Item 15. Exhibits and Financial Statement Schedules

Item 15. Exhibits and Financial Statement Schedules

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Thereafter

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


(a)1.	_Financial Statements:_Index to Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm	58
	Consolidated Balance Sheets at July 31, 2011 and 2010	59
	Consolidated Statements of Income for the years ended July 31, 2011, 2010 and 2009	60
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended July 31, 2011, 2010 and 2009	61
	Consolidated Statements of Cash Flows for the years ended July 31, 2011, 2010 and 2009	62
	Notes to Consolidated Financial Statements	63
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
3.1c	Certificate of Amendment of Articles of Incorporation from 2002	—	Filed herewith
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
10.8*	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

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
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 December 14, 2010 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	December 15, 2010
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	Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 10-17	September 23, 2010
10.18	Executive Officer Employment Agreement between the Company and Thomas Wylie, dated September 25, 2008	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.2	December 15, 2010
10.19	Executive Officer Employment Agreement between the Company and Greg A. Tucker, dated October 29, 2008	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.3	December 15, 2010
10.20	Executive Officer Employment Agreement between the Company and Vincent Phillips, dated April 12, 2010	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.4	December 15, 2010
10.21	Standard Industrial/Commercial single tenant lease-net dated January 3, 2011 between Partnership HealthPlan of California and the Registrant	—	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
21.1	List of subsidiaries of Registrant	—	Filed herewith

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
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 27, 2011

COPART, INC.

				By:				/s/ WILLIAM E. FRANKLIN
								William E. Franklin Chief Financial Officer

September 27, 2011

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 ADAIRA. Jayson Adair	Chief Executive Officer (Principal Executive Officer and Director)	September 27, 2011

/s/ WILLIAM E. FRANKLINWilliam E. Franklin	Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)	September 27, 2011

/s/ WILLIS J. JOHNSONWillis J. Johnson	Chairman of the Board	September 27, 2011

/s/ JAMES E. MEEKSJames E. Meeks	Director	September 27, 2011

/s/ STEVEN D. COHANSteven D. Cohan	Director	September 27, 2011

Daniel Englander	Director	September 27, 2011

/s/ THOMAS W. SMITHThomas W. Smith	Director	September 27, 2011

/s/ MATT BLUNTMatt Blunt	Director	September 27, 2011

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, 2011 and 2010, 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, 2011. 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2011, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective August 1, 2010, the Company adopted on a prospective basis Auditing Standards Update 2009 -13, Revenue Arrangements with Multiple Deliverables.

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, 2011, 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 27, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Francisco, California September 27, 2011

COPART, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)

	July 31, 2011			July 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	74,009		$	268,188
Accounts receivable, net		122,859			109,061
Vehicle pooling costs		17,026			29,890
Inventories		8,016			4,976
Income taxes receivable		5,145			10,958
Prepaid expenses and other assets		14,813			14,342
Total current assets		241,868			437,415
Property and equipment, net		600,388			573,514
Intangibles, net		12,748			13,016
Goodwill		198,620			175,870
Deferred income taxes		9,425			10,213
Other assets		21,387			18,784
Total assets	$	1,084,436		$	1,228,812

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	101,708		$	93,740
Deferred revenue		5,636			10,642
Income taxes payable		3,543			1,314
Deferred income taxes		440			1,154
Current portion of long-term debt and capital lease obligations		50,370			374
Other current liabilities		4,929			—
Total current liabilities		166,626			107,224
Deferred income taxes		10,057			9,748
Income taxes payable		24,773			23,369
Long-term debt and capital lease obligations		325,386			601
Other liabilities		2,422			636
Total liabilities		529,264			141,578

Commitments and contingencies
Shareholders’ equity:
Common stock, no par value — 180,000,000 shares authorized; 66,005,517 and 84,363,063 shares issued and outstanding at July 31, 2011 and 2010, respectively		313,940			365,507
Accumulated other comprehensive loss		(23,225	)		(32,741	)
Retained earnings		264,457			754,468
Total shareholders’ equity		555,172			1,087,234
Total liabilities and shareholders’ equity	$	1,084,436		$	1,228,812

See accompanying notes to consolidated financial statements.

COPART, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)

	Years Ended July 31,
	2011			2010			2009
Service revenues and vehicle sales:
Service revenues	$	723,610		$	642,134		$	615,352
Vehicle sales		148,636			130,745			127,730
Total service revenues and vehicle sales		872,246			772,879			743,082
Operating costs and expenses:
Yard operations		374,149			320,212			324,793
Cost of vehicle sales		125,202			104,673			106,029
General and administrative		107,605			108,924			86,935
Total operating costs and expenses		606,956			533,809			517,757
Operating income		265,290			239,070			225,325

Other income (expense):
Interest expense		(4,078	)		(216	)		(274	)
Interest income		493			205			1,692
Other income, net		2,172			436			989
Total other income (expense)		(1,413	)		425			2,407
Income from continuing operations before income taxes		263,877			239,495			227,732
Income taxes		97,502			87,868			88,186
Income from continuing operations		166,375			151,627			139,546

Discontinued operations:
Income from discontinued operations, net of income tax effects		—			—			1,557
Net income	$	166,375		$	151,627		$	141,103

Earnings per share — basic
Income from continuing operations	$	2.20		$	1.80		$	1.67
Income from discontinued operations		—			—			0.02
Basic net income per share	$	2.20		$	1.80		$	1.69
Weighted average common shares outstanding		75,649			84,165			83,537

Earnings per share — diluted
Income from continuing operations	$	2.17		$	1.78		$	1.64
Income from discontinued operations		—			—			0.02
Diluted net income per share	$	2.17		$	1.78		$	1.66
Diluted weighted average common shares outstanding		76,676			85,027			84,930

See accompanying notes to consolidated financial statements.

COPART, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (in thousands, except share amounts)

	Common Stock
	Outstanding Shares			Amount			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Shareholders’ Equity
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
Net income		—			—			—			166,375			166,375
Currency translation adjustment		—			—			9,516			—			9,516
Comprehensive income														175,891
Exercise of stock options, net of repurchased shares		433,263			6,486			—			(3,639	)		2,847
Employee share-based compensation and related tax benefit		—			22,645			—			—			22,645
Shares issued for Employee Stock Purchase Plan		63,596			1,957			—			—			1,957
Shares repurchased		(18,854,405	)		(82,655	)		—			(652,747	)		(735,402	)
Balances at July 31, 2011		66,005,517		$	313,940		$	(23,225	)	$	264,457		$	555,172

See accompanying notes to consolidated financial statements.

COPART, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Years Ended July 31,
	2011			2010			2009
Cash flows from operating activities:
Net income	$	166,375		$	151,627		$	141,103
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations		—			—			(2,440	)
Depreciation and amortization		45,694			43,242			41,354
Allowance for doubtful accounts		270			442			(174	)
Other long-term liabilities		(428	)		(440	)		(1,171	)
Share-based compensation		19,007			17,955			9,413
Excess benefit from share-based compensation		(3,547	)		(5,643	)		(4,570	)
Loss on sale of property and equipment		1,882			659			647
Deferred income taxes		(2,099	)		(4,512	)		(2,393	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(12,865	)		2,436			982
Vehicle pooling costs		13,201			(1,210	)		1,361
Inventories		(2,666	)		(256	)		(54	)
Prepaid expenses and other current assets		4,785			(8,896	)		1,376
Other assets		739			311			(6,386	)
Accounts payable and accrued liabilities		5,614			8,098			(2,479	)
Deferred revenue		(5,015	)		(2,527	)		(1,324	)
Income taxes receivable		9,456			861			18,021
Income taxes payable		2,529			(2,740	)		10,073
Net cash provided by operating activities		242,932			199,407			203,339
Cash flows from investing activities:
Principal payments from (issuance of) notes receivable		—			(1,300	)		12,000
Purchases of property and equipment		(70,170	)		(75,840	)		(78,912	)
Proceeds from sale of property and equipment		20,602			2,477			7,008
Purchase of assets and liabilities in connection with acquisitions, net of cash acquired		(34,912	)		(21,362	)		—
Net cash used in investing activities		(84,480	)		(96,025	)		(59,904	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		7,082			6,285			3,119
Proceeds from the issuance of Employee Stock Purchase Plan shares		1,957			2,044			1,942
Repurchases of common stock		(739,638	)		(12,706	)		(9,769	)
Excess tax benefit from share-based payment compensation		3,547			5,643			4,570
Proceeds from issuance of long-term debt		400,000			—			—
Principal payments on long-term debt		(25,000	)		—			—
Debt offering costs		(2,023	)		—			—
Change in book overdraft		—			—			(17,502	)
Net cash provided by (used in) financing activities		(354,075	)		1,266			(17,640	)
Effect of foreign currency translation		1,444			849			(2,058	)
Net increase (decrease) in cash and cash equivalents		(194,179	)		105,497			123,737
Cash and cash equivalents at beginning of period		268,188			162,691			38,954
Cash and cash equivalents at end of period	$	74,009		$	268,188		$	162,691
Supplemental disclosure of cash flow information:
Interest paid	$	3,894		$	216		$	353
Cash paid for income taxes	$	85,145		$	93,989		$	71,908

See accompanying notes to consolidated financial statements.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2011, 2010 AND 2009 **

(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 Europe Limited (Copart Europe). Significant intercompany transactions and balances have been eliminated in consolidation. Copart Canada was incorporated in January 2003 and Copart Europe was incorporated in June 2007.

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, and vehicle rental companies. 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, purchase price allocations, 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 Europe, respectively, as they are the primary currencies within the economic environment in which each subsidiary operates. The original equity investment in the respective subsidiaries is translated at historical rates. Assets and liabilities of the respective subsidiary’s operations are translated into US dollars at period-end exchange rates, and revenues and expenses are translated into US dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary’s financial statements are reported in other comprehensive income.

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, 2011 and 2010 due to the short-term nature of those instruments.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

The carrying value of the Company’s long term debt approximates its fair value at July 31, 2011, due to the variable rate nature of the debt.

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.

The services provided 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. Upon adoption of the new accounting standard for evaluating multiple-element arrangements in fiscal 2011 as described below, pre-sale services, including towing, title processing, preparation and storage, sale fees and other enhancement services meet the criteria for separate units of accounting. The revenue associated with each service is recognized upon completion of the respective service, net of applicable rebates or allowances. For certain sellers who are charged a proportionate fee based on high bid of the vehicle, the revenue associated with the pre-sale services is recognized upon completion of the sale when the total arrangement is fixed and determinable. The estimated selling price of each service is determined based on management’s best estimate and allotted based on the relative selling price method.

For certain sellers who are charged a proportionate fee based on the selling price of the vehicle, the revenue associated with these pre-sale services is recognized upon completion of the sale when the total arrangement fee is considered fixed and determinable.

Vehicle sales, where vehicles are purchased and remarketed on the Company’s own behalf, are recognized 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 gross sales price is recorded as revenue.

The Company also 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 to determine whether the requirements have been met to separate them into units of accounting within a multiple-element arrangement. The Company has concluded that the sale and the post-sale services are separate units of accounting. The fees for sale services 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 relative selling price 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 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.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting standards for multiple deliverable revenue arrangements to:

(i)		provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the arrangement consideration should be allocated;

(ii)		require an entity to allocate consideration in an arrangement using its best estimate of selling prices (BSP) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (VSOE) or third-party evidence of selling price (TPE); and

(iii)		eliminate the use of the residual method and require an entity to allocate arrangement consideration using the relative selling price method.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

On August 1, 2010, the Company prospectively adopted Accounting Standard Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (ASU 2009-13). Consequently, the Company recognizes in the period earned certain revenues, primarily towing fees, titling fees and other enhancement service fees, which were previously deferred until the period the car associated with those revenues was sold. As a result of this adoption, for the year ended July 31, 2011, the Company accelerated recognition of $14.4 million in service revenue and $13.5 million in related yard operation expenses. The impact on net income and earnings per share was not material.

The Company allocates arrangement consideration based upon management’s best estimate of the selling price of the separate units of accounting contained within an arrangement containing multiple deliverables. Estimated selling prices are determined using management’s best estimate. Significant inputs in the Company’s estimates of the selling price of separate units of accounting include market and pricing trends, pricing customization and practices, and profit objectives for the services. Prior to the adoption of ASU 2009-13, the Company used the residual method to allocate the arrangement consideration when the fair value of delivered items had not been established and deferred all arrangement consideration when fair value was not available for undelivered items.

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. On August 1, 2010, the Company adopted ASU 2009-13. As a result of this adoption, for the twelve months ended July 31, 2011, the Company accelerated recognition of $13.5 million in yard operation expenses.

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 $8.8 million, $12.7 million and $2.6 million in fiscal 2011, 2010 and 2009, respectively.

Other Income (Expense)

Other income (expense) consists primarily of interest income, interest expense, 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 carry forwards. 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.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

In accordance with the provisions of ASC 740, Income Taxes (ASC 740), a two-step approach is applied to the recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes line of its consolidated statements of income.

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 generally classifies its investment portfolio not otherwise qualifying as cash and cash equivalents as available-for-sale securities. 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.

In accordance with ASC 820, Fair Value Measurements and Disclosures (ASC 820), the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market based measurement 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.

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 on a specific identification basis.

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

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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, 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 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 2011, 2010 and 2009. At July 31, 2011 and 2010 no single customer accounted for more than 10% of the Company’s accounts receivables.

Property and Equipment

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

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

estimated useful lives of: 3 to 5 years for internally developed or purchased software; 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. Amortization of equipment under capital leases is included in depreciation expense.

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 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 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 2011 fiscal year utilizing a market value and discounted cash flow approach. The impairment test for identifiable intangible assets not subject to amortization is also performed annually or when impairment indicators exist, and consists of a comparison of the fair value of the intangible asset with its carrying amount. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate other long-lived assets.

Retained Insurance Liabilities

The Company is partially self-insured for certain losses related to medical, general liability, workers’ compensation and auto liability. The Company’s insurance policies are subject to a $250,000 deductible per claim, with the exception of its medical policy which is $225,000 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 consolidated 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, 2011 and 2010 the total amount reserved for related self-insured claims is $5.5 million and $4.8 million, respectively.

Share-Based Compensation

The Company accounts for our share-based awards to employees and non-employees using the fair value method as required by ASC 718, Compensation—Stock Compensation (ASC 718), 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, 2011, 2010 and 2009 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 measurement date (generally the grant date) fair value estimated in accordance with the original provisions of

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

ASC 718, and share-based compensation expense for all share-based payment awards granted subsequent to August 1, 2005, based on the measurement 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 measurement date 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.

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

	July 31, 2011			July 31, 2010			July 31, 2009
Expected life (in years)		5.3 – 6.8			5.2 – 7.1			5.2 – 7.1
Risk-free interest rate		1.7 – 2.9	%		2.1 – 3.3	%		1.4 – 3.1	%
Estimated volatility		26 – 31	%		28 – 36	%		33 – 37	%
Expected dividends		0	%		0	%		0	%
Weighted-average fair value at measurement date	$	13.40		$	13.21		$	13.09

Expected life—The Company’s expected life represents the period that the Company’s share-based payment 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 payment awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share-based payment awards.

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

Risk-free interest rate—The Company bases the risk-free interest rate used in the BSM option-pricing model on the implied yield currently available on US Treasury zero-coupon issues with the same or substantially equivalent expected life.

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 $7.1 million, $6.3 million and $3.1 million for the years ended July 31, 2011, 2010 and 2009 respectively. The Company realized an income tax benefit of $3.5 million, $5.6 million and $4.6 million from stock option exercises during the years ended July 31, 2011, 2010 and 2009 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.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

Comprehensive Income

Comprehensive income includes all changes in shareholders’ equity during a period from non-shareholder sources. For the years ended July 31, 2011, 2010 and 2009 the only item in accumulated other comprehensive loss was the effect of foreign currency translation adjustments. Deferred taxes are not provided on cumulative translation adjustments where the Company expects earnings of a foreign subsidiary to be indefinitely reinvested.

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

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The new US GAAP requirements are effective for public entities as of the beginning of a fiscal year that begins after December 15, 2011 and interim and annual periods thereafter. Each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts — net income and other comprehensive income, will be disclosed. The adoption of ASU 2011-05 is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective during interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The adoption of ASU 2011-04 is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 and should be applied prospectively to business combinations for which the acquisition date is after the effective date. The adoption of ASU 2010-29 did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (ASU 2010-28). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 will be effective for fiscal years, and interim periods beginning after December 15, 2010. The adoption of ASU 2010-28 did not have a material impact on the Company’s consolidated financial statements.

As discussed above, in August 2010 the Company adopted ASU 2009-13, addresses the accounting for multiple-deliverable arrangements to enable accounting for products or services separately rather than as a

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The Company prospectively adopted the standard and applied it to its revenue arrangements containing multiple deliverables. See “Revenue Recognition”, above.

Reclassifications

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the classifications used in fiscal 2011.

(2)		Acquisitions

Fiscal 2011 Transactions

In March 2011, the Company completed the cash acquisition of John Hewitt and Sons, Limited (Hewitt) in the United Kingdom through a stock purchase and the acquisition of Barodge Auto Pool (Barodge) in the US through an asset purchase. The consideration paid for these acquisitions consisted of $34.9 million in cash, net of cash acquired. The acquired assets consisted principally of accounts receivables, inventories, 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. These acquisitions were undertaken because of their strategic fit and have been accounted for using the purchase method in accordance with ASC 805, Business Combinations (ASC 805), which has resulted in the recognition of $19.3 million of goodwill in the Company’s consolidated financial statements. This goodwill arises because the purchase price for Hewitt and Barodge reflects a number of factors including:

•		its future earnings and cash flow potential;

•		the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers;

•		the competitive nature of the process by which the Company acquired the business; and

•		because of the complementary strategic fit and resulting synergies it brings to existing operations.

In accordance with ASC 805, the assets acquired and liabilities assumed have been recorded at their estimated fair values.

Pro-forma Financial Information

Pro forma financial information for the fiscal 2011 acquisitions does not result in a significant change from actual results.

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 was accounted for using the purchase method, 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

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

•		because of the complementary strategic fit and resulting synergies it brings to existing operations.

In accordance with ASC 805, the D Hales assets acquired and liabilities assumed were recorded at their estimated fair values.

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.

(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. 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

As of July 31, 2011, 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	$	42,664	$	—	$	—	$	—	$	42,664
Money market funds		31,345		—		—		—		31,345
Total	$	74,009	$	—	$	—	$	—	$	74,009

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.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

(5)		Accounts Receivable, Net

Accounts receivable consists of the following (in thousands):

	July 31,
	2011			2010
Advance charges receivable	$	71,961		$	72,841
Trade accounts receivable		53,569			37,904
Other receivables		451			1,157
		125,981			111,902
Less allowance for doubtful accounts		(3,122	)		(2,841	)
	$	122,859		$	109,061

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.

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, 2011	$	2,841	$	478	$	(197	)	$	3,122
July 31, 2010		2,405		1,591		(1,155	)		2,841
July 31, 2009		2,600		783		(978	)		2,405

(6)		Property and Equipment, Net

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

	July 31,
	2011			2010
Transportation and other equipment	$	65,009		$	61,245
Office furniture and equipment		53,411			43,307
Software		46,761			22,915
Land		343,170			306,251
Buildings and leasehold improvements		384,366			399,350
		892,717			833,068
Less accumulated depreciation and amortization		(292,329	)		(259,554	)
	$	600,388		$	573,514

Depreciation expense on property and equipment was $40.2 million, $39.0 million and $37.3 million for the fiscal years ended July 31, 2011, 2010 and 2009 respectively. Amortization expense of software was $0.8 million, $0.3 million and $0.4 million for the fiscal years ended July 31, 2011, 2010 and 2009 respectively.

(7)		Goodwill

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

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
Goodwill recorded during the period		19,309
Effect of foreign currency translation		3,441
Balance as of July 31, 2011	$	198,620

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

In accordance with the guidance in ASC 350, goodwill is tested for impairment on an annual basis or 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 2011 and 2010 and goodwill was not impaired. As of July 31, 2011 and 2010, the cumulative amount of goodwill impairment losses recognized totaled $21.8 million.

(8)		Intangibles, Net

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

	July 31, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete	$	10,896	$	(10,486	)	$	410		3
Supply contracts		27,238		(15,409	)		11,829		3
Licenses and databases		1,337		(828	)		509		3
	$	39,471	$	(26,723	)	$	12,748

	July 31 , 2010
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete	$	10,697	$	(10,233	)	$	464		1
Supply contracts		22,365		(10,521	)		11,844		4
Licenses and databases		1,317		(609	)		708		4
	$	34,379	$	(21,363	)	$	13,016

Aggregate amortization expense on intangible assets was $4.7 million, $3.9 million and $4.1 million for the fiscal years ended July 31, 2011, 2010 and 2009, respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2011 intangible assets is expected to be as follows (in thousands):

(9)		Accounts Payable and Accrued Liabilities

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

	July 31,
	2011		2010
Trade accounts payable	$	12,365	$	14,923
Accounts payable to sellers		42,190		40,370
Accrued insurance		5,494		4,831
Accrued compensation and benefits		15,605		14,298
Buyer prepayments		14,229		9,105
Other accrued liabilities		11,825		10,213
	$	101,708	$	93,740

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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 December 14, 2010, the Company entered into an Amended and Restated Credit Facility Agreement (Credit Facility), which supersedes the Company’s previously disclosed credit agreement with Bank of America, N.A. (Bank of America). The Credit Facility is an unsecured credit agreement providing for (i) a $100.0 million Revolving Credit Facility, including a $100.0 million alternative currency borrowing sublimit and a $50.0 million letter of credit sublimit (Revolving Credit) and (ii) a term loan facility of $400.0 million (Term Loan).

On January 14, 2011 the full $400.0 million provided under the Term Loan was borrowed. The Term Loan matures and all outstanding borrowings are due on December 14, 2015, with quarterly payments of $12.5 million in principal plus interest to be made beginning March 31, 2011 through the maturity date. All amounts borrowed under the Term Loan may be prepaid without premium or penalty. During the twelve months ended July 31, 2011, the Company made principal repayments of $25.0 million. At July 31, 2011, the outstanding Term Loan balance is $375.1 million. The Company has $1.8 million deferred financing costs in other assets as of July 31, 2011.

Amounts borrowed under the Credit Facility bear interest, subject to certain restrictions, at a fluctuating rate based on (i) the Eurocurrency Rate, (ii) the Federal Funds Rate or (iii) the Prime Rate as described in the Credit Facility. 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. At July 31, 2011, the interest rate was the Eurocurrency Rate plus 1.50%. At July 31, 2011, the Eurocurrency Rate was 1.69%. The Credit Facility is guaranteed by the Company’s material domestic subsidiaries. The carrying value of the loan payable approximates its fair value at July 31, 2011 due to the variable rate nature of the loan.

Amounts borrowed under the Revolving Credit may be repaid and reborrowed until the maturity date, which is December 14, 2015. The Credit Facility requires the Company to pay a commitment fee on the unused portion of the Revolving Credit. The commitment fee ranges from 0.075% to 0.125% per annum depending on the Company’s leverage ratio, as of the end on the previous quarter. The Company had no outstanding borrowings under the Revolving Credit at the end of the period.

The Amended and Restated Credit Agreement contains customary representations and warranties and may place certain business operating restrictions on us relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, dividends and distributions and redemptions of capital stock. In addition, the Amended and Restated Credit Agreement provides for the following financial covenants: 1) earnings before income tax, depreciation and amortization (EBITDA), 2) leverage ratio, 3) interest coverage ratio, and 4) limitations on capital expenditures. The Amended and Restated Credit Agreement 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 Company is in compliance with all covenants as of July 31, 2011. Please refer to the commercial commitment table in the Lease, Purchase, and Other Contractual Obligations section for the payment schedule.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

The Company’s Term Loan requires quarterly payments of $12.5 million, and the Term Loan matures and all outstanding borrowings are due on December 14, 2015. At July 31, 2011, future annual payments are as follows (in thousands):

Years Ending July 31,	Term Loan
2012	$	50,139
2013		50,000
2014		50,000
2015		50,000
2016		175,000
	$	375,139

(11)		Shareholders’ Equity

General

The Company has authorized the issuance of 180 million shares of common stock, no par value, of which 66,005,517 shares were issued and outstanding at July 31, 2011. As of July 31, 2011 and 2010, the Company has reserved 9,825,924 and 10,630,904 shares of common stock, respectively, for the issuance of options granted under the Company’s stock option plans and 711,710 and 775,306 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, 2011.

Stock Repurchase

The Company’s Board of Directors has authorized a 29 million share repurchase program. 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, 2011, the Company repurchased 6,682,317 shares of our common stock at an average price of $40.83. 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. As of July 31, 2011, the total number of shares repurchased under the program was 20,453,037 and 8,546,963 shares were available for repurchase under the program.

Additionally, on January 14, 2011, the Company completed a tender offer to purchase up to 10,526,315 shares of its common stock at a price of $38.00 per share. Directors and executive officers of Copart were expressly prohibited from participating in the tender offer by our board of directors under the Company’s Securities Trading Policy. In connection with the tender offer, the Company accepted for purchase 12,172,088 shares of its common stock. The shares accepted for purchase are comprised of the 10,526,315 shares the Company offered to purchase and an additional 1,645,773 shares purchased pursuant to the Company’s right to purchase additional shares up to 2% of its outstanding shares. The shares purchased as a result of the tender offer are not part of the Company’s repurchase program. The purchase of the shares of common stock was funded by the proceeds relating to the issuance of $400.0 million of long term debt. The dilutive earnings per share impact of all repurchased shares on the weighted average number of common shares outstanding for the year ended July 31, 2011 is $0.23.

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. In the second, third and fourth quarters of fiscal year 2011 certain executive officers exercised stock

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

options through cashless exercises. 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 $4.2 million, $7.4 million and $9.8 million, in fiscal 2011, 2010 and 2009, respectively, to the proper taxing authorities in satisfaction of the employees’ minimum statutory withholding requirements. The exercises are summarized in the following table:

Period		Exercise Price					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
FY 2011—Q2	88,750	$	16.93	38,025	18,917	31,808	$	39.51	$	748
FY 2011—Q3	274,167	$	22.03	147,748	59,016	67,403	$	40.80	$	2,408
FY 2011—Q4	90,000	$	18.95	38,198	24,183	27,619	$	44.65	$	1,080

(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.

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 2011, 2010 and 2009 was 63,596, 68,035 and 82,834, respectively. As of July 31, 2011, 1,788,290 shares of common stock have been issued pursuant to the ESPP and 711,710 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, 2011, 1,473,327 shares were available for future grant under the Plan.

In April 2009, the Compensation Committee of the Company’s Board of Directors, following shareholder approval of proposed grants at a special meeting of shareholders, approved the grant to each of Willis J. Johnson, the Company’s Chairman (and 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

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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 $26.1 million dollars per grant. The Company recognized $10.2 million, $10.1 million, and $3.0 million in compensation expense in fiscal 2011, 2010 and 2009, respectively relating to these grants.

The following table sets forth share-based compensation expense included in the company’s consolidated statements of income (in thousands):

	Years Ended July 31,
	2011		2010		2009
Yard operations	$	1,031	$	1,109	$	1,220
General and administrative		17,976		16,846		8,193
Total	$	19,007	$	17,955	$	9,413

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2011 and 2010.

A summary of the status of the Company’s non-vested shares as of July 31, 2011 and changes during fiscal 2011 is as follows:

			Weighted Average Grant- date Fair Value
Non-vested shares at July 31, 2010	4,633		$	13.23
Grants of options	1,117			13.40
Vested	(1,496	)		13.10
Forfeitures or expirations	(90	)		12.50
Non-vested shares at July 31, 2011	4,164		$	13.32

Option activity for the year ended July 31, 2011 is summarized as follows:

			Weighted- Average Exercise Price			Aggregate Intrinsic Value (in 000’s)
Outstanding at July 31, 2010	8,052		$	29.07	7.49	$	60,151
Grants of options	1,117			38.46	—		—
Exercises	(726	)		21.11	—		—
Forfeitures or expirations	(90	)		33.71	—		—
Outstanding at July 31, 2011	8,353		$	31.00	7.18	$	103,979
Exercisable at July 31, 2011	4,189		$	28.67	6.21	$	61,935
Vested and expected to vest at July 31, 2011	8,031		$	31.01	7.19	$	99,933

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.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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, 2011 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, 2011. The aggregate intrinsic value of options exercised was $16.2 million, $19.0 million and $29.8 million in the fiscal years ended July 31, 2011, 2010 and 2009, 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, 2011, the total compensation cost related to non-vested share-based payment awards granted to employees under the Company’s stock option plans but not yet recognized was $50.6 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.06 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2011, 2010 and 2009 is $19.6 million, $19.6 million and $7.8 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2011 follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at July 31, 2011 (in 000’s)		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number Exercisable at July 31, 2011 (in 000’s)		Weighted- Average Exercise Price
$7.75–$23.73		517		2.17	$	15.43		517	$	15.43
$24.03–$29.89		803		4.60	$	25.22		795	$	25.18
$30.21–$30.21		4,000		7.71	$	30.21		1,800	$	30.21
$32.76–$44.12		3,033		8.01	$	36.20		1,077	$	34.95
		8,353		7.18	$	31.00		4,189	$	28.67

On March 6, 2003, the Company’s Board of Directors declared a dividend of one right (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,
	2011		2010		2009
US	$	234,035	$	217,947	$	220,005
Non US		29,842		21,548		7,727
Total income before taxes	$	263,877	$	239,495	$	227,732

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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

	Years Ended July 31,
	2011			2010			2009
Federal:
Current	$	84,119		$	83,791		$	78,817
Deferred		278			(3,714	)		168
		84,397			80,077			78,985
State:
Current		7,186			6,664			8,151
Deferred		(128	)		473			(2	)
		7,058			7,137			8,149
Foreign:
Current		5,818			1,916			1,651
Deferred		229			(1,262	)		(599	)
		6,047			654			1,052
	$	97,502		$	87,868		$	88,186

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,
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		1.7			2.0			3.5
Foreign		(0.4	)		(1.7	)		(0.8	)
Compensation and fringe benefits		0.2			0.2			0.3
Other differences		0.4			1.2			0.7
Effective tax rate		36.9	%		36.7	%		38.7	%

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,
	2011			2010
Deferred tax assets:
Allowance for doubtful accounts	$	1,063		$	982
Accrued compensation and benefits		18,249			13,898
State taxes		1,488			1,358
Accrued other		3,006			1,884
Deferred revenue		—			1,910
Property and equipment		3,378			8,693
State net operating losses		398			327
Long-term note write off		—			423
Federal tax benefit		5,758			4,348
Total gross deferred tax assets		33,340			33,823
Less valuation allowance		(948	)		(787	)
Net deferred tax assets		32,392			33,036

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

	July 31,
	2011			2010
Deferred tax liabilities:
Vehicle pooling costs		(4,956	)		(9,414	)
Prepaid insurance		(1,397	)		(671	)
Deferred revenue		(1,721	)		—
Intangibles and goodwill		(25,031	)		(23,640	)
Workers compensation		(359	)		—
Total gross deferred tax liabilities		(33,464	)		(33,725	)
Net deferred tax liability	$	(1,072	)	$	(689	)

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

	July 31,
	2010			2010
North America current liabilities	$	440		$	1,154
North America non-current assets		(9,425	)		(10,213	)
UK non-current liabilities		10,057			9,748
Net deferred tax liability	$	1,072		$	689

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, 2011 and 2010 was $0.9 million and $0.8 million, respectively.

At July 31, 2011 and 2010, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company’s effective tax rate is $13.2 million and $9.9 million, respectively. It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes; however an estimate of the range of the possible change cannot be made at this time.

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

	Years Ended July 31,
	2011			2010
Balance as of August 1	$	18,144		$	15,965
Increases related to current year tax positions		1,592			4,514
Prior year tax positions:
Prior year increase		519			74
Prior year decrease		(531	)		(532	)
Cash settlement		—			(302	)
Lapse of statute of limitations		(930	)		(1,575	)
Balance at July 31	$	18,794		$	18,144

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, 2011 and 2010, the Company had accrued interest and penalties related to the unrecognized tax benefits of $6.0 million and $5.2 million, respectively.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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

In fiscal years 2011, 2010 and 2009, the Company recognized a tax benefit of $3.6 million, $6.2 million and $4.6 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 $42 million foreign subsidiaries’ undistributed earnings as of July 31, 2011, 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.

(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,
	2011		2010		2009
Weighted average common shares outstanding		75,649		84,165		83,537
Effect of dilutive securities-stock options		1,027		862		1,393
Diluted weighted average common shares outstanding		76,676		85,027		84,930

There were no adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 2,553,989, 5,892,641 and 1,225,000 options to purchase our common stock that were outstanding at July 31, 2011, 2010 and 2009, 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,
	2011		2010		2009
United States	$	674,742	$	602,794	$	591,284
Canada		6,532		5,635		4,733
North America		681,274		608,429		596,017
United Kingdom		190,972		164,450		147,065
	$	872,246	$	772,879	$	743,082

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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

	July 31,
	2011		2010
United States	$	521,558	$	511,362
Canada		4,579		4,925
North America		526,137		516,287
United Kingdom		95,638		76,011
	$	621,775	$	592,298

(15)		Commitments and Contingencies

Leases

The Company leases certain facilities and certain equipment under non-cancelable capital and operating leases. In addition to the minimum future lease commitments presented below, the leases generally require the Company to pay property taxes, insurance, maintenance and repair 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, Operating Leases.

At July 31, 2011, future minimum lease commitments under non-cancelable 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
2012	$	231		$	18,984
2013		204			15,147
2014		182			10,470
2015		—			8,067
2016		—			6,175
Thereafter		—			37,029
		617		$	95,872
Less amount representing interest		(36	)
	$	581

Facilities rental expense for the fiscal years ended July 31, 2011, 2010 and 2009 aggregated $17.4 million, $16.8 million and $16.8 million, respectively. Yard operations equipment rental expense for the fiscal years ended July 31, 2011, 2010 and 2009 aggregated $3.3 million, $4.1 million and $3.8 million, respectively.

Commitments

Letters of Credit

The Company had outstanding letters of credit of $6.7 million at July 31, 2011 which are primarily used to secure certain insurance obligations.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

Purchase Commitments

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

Contingencies

Legal Proceedings

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 handling or disposal of vehicles. These legal proceedings include the following matters:

On November 20, 2007, Car Auction & Reinsurance Solutions, Inc. (CARS) filed suit against the Company in the Superior Court in the County of New Castle, Delaware. CARS was seeking in excess of $2.0 million in damages, punitive damages, and prejudgment interest related to allegations involving breach of contract and misrepresentation. On September 15, 2011, the parties reached a settlement amount that was not material to our consolidated financial condition or results of operations.

On August 21, 2008, a former employee filed a Charge of Discrimination with the Equal Employment Opportunity Commission, or EEOC, claiming, in part, that he was denied employment based on his race and subjected to unlawful retaliation. The Company responded to the Charge of Discrimination explaining that it has a policy prohibiting the employment of individuals with certain criminal offenses and that the former employee was terminated after it was belatedly discovered that he had been convicted of a felony and other crimes prior to being hired by us. The Charge of Discrimination lay dormant at the EEOC for over two years. In January, 2011, however, the EEOC began actively investigating the allegations and challenging the Company’s policy of conducting criminal background checks and denying employment based on certain criminal convictions. It is the EEOC’s position that such a practice is unlawful because it has a disparate impact on minorities. It is the Company’s position that its policy is required by one of its largest auto insurance company customers. Because the Company’s customer is in the insurance and financial services industry, its operations are heavily regulated. The Federal Deposit Insurance Act (12 U.S.C. §1829) prohibits savings and loan holding companies, such as the Company’s customer, from employing “any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense.” In turn, it is the Company’s understanding that the Company’s customer is obligated to make sure its vendors, such as the Company, comply with similar hiring restrictions. The EEOC is still investigating the Charge of Discrimination. The Company anticipates that if the Charge of Discrimination is not dismissed or settled, the EEOC will file a lawsuit in Federal Court on behalf of all former employees and applicants of the Company who were denied employment because of the Company’s policy. The Company believes that its practices are not unlawful and intends to continue to vigorously defend this action.

On April 23, 2010, Deborah Hill filed suit against the Company in the Twentieth Judicial Circuit of Collier County, Florida, alleging negligent destruction of evidence in connection with a stored vehicle that suffered damage due to a fire at our facility in Florida where the vehicle was being stored. Relief sought is for compensatory damages, costs and interest allowed by law. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit.

On September 21, 2010, Robert Ortiz and Carlos Torres filed suit against the Company in Superior Court of San Bernardino County, San Bernardino District, which purported to be a class action on behalf of persons employed by the Company in the positions of facilities managers and assistant general managers in California at any time since the date four years prior to September 21, 2010. The complaint alleges failure to pay wages and overtime wages, failure to provide meal breaks and rest breaks, in violation of various California Labor and Business and Professional Code sections, due to alleged misclassification of facilities managers and

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

assistant general managers as exempt employees. Relief sought includes class certification, injunctive relief, damages according to proof, restitution for unpaid wages, disgorgement of ill-gotten gains, civil penalties, attorney’s fees and costs, interest, and punitive damages. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit.

On February 12, 2011, Jose E. Brizuela filed suit against the Company in Superior Court, San Bernardino County, San Bernardino District, which purports to be class action on behalf of persons employed by the Company paid on a hourly basis in California at any time since the date four years prior to February 14, 2011. The complaint alleges failure to pay all earned wages due to an alleged practice of rounding of hours worked to the detriment of the employees. Relief sought includes class certification, injunctive relief, unpaid wages, waiting time penalty-wages, interest, and attorney’s fees and costs of suit. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit.

On August 10, 2011, Glenn A. Mangis and Lynn Brown-Mangis, husband and wife, filed suit against the Company in the Superior Court of Washington for Pierce County, alleging exposure to asbestos during the course of his employment as a carpenter, electrician and laborer; and as a direct result of said exposure, Plaintiff developed mesothelioma. Plaintiff’s wife is alleging loss of spousal relationship as a result. Relief sought is for general and special damages, medical and related expenses, costs and disbursements in case, prejudgment interest and all other relief the Court deems just. No specific amount was given. The Company believes the claim is without merit and intends to continue to vigorously defend the lawsuit.

The Company provides 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 and 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 consolidated 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. The Company maintains insurance which may or may not provide coverage for claims made against it. There is no assurance that there will be insurance coverage available when and if needed. Additionally, the insurance that the Company carries requires that the Company pay for costs and/or claims exposure up to the amount of the insurance deductibles negotiated when insurance is purchased.

Governmental Proceedings

The Georgia Department of Revenue, or DOR, recently conducted a sales and use tax audit of the Company’s operations in Georgia for the period from January 1, 2007 through June 30, 2011. As a result of the audit, the DOR issued a notice of proposed assessment for uncollected sales taxes in which it asserted that the Company failed to remit sales taxes totaling $73.8 million, including penalties and interest. In issuing the notice of proposed assessment, the DOR stated its policy position that sales for resale to non-U.S. registered resellers are subject to Georgia sales and use tax.

The Company has engaged a Georgia law firm and outside tax advisors to review the conduct of its business operations in Georgia, the notice of assessment, and the DOR’s policy position. In particular, the Company’s outside legal counsel has provided the Company an opinion that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax. In rendering its opinion, the Company’s counsel noted that non-U.S. registered resellers are unable to comply strictly with technical requirements for a Georgia certificate of exemption but concluded that its sales for resale to non-U.S. registered resellers should not be subject to Georgia sales and use tax notwithstanding this technical inability to comply.

Based on the opinion from the Company’s outside law firm and advice from outside tax advisors, the Company has not provided for the payment of this assessment in its consolidated financial statements. The Company believes it has strong defenses to the DOR’s notice of proposed assessment and intends to defend this matter. The Company has filed a request for protest or administrative appeal with the State of Georgia. There can be no assurance, however, that this matter will be resolved in the Company’s favor or that the

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

Company will not ultimately be required to make a substantial payment to the Georgia DOR. The Company understands that Georgia law and DOR regulations are ambiguous on many of the points at issue in the audit, and litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction. If the matter were to be resolved in a manner adverse to the Company, it could have a material adverse effect on the Company’s results of operations and consolidated financial statements.

Environmental Matters

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

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

stabilization process proves ineffective, or if future testing of surface or ground water reflects concentrations of lead which exceed Texas surface or ground water quality standards.

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

(16)		Guarantees—Indemnifications to Officers and Directors

The Company has entered into indemnification agreements, a form of which is incorporated by reference in the exhibits of the Company’s fiscal 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 $0.05 million, $0.2 million, and $0.2 million for the fiscal years ended July 31, 2011, 2010 and 2009, respectively. The Company leases certain of its facilities from other employees of the Company under various lease agreements. Rental payments under these leases aggregated $0.3 million for the fiscal years ended July 31, 2011, 2010 and 2009.

On November 11, 2010, the Company exercised its option to purchase land that had been leased from Willis J. Johnson, the Company’s Chairman of the Board and a member of the Board of Directors. The purchase was established through an independent appraisal and the transaction was approved by the Audit Committee of the Company’s Board of Directors.

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 $4.5 million. 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.

During the year ended July 31, 2011, the Company purchased two houses from executives who are relocating to the corporate headquarters to Dallas (see Note 19.) The houses are reported in other assets with a value of $2.0 million. Also, the Company purchased 10,620 shares of stock from the Willis Johnson Foundation for $0.5 million.

There were no amounts due or from related parties at July 31, 2011 and 2010.

(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 $0.4 million, $0.5 million and $0.5 million for the fiscal years ended July 31, 2011, 2010 and 2009, respectively, related to this plan.

**COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2011, 2010 AND 2009 **

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 $0.2 million, $0.3 million, and $0.7 million for the fiscal years ended July 31, 2011, 2010 and 2009, respectively, related to this plan.

(19)		Restructuring

The Company is relocating its corporate headquarters to Dallas, TX in 2012. The Company recognized restructuring-related costs of $1.4 million for the year ended July 31, 2011 in general and administrative expense.

(20)		Subsequent Event

On September 22, 2011, the Company’s board of directors approved a 20 million share increase in the Company’s stock repurchase program, bringing the total current authorization to 49 million shares. The Company has repurchased approximately 20,453,037 shares under the program since its inception in February 2003, leaving 28,546,963 shares available for repurchase under the program (including the 20 million share increase approved on September 22, 2011). Repurchases under the program may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the share repurchase program. The repurchases may be made at such times and in such amounts as Copart deems appropriate and may be discontinued at any time.

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

	Fiscal Quarter
Fiscal Year 2011(2)	First		Second		Third		Fourth
Revenues	$	212,667	$	207,380	$	236,755	$	215,443
Operating income	$	59,594	$	60,195	$	82,044	$	63,456
Income from continuing operations	$	60,163	$	60,717	$	80,350	$	62,645
Net income	$	37,823	$	37,893	$	50,136	$	40,521
Basic net income per share	$	0.45	$	0.47	$	0.72	$	0.60
Diluted net income per share	$	0.45	$	0.46	$	0.71	$	0.59

	Fiscal Quarter
Fiscal Year 2010	First		Second		Third		Fourth
Revenues	$	185,461	$	176,601	$	220,349	$	190,468
Operating income	$	56,492	$	53,232	$	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

(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.

(2)		Fiscal 2011 results are impacted from the adoption of ASU 2009-13.

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