Item 15. Exhibits and Financial Statement Schedules

_**

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

						Page
(a)		1.		Financial Statements: Index to Consolidated Financial Statements
				Report of Independent Registered Public Accounting Firm			59
				Consolidated Balance Sheets at July 31, 2010 and 2009			60
				Consolidated Statements of Income for the years ended July 31, 2010, 2009 and 2008			61
				Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended July 31, 2010, 2009 and 2008			62
				Consolidated Statements of Cash Flows for the years ended July 31, 2010, 2009 and 2008			63
				Notes to Consolidated Financial Statements			64
		2.		Financial Statement Schedules: All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
		3.		Exhibits: The following Exhibits are filed as part of, or incorporated by reference into this report.

				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, dated as of March 6, 2003, between Copart 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
4.2		Amendment to Preferred Stock Rights Agreement, as of March 14, 2006, between Copart and Computershare Trust Company, N.A. (formerly Equiserve Trust Company, N.A.)		8/A-12G/A (File No. 000-23255), Exhibit 4.2		March 15, 2006
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

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
10.8*		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
10.9*		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
10.10*		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
10.11*		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
10.12*		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
10.13		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
10.14*		Copart, Inc. Executive Bonus Plan		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.13		August 3, 2006
10.15*		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
10.16*		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		June 12, 2009
10.17*		Amendment dated June 9, 2010 to Option Agreements dated June 6, 2001, October 21, 2002 and August 19, 2003 between the Company and Willis J. Johnson		—		Filed herewith
14.01		Code of Ethics for Principal Executive and Senior Financial Officers		Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 14-01		October 17, 2003

				Incorporated by reference herein
Exhibit Number
	Description		Form		Date
21.1		List of subsidiaries of Registrant		—		Filed herewith
23.1		Consent of Independent Registered Public Accounting Firm		—		Filed herewith
24.1		Power of Attorney (included on signature page)		—		Filed herewith
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
32.1		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/ A. JAYSON ADAIR A. Jayson Adair Chief Executive Officer
September 23, 2010
		COPART, INC.
		By:		/s/ WILLIAM E. FRANKLIN William E. Franklin Chief Financial Officer
September 23, 2010

**POWER OF ATTORNEY **

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Jayson Adair 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/ A. JAYSON ADAIR A. Jayson Adair		Chief Executive Officer (Principal Executive Officer and Director)		September 23, 2010
/s/ WILLIAM E. FRANKLIN William E. Franklin		Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)		September 23, 2010
/s/ WILLIS J. JOHNSON Willis J. Johnson		Chairman of the Board		September 23, 2010
/s/ JAMES E. MEEKS James E. Meeks		Director		September 23, 2010
/s/ STEVEN D. COHAN Steven D. Cohan		Director		September 23, 2010
/s/ DANIEL ENGLANDER Daniel Englander		Director		September 23, 2010
Thomas W. Smith		Director		September 23, 2010
/s/ MATT BLUNT Matt Blunt		Director		September 23, 2010

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, 2010 and 2009, 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, 2010. 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, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2010, in conformity with U.S. generally accepted accounting principles.

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, 2010, 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 23, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Sacramento, California September 23, 2010

** COPART, INC.**

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

				July 31, 2010			July 31, 2009
ASSETS
Current assets:
	Cash and cash equivalents			$	268,188		$	162,691
	Accounts receivable, net				109,061			109,248
	Vehicle pooling costs				29,890			28,685
	Inventories				4,976			4,667
	Income taxes receivable				10,958			5,426
	Prepaid expenses and other assets				14,342			5,216
		Total current assets			437,415			315,933
Property and equipment, net					573,514			530,886
Intangibles, net					13,016			15,212
Goodwill					175,870			166,327
Deferred income taxes					10,213			7,759
Other assets					18,784			21,915
		Total assets		$	1,228,812		$	1,058,032
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities			$	93,740		$	82,773
	Deferred revenue				10,642			13,165
	Income taxes payable				1,314			5,269
	Deferred income taxes				1,154			1,948
	Other current liabilities				374			429
		Total current liabilities			107,224			103,584
Deferred income taxes					9,748			10,997
Income taxes payable					23,369			20,266
Other liabilities					1,237			1,726
		Total liabilities			141,578			136,573
Commitments and contingencies
Shareholders' equity:
	Common stock, no par value—180,000,000 shares authorized; 84,363,063 and 83,938,814 shares issued and outstanding at July 31, 2010 and 2009, respectively				365,507			334,440
Accumulated other comprehensive loss					(32,741	)		(27,082	)
Retained earnings					754,468			614,101
		Total shareholders' equity			1,087,234			921,459
		Total liabilities and shareholders' equity		$	1,228,812		$	1,058,032

See accompanying notes to consolidated financial statements.

** COPART, INC.**

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

				Years Ended July 31,
				2010			2009			2008
Service revenues and vehicle sales:
	Service revenues			$	642,134		$	615,352		$	619,728
	Vehicle sales				130,745			127,730			165,120
		Total service revenues and vehicle sales			772,879			743,082			784,848
Operating costs and expenses:
	Yard operations				320,212			324,793			328,919
	Cost of vehicle sales				104,673			106,029			133,670
	General and administrative				108,924			86,935			84,342
		Total operating expenses			533,809			517,757			546,931
		Operating income			239,070			225,325			237,917
Other income (expense):
	Interest expense				(216	)		(274	)		(209	)
	Interest income				205			1,692			7,761
	Other income, net				436			989			4,181
		Total other income			425			2,407			11,733
		Income from continuing operations before income taxes			239,495			227,732			249,650
Income taxes					87,868			88,186			92,718
		Income from continuing operations			151,627			139,546			156,932
Discontinued operations:
		Income from discontinued operations, net of income tax effects			—			1,557			—
		Net income		$	151,627		$	141,103		$	156,932
Earnings per share—basic
		Income from continuing operations		$	1.80		$	1.67		$	1.80
		Income from discontinued operations			—			0.02			—
Basic net income per share				$	1.80		$	1.69		$	1.80
Weighted average common shares outstanding					84,165			83,537			87,412
Earnings per share—diluted
		Income from continuing operations		$	1.78		$	1.64		$	1.75
		Income from discontinued operations			—			0.02			—
Diluted net income per share				$	1.78		$	1.66		$	1.75
Diluted weighted average common shares outstanding					85,027			84,930			89,858

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, 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 ASC 740-10-25			—			—			—			(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
	Net income			—			—			—			151,627			151,627
	Currency translation adjustment			—			—			(5,659	)		—			(5,659	)
	Comprehensive income															145,968
	Exercise of stock options, net of repurchased shares			477,465			5,351			—			(7,315	)		(1,964	)
	Employee share-based compensation and related tax benefit			—			24,184			—			—			24,184
	Shares issued for Employee Stock Purchase Plan			68,035			2,044			—			—			2,044
	Shares repurchased			(121,251	)		(512	)		—			(3,945	)		(4,457	)
Balances at July 31, 2010				84,363,063		$	365,507		$	(32,741	)	$	754,468		$	1,087,234

See accompanying notes to consolidated financial statements.

** COPART, INC.**

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

						Years Ended July 31,
						2010			2009			2008
Cash flows from operating activities:
	Net income					$	151,627		$	141,103		$	156,932
	Adjustments to reconcile net income to net cash provided by operating activities:
		Income from discontinued operations					—			(2,440	)		—
		Depreciation and amortization					43,242			41,354			42,804
		Allowance for doubtful accounts					442			(174	)		349
		Deferred rent					(440	)		(1,171	)		(505	)
		Share-based compensation					17,955			9,413			6,356
		Excess benefit from share-based compensation					(5,643	)		(4,570	)		(16,942	)
		Loss on sale of property and equipment					659			647			123
		Deferred income taxes					(4,512	)		(2,393	)		5,690
		Changes in operating assets and liabilities, net of effects from acquisitions:
			Accounts receivable				2,436			982			270
			Vehicle pooling costs				(1,210	)		1,361			(784	)
			Inventories				(256	)		(54	)		1,489
			Prepaid expenses and other current assets				(8,896	)		1,376			(991	)
			Other assets				311			(6,386	)		(7,795	)
			Accounts payable and accrued liabilities				8,098			(2,479	)		1,208
			Deferred revenue				(2,527	)		(1,324	)		619
			Income taxes receivable				861			18,021			(4,732	)
			Income taxes payable				(2,740	)		10,073			9,972
				Net cash provided by operating activities			199,407			203,339			194,063
Cash flows from investing activities:
	Purchases of short-term investments						—			—			(154,360	)
	Sales of short-term investments						—			—			256,985
	Restricted cash and purchases of short-term investments						—			—			9,148
	Principal payments from (issuance of) notes receivable						(1,300	)		12,000			—
	Purchases of property and equipment						(75,840	)		(78,912	)		(113,364	)
	Proceeds from sale of property and equipment						2,477			7,008			7,220
	Purchase of assets and liabilities in connection with acquisitions, net of cash acquired						(21,362	)		—			(38,229	)
				Net cash used in investing activities			(96,025	)		(59,904	)		(32,600	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options						6,285			3,119			12,675
	Proceeds from the issuance of Employee Stock Purchase Plan shares						2,044			1,942			1,711
	Repurchases of common stock						(12,706	)		(9,769	)		(269,251	)
	Excess tax benefit from share-based payment arrangements						5,643			4,570			16,942
	Change in book overdraft						—			(17,502	)		8,246
				Net cash provided by (used in) financing activities			1,266			(17,640	)		(229,677	)
Effect of foreign currency translation							849			(2,058	)		(453	)
Net increase (decrease) in cash and cash equivalents							105,497			123,737			(68,667	)
Cash and cash equivalents at beginning of period							162,691			38,954			107,621
Cash and cash equivalents at end of period						$	268,188		$	162,691		$	38,954
Supplemental disclosure of cash flow information:
	Interest paid					$	216		$	353		$	117
	Cash paid for income taxes					$	93,989		$	71,908		$	85,010

See accompanying notes to consolidated financial statements.

** COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2010, 2009 AND 2008 **

(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 both on a principal basis, purchasing the salvage vehicle outright from the insurance company and reselling the vehicle for its own account, and as an agent.

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

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

into US dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary's financial statements are reported in other comprehensive income.

Fair Value of Financial Instruments

The amounts recorded for financial instruments in the Company's consolidated financial statements, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values as of July 31, 2010 and 2009 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 member and seller agreements in accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements, which addresses accounting for multiple element arrangements, and 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 member. The Company is not entitled to any seller fees until the Company has collected the sales proceeds from the member for the seller and, accordingly, the Company recognizes revenue for seller services after service delivery and cash collection, net of any applicable rebates or allowances.

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 member 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 member, 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 ASC 605-25 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 members 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

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

late-payment fees, which are recognized upon receipt of payment by the member. 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 members or sellers.

Cost of Vehicle Sales

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

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 $12.7 million, $2.6 million and $1.7 million in fiscal 2010, 2009 and 2008, respectively.

Other income

Other income consists primarily of interest income, gains and losses from the disposal of fixed assets and rental income.

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 FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes, 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

As a result of the Company's adoption of ASC 740-10-25, the Company recognized a $3.6 million cumulative decrease to retained earnings. The Company also recognized a liability for unrecognized tax benefits of $13.3 million, of which $9.1 million (net of tax) would reduce the Company's effective tax rate if recognized in future periods. The interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. As of August 1, 2007, the Company had $2.6 million of accrued interest and penalties included in unrecognized tax benefits.

Net Income Per Share

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

Cash, Cash Equivalents and 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 periodically invests its excess cash in money market funds and US Treasury Bills. 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 FASB ASC 820, Fair Value Measurements and Disclosures, 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, ASC 820 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

Inventory

Inventories of purchased vehicles are stated at the lower of cost or estimated realizable value. Cost includes the Company's 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 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 members, are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts in order to provide for estimated losses resulting from disputed amounts billed to sellers or members and the inability of sellers or members to make required payments. If billing disputes exceed expectations and/or if the financial condition of sellers or members were to deteriorate, additional allowances may be required. The allowance is calculated by considering both seller and member accounts receivables written off during the previous 12 month period as a percentage of the total accounts receivable balance.

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

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

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.

No single customer accounted for more than 10% of our revenues in fiscal 2010, 2009 and 2008. At July 31, 2010 no single customer accounted for more than 10% of the Company's accounts receivables. At July 31, 2009 State Farm Insurance accounted for 11% of accounts receivable.

Property and Equipment

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

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In accordance with FASB ASC 360, Property, Plant, and Equipment, 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 FASB ASC 350-30-35, Intangibles—Goodwill and Other, goodwill is not amortized but is tested for potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist. The Company performed its annual impairment test for goodwill during the fourth quarter of its 2010 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

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. As of July 31,2010 and 2009 the total amount reserved for all policies is approximately $4.8 million and $5.8 million, respectively.

Stock Compensation

The Company accounts for our stock-based awards to employees and non-employees using the fair value method as required by FASB ASC 718, Compensation—Stock Compensation, 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 ASC 718 using the modified-prospective transition method. Under this transition method, share-based compensation cost recognized in the fiscal years ended July 31, 2010, 2009 and 2008 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 ASC 718, 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 ASC 718. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

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

		July 31, 2010			July 31, 2009			July 31, 2008
Expected life (in years)			5.2 - 7.1			5.2 - 7.1			4.7 - 6.7
Risk-free interest rate			2.1 - 3.3	%		1.4 - 3.1	%		3.4 - 4.4	%
Estimated volatility factor			28 - 36	%		33 - 37	%		31 - 32	%
Expected dividends			0	%		0	%		0	%
Weighted-average fair value at grant date		$	13.21		$	13.09		$	13.81

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 $6.3 million, $3.1 million and $12.7 million for the years ended July 31, 2010, 2009 and 2008 respectively. The Company realized an income tax benefit of approximately $5.6 million, $4.6 million and $16.9 million from stock option exercises during the years ended July 31, 2010, 2009 and 2008 respectively. In accordance with ASC 718, the Company presents excess tax benefits from disqualifying dispositions of the exercise of incentive stock options, vested prior to August 1, 2005, if any, as financing cash flows rather than operating cash flows.

Comprehensive Income

Comprehensive income includes all changes in shareholders' equity during a period from non-shareholder sources. For the years ended July 31, 2010, 2009 and 2008 the only item in accumulated other comprehensive loss was the effect of foreign currency translation adjustments.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

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.

Recently Issued Accounting Standards

FASB ASC 820, Fair Value Measurements and Disclosures, was effective for the Company in the first quarter ended October 31, 2009. The Company adopted ASC 820 for its non-financial assets and non-financial liabilities, which include assets and liabilities acquired in connection with business combinations and intangible assets. The adoption of ASC 820 for non-financial assets and liabilities did not have an impact on the Company's consolidated results of operations or financial condition.

FASB ASC 810-10-65, Consolidation, which was effective for the Company in the first quarter ended October 31, 2009, 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. The adoption of ASC 810-10-65 did not have an impact on the Company's consolidated results of operations or financial position.

FASB ASC 815-10-50, Derivatives and Hedging, which was effective for the Company in the first quarter ended October 31, 2009, requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting. Under ASC 815-10-50, 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 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. ASC 815-10-50 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 ASC 815-10-50. The adoption of ASC 815-10-50 did not have an impact on the Company's consolidated results of operations or financial position.

FASB ASC 350-30-35, Intangibles—Goodwill and Other, which was effective for the Company in the first quarter ended October 31, 2009, amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The adoption of ASC 350-30-35 did not have an impact on the Company's consolidated results of operations or financial position.

FASB ASC 810-15-13, Consolidation—Variable Interest Entities, which was effective for the Company in the first quarter ended October, 31, 2009, requires 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;

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(1) Summary of Significant Accounting Policies (Continued)

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

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.

The adoption of ASC 810-15-13 did not have an impact on the Company's consolidated results of operations or financial position.

In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. ASU 2009-13 significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company is currently evaluating the impact of ASU 2009-13 on the Company's consolidated results of operations or financial position, however the Company does not believe the impact will be material.

In June 2009, the FASB established the "FASB Accounting Standards Codification" (Codification) which was effective for the Company in the first quarter ended October 31, 2009. The codification became 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 exists. All other literature is considered non-authoritative.

(2) Acquisitions

Fiscal 2010 Transactions

In January 2010, the Company completed the acquisition of D Hales Limited (D Hales) which operated five locations in the United Kingdom through a stock purchase. This acquisition was undertaken because of its strategic fit with the United Kingdom business and has been accounted for using the purchase method in accordance with FASB ASC 805, 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 D Hales 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

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(2) Acquisitions (Continued)

fit and resulting synergies it brings to existing operations. In accordance with ASC 805, D Hales' assets acquired and liabilities assumed have been recorded at their estimated fair values. The Company has not finalized the valuations of purchased net assets, however the Company believes the potential changes to its preliminary purchase price allocation will not have a material impact on the Company's consolidated results of operations and financial position.

Pro-forma Financial Information

Pro forma financial information for the fiscal 2010 acquisition does not result in a significant change from actual results.

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 operated 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 operated 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 ASC 805, 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 ASC 805, the assets acquired and liabilities assumed have been recorded at their estimated fair values. The consideration paid for these acquisitions consisted of approximately $38.2 million in cash, net of cash acquired. The acquired net assets consisted principally of accounts receivable, inventories and vehicle pooling costs, property and equipment, goodwill, accounts payable, deferred tax liabilities, taxes payable, and covenants not to compete. The acquisitions were accounted for using the purchase method of accounting, and the operating results subsequent to the acquisition dates are included in the Company's consolidated statements of income. The excess of the purchase price over the fair market value of the net identifiable assets acquired of $13.9 million has been recorded as goodwill. The 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(2) Acquisitions (Continued)

The accompanying consolidated financial statements reflect the final combined 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.

(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 adopted FASB ASC 820, Fair Value Measurements and Disclosures, 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, ASC 820 establishes a three-tier value hierarchy, which prioritizes

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(4) Cash, Cash Equivalents and Marketable Securities (Continued)

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.

As of July 31, 2010, 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		$	131,070		$	—		$	—		$	—		$	131,070
Money market funds			107,118			—			—			—			107,118
Cash equivalents—US Treasury Bills			30,000			—			—			—			30,000
Total		$	268,188		$	—		$	—		$	—		$	268,188

The Company invests its excess cash in money market funds and US Treasury Bills. 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,
		2010			2009
Advance charges receivable		$	72,841		$	72,730
Trade accounts receivable			37,904			37,742
Other receivables			1,157			1,181
			111,902			111,653
Less allowance for doubtful accounts			(2,841	)		(2,405	)
		$	109,061		$	109,248

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 members.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(5) Accounts Receivable, Net (Continued)

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, 2010		$	2,405		$	1,591		$	(1,155	)	$	2,841
July 31, 2009		$	2,600		$	783		$	(978	)	$	2,405
July 31, 2008		$	2,251		$	1,174		$	(825	)	$	2,600

(6) Property and Equipment, Net

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

		July 31,
		2010			2009
Transportation and other equipment		$	61,245		$	58,509
Office furniture and equipment			53,930			52,583
Land			306,251			285,282
Buildings and leasehold improvements			411,642			362,262
			833,068			758,636
Less accumulated depreciation and amortization			(259,554	)		(227,750	)
		$	573,514		$	530,886

Depreciation expense on property and equipment was approximately $39.3 million, $37.7 million and $37.2 million for the fiscal years ended July 31, 2010, 2009 and 2008 respectively.

(7) Goodwill

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

Balance as of July 31, 2008		$	177,164
Effect of foreign currency translation			(10,837	)
Balance as of July 31, 2009		$	166,327
Goodwill recorded during the period			12,599
Effect of foreign currency translation			(3,056	)
Balance as of July 31, 2010		$	175,870

In accordance with the guidance in FASB ASC 350, 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 2010 and 2009. The annual results of these tests indicated

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(7) Goodwill (Continued)

that goodwill was not impaired. As of July 31, 2010, 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 , 2010
		Gross Carrying Amount			Accumulated Amortization			Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete		$	10,697		$	(10,233	)		1
Supply contracts			22,365			(10,521	)		4
Software			626			(626	)		0
Licenses and databases			1,317			(609	)		4
		$	35,005		$	(21,989	)

		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	)		2
Supply contracts			20,963			(7,571	)		4
Software			712			(681	)		1
Licenses and databases			1,322			(422	)		5
		$	33,694		$	(18,482	)

Aggregate amortization expense on intangible assets was approximately $3.9 million, $4.1 million and $5.8 million for the fiscal years ended July 31, 2010, 2009 and 2008, respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2010 intangible assets is expected to be as follows (in thousands):

2011		$	4,203
2012			4,110
2013			3,489
2014			546
2015			445

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(9) Accounts Payable and Accrued Liabilities

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

		July 31,
		2010			2009
Trade accounts payable		$	14,923		$	9,948
Accounts payable to sellers			40,370			35,048
Accrued insurance			4,831			5,818
Accrued compensation and benefits			14,298			17,082
Other accrued liabilities			19,318			14,877
		$	93,740		$	82,773

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

(10) Long-Term Debt

On March 6, 2008, the Company entered into an unsecured credit agreement with Bank of America, N.A. (the Credit Agreement) providing for a $200 million revolving credit facility (the Credit Facility). Currently available under the Credit Agreement is $150 million, subject to 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 on the leverage ratio, as defined in the Credit Agreement, at the end of the previous quarter or at the U.S. prime rate. A default interest rate applies on all obligations during an event of default under the Credit Facility at a rate per annum equal to 2.0% above the otherwise applicable interest rate. The Credit Facility requires the Company to pay a commitment fee on the unused portion of the Credit Facility. The commitment fee ranges from 0.075% to 0.15% depending on the leverage ratio as of the end on the previous quarter. The Credit Facility contains customary representations and warranties and places certain business operating restrictions on the Company relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, and dividends, distributions and redemptions of capital stock. In addition, the Credit Agreement provides for a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-defaults to certain other indebtedness, bankruptcy and insolvency defaults, material judgments, invalidity of the loan documents and events constituting a change of control. The Credit Facility is guaranteed by the Company's material domestic subsidiaries. The Credit Facility

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(10) Long-Term Debt (Continued)

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, 2010, the debt to EBITDA ratio was less than 1.0:1.0. As of July 31, 2010 and July 31, 2009, 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 84,363,063 shares were issued and outstanding at July 31, 2010. As of July 31, 2010 and 2009, the Company has reserved 2,910,031 and 3,899,068 shares of common stock, respectively, for the issuance of options granted under the Company's stock option plans and 775,306 and 843,341 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, 2010.

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 stock 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, 2010, the Company repurchased 121,251 shares of our common stock at a price of $36.76. For the year ended July 31, 2009 the Company did not repurchase any shares under our 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. As of July 31, 2010, the total number of shares repurchased under the program was 13,770,720 and 15,229,280 shares were available for repurchase under the program.

In the second and fourth quarters of fiscal year 2009 and the first quarter of fiscal year 2010, Mr. Adair, Chief Executive Officer (and then President), exercised stock options through cashless exercises. In the fourth quarter of fiscal year 2010, Mr. Johnson, Chairman of the Board, exercised stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price and federal and state minimum statutory tax withholding requirements. The Company remitted approximately $17.2 million to the proper taxing authorities in satisfaction of the employees' minimum statutory withholding requirements. In fiscal year 2008 no

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(11) Shareholders' Equity (Continued)

stock options were exercised through the cashless exercise method. The exercises are summarized in the following table:

Period		Options Exercised			Exercise Price			Shares Net Settled for Exercise			Shares Withheld for Taxes(1)			Net Shares to Employee			Share Price for Withholding			Tax Withholding (in 000's)
FY 2009—Q2			600,000		$	4.47			96,929			222,817			280,254		$	26.93		$	6,000
FY 2009—Q4			361,035		$	11.12			116,741			109,595			134,699		$	34.39		$	3,769
FY 2010—Q1			323,631		$	13.03			114,354			95,746			113,531		$	36.89		$	3,532
FY 2010—Q4			350,000		$	12.91			122,922			105,827			121,251		$	36.76		$	3,890

(1)

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

(11) Shareholders' Equity (Continued)

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 2010, 2009 and 2008 was 68,035, 82,834 and 56,450, respectively. As of July 31, 2010, 1,724,694 shares of common stock have been issued pursuant to the ESPP and 775,306 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, restricted stock, restricted stock units and other equity-based awards to employees, officers, directors and consultants at prices not less than 100% of the fair market value for incentive and non-qualified stock options, 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, 2010, 2,578,981 shares were available for future grant under the Plan.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(11) Shareholders' Equity (Continued)

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 then Chief Executive Officer), and A. Jayson Adair, the Company's Chief Executive Office (and then 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, 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 compensation expense to be recognized by the Company over the five year service period is approximately $26.1 million dollars per grant. The Company recognized approximately $10.1 million in compensation expense in fiscal 2010 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,
		2010			2009			2008
Yard operations		$	1,109		$	1,220		$	1,063
General and administrative			16,846			8,193			5,293

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2010 and 2009.

A summary of the status of the Company's non-vested shares as of July 31, 2010 and changes during fiscal 2010 is as follows:

		Number of Shares (in 000's)			Weighted- Average Grant- date Fair Value
Non-vested shares at July 31, 2009			5,256		$	13.08
Grants of options			928			13.29
Vested			(1,527	)		12.82
Forfeitures or expirations			(24	)		8.86
Non-vested shares at July 31, 2010			4,633		$	13.23

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(11) Shareholders' Equity (Continued)

Option activity for the year ended July 31, 2010 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, 2009			8,005		$	26.97			—			—
Grants of options			928			33.47			—			—
Exercises			(857	)		14.67			—			—
Forfeitures or expirations			(24	)		26.34			—			—
Outstanding at July 31, 2010			8,052		$	29.07			7.49		$	60,151
Exercisable at July 31, 2010			3,419		$	25.76			5.99		$	36,896
Vested and expected to vest at July 31, 2010			7,663		$	29.09			7.51		$	56,284

As required by ASC 718, the Company made an estimate of expected forfeitures and is recognizing compensation cost only for those equity awards expected to vest.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of the year ended July 31, 2010 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, 2010. The aggregate intrinsic value of options exercised was approximately $19.0 million, $29.8 million and $52.4 million in the fiscal years ended July 31, 2010, 2009 and 2008, 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, 2010, 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 $55.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average term of 3.52 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2010, 2009 and 2008 is $19.6 million, $7.8 million and $3.6 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2010 follows:

		Options Outstanding									Options Exercisable
Range of Exercise Prices		Number Outstanding at July 31, 2010 (in 000's)			Weighted- Average Remaining Contractual Life			Weighted- Average Exercise Price			Number Exercisable at July 31, 2010 (in 000's)			Weighted- Average Exercise Price
$7.75 - $23.73			922			2.79		$	15.10			920		$	15.09
$24.03 - $29.89			983			5.43		$	25.28			889		$	25.18
$30.21 - $32.86			4,625			8.77		$	30.57			1,000		$	30.21
$34.39 - $40.44			1,522			7.79		$	35.44			610		$	35.42
			8,052			7.49		$	29.07			3,419		$	25.76

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(11) Shareholders' Equity (Continued)

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,
		2010			2009			2008
US		$	217,947		$	220,005		$	247,719
Non US			21,548			7,727			1,931
Total income before taxes		$	239,495		$	227,732		$	249,650

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(12) Income Taxes (Continued)

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

			Years Ended July 31,
			2010			2009			2008
Federal:
	Current		$	83,791		$	78,817		$	80,554
	Deferred			(3,714	)		168			4,683
				80,077			78,985			85,237
State:
	Current			6,664			8,151			6,906
	Deferred			473			(2	)		215
				7,137			8,149			7,121
Foreign:
	Current			1,916			1,651			313
	Deferred			(1,262	)		(599	)		47
				654			1,052			360
			$	87,868		$	88,186		$	92,718

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,
			2010			2009			2008
Federal statutory rate				35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit				2.0			3.5			2.9
Foreign				(1.7	)		(0.8	)		(0.1	)
Compensation and fringe benefits				0.2			0.3			0.2
Other differences				1.2			0.7			(0.9	)
	Effective tax rate			36.7	%		38.7	%		37.1	%

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(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,
					2010			2009
Deferred tax assets:
	Allowance for doubtful accounts				$	982		$	858
	Accrued compensation and benefits					13,898			7,422
	State taxes					1,358			1,489
	Accrued other					1,884			2,147
	Deferred revenue					1,910			1,861
	Property and equipment					8,693			9,319
	State net operating losses					327			312
	Long-term note write off					423			506
	Federal tax benefit					4,348			3,457
		Total gross deferred tax assets				33,823			27,371
			Less valuation allowance			(787	)		(312	)
		Net deferred tax assets				33,036			27,059
Deferred tax liabilities:
	Vehicle pooling costs					(9,414	)		(9,510	)
	Prepaid insurance					(671	)		(657	)
	Intangibles and goodwill					(23,640	)		(22,078	)
		Total gross deferred tax liabilities				(33,725	)		(32,245	)
		Net deferred tax liability			$	(689	)	$	(5,186	)

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

			July 31,
			2010			2009
North America current liabilities			$	1,154		$	1,948
North America non-current liabilities (assets)				(10,213	)		(7,759	)
UK non-current liabilities				9,748			10,997
	Net deferred tax liability		$	689		$	5,186

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, 2010 and 2009 was approximately $0.8 million and $0.3 million, respectively, which is a net increase of $0.5 million.

The Company adopted FASB ASC 740-10-25 as of August 1, 2007. The cumulative effect of adopting ASC 740-10-25 was a decrease to the Company's retained earnings of approximately

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(12) Income Taxes (Continued)

$3.6 million. At July 31, 2010, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company's effective tax rate was $9.9 million. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however an estimate of the range of the possible change cannot be made at this time.

The following table summarizes the activities related to the Company's unrecognized tax benefits (in thousands):

			Years Ended July 31,
			2010			2009
Balance as of August 1			$	15,965		$	9,662
Increases related to current year tax positions				4,514			3,973
Prior year tax positions:
	Prior year increase			74			5,051
	Prior year decrease			(532	)		(1,653	)
Cash settlement				(302	)		311
Lapse of statute of limitations				(1,575	)		(1,379	)
	Balance at July 31		$	18,144		$	15,965

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, 2010, the Company had accrued interest and penalties related to the unrecognized tax benefits of $5.2 million.

The Company is currently under audit by the states of New Jersey and Georgia for fiscal years 2006, 2007, 2008 and 2009. The Company is no longer subject to US federal and state income tax examination for fiscal years prior to 2007, with the exception of New Jersey and Georgia.

In fiscal 2010, 2009 and 2008, the Company recognized a tax benefit of approximately $6.2 million, $4.6 million and $16.9 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, 2010, 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 practical to determine the income tax liability that might be incurred if these earnings were to be distributed.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(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,
		2010			2009			2008
Weighted average common shares outstanding			84,165			83,537			87,412
Effect of dilutive securities-stock options			862			1,393			2,446
Diluted weighted average common shares outstanding			85,027			84,930			89,858

There were no adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were approximately 5,892,641, 1,225,000 and 40,000 options to purchase our common stock that were outstanding at July 31, 2010, 2009 and 2008, respectively, because their effect would have been anti-dilutive.

(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 ASC 280, Segment Reporting. Revenues are based upon the geographic location of the selling facility and are summarized in the following table (in thousands):

			Years Ended July 31,
			2010			2009			2008
United States			$	602,794		$	591,284		$	591,600
Canada				5,635			4,733			5,365
	North America			608,429			596,017			596,965
United Kingdom				164,450			147,065			187,883
			$	772,879		$	743,082		$	784,848

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

			July 31,
			2010			2009
United States			$	635,734		$	595,355
Canada				5,044			5,427
	North America			640,778			600,782
United Kingdom				150,619			141,317
			$	791,397		$	742,099

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(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 ASC 840-20-25 Operating Leases.

At July 31, 2010, 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
2011		$	421		$	19,916
2012			260			16,167
2013			183			12,450
2014			122			7,044
2015			—			4,509
Thereafter			—			17,022
			986		$	77,108
Less amount representing interest			91
		$	895

Facilities rental expense for the fiscal years ended July 31, 2010, 2009 and 2008 aggregated approximately $16.8 million, $16.8 million and $16.9 million, respectively. Yard operations equipment rental expense for the fiscal years ended July 31, 2010, 2009 and 2008 aggregated approximately $4.1 million, $3.8 million and $3.8 million, respectively.

Commitments

Letters of Credit

The Company had outstanding letters of credit of $7.8 million at July 31, 2010 which are primarily used to 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(15) Commitments and Contingencies (Continued)

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

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 sought reformation of an insurance contract and specific performance in relation to a policy issued to Copart with a $50,000 self-insured retention. After settlement of a claim under the subject policy for $3.95 million, Liberty Mutual sought to reform the contract and charge Copart for a $2 million self-insured retention which it claimed was the original intent. Pursuant to a settlement agreement between the parties, the case was dismissed in January 2010.

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

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(15) Commitments and Contingencies (Continued)

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 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 made the necessary repairs to the concrete cap and provided a survey map of the cap. Annual inspections of the cap are 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.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(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 2010 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, $0.2 million, and $0.3 million for the fiscal years ended July 31, 2010, 2009 and 2008, 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, 2010, 2009 and 2008.

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

On June 5, 2008, the Company entered into an agreement with Willis J. Johnson, the Company's Chairman of the Board (then 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 independent 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, the Company's Chairman of the Board (then 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 independent members of the Company's Board of Directors and the Audit Committee of the Company's Board of Directors.

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

(17) Related Party Transactions (Continued)

On June 10, 2010, the Company entered into an agreement with Willis J. Johnson, the Company's Chairman of the Board and a member of the Board of Directors, pursuant to which the Company acquired 121,251 shares of its common stock at a price of $36.76 per share, or an aggregate purchase price of $4,457,186.76. The settlement date for the acquisition of the common stock was on or about June 10, 2010, 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 10, 2010 (as reported by The NASDAQ Stock Market). The repurchase was approved by the independent members of the Board of Directors and the Audit Committee of the Board of Directors.

There were no amounts due or from related parties at July 31, 2010 and 2009.

(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, $0.5 million and $0.4 million for the fiscal years ended July 31, 2010, 2009 and 2008, 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. The Company recognized an expense of approximately $0.3 million, $0.7 million, and $0.3 million for the fiscal years ended July 31, 2010, 2009 and 2008, respectively, related to this plan.

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

		Fiscal Quarter
Fiscal Year 2010		First			Second			Third			Fourth
Revenues		$	185,461		$	176,601		$	220,349		$	190,468
Operating income		$	56,492		$	52,232		$	72,126		$	57,220
Income from continuing operations		$	57,052		$	53,172		$	71,584		$	57,687
Net income		$	35,270		$	35,733		$	44,390		$	36,234
Basic net income per share		$	0.42		$	0.42		$	0.53		$	0.43
Diluted net income per share		$	0.42		$	0.42		$	0.52		$	0.43

** COPART, INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

JULY 31, 2010, 2009 AND 2008

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

		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

(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.