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			61
				Consolidated Balance Sheets at July 31, 2009 and 2008			62
				Consolidated Statements of Income for the years ended July 31, 2009, 2008 and 2007			63
				Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended July 31, 2009, 2008 and 2007			64
				Consolidated Statements of Cash Flows for the years ended July 31, 2009, 2008 and 2007			65
				Notes to Consolidated Financial Statements			66
		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.

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
3.1		Amended and restated Articles of Incorporation		Annual Report on Form 10-K, (File No. 000-23254), Exhibit No. 3.1		October 26, 2000
3.1b		Certificate of Amendment of Articles of Incorporation		Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 3.1b		October 26, 2000
3.2		Amended and Restated Bylaws of Registrant		Annual Report on Form 10-K, Exhibit No. 3.2		October 21, 1995
3.2b		Certificate of Amendment of Bylaws		Quarterly Report on Form 10-Q (File No. 000-23255), Exhibit No. 3.4		December 15, 2003
3.2c		Certificate of Amendment of Bylaws		Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 3.2b		October 14, 2004
3.2d		Amendment to Section 3.2 to the Bylaws of Copart, Inc. effective as of January 13, 2009		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 3.1		December 5, 2008

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
3.3		Certificate of Determination of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Copart, Inc.		8/A-12/G (File No. 000-23255), Exhibit No. 3.3		March 11, 2003
4.1		Preferred Stock Rights Agreement, dates 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/A-12/G (File No. 000-23255), Exhibit No. 4.1		March 11, 2003
10.1*		Copart Inc. 1992 Stock Option Plan, as amended, and form of stock option agreement		Registration Statement on Form S-8 (File No. 333-93887), Exhibit No. 10.1		December 30, 1999
10.2*		1994 Employee Stock Purchase Plan (as amended December 8, 2003) with form of subscription agreement		Registration Statement on Form S-8 (File No. 333-112597), Exhibit No. 4.1		February 6, 2004
10.3*		1994 Director Option Plan with form of subscription agreement		Registration Statement on Form S-1 (File No. 333-74250)		January 19, 1994
10.4*		Copart Inc. 2001 Stock Option Plan		Registration Statement on Form S-8 (File No. 333-90612), Exhibit No. 4.1		June 17, 2002
10.5*		Form of Indemnification Agreement signed by executive officers and directors		Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 10.5		October 29, 2002
10.6		General lease dated as of December 29, 1997 between Robert Arthur Gomes and Robert Paul Gomes and Copart of Connecticut, Inc.		Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 10.6		October 29, 2002
10.7		Standard Industrial/Commercial single tenant lease-net dated December 23, 1998 between Wickland Oil Martinez and the Registrant		Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 10.7		October 29, 2002
10.10*		Copart Inc. 2007 Equity Incentive Plan (2007 EIP)		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		December 12, 2007

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
10.11*		Form of Performance Share Award Agreement for use with 2007 EIP		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.2		December 12, 2007
10.12*		Form of Restricted Stock Unit Award Agreement for use with 2007 EIP		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.3		December 12, 2007
10.13*		Form of Stock Option Award Agreement for use with 2007 EIP		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.5		December 12, 2007
10.14*		Form of Restricted Stock Award Agreement for use with 2007 EIP		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.4		December 12, 2007
10.15		Credit Agreement dated as of March 6, 2008 by and between Copart Inc. and Bank of America, N.A.		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		March 7, 2008
10.16*		Copart, Inc. Executive Bonus Plan		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.13		August 3, 2006
10.17*		Amended and Restated Executive Officer Employment Agreement between the Company and William E. Franklin, dated September 25, 2008		Quarterly Report on Form 10-Q (File No. 000-23255), Exhibit No. 10.1		December 10, 2008
10.18*		Form of Copart, Inc. Stand-Alone Stock Option Award Agreement for grant of options to purchase 2,000,000 shares of the Company's common stock to each of Willis J. Johnson and A. Jayson Adair		Registration Statement on Form S-8 (File No. 333-159946), Exhibit No. 4.1		April 16, 2009
21.1		List of subsidiaries of Registrant		—		Filed herewith
23.1		Consent of Independent Registered Public Accounting Firm		—		Filed herewith
24.1		Power of Attorney (included on signature page)		—		Filed herewith
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		—		Filed herewith

Management contract, plan or arrangement

**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, 2009
		COPART, INC.
		By:		/s/ WILLIAM E. FRANKLIN William E. Franklin Chief Financial Officer
September 29, 2009

**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, 2009
/s/ WILLIAM E. FRANKLIN William E. Franklin		Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)		September 29, 2009
/s/ A. JAYSON ADAIR A. Jayson Adair		President and Director		September 29, 2009
/s/ JAMES E. MEEKS James E. Meeks		Director		September 29, 2009
/s/ STEVEN D. COHAN Steven D. Cohan		Director		September 29, 2009
/s/ DANIEL ENGLANDER Daniel Englander		Director		September 29, 2009
Barry Rosenstein		Director		September 29, 2009
/s/ THOMAS W. SMITH Thomas W. Smith		Director		September 29, 2009
/s/ MATT BLUNT Matt Blunt		Director		September 29, 2009

**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, 2009 and 2008, 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, 2009. 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, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2009, in conformity with U.S. 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, 2009, 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 29, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Sacramento, California September 29, 2009

** COPART, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) **

				July 31, 2009			July 31, 2008
ASSETS
Current assets:
	Cash and cash equivalents			$	162,691		$	38,954
	Accounts receivable, net				109,248			111,705
	Vehicle pooling costs				28,685			30,787
	Inventories				4,667			5,334
	Income taxes receivable				5,426			19,041
	Prepaid expenses and other assets				5,216			6,932
		Total current assets			315,933			212,753
Property and equipment, net					530,886			510,340
Intangibles, net					15,212			21,901
Goodwill					166,327			177,164
Deferred income taxes					7,759			6,938
Land purchase options and other assets					21,915			27,151
		Total assets		$	1,058,032		$	956,247
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities			$	82,773		$	88,883
	Book overdraft				—			17,502
	Deferred revenue				13,165			14,518
	Income taxes payable				5,269			4,005
	Deferred income taxes				1,948			2,768
	Other current liabilities				429			576
		Total current liabilities			103,584			128,252
Deferred income taxes					10,997			14,044
Income taxes payable					20,266			12,219
Other liabilities					1,726			2,736
		Total liabilities			136,573			157,251
Commitments and contingencies
Shareholders' equity:
	Common stock, no par value—180,000,000 shares authorized; 83,938,814 and 83,274,995 shares issued and outstanding at July 31, 2009 and 2008, respectively				334,440			316,673
Accumulated other comprehensive income (loss)					(27,082	)		833
Retained earnings					614,101			481,490
		Total shareholders' equity			921,459			798,996
		Total liabilities and shareholders' equity		$	1,058,032		$	956,247

See accompanying notes to consolidated financial statements.

** COPART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts) **

				Years Ended July 31,
				2009			2008			2007
Service revenues and vehicle sales:
	Service revenues			$	615,352		$	619,728		$	535,794
	Vehicle sales				127,730			165,120			24,886
		Total service revenues and vehicle sales			743,082			784,848			560,680
Operating costs and expenses:
	Yard operations				324,793			328,919			271,523
	Cost of vehicle sales				106,029			133,670			22,375
	General and administrative				86,935			84,342			63,637
		Total operating expenses			517,757			546,931			357,535
		Operating income			225,325			237,917			203,145
Other income (expense):
	Interest expense				(274	)		(209	)		(83	)
	Interest income				1,692			7,761			13,727
	Other income, net				989			4,181			2,848
	Equity in losses of unconsolidated entity				—			—			(2,216	)
		Total other income			2,407			11,733			14,276
		Income from continuing operations before income taxes			227,732			249,650			217,421
Income taxes					88,186			92,718			81,083
		Income from continuing operations			139,546			156,932			136,338
Discontinued operations:
		Income from discontinued operations, net of income tax effects			1,557			—			—
		Net income		$	141,103		$	156,932		$	136,338
Earnings per share—basic
		Income from continuing operations		$	1.67		$	1.80		$	1.50
		Income from discontinued operations			0.02			—			—
Basic net income per share				$	1.69		$	1.80		$	1.50
Weighted average common shares outstanding					83,537			87,412			90,651
Earnings per share—diluted
		Income from continuing operations		$	1.64		$	1.75		$	1.46
		Income from discontinued operations			0.02			—			—
Diluted net income per share				$	1.66		$	1.75		$	1.46
Diluted weighted average common shares outstanding					84,930			89,858			93,455

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, 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			—			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
	Net income			—			—			—			141,103			141,103
	Currency translation adjustment			—			—			(27,915	)		—			(27,915	)
	Comprehensive income															113,188
	Exercise of stock options, net of repurchased shares			580,985			1,842			—			(8,492	)		(6,650	)
	Employee share-based compensation and related tax benefit			—			13,983			—			—			13,983
	Shares issued for Employee Stock Purchase Plan			82,834			1,942			—			—			1,942
Balances at July 31, 2009				83,938,814		$	334,440		$	(27,082	)	$	614,101		$	921,459

See accompanying notes to consolidated financial statements.

** COPART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) **

						Years Ended July 31,
						2009			2008			2007
Cash flows from operating activities:
	Net income					$	141,103		$	156,932		$	136,338
	Adjustments to reconcile net income to net cash provided by operating activities:
		Income from discontinued operations					(2,440	)		—			—
		Depreciation and amortization					41,354			42,804			37,089
		Allowance for doubtful accounts					(174	)		349			416
		Deferred rent					(1,171	)		(505	)		161
		Share-based compensation					9,413			6,356			3,424
		Excess benefit from share-based compensation					(4,570	)		(16,942	)		(3,820	)
		Loss on sale of property and equipment					647			123			219
		Deferred income taxes					(2,393	)		5,690			(8,948	)
		Equity in loss of unconsolidated entity					—			—			2,216
		Changes in operating assets and liabilities, net of effects from acquisitions:
			Accounts receivable				982			270			(2,416	)
			Vehicle pooling costs				1,361			(784	)		1,104
			Inventories				(54	)		1,489			1,361
			Prepaid expenses and other current assets				1,376			(991	)		1,388
			Land purchase options and other assets				(6,386	)		(7,795	)		695
			Accounts payable and accrued liabilities				(2,479	)		1,208			8,648
			Deferred revenue				(1,324	)		619			(1,799	)
			Income taxes receivable				18,021			(4,732	)		2,945
			Income taxes payable				10,073			9,972			3,032
				Net cash provided by operating activities			203,339			194,063			182,053
Cash flows from investing activities:
	Purchases of short-term investments						—			(154,360	)		(921,750	)
	Sales of short-term investments						—			256,985			967,850
	Restricted cash and purchases of short-term investments						—			9,148			(9,148	)
	Principal payments from (issuance of) notes receivable						12,000			—			(2,250	)
	Purchases of property and equipment						(78,912	)		(113,364	)		(76,847	)
	Proceeds from sale of property and equipment						7,008			7,220			26,598
	Purchase of assets and liabilities in connection with acquisitions, net of cash acquired						—			(38,229	)		(120,014	)
				Net cash used in investing activities			(59,904	)		(32,600	)		(135,561	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options						3,119			12,675			10,865
	Proceeds from the issuance of Employee Stock Purchase Plan shares						1,942			1,711			1,542
	Repurchases of common stock						(9,769	)		(269,251	)		(89,579	)
	Excess tax benefit from share-based payment arrangements						4,570			16,942			3,820
	Change in book overdraft						(17,502	)		8,246			4,721
	Principal payments on notes payable						—			—			(2,033	)
				Net cash used in financing activities			(17,640	)		(229,677	)		(70,664	)
Effect of foreign currency translation							(2,058	)		(453	)		668
Net increase (decrease) in cash and cash equivalents							123,737			(68,667	)		(23,504	)
Cash and cash equivalents at beginning of period							38,954			107,621			131,125
Cash and cash equivalents at end of period						$	162,691		$	38,954		$	107,621
Supplemental disclosure of cash flow information:
	Interest paid					$	353		$	117		$	16
	Cash paid for income taxes					$	71,908		$	85,010		$	84,247

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 Limited (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 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. Sellers are primarily insurance companies but also include banks and financial institutions, charities, car dealerships, fleet operators, vehicle rental companies and the general public. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters; however at certain locations, the Company sells directly to the general public. The majority of vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. The Company offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price. In the United States and Canada, or North America, the Company sells vehicles primarily as an agent and derives revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services such as towing and storage. In the United Kingdom, or UK, the Company operates primarily on a principal basis, purchasing the salvage vehicle outright from the insurance company and reselling the vehicle for its own account.

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 and goodwill 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 foreign subsidiaries, Copart Canada and Copart UK, respectively, as they are the primary currencies within the economic environment in which each subsidiary operates. The original equity investment in the respective subsidiaries is translated at historical rates. 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.

(1) Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The amounts recorded for financial instruments in the Company's consolidated financial statements, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values as of July 31, 2009 and 2008 due to the short-term nature of those instruments.

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 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 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 vehicle sales price, net of sales allowances, 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 the services 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 buyers or sellers.

Cost of Vehicle Sales

Cost of vehicle sales includes the purchase price of vehicles sold for the Company's own account.

(1) Summary of Significant Accounting Policies (Continued)

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.

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 approximately $2.6 million, $1.7 million and $0.7 million in fiscal 2009, 2008 and 2007, 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 basis 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.

(1) Summary of Significant Accounting Policies (Continued)

Cash, Cash Equivalents and Marketable Securities

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. The Company invests its excess funds in money market funds comprised of securities issued by corporations, banks, municipalities and financial holding companies. The Company's cash and cash equivalents are placed with high credit quality financial institutions. 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. 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.

On August 1, 2008, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS 157), which clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures its investments, cash equivalents or marketable securities at fair value. Cash and cash equivalents are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.

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 is charged to cost of vehicle sales as sold.

Vehicle Pooling Costs

The Company defers in vehicle pooling costs certain yard operation expenses associated with vehicles consigned to and received by the Company but not sold as of the end of the period. 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 operation expenses could increase or decrease correspondingly in the

(1) Summary of Significant Accounting Policies (Continued)

future. These costs are expensed as vehicles are sold in the subsequent periods on an average cost basis.

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 collectability 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 2007, State Farm Insurance accounted for 10% of the Company's revenues. At July 31, 2009 and 2008, State Farm Insurance accounted for 11% of accounts receivable. No other single customer accounted for more than 10% of our revenues in fiscal 2009, 2008 and 2007, and at July 31, 2009 and 2008, 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

(1) Summary of Significant Accounting Policies (Continued)

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 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 of its 2009 fiscal year utilizing a market value and discounted cash flow 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 insurance policies are subject to a $250,000 deductible per claim, with the exception of its medical policy which is $150,000 per claim. In addition, each of the Company's policies contains an aggregate stop loss which limits its ultimate exposure. 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. The primary estimates used in the actuarial analysis include total payroll and revenue. The Company's estimates have not materially fluctuated from actual results. 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. The process of determining the Company's insurance reserves requires estimates with various assumptions, each of which can positively or negatively impact those balances. The total amount reserved for all policies is approximately $5.8 million as of July 31, 2009.

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, 2009, 2008 and 2007 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

(1) Summary of Significant Accounting Policies (Continued)

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.

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, 2009			July 31, 2008			July 31, 2007
Expected life (in years)			5.2 - 7.1			4.7 - 6.7			4.7 - 6.7
Risk-free interest rate			1.4 - 3.1	%		3.4 - 4.4	%		4.6 - 4.9	%
Estimated volatility factor			33 - 37	%		31 - 32	%		31 - 32	%
Expected dividends			0	%		0	%		0	%
Weighted-average fair value at grant date		$	13.09		$	13.81		$	10.17

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 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 $3.1 million, $12.7 million and $10.9 million for the years ended July 31, 2009, 2008, and 2007 respectively. The Company realized an income tax benefit of approximately $4.6 million, $16.9 million, and $3.8 million from stock option exercises during the years ended July 31, 2009, 2008, and 2007 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.

(1) Summary of Significant Accounting Policies (Continued)

Comprehensive Income

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

Segment Reporting

The Company's North American and UK regions are considered two separate operating segments, which have been aggregated into one reportable segment because they share similar economic characteristics.

Subsequent Events

The Company has evaluated the impact of subsequent events through September 29, 2009, which is the date these financial statements were issued, refer to Note 19.

Reclassifications

The Company has determined that in the first quarter of fiscal 2008, it included $3.0 million in general and administrative costs and $0.4 million in general and administrative depreciation from the Copart UK operations that, in order to be consistent with US classification, should have been reflected in yard operations. The reclassifications of these costs, which have no affect on fiscal 2009, are reflected in the fiscal 2008 results.

The Company made certain reclassifications to conform to the current year presentation. 1) The Company reclassified $165.1 million and $24.9 million of vehicle sales revenue for fiscal years ended July 31, 2008 and 2007, respectively, from total revenue; 2) the Company, reclassified $133.7 million and $22.4 million of cost of vehicle sales for fiscal years ended July 31, 2008 and 2007, respectively, from total yard operations; and 3) the Company reclassified $4.6 million from other long-term assets to deferred incomes taxes as of July 31, 2008.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosure about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-2 Effective Date of FASB Statement No. 157 (FSP 157-2) which delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statement on a recurring basis (at least annually). FSP 157-2 partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP 157-2. The Company adopted SFAS 157, except as it applies to those non-financial assets and non-financial liabilities as noted in FSP 157-2. The partial adoption of SFAS 157 did not have an impact on the Company's consolidated results or financial condition.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 was effective as of the beginning of the Company's 2009 fiscal year, and the Company did not elect to measure any financial instruments and other items at fair value pursuant to SFAS 159.

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 assessing the potential impact 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 the Company's acquisitions that are effective after July 31, 2009, and application of the standard to acquisitions prior to that date is not permitted.

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 is currently assessing the potential 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. The Company is currently assessing the potential impact on its consolidated results of operations and financial position.

(1) Summary of Significant Accounting Policies (Continued)

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Company's July 31, 2009 financial statements. The application of the provisions of FSP 157-3 did not impact the Company's consolidated financial position, results of operations and cash flows as of and for the year ended July 31, 2009.

In April 2009, the FASB issued three related Staff Positions: (i) FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4), (ii) FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FSP FAS 124-2), and (iii) FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1), which will be effective for interim and annual periods ending after June 15, 2009. FSP FAS 157-4 provides guidance on how to determine the fair value of assets and liabilities under SFAS No. 157, Fair Value Measurements (SFAS 157), in the current economic environment and reemphasizes that the objective of a fair value measurement remains an exit price. If the Company was to conclude that there has been a significant decrease in the volume and level of activity of an asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and it may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. FSP FAS 115-2 and FSP FAS 124-2 modifies the requirements for recognizing other-than-temporarily impaired debt securities and revises the existing impairment model for such securities by modifying the current intent and ability indicator in determining whether a debt security is other-than-temporarily impaired. FSP FAS 107-1 and APB 28-1 enhances the disclosure of instruments under the scope of SFAS 157 for both interim and annual periods. The application of these provisions did not impact the Company's consolidated financial position, results of operations and cash flows as of and for the year ended July 31, 2009.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). This statement provides general standards for the accounting and reporting of subsequent events that occur between the end of the accounting period and issuance of financial statements. The statement requires the issuer to recognize the effects, if material, of subsequent events in the financial statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. The issuer must also disclose the date through which subsequent events have been evaluated and the nature of any non-recognized subsequent events. Non-recognized subsequent events include events that provide evidence about conditions that did not exist as of the end of the accounting period, but which are of such a nature that they must be disclosed to keep the financial statements from being misleading. The statement is effective for the Company's fiscal year ended July 31, 2009. The adoption did not have an impact on the Company's consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 (FIN 46(R)), to require an enterprise to perform an analysis:

to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity;

to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity;

(1) Summary of Significant Accounting Policies (Continued)

to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity;

to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity's economic performance; and

to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity.

SFAS 167 becomes effective for the Company on October 31, 2010. The Company is currently assessing the potential impact on its consolidated results of operations and financial position.

In June 2009, the FASB established that the "FASB Accounting Standards Codification" (Codification) will become the single official source of authoritative US GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related literature. After that date, only one level of authoritative US GAAP will exist. All other literature will be considered non-authoritative.

(2) Acquisitions

Fiscal 2009 Transactions

None.

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

(2) Acquisitions (Continued)

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

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.

(2) Acquisitions (Continued)

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 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, 2006 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

(2) Acquisitions (Continued)

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):

		Year Ended July 31, 2007
Total revenues		$	643,181
Operating income		$	204,930
Income before income taxes		$	215,747
Net income		$	133,222
Earnings per share		$	1.47
Diluted earnings per share		$	1.43

(3) Discontinued Operations

During fiscal 2006, the Company discontinued the operations of Motors Auction Group (MAG) and sold or converted the related assets, which included real estate. A note receivable issued in 2006 was the sole consideration for the sale of certain MAG business assets and related real estate. Under the original terms of the note, interest only payments were due in 59 consecutive monthly installments, calculated at 7% per year, followed by one final payment due on April 28, 2011. The portion of the consideration allocated to the real estate sold totaled $7.1 million and originally resulted in a deferred gain of approximately $1.6 million, net of taxes. During the third quarter of fiscal 2009, the Company received $12 million from the early payment of the note receivable. The deferred gain was recognized during the fiscal year ended July 31, 2009 upon payment of the note.

(4) Cash, Cash Equivalents and Marketable Securities

On August 1, 2008, the Company partially adopted Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS 157), which clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Cash and cash equivalents are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.

As of July 31, 2009, cash and cash equivalents include the following (in thousands):

		Cost			Unrealized Gains			Unrealized Losses Less Than 12 Months			Unrealized Losses 12 Months or Longer			Estimated Fair Value
Cash		$	48,629		$	—		$	—		$	—		$	48,629
Money market funds			114,062			—			—			—			114,062
Total		$	162,691		$	—		$	—		$	—		$	162,691

The Company invests its excess funds in money market funds comprised of securities issued by corporations, banks, municipalities and financial holding companies. The Company's cash and cash equivalents are placed with high credit quality financial institutions.

(5) Accounts Receivable, Net

Accounts receivable consists of the following (in thousands):

		July 31,
		2009			2008
Advance charges receivable		$	72,730		$	74,319
Trade accounts receivable			37,742			39,492
Other receivables			1,181			494
			111,653			114,305
Less allowance for doubtful accounts			(2,405	)		(2,600	)
		$	109,248		$	111,705

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.

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

Description and Fiscal Year		Balance at Beginning of Year			Charged to Costs And Expenses			Deductions to Bad Debt			Balance at End of Year
Allowance for doubtful accounts:
July 31, 2009		$	2,600		$	783		$	(978	)	$	2,405
July 31, 2008		$	2,251		$	1,174		$	(825	)	$	2,600
July 31, 2007		$	1,820		$	2,097		$	(1,666	)	$	2,251

(6) Property and Equipment, Net

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

		July 31,
		2009			2008
Transportation and other equipment		$	58,509		$	61,349
Office furniture and equipment			52,583			48,269
Land			285,282			261,320
Buildings and leasehold improvements			362,262			333,154
			758,636			704,092
Less accumulated depreciation and amortization			(227,750	)		(193,752	)
		$	530,886		$	510,340

Depreciation expense on property and equipment was approximately $37.7 million, $37.2 million and $35.0 million for the fiscal years ended July 31, 2009, 2008 and 2007 respectively.

(7) Goodwill

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

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
Effect of foreign currency translation			(10,837	)
Balance as of July 31, 2009		$	166,327

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 2009 and 2008. The annual results of these tests indicated that goodwill was not impaired. As of July 31, 2009, 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 , 2009
		Gross Carrying Amount			Accumulated Amortization			Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete		$	10,697		$	(9,808	)		1
Supply contracts			20,963			(7,571	)		4
Software			712			(681	)		1
Licenses and databases			1,322			(422	)		5
		$	33,694		$	(18,482	)

		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	)

Aggregate amortization expense on intangible assets was approximately $4.1 million, $5.8 million and $1.4 million for the fiscal years ended July 31, 2009, 2008 and 2007,

(8) Intangibles, Net (Continued)

respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2009 intangible assets is expected to be as follows (in thousands):

2010		$	4,122
2011			3,934
2012			3,841
2013			3,211
2014			101

(9) Accounts Payable and Accrued Liabilities

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

		July 31,
		2009			2008
Trade accounts payable		$	9,948		$	13,193
Accounts payable to sellers			35,048			37,294
Accrued insurance			5,818			5,172
Accrued compensation and benefits			17,082			18,012
Other accrued liabilities			14,877			15,212
		$	82,773		$	88,883

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 $175 million (reduced from $200 million pursuant to the terms of the Credit Agreement) 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 re-borrowed 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 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

(10) Long-Term Debt (Continued)

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. The Credit Facility contains restrictions with respect to investments, mergers and acquisitions, dividends and distributions and redemptions of capital stock, these restrictions become effective only after the Company's debt to EBITDA ratio exceeds 1.0:1.0. At July 31, 2009, the debt to EBITDA ratio was less than 1.0:1.0. As of July 31, 2009 and 2008, the Company did not have an outstanding balance under the Credit Facility.

(11) Shareholders' Equity

General

The Company has authorized the issuance of 180 million shares of common stock, no par value, of which 83,938,814 shares were issued and outstanding at July 31, 2009. As of July 31, 2009 and 2008, the Company has reserved 3,899,068 and 4,253,053 shares of common stock, respectively, for the issuance of options granted under the Company's stock option plans and 843,341 and 926,175 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, 2009.

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, 2009, the Company did not repurchase any shares under the stock repurchase program. 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. The total number of shares repurchased under the program as of July 31, 2009 was 13,649,469, leaving 15,350,531 million available under the repurchase program.

In December 2008, the Company's President exercised 600,000 options at an exercise price of $4.47 per share. In a cashless exercise, 96,929 shares of the 600,000 options exercised were net settled in satisfaction of the exercise price for the portion of options that were classified as non-qualified stock options. Additionally, 222,817 shares were withheld at a per share price of $26.93, totaling approximately $6.0 million, based on the closing price of the Company's common stock on the date of exercise, in lieu of the federal and state minimum statutory tax withholding requirements. In June 2009, the Company's President exercised 361,035 options at an exercise price of $11.12 per share. In a cashless exercise, 116,741 shares of the 361,035 options exercised were net settled in satisfaction of the exercise price for the portion of options that were classified as non-qualified stock options. Additionally, 109,595 shares were withheld at a per share price of $34.39, totaling approximately $3.8 million, based on the closing price of the Company's

(11) Shareholders' Equity (Continued)

common stock on the date of exercise, in lieu of the federal and state minimum statutory tax withholding requirements. The Company remitted approximately $9.8 million to the proper taxing authorities in satisfaction of the employee's minimum statutory withholding requirements. The tax withholding amounts paid by the Company have been accounted for as a repurchase of shares in the shareholders' equity section in the accompanying consolidated balance sheet. However, these deemed share repurchases are not included as part of the Company's stock repurchase program described in the preceding paragraph.

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 2009, 2008 and 2007 was 82,834, 56,450 and 66,734, respectively. As of July 31, 2009, 1,656,659 shares of common stock have been issued pursuant to the ESPP and 843,341 shares remain available for purchase under the ESPP.

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, 2009, 3,575,018 shares were available for future grant under the Plan.

In April 2009, the Compensation Committee of the Company's Board of Directors, following shareholder approval of proposed grants at a special meeting of shareholders, approved the grant to each of Willis J. Johnson, the Company's Chairman and Chief Executive Officer, and A. Jayson Adair, the Company's President, of nonqualified stock options to purchase 2,000,000 shares of the Company's common stock at an exercise price of $30.21 per share, which equaled the closing price of the Company's common stock on April 14, 2009, the effective date of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for a five-year period. Each option will become exercisable over five years, subject to continued service by the executive, with twenty percent (20%) vesting on April 14, 2010, and the balance vesting ratably over the subsequent four years. Each option will become fully vested, assuming continued service, on April 14, 2014, the fifth anniversary of the date of grant. If,

(11) Shareholders' Equity (Continued)

prior to a change in control, either executive's employment is terminated without cause, then one hundred percent (100%) of the shares subject to that executive's stock option will immediately vest. If, upon or following a change in control, either the Company or a successor entity terminates the executive's service without cause, or the executive resigns for good reason, then one hundred percent (100%) of the shares subject to his stock option will immediately vest. The total estimated compensation expense to be recognized by the Company over the five year estimated service period is approximately $26.1 million dollars per grant. The Company recognized approximately $3.0 million in compensation expense in fiscal 2009 relating to these grants.

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

		Years Ended July 31,
		2009			2008			2007
Yard operations		$	1,220		$	1,063		$	852
General and administrative			8,193			5,293			2,572

There were no compensation costs capitalized as part of the cost of an asset as of July 31, 2009 and 2008.

A summary of the status of the Company's non-vested shares as of July 31, 2009 and changes during fiscal 2009 is as follows:

		Number of Shares (in 000's)			Weighted- Average Grant- date Fair Value
Non-vested shares at July 31, 2008			1,604		$	12.49
Grants of options			4,335			13.09
Vested			(666	)		11.79
Forfeitures or expirations			(17	)		10.28
Non-vested shares at July 31, 2009			5,256		$	13.08

Option activity for the year ended July 31, 2009 is summarized as follows:

		Shares (in 000's)			Weighted- Average Exercise Price			Weighted-Average Remaining Contractual Term			Aggregate Intrinsic Value (in 000's)
Outstanding at July 31, 2008			4,791		$	19.41			—			—
Grants of options			4,335			30.56			—			—
Exercises			(1,094	)		8.09			—			—
Forfeitures or expirations			(27	)		26.52			—			—
Outstanding at July 31, 2009			8,005		$	26.97			7.72		$	67,843
Exercisable at July 31, 2009			2,749		$	19.70			4.64		$	43,066
Vested and expected to vest at July 31, 2009			7,629		$	27.00			7.74		$	63,367

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.

(11) Shareholders' Equity (Continued)

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, 2009 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, 2009. The aggregate intrinsic value of options exercised was approximately $29.8 million, $52.4 million and $12.1 million in the fiscal years ended July 31, 2009, 2008 and 2007, 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, 2009, 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 $61.3 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average term of 4.25 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2009, 2008 and 2007 is $7.8 million, $3.6 million and $4.4 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2009 follows:

		Options Outstanding									Options Exercisable
Range of Exercise Prices		Number Outstanding at July 31, 2009 (in 000's)			Weighted- Average Remaining Contractual Life			Weighted- Average Exercise Price			Number Exercisable at July 31, 2009 (in 000's)			Weighted- Average Exercise Price
$7.75 - $14.75			790			3.43		$	10.15			790		$	10.15
$16.93 - $23.73			928			3.27		$	17.87			916		$	17.81
$24.03 - $29.32			937			6.61		$	24.85			591		$	24.62
$29.71 - $30.21			4,125			9.60		$	30.20			98		$	29.73
$34.39 - $40.44			1,225			8.35		$	35.49			354		$	34.93
			8,005			7.72		$	26.97			2,749		$	19.70

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

		Years Ended July 31,
		2009			2008			2007
US		$	220,005		$	247,719		$	215,538
Non US			7,727			1,931			1,883
Total income before taxes		$	227,732		$	249,650		$	217,421

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

			Years Ended July 31,
			2009			2008			2007
Federal:
	Current		$	78,817		$	80,554		$	79,760
	Deferred			168			4,683			(6,202	)
				78,985			85,237			73,558
State:
	Current			8,151			6,906			7,430
	Deferred			(2	)		215			(418	)
				8,149			7,121			7,012
Foreign:
	Current			1,651			313			2,331
	Deferred			(599	)		47			(1,818	)
				1,052			360			513
			$	88,186		$	92,718		$	81,083

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,
			2009			2008			2007
Federal statutory rate				35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit				3.5			2.9			3.3
Compensation and fringe benefits				0.3			0.2			0.2
Other differences				(0.1	)		(1.0	)		(1.2	)
	Effective tax rate			38.7	%		37.1	%		37.3	%

(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):

					July 31,
					2009			2008
Deferred tax assets:
	Allowance for doubtful accounts				$	858		$	923
	Accrued compensation and benefits					7,422			4,610
	State taxes					1,489			1,211
	Accrued other					2,147			1,634
	Deferred revenue					1,861			2,124
	Property and equipment					9,319			7,676
	State net operating losses					312			660
	Long-term note write off					506			—
	Federal tax benefit					3,457			4,619
		Total gross deferred tax assets				27,371			23,457
			Less valuation allowance			(312	)		(584	)
		Net deferred tax assets				27,059			22,873
Deferred tax liabilities:
	Vehicle pooling costs					(9,510	)		(9,856	)
	Prepaid insurance					(657	)		(619	)
	Intangibles and goodwill					(22,078	)		(22,272	)
		Total gross deferred tax liabilities				(32,245	)		(32,747	)
		Net deferred tax liability			$	(5,186	)	$	(9,874	)

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

			July 31,
			2009			2008
North America current liabilities			$	1,948		$	2,768
North America non-current liabilities (assets)				(7,759	)		(6,938	)
UK non-current liabilities				10,997			14,044
	Net deferred tax liability		$	5,186		$	9,874

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 is 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, 2009 and 2008 was approximately $0.3 million and $0.6 million, respectively, which is a net decrease of $0.3 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. At July 31, 2009, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company's effective tax rate was $7.7 million. It is possible that the amount of unrecognized tax

(12) Income Taxes (Continued)

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):

			Years Ended July 31,
			2009			2008
Balance as of August 1			$	9,662		$	10,700
Increases related to current year tax positions				3,973			1,820
Prior year tax positions:
	Prior year increase			5,051			—
	Prior year decrease			(1,653	)		(144	)
Cash settlement				311			(199	)
Lapse of statute of limitations				(1,379	)		(2,515	)
	Balance at July 31		$	15,965		$	9,662

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, 2009, the Company had accrued interest and penalties related to the unrecognized tax benefits of $4.3 million.

The Company is currently under audit 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 2006, with the exception of New York and Connecticut.

In fiscal 2009, 2008 and 2007, the Company recognized a tax benefit of approximately $4.6 million, $16.9 million and $3.8 million, respectively, upon the exercise of certain stock options which is reflected in shareholders' equity.

The Company has not provided for US federal income and foreign withholding taxes on its foreign subsidiaries' undistributed earnings as of July 31, 2009, because the Company intends to reinvest such earnings indefinitely in the operations and potential acquisitions related to its foreign operations. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to US income taxes (subject to an adjustment for foreign tax credits). It is not predictable to determine the income tax liability that might be incurred if these earnings were to be distributed.

(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,
		2009			2008			2007
Weighted average common shares outstanding			83,537			87,412			90,651
Effect of dilutive securities-stock options			1,393			2,446			2,804
Diluted weighted average common shares outstanding			84,930			89,858			93,455

There were no adjustments to net income required in calculating diluted net income per share. Options to purchase approximately 1,225,000, 40,000 and 110,000 shares of our common stock at an average price of $34.43, $40.44 and $29.76 per share were outstanding at July 31, 2009,

(13) Net Income Per Share (Continued)

2008 and 2007, 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

The Company's North American region and its UK region are considered two separate operating segments, which have been aggregated into one reportable segment because they share similar economic characteristics.

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,
			2009			2008			2007
United States			$	591,284		$	591,600		$	541,801
Canada				4,733			5,365			4,060
	North America			596,017			596,965			545,861
United Kingdom				147,065			187,883			14,819
			$	743,082		$	784,848		$	560,680

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

			July 31,
			2009			2008
United States			$	595,355		$	568,459
Canada				5,427			5,581
	North America			600,782			574,040
United Kingdom				141,317			169,454
			$	742,099		$	743,494

(15) Commitments and Contingencies

Leases

The Company leases certain facilities and certain equipment under noncancelable capital and operating leases. In addition to the minimum future lease commitments presented below, the leases generally require the Company to pay property taxes, insurance, maintenance and repair costs which are not included in the table because the Company has determined these items are not material. Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession such as a rent holiday, 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, 2009, future minimum lease commitments under noncancelable capital and operating leases with initial or remaining lease terms in excess of one year are as follows (in thousands):

Years Ending July 31,		Capital Leases			Operating Leases
2010		$	507		$	20,378
2011			375			18,802
2012			212			14,935
2013			192			11,713
2014			48			6,472
Thereafter			—			21,455
			1,334		$	93,755
Less amount representing interest			173
		$	1,161

Facilities rental expense for the fiscal years ended July 31, 2009, 2008 and 2007 aggregated approximately $16.8 million, $16.9 million and $16.7 million, respectively. Yard operations equipment rental expense for the fiscal years ended July 31, 2009, 2008 and 2007 aggregated approximately $3.8 million, $3.8 million and $4.6 million, respectively.

Commitments

Letters of Credit

The Company had outstanding letters of credit of $8.3 million at July 31, 2009. 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 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 in excess of $2 million in damages, punitive damages, and prejudgment interest related to allegations involving

(15) Commitments and Contingencies (Continued)

breach of contract and misrepresentation. The Company believes the claim is without merit and is vigorously defending the lawsuit.

On December 16, 2008, Liberty Mutual Fire Insurance Company filed suit against Copart in the US District Court, Northern District of California. Liberty Mutual's complaint seeks reformation of an insurance contract and specific performance in relation to a policy issued to us with a $50,000 self-insured retention. After settlement of a claim under the subject policy for $3.95 million, Liberty Mutual is seeking to reform the contract and charge Copart for a $2 million self-insured retention which it claims was the original intent. The Company is vigorously defending the lawsuit.

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 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 the Company's 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 the Company's 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

(15) Commitments and Contingencies (Continued)

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 their 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 was performed in November 2008. In December 2008 a report was submitted to the TCEQ indicating that lead levels were below Texas surface water quality standards. In May of 2009, the TCEQ approved the Surface Water Sampling Report, as well as the Concrete Cap Inspection Report submitted in December 2008. The Company is making necessary repairs to the concrete cap and providing a survey map of the cap. Annual inspections of the cap will be required to ensure its maintenance. There is no assurance that the Company may not incur future liabilities if the stabilization process proves ineffective, or if future testing of surface or ground water reflects concentrations of lead which exceed Texas surface or ground water quality standards.

The Company does not believe that the above environmental matter 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 the Company's fiscal 2009 annual report on 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 $0.2 million, $0.3 million and $0.4 million for the fiscal years ended July 31, 2009, 2008 and 2007, 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, 2009, 2008 and 2007.

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

(17) Related Party Transactions (Continued)

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.

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, 2009 and 2008.

(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 $0.5 million, $0.4 million and $0.4 million for the fiscal years ended July 31, 2009, 2008 and 2007, 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) Subsequent Events

In August 2009, the Company's President exercised 323,631 options at an average exercise price of $13.03 per share. In a cashless exercise, 114,354 shares of the 323,631 options exercised were net settled in satisfaction of the exercise price for the portion of options that were classified as non-qualified stock options. Additionally, 95,746 shares were withheld at a per share price of $36.89, totaling approximately $3.5 million, based on the closing price of our common stock on the date of exercise, in lieu of the federal and state minimum statutory tax withholding requirements. The tax withholding amounts paid by the Company will be accounted for as a repurchase of shares. However, these deemed share repurchases are not included as part of the Company's stock repurchase program.

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

		Fiscal Quarter
Fiscal Year 2009		First			Second			Third			Fourth
Revenues		$	191,569		$	169,855		$	197,326		$	184,332
Operating income		$	59,485		$	45,569		$	64,880		$	55,391
Income from continuing operations		$	61,320		$	44,178		$	65,896		$	56,338
Net income		$	37,254		$	27,150		$	42,069		$	34,630
Basic net income per share		$	0.45		$	0.33		$	0.50		$	0.41
Diluted net income per share		$	0.44		$	0.32		$	0.50		$	0.41

		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

(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.