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, 2013 and 2012	59
	Consolidated Statements of Income for the years ended July 31, 2013, 2012 and 2011	60
	Consolidated Statements of Comprehensive Income for the years ended July 31, 2013, 2012 and 2011	61
	Consolidated Statements of Stockholders’ Equity for the years ended July 31, 2013, 2012 and 2011	62
	Consolidated Statements of Cash Flows for the years ended July 31, 2013, 2012 and 2011	63
	Notes to Consolidated Financial Statements	64
2.	*Financial Statement Schedules:* All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
3.	**Exhibits: The following Exhibits are filed as part of, or incorporated by reference into this report. **

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
3.1	Copart, Inc. Certificate of Incorporation	Current Report on Form 8-K, (File No. 000-23255), Exhibit No. 3.1	January 10, 2012
3.2	Bylaws of Copart, Inc.	Current Report on Form 8-K, (File No. 000-23255), Exhibit No. 3.2	January 10, 2012
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 the Registrant 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
4.3	Amendment to Preferred Stock Rights Agreement, as of January 10, 2013, between the Registrant and Computershare Trust Company, N.A. (formerly Equiserve Trust Company, N.A.)	8/A-12G/A (File No. 000-23255), Exhibit 4.3	January 10, 2012

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
10.1*	Copart Inc. 2001 Stock Option Plan	Registration Statement on Form S-8 (File No. 333-90612), Exhibit No. 4.1	June 17, 2002
10.2*	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
10.3*	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
10.4*	Form of Restricted Stock Unit Award Agreement for use with 2007 EIP	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.3	December 12, 2007
10.5*	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
10.6*	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
10.7	Credit Agreement dated as of December 14, 2010 by and between the Registrant and Bank of America, N.A.	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1	December 15, 2010
10.8	Amendment to Credit Agreement between and between the Registrant and Bank of America, N.A., dated as of September 29, 2011	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.13b	October 4, 2011
10.9*	Copart, Inc. Executive Bonus Plan	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.13	August 3, 2006
10.10*	Amended and Restated Executive Officer Employment Agreement between the Registrant 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
10.11*	Form of Copart, Inc. Stand-Alone Stock Option Award Agreement for grant of options to purchase 2,000,000 shares of the Registrant’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

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
10.12*	Amendment dated June 9, 2010 to Option Agreements dated June 6, 2001, October 21, 2002 and August 19, 2003 between the Registrant and Willis J. Johnson	Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 10-17	September 23, 2010
10.13	Executive Officer Employment Agreement between the Registrant and Thomas Wylie, dated September 25, 2008	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.2	December 15, 2010
10.14	Executive Officer Employment Agreement between the Registrant and Vincent Phillips, dated April 12, 2010	Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.4	December 15, 2010
10.15	Standard Industrial/Commercial single tenant lease-net dated January 3, 2011 between Partnership HealthPlan of California and the Registrant	Annual Report on Form 10-K (File No. 000-23254), Exhibit No. 10.21	September 28, 2011
10.16*	Form of Indemnification Agreement signed by executive officers and directors	Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 10.17	October 1, 2012
10.17	Standard Industrial/Commercial single tenant lease-net dated February 3, 2013 between Garden Centura, L.P. and the Registrant	Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 10.18	October 1, 2012
10.18	Executive Officer Employment Agreement between the Registrant and John Lindle, dated June 1, 2013	—	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
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(1)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
32.2(1)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Extension Definition
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1)				In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

*		Management contract, plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, 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 30, 2013

				COPART, INC.

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

September 30, 2013

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, 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 30, 2013

/s/ WILLIAM E. FRANKLINWilliam E. Franklin	Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)	September 30, 2013

/s/ WILLIS J. JOHNSONWillis J. Johnson	Chairman of the Board	September 30, 2013

/s/ JAMES E. MEEKSJames E. Meeks	Director	September 30, 2013

/s/ STEVEN D. COHANSteven D. Cohan	Director	September 30, 2013

/s/ DANIEL ENGLANDERDaniel Englander	Director	September 30, 2013

/s/ THOMAS N. TRYFOROSThomas N. Tryforos	Director	September 30, 2013

/s/ MATT BLUNTMatt Blunt	Director	September 30, 2013

/s/ VINCENT W. MITZVincent W. Mitz	President and Director	September 30, 2013

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Copart, Inc.

We have audited the accompanying consolidated balance sheets of Copart, Inc. as of July 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended July 31, 2013. 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, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Copart, Inc.’s internal control over financial reporting as of July 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated September 30, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, Texas September 30, 2013

**COPART, INC.

CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)**

	July 31, 2013			July 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	63,631		$	140,112
Accounts receivable, net		182,714			137,900
Vehicle pooling costs		20,466			15,728
Inventories		10,736			8,494
Income taxes receivable		9,416			2,312
Deferred income taxes		2,216			3,600
Prepaid expenses and other assets		15,344			9,155
Assets held for sale		1,929			3,926
Total current assets		306,452			321,227
Property and equipment, net		677,517			587,163
Intangibles, net		17,706			7,985
Goodwill		267,463			196,438
Deferred income taxes		30,117			22,280
Other assets		35,226			18,907
Total assets	$	1,334,481		$	1,154,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	136,648		$	102,677
Bank overdraft		16,291			—
Deferred revenue		4,832			5,390
Income taxes payable		4,741			3,082
Current portion of long-term debt and capital lease obligations		76,047			75,170
Total current liabilities		238,559			186,319
Deferred income taxes		8,071			7,186
Income taxes payable		23,091			22,531
Long-term debt and capital lease obligations		296,410			368,950
Other liabilities		5,949			7,897
Total liabilities		572,080			592,883

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value — 5,000,000 shares authorized; no shares issued and outstanding at July 31, 2013 and July 31, 2012, respectively		—			—
Common stock, $0.0001 par value — 180,000,000 shares authorized; 125,494,995 and 124,393,700 shares issued and outstanding at July 31, 2013 and 2012, respectively		13			12
Additional paid-in capital		368,769			326,187
Accumulated other comprehensive loss		(47,161	)		(38,043	)
Retained earnings		440,780			272,961
Total stockholders’ equity		762,401			561,117
Total liabilities and stockholders’ equity	$	1,334,481		$	1,154,000

The accompanying notes are an integral part of these consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)**

	Years Ended July 31,
	2013			2012			2011
Service revenues and vehicle sales:
Service revenues	$	849,667		$	757,272		$	713,093
Vehicle sales		196,719			166,919			159,153
Total service revenues and vehicle sales		1,046,386			924,191			872,246
Operating costs and expenses:
Yard operations		458,228			377,604			374,149
Cost of vehicle sales		167,236			136,971			125,202
General and administrative		137,930			114,492			107,605
Impairment of long-lived assets		—			8,771			—
Total operating costs and expenses		763,394			637,838			606,956
Operating income		282,992			286,353			265,290

Other (expense) income:
Interest expense		(10,267	)		(11,341	)		(4,078	)
Interest income		638			357			493
Other income, net		3,509			2,687			2,172
Total other expense		(6,120	)		(8,297	)		(1,413	)
Income before income taxes		276,872			278,056			263,877
Income taxes		96,847			95,937			97,502
Net income	$	180,025		$	182,119		$	166,375

Earnings per share — basic
Basic net income per share	$	1.44		$	1.42		$	1.10
Weighted average common shares outstanding		124,912			128,120			151,298

Earnings per share — diluted
Diluted net income per share	$	1.39		$	1.39		$	1.08
Diluted weighted average common shares outstanding		129,781			131,428			153,352

The accompanying notes are an integral part of these consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)**

	Years Ended July 31,
	2013			2012			2011
Net income, as reported	$	180,025		$	182,119		$	166,375
Other comprehensive income:
Unrealized gain (loss) on interest rate swaps, net of tax effects of $(1,647), $1,045, and $0		2,993			(1,749	)		—
Reclassification adjustment of interest rate swaps to net income, net of tax effects of $874, $717, and $0		(1,624	)		(1,361	)		—
Foreign currency translation adjustments		(10,487	)		(11,708	)		9,516
Total comprehensive income	$	170,907		$	167,301		$	175,891

The accompanying notes are an integral part of these consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts)**

	Common Stock
	Outstanding Shares			Amount			Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Stockholders’ Equity
Balances at July 31, 2010		168,726,126			17			365,490			(32,741	)		754,468			1,087,234
Net income		—			—			—			—			166,375			166,375
Currency translation adjustment		—			—			—			9,516			—			9,516
Exercise of stock options, net of repurchased shares		866,526			—			6,486			—			(3,639	)		2,847
Employee stock-based compensation and related tax benefit		—			—			22,645			—			—			22,645
Shares issued for Employee Stock Purchase Plan		127,192			—			1,957			—			—			1,957
Shares repurchased		(37,708,810	)		(4	)		(82,651	)		—			(652,747	)		(735,402	)
Balances at July 31, 2011		132,011,034			13			313,927			(23,225	)		264,457			555,172
Net income		—			—			—			—			182,119			182,119
Currency translation adjustment		—			—			—			(11,708	)		—			(11,708	)
Interest rate swap, net of tax effects		—			—			—			(3,110	)		—			(3,110	)
Exercise of stock options, net of repurchased shares		1,165,605			—			13,202			—			(2,777	)		10,425
Employee stock-based compensation and related tax benefit		—			—			26,158			—			—			26,158
Shares issued for Employee Stock Purchase Plan		97,769			—			1,957			—			—			1,957
Shares repurchased		(8,880,708	)		(1	)		(29,057	)		—			(170,838	)		(199,896	)
Balances at July 31, 2012		124,393,700		$	12		$	326,187		$	(38,043	)	$	272,961		$	561,117
Net income		—			—			—			—			180,025			180,025
Currency translation adjustment		—			—			—			(10,487	)		—			(10,487	)
Interest rate swap, net of tax effects		—			—			—			1,369			—			1,369
Exercise of stock options, net of repurchased shares		1,516,534			1			21,370			—			(943	)		20,428
Employee stock-based compensation and related tax benefit		—			—			21,886			—			—			21,886
Shares issued for Employee Stock Purchase Plan		84,761			—			1,948			—			—			1,948
Shares repurchased		(500,000	)		—			(2,622	)		—			(11,263	)		(13,885	)
Balances at July 31, 2013		125,494,995		$	13		$	368,769		$	(47,161	)	$	440,780		$	762,401

The accompanying notes are an integral part of these consolidated financial statements.

**COPART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)**

	Years Ended July 31,
	2013			2012			2011
Cash flows from operating activities:
Net income	$	180,025		$	182,119		$	166,375
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		56,728			48,167			45,694
Allowance for doubtful accounts		(356	)		(192	)		270
Impairment of long-lived assets		—			8,771			—
Stock-based compensation		19,557			21,791			19,007
Excess tax benefits from stock-based compensation		(6,097	)		(4,367	)		(3,547	)
(Gain)/loss on sale of property and equipment		(962	)		(143	)		1,882
Deferred income taxes		(3,605	)		(17,579	)		(2,099	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(31,171	)		(16,004	)		(12,506	)
Vehicle pooling costs		(3,626	)		1,142			13,201
Inventories		(1,777	)		(218	)		(2,666	)
Prepaid expenses and other current assets		(5,971	)		6,026			4,785
Other assets		(18,714	)		(1,951	)		739
Accounts payable and accrued liabilities		14,749			(3,805	)		5,255
Deferred revenue		(871	)		(243	)		(5,015	)
Income taxes receivable		(752	)		7,082			9,456
Income taxes payable		1,609			(2,545	)		2,529
Other liabilities		560			1,622			(428	)
Net cash provided by operating activities		199,326			229,673			242,932
Cash flows from investing activities:
Purchases of property and equipment		(130,265	)		(54,832	)		(70,170	)
Proceeds from sale of property and equipment		3,077			1,268			20,602
Proceeds from sale of assets held for sale		3,189			8,041			—
Purchases of assets and liabilities in connection with acquisitions, net of cash acquired		(84,022	)		(2,564	)		(34,912	)
Net cash used in investing activities		(208,021	)		(48,087	)		(84,480	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		21,442			13,651			7,082
Excess tax benefits from stock-based compensation		6,097			4,367			3,547
Proceeds from the issuance of Employee Stock Purchase Plan shares		1,948			1,957			1,957
Repurchases of common stock		(15,009	)		(203,285	)		(739,638	)
Change in bank overdraft		16,291			—			—
Proceeds from issuance of long-term debt		—			125,000			400,000
Debt offering costs		—			(313	)		(2,023	)
Principal payments on long-term debt		(96,660	)		(56,250	)		(25,000	)
Net cash used in financing activities		(65,891	)		(114,873	)		(354,075	)
Effect of foreign currency translation		(1,895	)		(610	)		1,444
Net (decrease) increase in cash and cash equivalents		(76,481	)		66,103			(194,179	)
Cash and cash equivalents at beginning of period		140,112			74,009			268,188
Cash and cash equivalents at end of period	$	63,631		$	140,112		$	74,009
Supplemental disclosure of cash flow information:
Interest paid	$	10,267		$	11,333		$	3,894
Income taxes paid	$	95,182		$	106,581		$	85,145

The accompanying notes are an integral part of these consolidated financial statements.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2013, 2012 AND 2011 **

(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. In January 2012, the Company changed the state in which it is incorporated (the “Reincorporation”), and is now incorporated under the laws of the State of Delaware. All references to “we,” “us,” “our,” or “the Company” herein refer to the California corporation prior to the date of the Reincorporation, and to the Delaware corporation on and after the date of the Reincorporation.

The consolidated financial statements of the Company include the accounts of the parent company and its wholly owned subsidiaries, including its foreign wholly owned subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

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 (North America), the United Arab Emirates (U.A.E.) and Brazil, 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 (U.K.), 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. In Germany and Spain, the Company derives revenue from sales listing fees for listing vehicles on behalf of insurance companies.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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, stock-based compensation, purchase price allocations, long-lived asset and goodwill impairment calculations and contingencies. Actual results could differ from those estimates.

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 services include the ability to use the Company’s Internet sales technology and vehicle delivery, loading, title processing, preparation and storage. The Company evaluates multiple-element arrangements relative to its 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. The Company applies Accounting Standard Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (ASU 2009-13) for revenue recognition. Pre-sale services, including towing, title processing, preparation and storage, as well as sale fees and other enhancement services meet the

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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.

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.

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. 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.

Vehicle Pooling Costs

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

The Company applies the provisions of accounting guidance for subsequent measurement of inventory to our vehicle pooling costs. The provision requires that items such as idle facility expense, double freight and re-handling costs be recognized as current period charges regardless of whether they meet the criteria of “abnormal” as provided in the guidance. In addition, the guidance requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of production facilities.

In early November 2012, Hurricane Sandy hit the northeastern coast of the United States. As a result of the extensive flooding that it caused, the Company expended additional costs for (i) temporary storage facilities; (ii) premiums for subhaulers as they were reassigned from other regions; and (iii) labor costs incurred for overtime, travel and lodging due to the reassignment of employees to the affected region. These costs, which are characterized as “abnormal” under ASC 330, Inventory, were expensed as incurred and not included in inventory. At July 31, 2013, the incremental salvage vehicles received as a result of Hurricane Sandy have been sold.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

Foreign Currency Translation

The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiaries into the U.S. dollar reporting currency. The Canadian dollar, the British pound, the U.A.E. dirham, the Brazilian real and the Euro are the functional currencies of the Company’s foreign subsidiaries 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 U.S. dollars at period-end exchange rates, and revenues and expenses are translated into U.S. 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.

The cumulative effects of foreign currency exchange rate fluctuations are as follows (in thousands):

Cumulative loss on foreign currency translation as of July 31, 2011	$	(23,225	)
Loss on foreign currency translation		(11,708	)
Cumulative loss on foreign currency translation as of July 31, 2012	$	(34,933	)
Loss on foreign currency translation		(10,487	)
Cumulative loss on foreign currency translation as of July 31, 2013	$	(45,420	)

Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in generally accepted accounting principles. In accordance with ASC 820, Fair Value Measurements and Disclosures, as amended by Accounting Standards Update 2011-04, 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 under current market conditions. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

Level I				Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level II				Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Interest rate hedges are valued at exit prices obtained from the counter-party.
Level III				Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate

The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values as of July 31, 2013 and July 31, 2012, due to the short-term nature of those instruments, and are classified within Level II of the fair value hierarchy. Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using quoted market prices of the underlying investments. See Note 9. Long-Term Debt for fair value disclosures related to the Company’s long-term debt.

Derivatives and Hedging

The Company has entered into two interest rate swaps to eliminate interest rate risk on the Company’s variable rate Term Loan, and the swaps are designated as effective cash flow hedges under ASC 815, Derivatives and Hedging (see Note 10. Derivatives and Hedging). Each quarter, the Company measures hedge effectiveness using the “hypothetical derivative method” and records in earnings any hedge ineffectiveness with the effective portion of the hedges change in fair value recorded in other comprehensive income or loss.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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. The Company recognizes, within yard operation expenses, the costs of pre-sale services, including towing, title processing, and preparation and storage, at the time the related services are provided.

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 $5.0 million, $6.5 million and $8.8 million in fiscal 2013, 2012 and 2011, respectively.

Other (Expense) Income

Other (expense) income consists primarily of interest expense, interest income, gains and losses from the disposal of fixed assets and rental 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 U.S. 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 stockholders’ 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.

Bank Overdraft

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

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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.

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 2013, 2012 and 2011. At July 31, 2013, one customer accounted for more than 10% of the Company’s accounts receivables and at July 31, 2012 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 estimated useful lives of: 3 to 5 years for internally developed or purchased software; 3 to 7 years for

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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.

Long-Lived Asset Valuation

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 2013 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. The impairment test 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.

Assets Held for Sale

The Company has removed certain assets from operations and offered them for sale. These assets, which include certain real estate, are reflected at their fair market value in the financial statements and are a Level II fair value measurement based on sales transactions of similar assets. During the year ended July 31, 2012, the Company recorded an impairment of $8.8 million associated with the write down to fair market value of these assets held for sale.

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 results of operations, financial position 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, 2013 and 2012 the total amount reserved for related self-insured claims is $6.1 million and $5.7 million, respectively.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

Stock-Based Compensation

The Company accounts for our stock-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 stock-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, stock-based compensation cost recognized in the fiscal years ended July 31, 2013, 2012 and 2011 includes stock-based compensation expense for all stock-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 ASC 718, and stock-based compensation expense for all stock-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 stock-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, 2013			July 31, 2012			July 31, 2011
Expected life (in years)		5.2 – 6.9			5.2 – 6.8			5.3 – 6.8
Risk-free interest rate		.61 – 1.5	%		.68 – 1.7	%		1.7 – 2.9	%
Estimated volatility		24 – 26	%		24 – 26	%		26 – 31	%
Expected dividends		0	%		0	%		0	%
Weighted average fair value at measurement date	$	7.87		$	6.01		$	6.59

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

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

Net cash proceeds from the exercise of stock options were $21.4 million, $13.7 million and $7.1 million for the years ended July 31, 2013, 2012 and 2011 respectively. The Company realized an income tax benefit of $6.1 million, $4.4 million and $3.5 million from stock option exercises during the years ended July 31, 2013, 2012 and 2011 respectively. In accordance with ASC 718, the Company presents excess tax benefits from disqualifying dispositions of the exercise of incentive stock options, vested prior to August 1, 2005, if any, as financing cash flows rather than operating cash flows.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the years ended July 31, 2013 and 2012 accumulated other comprehensive loss was the effect of foreign currency translation adjustments and the effective portion of the interest rate swaps’ change in fair value. For the year ended July 31, 2011 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 region and its United Kingdom region 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 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 (IFRS). Under ASU 2011-04 the guidance amends certain accounting and disclosure requirements to ensure that fair value has the same meaning in U.S. GAAP and in IFRS and that the respective fair value measurement and disclosure requirements are the same. ASU 2011-04 is effective for public entities during interim and annual periods beginning after December 15, 2011. The Company’s adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated results of operations and financial position.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 is effective for public entities during the interim and annual periods beginning after December 15, 2011. The Company’s adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated results of operations and financial position.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies how entities test goodwill for impairment. ASU 2011-08 gives entities the option, under certain circumstances, to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether further impairment testing is necessary. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011. The Company’s adoption of ASU 2011-08 did not have a material impact on the Company’s consolidated results of operations and financial position.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amended the guidance in ASU 2011-08 to simplify the testing of indefinite-lived intangible assets other than goodwill for impairment. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning September 15, 2012. The Company’s adoption of ASU 2012-02 did not have a material impact on the Company’s consolidated results of operations and financial position.

In February 2013, the FASB issued ASU 2013-02, “Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which amends ASC 220, “Comprehensive Income.” The amended guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Additionally, entities are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amended guidance does not change the current requirements for reporting net income or other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company’s adoption of ASU 2013-02 did not have a material impact on the Company’s condensed consolidated results of operations and financial position.

Reclassifications

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the classifications used in fiscal 2013.

(2)		Acquisitions

Fiscal 2013 Transactions

During the year ended July 31, 2013, the Company acquired 100% of the voting stock of Salvage Parent, Inc., which conducts business primarily as Quad City Salvage Auction, Crashed Toys, and Desert View Auto Auctions. Combined, these businesses operate at 39 locations in 14 states. The Company also acquired salvage vehicle auction business’ in Brazil and U.A.E.; two auction platforms in Germany and Spain; as well as the assets of Gainesville Salvage Disposal and Auto Salvage Auction, Inc., salvage vehicle auction companies with locations in Gainesville, GA, and Davison and Ionia, MI, for a total purchase price of $87.9 million.

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, which has resulted in the recognition of goodwill in the Company’s consolidated financial statements. This goodwill arises because the purchase price reflects a number of factors including their future earnings and cash flow potential; the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the process by which the Company acquired the businesses; and because of the complementary strategic fit and resulting synergies brought to existing operations. The goodwill arising from these acquisitions is within Level III of the fair value hierarchy as it is valued using unobservable inputs primarily from third party valuation specialists. Goodwill is not amortized for financial reporting purposes, but may be amortized for tax purposes. Intangible assets acquired include covenants not to compete, supply contracts, customer relationships, trade names, licenses and databases and software with a useful life ranging from 3 to 8 years. The purchase price allocation for Salvage Parent, Inc, and the acquired auction platform in Spain are not final for property and equipment, income taxes and intangible assets acquired pending the final valuation by the Company’s valuation specialists and liability exposure. The Company believes the potential changes to its preliminary purchase price allocation will not have a material impact on the Company’s consolidated financial position and results of operations.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

The following table summarizes the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed (in thousands) for these acquisitions:

Total cash paid, net of cash acquired	$	84,022
Contingent consideration		3,869
Total acquisition price	$	87,891
Allocation of the acquisition price:
Accounts receivable and prepaid expenses		15,348
Deferred income taxes		5,890
Vehicle pooling costs		1,187
Property and equipment		21,158
Inventory		594
Intangible assets		14,922
Goodwill		73,414
Liabilities assumed		(44,622	)
Fair value of net assets and liabilities acquired	$	87,891

The acquisitions do not result in a significant change in the Company’s consolidated results of operations individually nor in the aggregate; therefore pro forma financial information has not been presented. The operating results have been included in the Company’s consolidated financial position and results of operations since the acquisition dates. The acquisition-related expenses incurred during the year ended July 31, 2013 were not significant and are included in general and administrative expenses in the Company’s consolidated financial position and results of operations.

Fiscal 2012 Transactions

The Company had no significant acquisitions during the year ended July 31, 2012.

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 U.S. 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.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

(3)		Cash, Cash Equivalents and Marketable Securities

As of July 31, 2013, 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	$	47,675	$	—	$	—	$	—	$	47,675
Money market funds		15,956		—		—		—		15,956
Total	$	63,631	$	—	$	—	$	—	$	63,631

As of July 31, 2012, 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	$	96,779	$	—	$	—	$	—	$	96,779
Money market funds		43,333		—		—		—		43,333
Total	$	140,112	$	—	$	—	$	—	$	140,112

The Company invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash and cash equivalents are placed with high credit quality financial institutions.

(4)		Accounts Receivable, Net

Accounts receivable consists of the following (in thousands):

	Years Ended July 31,
	2013			2012
Advance charges receivable	$	118,584		$	85,237
Trade accounts receivable		65,660			53,163
Other receivables		1,153			2,420
		185,397			140,820
Less allowance for doubtful accounts		(2,683	)		(2,920	)
	$	182,714		$	137,900

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
July 31, 2013	$	2,920	$	1,424	$	(1,661	)	$	2,683
July 31, 2012		3,122		1,626		(1,828	)		2,920
July 31, 2011		2,841		478		(197	)		3,122

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

(5)		Property and Equipment, Net

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

	Years Ended July 31,
	2013			2012
Transportation and other equipment	$	58,016		$	52,066
Office furniture and equipment		59,936			53,363
Software		74,261			54,399
Land		443,126			350,463
Buildings and leasehold improvements		414,284			400,302
		1,049,623			910,593
Less accumulated depreciation and amortization		(372,106	)		(323,430	)
	$	677,517		$	587,163

Depreciation expense on property and equipment was $42.0 million, $34.8 million and $40.2 million for the fiscal years ended July 31, 2013, 2012 and 2011 respectively. Amortization expense of software was $9.5 million, $8.9 million and $0.8 million for the fiscal years ended July 31, 2013, 2012 and 2011 respectively.

(6)		Goodwill

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

Balance as of July 31, 2011	$	198,620
Goodwill recorded during the period		1,420
Effect of foreign currency translation		(3,602	)
Balance as of July 31, 2012	$	196,438
Goodwill recorded during the period		73,414
Effect of foreign currency translation		(2,389	)
Balance as of July 31, 2013	$	267,463

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 2013 and 2012 and goodwill was not impaired. As of July 31, 2013 and 2012, the cumulative amount of goodwill impairment losses recognized totaled $21.8 million.

(7)		Intangibles, Net

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

	July 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete	$	12,515	$	(10,965	)	$	1,550		4
Supply contracts		26,322		(21,757	)		4,565		8
Customer relationships		7,389		(395	)		6,994		6
Trade name		2,998		(402	)		2,596		4
Licenses and databases		3,306		(1,305	)		2,001		3
	$	52,530	$	(34,824	)	$	17,706

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

	July 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Weighted Average Remaining Useful Life (in years)
Amortized intangible assets:
Covenants not to compete	$	11,087	$	(10,685	)	$	402		4
Supply contracts		26,041		(18,762	)		7,279		6
Licenses and databases		1,316		(1,012	)		304		1
	$	38,444	$	(30,459	)	$	7,985

Aggregate amortization expense on intangible assets was $4.8 million, $4.5 million and $4.7 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2013 intangible assets is expected to be as follows (in thousands):

(8)		Accounts Payable and Accrued Liabilities

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

	Years Ended July 31,
	2013		2012
Trade accounts payable	$	34,488	$	16,353
Accounts payable to sellers		36,073		36,153
Accrued insurance		6,048		5,686
Accrued compensation and benefits		21,978		16,791
Buyer deposits and prepayments		25,384		18,061
Other accrued liabilities		12,677		9,633
	$	136,648	$	102,677

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.

(9)		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. On September 29, 2011, the Company amended the credit agreement increasing the amount of the term loan facility from $400.0 million

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

to $500.0 million. On March 1, 2013, the Company amended the credit agreement to increase the net leverage ratio at which restrictive spending covenants are introduced from 1:1 to 1.5:1.

The Term Loan, which at July 31, 2013 had $368.8 million outstanding, amortizes $18.8 million each quarter beginning December 31, 2011 with all outstanding borrowings due on December 14, 2015. All amounts borrowed under the Term Loan may be prepaid without premium or penalty. During the twelve months ended July 31, 2013, the Company made principal repayments of $75.0 million. The Company has $1.2 million deferred financing costs in other assets as of July 31, 2013.

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. The Company has entered into two interest rate swaps (see Note 10. Derivatives and Hedging) to exchange its variable interest rate payments commitment for fixed interest rate payments on the Term Loan balance, which at July 31, 2013, totaled $368.8 million. 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, 2013, the Company’s interest rate is the 0.20% Eurocurrency Rate plus the 1.5% Applicable Rate. The Applicable Rate can fluctuate between 1.5% and 2.0% depending on the Company’s consolidated net leverage ratio (as defined in the Credit Facility). The Credit Facility is guaranteed by the Company’s material domestic subsidiaries. The carrying amount of the Credit Facility is comprised of borrowing under which the interest accrued under a fluctuating interest rate structure. Accordingly, the carrying value approximates fair value at July 31, 2013 and is classified within level II of the fair value hierarchy.

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. The Company had no outstanding borrowings under the Revolving Credit at the end of the period.

The Credit Facility 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 Credit Facility provides for the following financial covenants: (i) earnings before income tax, depreciation and amortization (EBITDA); (ii) leverage ratio; (iii) interest coverage ratio; and (iv) limitations on capital expenditures. The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-defaults to certain other indebtedness, bankruptcy and insolvency defaults, material judgments, invalidity of the loan documents and events constituting a change of control. The Company is in compliance with all covenants as of July 31, 2013.

The Company’s Term Loan requires quarterly payments of $18.8 million, and the Term Loan matures and all outstanding borrowings are due on December 14, 2015. At July 31, 2013, future annual payments are as follows (in thousands):

Years Ending July 31,	Term Loan
2014	$	75,000
2015		75,000
2016		218,750
	$	368,750

(10)		Derivatives and Hedging

The Company has entered into two interest rate swaps to exchange its variable interest rate payments commitment for fixed interest rate payments on the Term Loan balance which, at July 31, 2013 totaled $368.8 million. The first swap fixed the Company’s interest rate at 85 basis points plus the one month LIBOR rate on

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

the first $287.5 million of its term debt. The second swap fixed the Company’s interest rate at 69 basis points plus the one month LIBOR rate on the next $81.3 million of its term debt.

The swap is a designated effective cash flow hedge under ASC 815, Derivatives and Hedging, and is recorded in other liabilities at its fair value, which at July 31, 2013 is $2.7 million. Each quarter, the Company measures hedge effectiveness using the “hypothetical derivative method” and records in earnings any hedge ineffectiveness with the effective portion of the hedge’s change in fair value recorded in other comprehensive income or loss. The Company has reclassified $2.5 million and $2.1 million for the year ended July 31, 2013 and 2012, respectively, out of other comprehensive income into interest expense.

The notional amount of the swap amortizes until all outstanding borrowings are due on the Term Loan on December 14, 2015 (see Note 9. Long-Term Debt). At July 31, 2013, the notional amount of the interest rate swaps was equal to the Term Loan balance, $368.8 million. The notional amount of the two derivative transactions amortizes $18.8 million per quarter through September 30, 2015 and $200.0 million on December 14, 2015.

The hedge provided by the swap could prove to be ineffective for a number of reasons, including early retirement of the Term Loan, as allowed under the Credit Facility, or in the event the counterparty to the interest rate swap is determined in the future to not be creditworthy. The Company has no plans for early retirement of the Term Loan.

The interest rate swaps are classified within Level II of the fair value hierarchy as the derivatives are valued using observable inputs. The Company determines fair value of the derivative utilizing observable market data of swap rates and basis rates. These inputs are placed into a pricing model using a discounted cash flow methodology in order to calculate the mark-to-market value of the interest rate swap. As of July 31, 2013 and 2012, the Company’s fair value of the interest rate swaps, a Level II financial instrument, were $2.7 million and $4.9 million, respectively, and are classified as other liabilities in the accompanying consolidated balance sheet.

(11)		Stockholders’ Equity

General

The Company has authorized the issuance of 180 million shares of common stock, with a par value of $0.0001, of which 125,494,995 shares were issued and outstanding at July 31, 2013. As of July 31, 2013 and 2012, the Company has reserved 16,606,389 and 18,170,575 shares of common stock, respectively, for the issuance of options granted under the Company’s stock option plans and 1,240,888 and 1,325,651 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, with a par value of $0.0001, none of which were issued or outstanding at July 31, 2013 or 2012, which have the rights and preferences as the Company’s Board of Directors shall determine, from time to time.

Stock Repurchase

On September 22, 2011, the Company’s board of directors approved a 40 million share increase in the Company’s stock repurchase program that was originally implemented in 2003, bringing the total current authorization to 98 million shares. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the stock repurchase program. Subject to applicable securities laws, such repurchases will be made at such times and in such amounts as the Company deems appropriate and may be discontinued at any time. For the year ended July 31, 2013, the Company repurchased 500,000 shares of our common stock at a weighted average price of $27.77. For the year ended July 31, 2012, the Company repurchased 8,880,708 shares of our common stock at a weighted average price of $22.51. For the year ended July 31, 2011, the Company repurchased 13,364,634 shares of our common stock at a weighted average price of $20.42. As of

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

July 31, 2013, the total number of shares repurchased under the program was 50,286,782 and 47,713,218 shares were available for repurchase under the program. See Note 17. Related Party Transactions, for discussion of related party stock repurchases.

Additionally, on January 14, 2011, the Company completed a tender offer to purchase up to 21,052,630 shares of its common stock at a price of $19.00 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 Insider Trading Policy. In connection with the tender offer, the Company accepted for purchase 24,344,176 shares of its common stock. The shares accepted for purchase are comprised of the 21,052,630 shares the Company offered to purchase and an additional 3,291,546 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 long term debt. The impact dilutive earnings per share of all repurchased shares on the weighted average number of common shares outstanding for the year ended July 31, 2013 is less than $0.01.

In the second, third and fourth quarters of fiscal year 2011, certain executive officers exercised stock options through cashless exercises. In the first, second and third quarters of fiscal year 2012 and the second quarter of fiscal year 2013, certain executive officers exercised stock 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 $0.6 million, $2.6 million and $4.2 million, in fiscal 2013, 2012 and 2011, 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 2011—Q2	177,500	$	8.47	76,050	37,834	63,616	$	19.76	$	748
FY 2011—Q3	548,334	$	11.02	295,496	118,032	134,806	$	20.40	$	2,408
FY 2011—Q4	180,000	$	9.48	76,396	48,366	55,238	$	22.33	$	1,080
FY 2012—Q1	40,000	$	9.00	16,082	8,974	14,944	$	22.39	$	201
FY 2012—Q2	20,000	$	9.00	7,506	4,584	7,910	$	23.98	$	110
FY 2012—Q3	322,520	$	10.74	131,299	85,683	105,538	$	26.38	$	2,260
FY 2013—Q2	73,228	$	8.89	18,127	17,461	37,640	$	35.91	$	627

(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 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 stockholders in 1994. The ESPP was amended and restated in 2003 and again approved by the stockholders. 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 2013, 2012 and 2011 was 84,761, 97,769

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

and 127,192, respectively. As of July 31, 2013, there have been 3,759,112 shares of common stock issued pursuant to the ESPP and 1,240,888 shares remain available for purchase under the ESPP.

Stock Options

In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (the Plan), presently covering an aggregate of 8.0 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, 2013, 1,684,091 shares were available for future grant under the Plan.

In April 2009, the Compensation Committee of the Company’s Board of Directors, following stockholder approval of proposed grants at a special meeting of stockholders, approved the grant to each 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 4,000,000 shares of the Company’s common stock at an exercise price of $15.11 per share, which equaled the closing price of the Company’s common stock on April 14, 2009, the effective date of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for a five-year period. Each option will become exercisable over five years, subject to continued service by the executive, with twenty percent (20%) vesting on April 14, 2010, and the balance vesting ratably over the subsequent four years. Each option will become fully vested, assuming continued service, on April 14, 2014, the fifth anniversary of the date of grant. If, prior to a change in control, either executive’s employment is terminated without cause, then one hundred percent (100%) of the shares subject to that executive’s stock option will immediately vest. If, upon or following a change in control, either the Company or a successor entity terminates the executive’s service without cause, or the executive resigns for good reason, then one hundred percent (100%) of the shares subject to his stock option will immediately vest. The total compensation expense to be recognized by the Company over the five year service period is $26.1 million dollars per grant. The Company recognized $10.2 million in compensation expense in fiscal 2013, 2012 and 2011, relating to these grants.

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

	Years Ended July 31,
	2013		2012		2011
General and administrative	$	17,135	$	18,802	$	17,976
Yard operations		2,289		2,989		1,031
Total	$	19,424	$	21,791	$	19,007

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2013 and 2012.

A summary of the status of the Company’s non-vested shares as of July 31, 2013 and changes during fiscal 2013 is as follows:

				Number of Shares (in 000’s)				Weighted Average Grant- date Fair Value
Non-vested shares at July 31, 2012					6,013			$	6.59
Grants of non-vested shares					335				7.87

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

			Weighted Average Grant- date Fair Value
Vested	(2,889	)		6.57
Forfeitures or expirations	(63	)		6.06
Non-vested shares at July 31, 2013	3,396		$	6.55

Option activity for the year ended July 31, 2013 is summarized as follows:

			Weighted Average Exercise Price			Aggregate Intrinsic Value (in 000’s)
Outstanding at July 31, 2012	16,179		$	16.24	6.60	$	121,977
Grants of options	335			29.76	—		—
Exercises	(1,529	)		13.78	—		—
Forfeitures or expirations	(63	)		24.50	—		—
Outstanding at July 31, 2013	14,922		$	16.75	5.91	$	235,086
Exercisable at July 31, 2013	11,526		$	16.03	5.58	$	190,003
Vested and expected to vest at July 31, 2013	14,438		$	16.73	5.91	$	227,892

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

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the year ended July 31, 2013 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, 2013. The aggregate intrinsic value of options exercised was $25.4 million, $16.6 million and $16.2 million in the fiscal years ended July 31, 2013, 2012 and 2011, 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, 2013, the total compensation cost related to non-vested stock-based payment awards granted to employees under the Company’s stock option plans but not yet recognized was $20.4 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining term of 1.83 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2013, 2012 and 2011 is $22.9 million, $20.9 million and $19.6 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2013 follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at July 31, 2013 (in 000’s)		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at July 31, 2013 (in 000’s)		Weighted Average Exercise Price
$9.00–$14.88		774		2.90	$	12.30		774	$	12.30
$15.11–$15.11		8,000		5.70	$	15.11		6,800	$	15.11
$16.38–$20.56		5,063		6.11	$	18.28		3,666	$	17.99
$21.05–$35.72		1,085		8.65	$	25.03		286	$	22.85
		14,922		5.91	$	16.75		11,526	$	16.03

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

(12)		Income Taxes

Income before taxes consists of the following (in thousands):

	Years Ended July 31,
	2013		2012		2011
U.S.	$	236,118	$	237,596	$	234,035
Non-U.S.		40,754		40,460		29,842
Total income before taxes	$	276,872	$	278,056	$	263,877

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

	Years Ended July 31,
	2013			2012			2011
Federal:
Current	$	87,484		$	102,152		$	84,119
Deferred		(1,073	)		(14,557	)		278
		86,411			87,595			84,397
State:
Current		3,871			3,332			7,186
Deferred		66			(461	)		(128	)
		3,937			2,871			7,058
Foreign:
Current		9,090			8,460			5,818
Deferred		(2,591	)		(2,989	)		229
		6,499			5,471			6,047
	$	96,847		$	95,937		$	97,502

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

	Years Ended July 31,
	2013			2012			2011
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		1.1			1.2			1.7
Foreign		(1.8	)		(1.9	)		(0.4	)
Compensation and fringe benefits		0.1			—			0.2
Other differences		0.6			0.2			0.4
Effective tax rate		35.0	%		34.5	%		36.9	%

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

	Years Ended July 31,
	2013		2012
Deferred tax assets:
Allowance for doubtful accounts	$	1,109	$	1,013
Accrued compensation and benefits		29,909		23,902
State taxes		438		625
Accrued other		3,376		2,634
Deferred revenue		675		2,056

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

	Years Ended July 31,
	2013			2012
Property and equipment		11,651			10,969
Losses carried forward		4,494			1,028
Federal tax benefit		7,897			7,989
Total gross deferred tax assets		59,549			50,216
Less valuation allowance		(1,597	)		(1,211	)
Net deferred tax assets		57,952			49,005
Deferred tax liabilities:
Vehicle pooling costs		(6,814	)		(4,537	)
Prepaid insurance		(1,039	)		(792	)
Deferred revenue		—			—
Intangibles and goodwill		(25,757	)		(24,758	)
Workers’ compensation		(81	)		(224	)
Total gross deferred tax liabilities		(33,691	)		(30,311	)
Net deferred tax asset (liability)	$	24,261		$	18,694

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

	Years Ended July 31,
	2013			2012
North America current liabilities	$	2,216		$	3,601
North America non-current assets		29,928			22,279
Foreign non-current liabilities		(7,883	)		(7,186	)
Net deferred tax asset (liability)	$	24,261		$	18,694

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, 2013 and 2012 was $1.6 million and $1.2 million, respectively.

The Company’s U.S. Federal net operating loss carry forward for income tax purpose is subject to various limitations under Sec 382 of the Internal Revenue Code.

At July 31, 2013 and 2012, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company’s effective tax rate is $17.2 million and $14.1 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):

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

	Years Ended July 31,
	2013			2012			2011
Balance as of August 1	$	16,946		$	18,794		$	18,144
Increases related to current year tax positions		1,844			2,036			1,592
Prior year tax positions:
Prior year increase		1,474			618			519
Prior year decrease		—			(952	)		(531	)
Cash settlement		—			(452	)		—
Lapse of statute of limitations		(3,086	)		(3,098	)		(930	)
Balance at July 31	$	17,178		$	16,946		$	18,794

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, 2013, 2012 and 2011, the Company had accrued interest and penalties related to the unrecognized tax benefits of $5.9 million, $5.6 million and $6.0 million, respectively.

The Company is currently under audit by the states of New York and South Carolina from fiscal years 2008 to 2012. The Company is no longer subject to U.S. federal and state income tax examination for fiscal years prior to 2010, excepting the jurisdictions currently under audit.

In fiscal years 2013, 2012 and 2011, the Company recognized a tax benefit of $6.1 million, $4.4 million and $3.5 million, respectively, upon the exercise of certain stock options which is reflected in stockholders’ equity.

The Company has not provided for U.S. federal income and foreign withholding taxes on its $80 million foreign subsidiaries’ undistributed earnings as of July 31, 2013, 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 U.S. 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,
	2013		2012		2011
Weighted average common shares outstanding		124,912		128,120		151,298
Effect of dilutive securities-stock options		4,869		3,308		2,054
Diluted weighted average common shares outstanding		129,781		131,428		153,352

There were no adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 298,408, 2,208,047 and 5,107,978 options to purchase the Company’s common stock that were outstanding at July 31, 2013, 2012 and 2011, respectively, because their effect would have been anti-dilutive.

(14)		Segments and Other Geographic Information

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

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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,
	2013		2012		2011
North America	$	826,030	$	731,495	$	681,274
United Kingdom		209,186		192,696		190,972
Other		11,170		—		—
	$	1,046,386	$	924,191	$	872,246
International Total	$	228,945	$	199,322	$	197,504

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

	Years Ended July 31,
	2013		2012		2011
North America	$	565,590	$	514,527	$	526,137
United Kingdom		102,934		91,543		95,638
Other		44,219		—		—
	$	712,743	$	606,070	$	621,775
International Total	$	151,179	$	95,704	$	100,217

(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 or tenant improvement allowance, rent expense is recognized on a straight-line basis over the lease term in accordance with ASC 840, Operating Leases.

At July 31, 2013, 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
2014	$	229		$	23,162
2015		62			18,493
2016		6			15,343
2017		—			13,953
2018		—			12,168
Thereafter		—			48,060
		297		$	131,179
Less amount representing interest		(8	)
	$	289

Facilities rental expense for the fiscal years ended July 31, 2013, 2012 and 2011 aggregated $20.6 million, $16.2 million and $17.4 million, respectively. Yard operations equipment rental expense for the fiscal

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

years ended July 31, 2013, 2012 and 2011 aggregated $2.8 million, $2.7 million and $3.3 million, respectively.

Commitments

Letters of Credit

The Company had outstanding letters of credit of $18.8 million at July 31, 2013, which are primarily used to secure certain insurance obligations.

Contingencies

Legal Proceedings

The Company is subject to threats of litigation and is involved in actual 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. The material pending legal proceedings to which the Company is a party to, or of which any of the Company’s property is subject to, include the following matters:

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 its facility in Florida where the vehicle was being stored. Relief sought is for compensatory damages, costs and interest allowed by law. On January 30, 2013, the Court granted the Company’s motion for summary judgment, finding that the Company did not owe any duty to Ms. Hill to preserve her car as evidence. The summary judgment resolves Ms. Hill’s claim against the Company in its entirety in favor of the Company. On February 22, 2013, Ms. Hill’s attorneys filed an appeal of the summary judgment. The Company believes the claim is without merit and intends to vigorously defend the appeal.

On April 16, 2013, Lexington Insurance Company, as subrogee of Thomas Properties Group, Inc., filed suit in the 125th Judicial District of Harris County, Texas, against the Company, Sandra Jean Rodriguez (an individual) and Balboa Insurance Company, Inc. The complaint alleges spoliation of evidence, negligence, and breach of bailment contract against the Company. Plantiff seeks compensatory and/or economic damages in an undisclosed amount, and for other unnamed relief, general or specific, at law or in equity, to which plaintiff claims to be entitled. The Company believes the suit is without merit and intends to vigorously defend the action.

In connection with its response to Hurricane Sandy, the Company entered into various short-term lease/license agreements with certain land owners in New York and New Jersey to marshal and store storm damaged vehicles until they are sold. In November and December 2012, various actions were commenced against the Company and land owners. In New York, actions were brought by the Town of Southampton, the County of Suffolk, the Town of Brookhaven and the New York State Department of Environmental Conservation, seeking declaratory and injunctive relief as well as civil penalties, in connection with alleged violations of local zoning, land use and environmental regulations. The Company is defending the New York claims and believes it has bona fide legal defenses. The claims by the various plaintiffs will be mitigated with the sale and removal of vehicles from the various short-term storage locations in New York. In New Jersey, actions were brought by the Townships of Hillsborough and Mansfield (in Burlington County) seeking to impose monetary damages in unspecified amounts, as well as injunctive relief. Subject to completion of restoration of property, both New Jersey actions have been settled for immaterial amounts.

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 consolidated results of operations and cash flows 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 our consolidated results of operations, financial position or

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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 the Company. 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, 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 adequately 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 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 consolidated results of operations, financial position and cash flows.

(16)		Guarantees—Indemnifications to Officers and Directors

The Company has entered into an updated form of indemnification agreement, which was approved in January 2012. The indemnification agreement to our directors and certain of our officers is 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. The form was intended to update the current form for our reincorporation into Delaware and general developments in corporate law since the adoption of our original form of indemnification agreement and was done as part of our ordinary course of corporate governance matters.

(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 totaled $0.4 million, $0 million and $0.05 million for the years ended July 31, 2013, 2012 and 2011, respectively.

During the year ended July 31, 2011, the Company purchased three houses from executives who relocated to the corporate headquarters in Dallas, Texas. During the year ended July 31, 2012, the Company

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

purchased three houses from executives who relocated to the corporate headquarters in Dallas, Texas. During the year ended July 31, 2013, the Company purchased one commercial property from an executive who relocated to the corporate headquarters in Dallas, Texas. As of July 31, 2013, one commercial property remained unsold and is reported in assets held for sale.

During the year ended July 31, 2011, the Company purchased 10,620 shares of stock from the Willis Johnson Foundation for $0.5 million. In addition, the Company loaned $0.2 million to the Copart Private Foundation.

On June 28, 2012, 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 2.8 million shares of its common stock at a price of $23.22 per share, or an aggregate purchase price of $65.0 million. The settlement date for the acquisition of the common stock was on or about June 28, 2012, 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 28, 2012 (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.

On September 27, 2012, the Company entered into an agreement with Thomas W. Smith, the Company’s former member of the Board of Directors, pursuant to which the Company acquired 0.5 million shares of its common stock at a price of $27.77 per share, or an aggregate purchase price of $13.9 million. The settlement date for the acquisition of the common stock was on or about September 27, 2012, 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 September 27, 2012 (as reported by The NASDAQ Stock Market). The repurchase was approved by the independent members of the Board of Directors and the Audit Committee of the Board of Directors.

There were no amounts due to or from related parties at July 31, 2013 and 2012.

(18)		Employee Benefit Plan

The Company sponsors a 401(k) defined contribution plan covering its eligible employees. The plan is available to all U.S. 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 $0.5 million, $0.5 million and $0.4 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively, related to this plan.

The Company also sponsors an additional defined contribution plan for most of its U.K. employees, which is available to all U.K. employees who meet minimum service requirements. The Company matches up to 5% of employee contributions. The Company recognized an expense of $0.2 million, $0.2 million, and $0.2 million for the fiscal years ended July 31, 2013, 2012 and 2011, respectively, related to this plan.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

(19)		Restructuring

The Company relocated its corporate headquarters to Dallas, Texas in fiscal 2012. The restructuring-related costs are as follows (in thousands):

	Years Ended July 31,
	2013		2012		2011
General and Administrative
Severance	$	978	$	1,675	$	1,190
Relocation		759		534		—
Total general and administrative	$	1,737	$	2,209	$	1,190
Yard Operations
Severance	$	—	$	—	$	—
Relocation		189		745		183
Impairment		—		1,123		—
Total yard operations	$	189	$	1,868	$	183

The movements in the severance accrual are as follows (in thousands):

Description and Fiscal Year				Balance at Beginning of Year				Expense				Payments				Balance at End of Year
July 31, 2013				$	1,800				978				554			$	2,224
July 31, 2012				$	1,051				1,675				926			$	1,800

The Company started transitioning its data center to a third party managed data center during the year ended July 31, 2013. The Company reviewed the useful life of certain assets related to its data centers and determined they should be revised from an average of 60 months to an average of 45 months to reflect the shorter useful lives of these assets. Additionally, facility depreciation related to the Company’s IT operations, currently located in the Company’s offices in Fairfield, CA, was accelerated as the department is relocating to the Dallas, TX corporate headquarters. These changes in estimate are accounted for on a prospective basis, resulting in increased depreciation expense over the revised useful lives. These changes will result in $2.9 million in accelerated depreciation expense to be recorded in fiscal 2014. This change resulted in $7.0 million in additional depreciation for the year ended July 31, 2013.

**COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JULY 31, 2013, 2012 AND 2011 **

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

	Fiscal Quarter
Fiscal Year 2013	First		Second		Third		Fourth
Revenues	$	238,866	$	266,185	$	277,638	$	263,697
Operating income	$	74,357	$	62,770	$	82,813	$	63,052
Income before income taxes	$	71,588	$	61,117	$	82,005	$	62,162
Net income	$	45,845	$	39,640	$	53,236	$	41,304
Basic net income per share	$	0.37	$	0.32	$	0.42	$	0.33
Diluted net income per share	$	0.36	$	0.31	$	0.41	$	0.32

	Fiscal Quarter
Fiscal Year 2012	First		Second		Third		Fourth
Revenues	$	225,626	$	227,904	$	244,105	$	226,556
Operating income	$	65,376	$	63,539	$	87,944	$	69,494
Income before income taxes	$	63,815	$	62,216	$	84,547	$	67,478
Net income	$	41,149	$	40,603	$	55,471	$	44,896
Basic net income per share	$	0.32	$	0.32	$	0.44	$	0.36
Diluted net income per share	$	0.31	$	0.31	$	0.43	$	0.35

(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.

EXHIBIT INDEX

		Incorporated by reference herein
Exhibit Number	Description	Form	Date
10.18	Executive Officer Employment Agreement between the Registrant and John Lindle, dated June 1, 2013	—	Filed herewith
21.1	List of subsidiaries of Registrant	—	Filed herewith
23.1	Consent of Independent Registered Public Accounting Firm	—	Filed herewith
24.1	Power of Attorney (included on signature page)	—	Filed herewith
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
32.1(1)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
32.2(1)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	—	Filed herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Extension Definition
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
(1)	In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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