregate of 4.0 million shares of the Company's common stock. The Plan provides for the grant of incentive stock options, restricted stock, restricted stock units and other equity-based awards to employees and non-qualified stock options to employees, officers, directors and consultants at prices not less than 100% and 85% of the fair market value for incentive and non-qualified stock options, respectively, as determined by the Board of Directors at the grant date. Incentive and non-qualified stock options may have terms of up to ten years and vest over periods determined by the Board of Directors. Options generally vest ratably over a five-year period. The Plan replaced the Company's 2001 Stock Option Plan. At July 31, 2008, 3,956,819 shares were available for future grant under the Plan.

The following table sets forth stock-based compensation expense included in the Company's Consolidated Statements of Income (in thousands):

		Years Ended July 31,
		2008			2007			2006
Yard operations		$	1,058		$	910		$	700
General and administrative			5,293			2,572			1,600

There were no compensation costs capitalized as part of the cost of an asset as of July 31, 2008 and 2007.

A summary of the status of the Company's non-vested shares as of July 31, 2008 and changes during fiscal 2008 is as follows:

		Number of Shares (000's)			Weighted- average Grant- date Fair Value
Non-vested shares at July 31, 2007			1,076		$	8.54
Grants of options			1,074		$	13.81
Vested			(504	)	$	7.16
Forfeitures or expirations			(42	)	$	8.93
Non-vested shares at July 31, 2008			1,604		$	12.49

Option activity for the year ended July 31, 2008 is summarized as follows:

		Shares (in 000s)			Weighted- average Exercise Price			Weighted-average Remaining Contractual Term			Aggregate Intrinsic Value (in 000s)
Outstanding at July 31, 2007			5,226		$	13.20			—			—
Grants of options			1,074		$	34.34			—			—
Exercises			(1,467	)	$	8.17			—			—
Forfeitures or expirations			(42	)	$	20.05			—			—
Outstanding at July 31, 2008			4,791		$	19.41			5.26		$	117,116
Exercisable at July 31, 2008			3,187		$	13.67			3.64		$	96,196
Vested and expected to vest at July 31, 2008			4,505		$	19.31			5.23		$	110,617

(11) Shareholders' Equity (Continued)

As required by SFAS 123(R), the Company made an estimate of expected forfeitures and is recognizing compensation cost only for those equity awards expected to vest.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of the year ended July 31, 2008 and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options on July 31, 2008. The aggregate intrinsic value of options exercised was approximately $52.4 million, $12.1 million and $4.9 million in the fiscal years ended July 31, 2008, 2007 and 2006, respectively, and represents the difference between the exercise price of the option and the estimated fair value of the Company's common stock on the dates exercised. As of July 31, 2008, the total compensation cost related to non-vested stock-based awards granted to employees under the Company's stock option plans but not yet recognized was $15.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average term of 3.31 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2008, 2007 and 2006 is $3.6 million, $4.4 million and $2.2 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2008 follows:

		Options Outstanding									Options Exercisable
Range of Exercise Prices		Number Outstanding at July 31, 2008 (in 000s)			Weighted- Average Remaining Contractual Life			Weighted- Average Exercise Price			Number Exercisable at July 31, 2008 (in 000s)			Weighted- Average Exercise Price
$4.46 - $8.80			944			2.14		$	6.04			932		$	6.01
$9.03 - $14.75			879			2.92		$	11.16			876		$	11.16
$16.70 - $23.73			963			4.33		$	17.92			876		$	17.74
$24.03 - $40.44			2,005			8.21		$	30.05			503		$	25.17
			4,791			5.26		$	19.41			3,187		$	13.67

On March 6, 2003, the Company's Board of Directors declared a dividend of one right (a Right) to purchase one-thousandth share of the Company's Series A Participating Preferred Stock for each outstanding share of Common Stock of the Company. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock at an exercise price of $120.48.

In general, subject to certain limited exceptions, the Rights become exercisable when a person or group acquires 15% or more of the Company's common stock or a tender offer or exchange offer for 15% or more of the Company's common stock is announced or commenced. After any such event, the Company's other shareholders may purchase an additional $120.48 worth of additional shares of the Company's common stock at 50% of the then-current market price. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Company's Board of Directors. The Rights may be redeemed by the Company at $0.001 per Right at any time before any person or group acquires 15% or more of our outstanding common stock.

(12) Income Taxes

Income (loss) from continuing operations before taxes consists of the following (in thousands):

		Years ended July 31
		2008			2007			2006
US		$	247,719		$	215,538		$	174,636
Non US			1,931			1,883			(114	)
Total income before taxes		$	249,650		$	217,421		$	174,522

The Company's income tax expense (benefit) from continuing operations consists of (in thousands):

			Years Ended July 31,
			2008			2007			2006
Federal:
	Current		$	80,554		$	79,760		$	62,754
	Deferred			4,683			(6,202	)		(4,264	)
				85,237			73,558			58,490
State:
	Current			6,906			7,430			3,895
	Deferred			215			(418	)		(523	)
				7,121			7,012			3,372
Foreign:
	Current			313			2,331			—
	Deferred			47			(1,818	)		—
				360			513			—
			$	92,718		$	81,083		$	61,862

A reconciliation by year of the expected US statutory tax rate (35% of income before income taxes) to the actual effective income tax rate is as follows:

			Years Ended July 31,
			2008			2007			2006
Federal statutory rate				35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit				2.9			3.3			1.9
Compensation and fringe benefits				0.2			0.2			0.3
Other differences				(1.0	)		(1.2	)		(1.8	)
	Effective tax rate			37.1	%		37.3	%		35.4	%

(12) Income Taxes (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below, (in thousands):

					Years Ended July 31,
					2008			2007
Deferred tax assets:
	Allowance for doubtful accounts				$	923		$	847
	Accrued compensation and benefits					4,610			2,149
	State taxes					1,211			1,868
	Accrued other					1,634			1,831
	Deferred revenue					2,124			1,847
	Property and equipment					7,676			13,466
	State net operating losses					660			819
	Foreign net operating loss					—			351
		Total gross deferred tax assets				18,838			23,178
			Less valuation allowance			(584	)		(959	)
		Net deferred tax assets				18,254			22,219
Deferred tax liabilities:
	Vehicle pooling costs					(9,856	)		(9,715	)
	Prepaid insurance					(619	)		(617	)
	Intangibles and goodwill					(22,272	)		(21,319	)
		Total gross deferred tax liabilities				(32,747	)		(31,651	)
		Net deferred tax liability			$	(14,493	)	$	(9,432	)

The above net deferred tax liability has been reflected in the accompanying balance sheets as follows (in thousands):

			July 31,
			2008			2007
North America current liabilities			$	2,768		$	3,219
North America non-current liabilities (assets)				(2,319	)		(7,785	)
UK non-current liabilities				14,044			13,998
	Net deferred tax liability		$	14,493		$	9,432

The Company's ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax assets are uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing additional valuation allowances against certain deferred tax assets. The valuation allowance for the years ended July 31, 2008 and 2007 was approximately $0.6 million and $1.0 million, respectively, which is a net decrease of $0.4 million.

The Company adopted FIN 48 as of August 1, 2007. The cumulative effect of adopting FIN 48 was a decrease to the Company's retained earnings of approximately $3.6 million. The total unrecognized tax benefits as of the date of adoption was $13.3 million. At July 31, 2008, the Company had an unrecognized tax benefit of $12.2 million of which $8 million, if recognized, would favorably affect the effective income tax rate in future periods. It is possible that the amount of

(12) Income Taxes (Continued)

unrecognized tax benefits will change in the next twelve months; 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 (in thousands):

Balance as of August 1, 2007			$	13,300
Increases related to current year tax positions				1,800
Prior year tax positions:
	Decreases			(200	)
Cash settlement				(200	)
Lapse of statute of limitations				(2,500	)
	Balance at July 31, 2008		$	12,200

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, 2008, the Company had accrued interest related to the unrecognized tax benefits of $2.6 million.

The Company is currently under audit by the IRS for fiscal year 2006, and by states such as New York and Connecticut for fiscal years 2004, 2005 and 2006. The Company is no longer subject to US federal and state income tax examination for fiscal years prior to 2005, with the exception of New York and Connecticut.

In fiscal 2008, 2007 and 2006, the Company recognized a tax benefit of approximately $16.9 million, $3.8 million and $2.3 million, respectively, upon the exercise of certain stock options which is reflected in shareholders' equity.

The Company has not provided US federal income and foreign withholding taxes from undistributed earnings of its foreign operations, because it plans to permanently reinvest the earnings of its foreign operations as of July 31, 2008. At July 31, 2008, the unrecognized deferred tax liability for these earnings was approximately $2.6 million. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resultant US income tax liability.

(13) Net Income Per Share

The table below reconciles weighted average shares outstanding to weighted average shares and dilutive potential share outstanding (in thousands):

		Years Ended July 31,
		2008			2007			2006
Weighted average common shares outstanding			87,412			90,651			90,372
Effect of dilutive securities-stock options			2,446			2,804			2,553
Diluted weighted average common shares outstanding			89,858			93,455			92,925

There were no adjustments to net income required in calculating diluted net income per share. Options to purchase approximately 40,000, 110,000 and 42,000 shares of our common stock at an average price of $40.44, $29.76 and $27.22 per share were outstanding at July 31, 2008, 2007 and 2006, respectively, but were not included in the computation of diluted net income per share because the exercise price of the options was greater than the average market price of the common shares.

(14) Segments and Other Geographic Information

Operating segments are defined as components of a business about which separate financial information is available that is evaluated regularly by the chief operating decision maker with respect to the allocation of resources and performance. The Company considers itself to operate in a single operating segment, specifically providing vehicle sellers with a full range of remarketing services to process and sell vehicles over the Internet through the Company's Virtual Bidding Second Generation (VB2) Internet auction-style sales technology.

The following geographic data is provided in accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. Revenues are based upon the geographic location of the selling facility and are summarized in the following table (in thousands):

			Years Ended July 31,
			2008			2007			2006
United States			$	591,600		$	541,801		$	526,456
Canada				5,365			4,060			2,115
	North America			596,965			545,861			528,571
United Kingdom				187,883			14,819			—
			$	784,848		$	560,680		$	528,571

Long-lived assets based upon geographic location are summarized in the following table (in thousands):

			July 31,
			2008			2007
United States			$	568,459		$	512,346
Canada				5,581			5,661
	North America			574,040			518,007
United Kingdom				169,454			132,885
			$	743,494		$	650,892

(15) Commitments and Contingencies

Leases

The Company leases certain domestic and foreign facilities and certain equipment under noncancelable 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 costs. 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, rent expense is recognized on a straight-line basis over the lease term in accordance with FASB Technical Bulletin 85-3 Accounting for Operating Leases with Scheduled Rent Increases.

(15) Commitments and Contingencies (Continued)

At July 31, 2008, future minimum lease commitments under noncancelable operating leases with initial or remaining lease terms in excess of one year are as follows (in thousands):

Years Ending July 31,		Operating Leases
2009		$	19,999
2010			18,332
2011			16,254
2012			12,694
2013			8,819
Thereafter			25,576
		$	101,674

Facilities rental expense for the fiscal years ended July 31, 2008, 2007 and 2006 aggregated approximately $16.9 million, $16.7 million and $18.0 million, respectively. Yard operations equipment rental expense for the fiscal years ended July 31, 2008, 2007 and 2006 aggregated approximately $3.8 million, $4.6 million and $4.4 million, respectively.

Commitments

Letters of Credit

The Company had outstanding letters of credit of $7.9 million at July 31, 2008. These letters of credit secure certain insurance obligations.

Purchase Commitments

The Company has obligations under certain UK seller contracts for the purchase of vehicles at pre-determined prices, which typically are based upon a percentage of the pre-accident value, as defined in the contracts.

Contingencies

Legal Matters

The Company is involved in litigation and damage claims arising in the ordinary course of business, such as actions related to injuries, property damage, and the handling or disposal of vehicles. Legal fees and other costs associated with such actions are expensed as incurred and were not material in any period reported. In addition, the Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The Company believes that the ultimate disposition of these matters will not have a material effect on its financial position, results of operations or cash flows. However, the amount of future reserves required associated with these claims, if any, cannot be determined with certainty. This litigation includes the following matters:

On July 28, 2006, Foreign Car Sales and Service LLC (FCS) filed suit against Copart in the United States District Court for the Middle District of Louisiana, originally alleging antitrust violations and unfair trade practices. Relief sought originally included class certification based on both unfair trade practices and Sherman Act violations, damages, fees, costs and expenses. On August 23, 2007, the Company filed: (i) a Motion to Dismiss Claims for Improper Venue, (ii) a Motion to Dismiss for Failure to Join Persons Needed for Just Adjudication, (iii) a Motion To Dismiss for Lack of Diversity Jurisdiction, (iv) a Motion to Dismiss Load Out Fee Class Action for Failure to State Claim

(15) Commitments and Contingencies (Continued)

and (v) a Motion to Dismiss Load Out Fee Class Action for Lack of Diversity Jurisdiction. On February 22, 2008, the court granted the motions to dismiss with regard to all claims, leaving only the antitrust claim pending. On July 15, 2008, the federal antitrust claims were dismissed with prejudice. No material claims remain.

On November 20, 2007, Car Auction & Reinsurance Solutions, Inc. (CARS) filed suit against Copart in the Superior Court in the County of New Castle, Delaware. CARS is seeking $4.7 million in damages, punitive damages, and prejudgment interest related to allegations involving breach of contract and misrepresentation. The Company believes the claim is without merit and is defending the lawsuit vigorously.

On November 30, 2007, Tracy Utterback Suggs filed suit against Copart in Harris County, Texas District Court. The complaint alleges breach of contract and negligence for allowing Suggs' vehicle to be destroyed. The plaintiff claims that the vehicle in question was the key piece of evidence in support of an anticipated design defect products liability case against American Honda and that the Company is responsible for the spoliation of that evidence. On May 28, 2008, the parties reached a settlement in principle at mediation. The settlement does not result in any material contribution on the part of the Company because Copart's insurance company agreed to fund the settlement, under a reservation of rights. All portions of the settlement requiring court approval have been approved. The lawsuit remains open pending the final funding of the settlement by the insurance company. The Company is aware, however, that the insurance company intends to claim that the Company is responsible for a $2 million self-insured retention. The company cannot determine that a loss is probable, and it cannot reasonably estimate the amount of a loss regarding this claim, if a claim is made. The Company intends to vigorously defend any claim made by the insurance company.

On April 18, 2007, Heather Trafton, as personal representative of the estate of Larry Trafton, filed a wrongful death suit against Carlos Sigas Star Auto and Copart in the Circuit Court of the Thirteenth Judicial Circuit of Florida in the County of Hillsborough, Florida. The plaintiff alleges that Manuel Vega, a driver for the independent tow company Carlos Sigas Star Auto, caused the death of decedent, motorcyclist Larry Trafton, by running a red light and colliding with Mr. Trafton at an intersection. Although neither Mr. Sigas nor Mr. Vega are employees of Copart, the plaintiff alleges that the Company is responsible for the wrongful death of Mr. Trafton. On or about February 6, 2008, the Company received the plaintiff's initial monetary demand in the amount of $6 million. On September 16, 2008, the parties reached a settlement in principle at mediation. The settlement does not result in any material contribution on the part of the Company. The settlement remains subject to the parties entering into formal settlement agreements, and it must also be approved by the court. However, the Company believes the ultimate outcome will not have a material impact on its consolidated financial position, results of operations or cash flows.

On July 14, 2008, the Company filed a lawsuit against Auto Auction Services Corp. (AASC) in US District Court, Northern District of California. The principal parties are Copart as plaintiff and AASC as defendant. The complaint identifies, but did not name as defendants, various co-conspirators, including Manheim Auctions, Inc. and ADESA, Inc. The complaint primarily alleges that AASC and its co-conspirators engaged in a group boycott and concerted refusal to deal with Copart for the purpose of excluding Copart from effectively providing vehicle auction services to fleet operators, fleet management companies, national or regional banks, finance companies, and leasing companies, all in violation of federal and California antitrust and unfair competition laws. The Company is seeking injunctive relief and unspecified monetary damages.

The Company accrues for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted because any such effect depends on future results

(15) Commitments and Contingencies (Continued)

of operations, the amount and timing of the resolution of such matters. The Company believes that any ultimate liability will not have a material effect on its financial position, results of operations or cash flows. However, the amount of the liabilities associated with these claims, if any, cannot be determined with certainty.

Environmental Matters

In connection with the acquisition of the Dallas, Texas facility in 1994, the Company set aside $3.0 million to cover the costs of environmental remediation, stabilization and related consulting expenses for a six-acre portion of the facility that contained elevated levels of lead due to the activities of the former operators. The Company began the stabilization process in 1996 and completed it in 1999. The Company paid all remediation and related costs from the $3.0 million fund and, in accordance with the acquisition agreement, distributed the remainder of the fund to the seller of the Dallas facility, less $0.2 million which was held back to cover the costs of obtaining the no-further-action letter. In September 2002, the Company's environmental engineering consultant issued a report, which concludes that the soil stabilization has effectively stabilized the lead-impacted soil, and that the concrete cap should prevent impact to storm water and subsequent surface water impact. The Company's consultant thereafter submitted an Operations and Maintenance Plan (Plan) to the Texas Commission on Environmental Quality (TCEQ) providing for a two-year inspection and maintenance plan for the concrete cap, and a two-year ground and surface water monitoring plan. In January of 2003, the TCEQ approved the Plan, subject to the additions of upstream (background) surface water samples from the intermittent stream adjacent to the facility and documentation of any repairs to the concrete cap during the post closure-monitoring period. The first semi-annual water sampling was conducted in April 2003, which reflected that the lead-impacted, stabilized soil is not impacting the ground and/or surface water. The second round of semi-annual water samples collected in October and November 2003 reported concentration of lead in one storm water and one surface water sample in excess of the established upstream criteria for lead. In correspondence, which the Company received in July 2004, the TCEQ approved with comment our water monitoring report dated February 24, 2004. The TCEQ instructed the Company to continue with post-closure monitoring and maintenance activities and submit the next report in accordance with the approved schedules. In February 2005, a report from our environmental engineering consultant was transmitted to the TCEQ containing the results of annual monitoring activities consisting of two (2) semi-annual sampling events which occurred in April/June 2004 and October/November 2004. Laboratory analytical results indicated no lead concentrations exceeding the target concentration level set in the Corrective Measures Study for the site, but some results were in excess of Texas surface water quality standards. The Company's environmental engineering consultant concluded in the February 2005 report to the TCEQ that it is unlikely that lead concentrations detected in the storm water runoff samples are attributable to the lead impacted soils. Based on the results of the 2004 samplings, the Company requested that no further action be taken and that a closure letter be issued by the TCEQ. In September 2007, the TCEQ notified the Company that they did not concur with our consultant's conclusions and recommendations. The TCEQ said it would not provide a closure letter until additional sampling of surface water is performed which reflects concentrations of lead below Texas surface water quality standards. In February 2008, the TCEQ provided comments to the Company's proposal for surface water sampling. In March 2008, the Company's environmental engineer submitted to the TCEQ an addendum to the surface water sampling plan, which was approved by the TCEQ in June 2008. Sampling is anticipated to be performed in September or October, 2008. The Company is not assured of receiving the no-further-action letter and may incur further liabilities if the stabilization process proves ineffective, or if later testing of surface or ground water reflects concentrations of

(15) Commitments and Contingencies (Continued)

lead which exceed Texas surface or ground water quality standards. In addition, in 1994, the Company detected a small quantity of two hazardous substances in a temporary groundwater monitoring well at the Dallas facility. The Company's environmental consultants concluded that both substances arose from an off-site source and no further action was recommended.

The Company does not believe that any of the above environmental matters will, either individually or in the aggregate, have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

(16) Guarantees—Indemnifications to Officers and Directors

The Company has entered into indemnification agreements, a form of which is incorporated by reference in the exhibits of this Form 10-K, with the members of its Board of Directors to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors are sued as a result of their service as members of its Board of Directors.

(17) Related Party Transactions

The Company leases certain of its facilities from officers and/or directors of the Company under various lease agreements. Rental payments under these leases aggregated approximately $0.3 million, $0.4 million and $0.5 million for the fiscal years ended July 31, 2008, 2007 and 2006, respectively, and expire on various dates through 2012. The Company leases certain of its facilities from other employees of the Company under various lease agreements. Rental payments under these leases aggregated approximately $0.3 million for the fiscal years ended July 31, 2008, 2007 and 2006.

On July 2, 2007, the Company repurchased in a private transaction 1,100,000 shares of its common stock held jointly by James Grosfeld, one of the Company's directors, and his wife, and 73,000 shares of its common stock held by a charitable foundation established by Mr. and Mrs. Grosfeld. The price paid for the repurchased shares was $30.77 per share, the closing market price of the Company's common stock as quoted on the Nasdaq Global Market on July 2, 2007. The repurchase of these shares was pre-approved by the Audit Committee of its Board of Directors, with Mr. Grosfeld abstaining.

On February 15, 2008 the Company exercised its option to purchase land that had been leased from the estate of James P. Meeks, the deceased father of James E. Meeks who is the former Executive Vice President and Chief Operating Officer of the Company and a current member of its Board of Directors. The purchase price was established through two appraisals and the transaction was approved by the Audit Committee of the Company's Board of Directors.

On June 5, 2008, the Company entered into an agreement with Willis J. Johnson, its Chief Executive Officer and a member of the Board of Directors, pursuant to which the Company acquired 600,000 shares of its common stock at a price of $47.55 per share, or an aggregate purchase price of $28,530,000. The settlement date for the acquisition of the common stock was on or about June 12, 2008, and the purchase was made pursuant to the Company's existing stock repurchase program. The per share purchase price for the common stock to be acquired was based on the closing price of the Company's common stock on June 5, 2008 (as reported by The NASDAQ Stock Market), less $0.25 per share. The repurchase was approved by the disinterested members of the Board of Directors and the Audit Committee of the Board of Directors.

(17) Related Party Transactions (Continued)

On July 2, 2008, the Company entered into an agreement with Willis J. Johnson, its Chief Executive Officer and a member of the Board of Directors, pursuant to which the Company acquired 1,500,000 shares of its common stock at a price of $40.00 per share, or an aggregate purchase price of $60,000,000. The settlement date for the acquisition of the common stock was July 11, 2008, and the purchase was made pursuant to the Company's existing stock repurchase program. The per share purchase price for the common stock to be acquired was based on the closing price of the Company's common stock on July 1, 2008 (as reported by The NASDAQ Stock Market), less 5.5% or $2.35 per share. The members of the Board of Directors had independent discussions among themselves and agreed in principle to the terms of the repurchase on July 1, 2008. On July 2, 2008, this repurchase was formally approved by the members of the Company's Board of Directors and the Audit Committee of the Company's Board of Directors.

There were no amounts due or from related parties at July 31, 2008 and 2007.

(18) Employee Benefit Plan

The Company sponsors a 401(k) defined contribution plan covering its eligible employees. The plan is available to all US employees who meet minimum age and service requirements and provides employees with tax deferred salary deductions and alternative investment options. The Company matches 20% of employee contributions up to 15% of employee salary deferral. The Company recognized an expense of approximately $0.4 million, $0.4 million and $0.3 million for the fiscal years ended July 31, 2008, 2007 and 2006, respectively, related to this plan.

The Company also sponsors an additional defined contribution plan for most of its UK employees, which is available to all UK employees who meet minimum service requirements. The Company matches up to 5% of employee contributions.

(19) Investment in Unconsolidated Entity

During the year ended July 31, 2006, the Company paid approximately $9.0 million for non-controlling equity interest in Lanelogic, a Delaware limited liability corporation (Lanelogic). The Company has no further contractual funding commitment. Based on the Company's evaluation of Lanelogic and the related agreements, management believes that Lanelogic does not constitute a Variable Interest Entity as defined in FIN No. 46, Consolidation of Variable Interest Entities. As a result, the Company's investment has been accounted for under the equity method prescribed by APB No. 18, The Equity Method of Accounting for Investments in Common Stock.

During the second quarter ended January 31, 2007, the Company's Chairman and CEO, made a personal unsecured loan to Lanelogic to prevent a restriction of working capital from disrupting its business as Lanelogic sought additional equity financing. The loan was repaid during the second quarter ended January 31, 2007. The Company has concluded that the personal unsecured loan did not cause a change in the accounting of Lanelogic as an equity method investment. During the second quarter ended January 31, 2007, Lanelogic received a strategic equity investment totaling approximately $10 million from two new investment groups as well as Lanelogic's founder. The Company did not participate in this additional equity financing into Lanelogic. In addition, Lanelogic converted from a limited liability company to a Delaware Corporation, of which the Company is now a stockholder.

The Company has discontinued recording its share of the losses of Lanelogic because it has no commitment to provide further funding.

On August 15, 2007, the Company's Chairman and CEO provided a personal guaranty in favor of Dealer Services Corporation as a condition for providing a credit facility to Lanelogic, Inc. a

(19) Investment in Unconsolidated Entity (Continued)

corporation in which Copart has a non-controlling interest. The guaranty was approved by the Company's Audit Committee. The Company has concluded that the personal guaranty does not cause a change in the accounting of Lanelogic as an equity method investment. Dealer Services Corporation cancelled the personal guarantee prior to July 31, 2008.

(20) Noncash Financing and Investing Activities

In fiscal 2008, 2007 and 2006, the Company received 2,319, 6,597 and 4,378 shares of common stock, respectively as payment for the exercise of 9,962, 18,462 and 8,678 shares of common stock under the 1992 Stock Option Plan and/or 2001 Stock Option Plan, respectively. The Company retired these shares upon receipt.

(21) Quarterly Information (in thousands, except per share data) (Unaudited)(1)

		Fiscal Quarter
Fiscal Year 2008		First			Second			Third			Fourth
Revenues		$	183,957		$	173,459		$	221,150		$	206,282
Operating income		$	56,627		$	47,235		$	68,684		$	65,372
Income from continuing operations		$	60,166		$	50,589		$	70,874		$	68,022
Net income		$	37,610		$	32,026		$	46,477		$	40,820
Basic net income per share		$	0.42		$	0.36		$	0.53		$	0.48
Diluted net income per share		$	0.41		$	0.35		$	0.52		$	0.47

		Fiscal Quarter
Fiscal Year 2007		First			Second			Third			Fourth
Revenues		$	132,121		$	128,925		$	145,652		$	153,982
Operating income		$	46,893		$	45,164		$	57,229		$	53,860
Income from continuing operations		$	48,355		$	48,692		$	62,025		$	58,349
Net income		$	30,345		$	30,392		$	38,867		$	36,734
Basic net income per share		$	0.34		$	0.33		$	0.43		$	0.41
Diluted net income per share		$	0.32		$	0.32		$	0.41		$	0.40

(1)

Earnings per share were computed independently for each of the periods presented; therefore, the sum of the earnings per share amounts for the quarters may not equal the total for the year.

QuickLinks

Annual Report on Form 10-K for the Fiscal Year Ended July 31, 2008

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS PART I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Copart, Inc., The NASDAQ Composite Index And A Peer Group

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers of the Registrant and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

SIGNATURES POWER OF ATTORNEY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COPART, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) COPART, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) COPART, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (in thousands, except share amounts) COPART, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)