Item 15. Exhibits, Financial Statement Schedules

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

(a)	Financial statements:

Our consolidated financial statements at July 31, 2019 and 2018 and for each of the three years in the period ended July 31, 2019 and the notes thereto, together with the report of the independent registered public accounting firm on those consolidated financial statements are hereby filed as part of this annual report on Form 10-K.

(b)	Financial statement schedules:

No financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

(c)	Exhibits:

Exhibits are filed as part of this Report and are hereby incorporated by reference. Refer to Exhibit Index included herein.

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 (Principal Executive Officer and Director)

Date: September 30, 2019

	COPART, INC.
	By:		/s/ JEFFREY LIAW
			Jeffrey Liaw, President and Chief Financial Officer (Principle Financial and Accounting Officer and duly Authorized Officer)

Date: September 30, 2019

POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Jayson Adair and Jeffrey Liaw, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her 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 ADAIR		Chief Executive Officer (Principal Executive Officer and Director)		September 30, 2019
A. Jayson Adair
/s/ JEFFREY LIAW		President and Chief Financial Officer (Principal Financial and Accounting Officer)		September 30, 2019
Jeffrey Liaw
/s/ WILLIS J. JOHNSON		Chairman of the Board		September 30, 2019
Willis J. Johnson
/s/ MATT BLUNT		Director		September 30, 2019
Matt Blunt
/s/ STEVEN D. COHAN		Director		September 30, 2019
Steven D. Cohan
/s/ DANIEL ENGLANDER		Director		September 30, 2019
Daniel Englander
/s/ STEPHEN FISHER		Director		September 30, 2019
Stephen Fisher
/s/ JAMES E. MEEKS		Director		September 30, 2019
James E. Meeks
/s/ DIANE M. MOREFIELD		Director		September 30, 2019
Diane M. Morefield
/s/ THOMAS N. TRYFOROS		Director		September 30, 2019
Thomas N. Tryforos

Copart, Inc.

Index to Consolidated Financial Statements

and Financial Statement Schedule

Consolidated Financial Statements		Page Number
Report of Independent Registered Public Accounting Firm		58
Consolidated Balance Sheets as of July 31, 2019 and 2018		60
Consolidated Statements of Income for the years ended July 31, 2019, 2018 and 2017		61
Consolidated Statements of Comprehensive Income for the years ended July 31, 2019, 2018 and 2017		62
Consolidated Statements of Stockholder’s Equity for the years ended July 31, 2019, 2018 and 2017		63
Consolidated Statements of Cash Flows for the years ended July 31, 2019, 2018 and 2017		64
Notes to Consolidated Financial Statements		65

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Copart, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Copart, Inc. (the Company) as of July 31, 2019 and 2018, 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, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at July 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2019, 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) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated September 30, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

	Uncertain Tax Positions
Description of the Matter	As discussed in Note 10 to the consolidated financial statements, the Company has recorded a liability for unrecognized tax benefits resulting from uncertain tax positions, including accrued interest and penalties, of $35.1 million as of July 31, 2019. The Company’s uncertain tax positions are subject to audit by federal, state and local taxing authorities, and the resolution of such audits may span multiple years. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. Tax law is complex and often subject to varied interpretations. Accordingly, the ultimate outcome with respect to taxes the Company may owe may differ from the amounts recognized.

		Auditing management’s analysis and accounting for the Company’s uncertain tax positions involved significant auditor judgment and use of tax professionals with specialized skills and knowledge to evaluate the Company’s interpretation of, and compliance with, tax laws across its multiple subsidiaries located in multiple taxing jurisdictions. Each tax position involves unique facts and circumstances that must be evaluated, and there may be many uncertainties around initial recognition and de-recognition of tax positions, including regulatory changes, litigation and examination activity. In addition, a higher degree of auditor judgment was required in evaluating the Company’s measurement of the largest amount of benefit, considered on a cumulative probability basis, which is more likely than not to be realized upon settlement.
	How We Addressed the Matter in Our Audit	We tested the Company’s controls that address the risks of material misstatement relating to uncertain tax positions. For example, we tested controls over management’s identification of uncertain tax positions and its application of the recognition and measurement principles, including management’s review of the inputs and calculations of unrecognized tax benefits resulting from uncertain tax positions.
	We involved our tax professionals to assess the technical merits of the Company’s tax positions. Our substantive audit procedures included, among others, evaluating changes in tax law that occurred during the year and assessing the Company’s interpretation of those changes under the relevant jurisdiction’s tax law. In addition, we inspected correspondence, assessments, and settlements from taxing authorities to assess the Company’s determination of the likelihood of its tax positions to be sustained upon examination. We also evaluated the Company’s income tax disclosures included in Note 10 in relation to these matters.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since fiscal year 2006.

Dallas, Texas

September 30, 2019

COPART, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

		July 31,
		2019				2018
ASSETS
Current assets:
Cash and cash equivalents		$	186,319			$	274,520
Accounts receivable, net		367,265				351,601
Vehicle pooling costs		76,548				34,284
Inventories		20,941				16,734
Income taxes receivable		19,526				15,312
Prepaid expenses and other assets		16,568				16,665
Total current assets		687,167				709,116
Property and equipment, net		1,427,726				1,163,425
Intangibles, net		55,156				64,892
Goodwill		333,321				337,235
Deferred income taxes		411				470
Other assets		43,836				32,560
Total assets		$	2,547,617			$	2,307,698
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	270,918			$	270,944
Deferred revenue		6,466				4,488
Income taxes payable		3,482				673
Current portion of revolving loan facility and capital lease obligations		1,138				1,151
Total current liabilities		282,004				277,256
Deferred income taxes		48,683				19,733
Income taxes payable		35,116				27,277
Long-term debt, revolving loan facility, and capital lease obligations, net of discount		400,091				398,747
Other liabilities		3,342				3,586
Total liabilities		769,236				726,599
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.0001 par value—5,000,000 shares authorized; none issued		—				—
Common stock: $0.0001 par value—400,000,000 shares authorized; 229,790,268 and 233,898,841 shares issued and outstanding, respectively		23				23
Additional paid-in capital		572,559				526,858
Accumulated other comprehensive loss		(132,529		)		(107,928		)
Retained earnings		1,338,328				1,162,146
Total stockholders’ equity		1,778,381				1,581,099
Total liabilities and stockholders’ equity		$	2,547,617			$	2,307,698

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

COPART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

		Year Ended July 31,
		2019				2018				2017
Service revenues and vehicle sales:
Service revenues		$	1,755,694			$	1,578,502			$	1,286,252
Vehicle sales		286,263				227,193				161,729
Total service revenues and vehicle sales		2,041,957				1,805,695				1,447,981
Operating expenses:
Yard operations		888,111				846,868				678,401
Cost of vehicle sales		255,504				196,461				137,552
General and administrative		181,867				176,890				151,364
Impairment of long-lived assets		—				1,131				19,365
Total operating expenses		1,325,482				1,221,350				986,682
Operating income		716,475				584,345				461,299
Other (expense) income:
Interest expense		(19,810		)		(20,368		)		(23,779		)
Interest income		2,225				1,293				1,406
Other income (expense), net		6,061				(2,759		)		1,174
Total other expense		(11,524		)		(21,834		)		(21,199		)
Income before income taxes		704,951				562,511				440,100
Income tax expense		113,258				144,504				45,839
Net income		591,693				418,007				394,261
Net income attributable to noncontrolling interest		—				140				34
Net income attributable to Copart, Inc.		$	591,693			$	417,867			$	394,227
Basic net income per common share		$	2.57			$	1.80			$	1.72
Weighted average common shares outstanding		230,489				231,793				228,686
Diluted net income per common share		$	2.46			$	1.73			$	1.66
Diluted weighted average common shares outstanding		240,453				241,877				237,019

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

COPART, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

		Year Ended July 31,
		2019				2018				2017
Comprehensive income, net of tax:
Net income		$	591,693			$	418,007			$	394,261
Other comprehensive income:
Foreign currency translation adjustments		(24,601		)		(7,252		)		8,518
Comprehensive income		567,092				410,755				402,779
Comprehensive income attributable to noncontrolling interest		—				140				34
Comprehensive income attributable to Copart, Inc.		$	567,092			$	410,615			$	402,745

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											Accumulated Other Comprehensive Income (Loss)
			Additional Paid in Capital
		Outstanding Shares			Amount						Retained Earnings				Noncontrolling Interest				Stockholders’ Equity
Balances at July 31, 2016		220,244,120			$	22			$	392,434			$	(109,194	)		$	491,194			$	—			$	774,456
Net income		—			—				—				—				394,227				34				394,261
Currency translation adjustment		—			—				—				8,518				—				—				8,518
Acquisition of noncontrolling interest		—			—				—				—				—				500				500
Exercise of stock options, net of repurchased shares		10,053,463			1				35,805				—				(140,051		)		—				(104,245		)
Employee stock-based compensation and related tax benefit		—			—				20,840				—				—				—				20,840
Shares issued for Employee Stock Purchase Plan		190,713			—				4,270				—				—				—				4,270
Balances at July 31, 2017		230,488,296			23				453,349				(100,676		)		745,370				534				1,098,600
Net income		—			—				—				—				417,867				140				418,007
Currency translation adjustment		—			—				—				(7,252		)		—				—				(7,252		)
Distribution to noncontrolling interest		—			—				—				—				—				(235		)		(235		)
Sale of majority-owned subsidiary		—			—				—				—				—				(439		)		(439		)
Exercise of stock options, net of repurchased shares		3,225,377			—				44,459				—				(1,115		)		—				43,344
Employee stock-based compensation and related tax benefit		—			—				23,197				—				24				—				23,221
Shares issued for Employee Stock Purchase Plan		185,168			—				5,853				—				—				—				5,853
Balances at July 31, 2018		233,898,841			23				526,858				(107,928		)		1,162,146				—				1,581,099
Net income		—			—				—				—				591,693				—				591,693
Currency translation adjustment		—			—				—				(24,601		)		—				—				(24,601		)
Cumulative effect of change in accounting standard		—			—				—				—				(22,954		)		—				(22,954		)
Exercise of stock options, net of repurchased shares		3,349,980			—				32,500				—				(44,987		)		—				(12,487		)
Employee stock-based compensation		—			—				23,445				—				—				—				23,445
Shares issued for Employee Stock Purchase Plan		177,043			—				7,183				—				—				—				7,183
Shares repurchased		(7,635,596	)		—				(17,427		)		—				(347,570		)		—				(364,997		)
Balances at July 31, 2019		229,790,268			$	23			$	572,559			$	(132,529	)		$	1,338,328			$	—			$	1,778,381

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

COPART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		Year Ended July 31,
		2019				2018				2017
Cash flows from operating activities:
Net income		$	591,693			$	418,007			$	394,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost		85,334				79,040				57,441
Allowance for doubtful accounts		(429		)		1,142				187
Impairment of long-lived assets		—				1,157				19,365
Equity in losses of unconsolidated affiliates		419				750				671
Stock-based compensation		23,445				23,221				20,840
(Gain) loss on sale of property and equipment		(3,073		)		3,240				184
Deferred income taxes		23,167				16,717				19,901
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(60,808		)		(40,335		)		(38,542		)
Vehicle pooling costs		(16,418		)		(3,353		)		(1,915		)
Inventories		(4,719		)		(3,959		)		1,294
Prepaid expenses and other current assets		(204		)		(776		)		1,760
Other assets		(12,061		)		70				1,085
Accounts payable and accrued liabilities		11,126				53,320				4,269
Deferred revenue		2,056				(520		)		392
Income taxes receivable		(4,215		)		(8,916		)		12,343
Income taxes payable		10,669				(3,149		)		(333		)
Other liabilities		664				(587		)		(1,145		)
Net cash provided by operating activities		646,646				535,069				492,058
Cash flows from investing activities:
Purchases of property and equipment		(373,883		)		(287,910		)		(172,178		)
Purchases of assets and liabilities in connection with acquisitions, net of cash acquired		(745		)		(8,787		)		(160,812		)
Proceeds from sale of property and equipment		18,361				6,425				765
Proceeds from sale of majority-owned subsidiary		—				1,796				—
Investment in unconsolidated affiliate		—				—				(3,566		)
Net cash used in investing activities		(356,267		)		(288,476		)		(335,791		)
Cash flows from financing activities:
Proceeds from the exercise of stock options		34,398				44,459				31,188
Proceeds from the issuance of Employee Stock Purchase Plan shares		7,183				5,853				4,270
Repurchases of common stock		(364,997		)		—				—
Payments for employee stock-based tax withholdings		(46,888		)		(1,115		)		(135,433		)
Net repayments on revolving loan facility		—				(231,000		)		(7,000		)
Distributions to noncontrolling interest		—				(235		)		—
Net cash used in financing activities		(370,304		)		(182,038		)		(106,975		)
Effect of foreign currency translation		(8,276		)		(135		)		4,959
Net (decrease) increase in cash and cash equivalents		(88,201		)		64,420				54,251
Cash and cash equivalents at beginning of period		274,520				210,100				155,849
Cash and cash equivalents at end of period		$	186,319			$	274,520			$	210,100
Supplemental disclosure of cash flow information:
Interest paid		$	19,289			$	20,343			$	23,221
Income taxes paid, net of refunds		$	82,448			$	142,161			$	14,011

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

COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2019

NOTE 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 Company provides vehicle sellers with a full range of services to process and sell vehicles over the internet through the Company’s Virtual Bidding Third Generation (VB3) internet auction-style sales technology. Sellers are primarily insurance companies but also include banks, finance companies, charities, fleet operators, dealers and vehicles sourced directly from individual owners. 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 through the online auction process. In the United States (U.S.), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (U.A.E.), Oman, Bahrain, and Spain, the Company sells vehicles primarily as an agent and derives revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage. In the United Kingdom (U.K.) and Germany, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account. In Germany and Spain, the Company also derives revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle’s residual value and/or to facilitate a sale for the insured.

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. The Company also had a 59.5% voting interest in a company, which was acquired as part of the Cycle Express, LLC acquisition (“majority-owned subsidiary”), which provided various repossession services for the powersports auction industry. The noncontrolling interest consisted of a 40.5% outside voting interest in the majority-owned subsidiary. Net income or loss of the majority-owned subsidiary was allocated to the members’ interests in accordance with the operating agreement. During the year ended July 31, 2018, the Company sold the majority-owned subsidiary and disposed of its related goodwill. The proceeds from the sale of the majority-owned subsidiary were $1.8 million resulting in a realized gain of $0.9 million recorded in other income. Significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, 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 include, but are not limited to, vehicle pooling costs; income taxes; stock-based compensation; purchase price allocations; and contingencies. Actual results could differ from these estimates.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 was effective for annual and interim periods within those annual reporting periods beginning after December 15, 2017 and was effective for the Company beginning with the first quarter of fiscal year 2019. ASU 2014-09 allows adoption with

either retrospective application to each period presented, or modified retrospective application, with the cumulative effect recognized as of the date of initial application. The Company used the modified retrospective application with the cumulative effect as its transition method.

Upon adoption, service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction. This timing of revenue recognition under ASU 2014-09 is consistent with the Company’s previous policy under ASC 605 for most service and vehicle sales revenue. However, the adoption represents a change in the timing of revenue recognition for certain service revenues, such as inbound transportation and titling fees, which were previously recognized under ASC 605 when the services were performed, which generally occurred prior to auction. Related costs to prepare the vehicles for auction, including inbound transportation and titling, are deferred and recognized at the time of revenue recognition. This change resulted in a decrease to beginning retained earnings as of August 1, 2018, of $23.0 million as a result of the initial application of the standard and did not have a material impact to earnings. This retained earnings adjustment related to adjustments to accounts receivable, vehicle pooling costs and deferred taxes upon adoption of the standard.

There were no contract liabilities on the consolidated balance sheets at July 31, 2019. The Company’s disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of its revenues and cash flows are impacted by economic factors. The Company reports sales taxes on relevant transactions on a net basis in the Company’s consolidated results of operations, and therefore does not include sales taxes in revenues or costs.

Service revenues

The Company’s service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. Within this revenue category, the Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from the Company’s facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These services are not distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance obligation is satisfied at the completion of the auction process. The Company does not take ownership of these consigned vehicles, which are stored at the Company’s facilities located throughout the U.S. and at its international locations. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged.

The Company identified a separate performance obligation related to providing access to its online auction platform. The Company also charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform. Under the new standard, this fee will continue to be recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service.

No provision for returns has been established, as all sales are final with no right of return or warranty, although the Company provides for bad debt expense in the case of non-performance by its buyers or sellers.

			Year Ended July 31,
(In thousands)			2019				2018				2017
Service revenues
	United States		$	1,537,431			$	1,385,238			$	1,128,990
	International		218,263				193,264				157,262
Total service revenues			$	1,755,694			$	1,578,502			$	1,286,252

Vehicle sales

Certain vehicles are purchased and remarketed on the Company’s own behalf. The Company identified a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process. Under the new standard, vehicle sales revenue will continue to be recognized on the auction date. As the Company acts as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue.

			Year Ended July 31,
(In thousands)			2019				2018				2017
Vehicle sales
	United States		$	119,138			$	105,784			$	64,198
	International		167,125				121,409				97,531
Total vehicle sales			$	286,263			$	227,193			$	161,729

Contract assets

The Company capitalizes certain contract assets related to obtaining a contract, where the amortization period for the related asset is greater than one year. These assets are amortized over the expected life of the customer relationship. Contract assets are classified as current or long-term other assets, based on the timing of when the Company expects to recognize the related revenues and are amortized as an offset to the associated revenues on a straight-line basis. The Company assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The contract asset costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within general and administrative expenses in the accompanying statements of income.

The change in the carrying amount of contract assets was as follows (in thousands):

Balance as of July 31, 2018		$	11,840
Capitalized contract assets during the period		4,130
Costs amortized during the period		(4,875		)
Effect of foreign currency exchange rates		(521		)
Balance as of July 31, 2019		$	10,574

Vehicle Pooling Costs

The Company defers costs that relate directly to the fulfillment of its contracts 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 inbound transportation costs, titling fees, certain facility costs, labor, and vehicle processing. Upon the adoption of ASC 606 in fiscal 2019, the Company began deferring the inbound transportation costs and titling fees directly associated with the vehicles within its vehicle pooling costs. If the allocation factors change, then yard operation expenses could increase or decrease correspondingly in the future. These costs are expensed into yard operations expenses as vehicles are sold in subsequent periods on an average cost basis.

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, British pound, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, Bahraini dinar, and Indian rupee 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 were as follows (in thousands):

Cumulative loss on foreign currency translation as of July 31, 2017		$	(100,676	)
Loss on foreign currency translation		(7,252		)
Cumulative loss on foreign currency translation as of July 31, 2018		$	(107,928	)
Loss on foreign currency translation		(24,601		)
Cumulative loss on foreign currency translation as of July 31, 2019		$	(132,529	)

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 U.S. GAAP. 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.

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, accounts receivable, accounts payable, accrued liabilities and Revolving Loan Facility approximated their fair values as of July 31, 2019 and 2018, 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 7 — Long-Term Debt and Note 8 – Fair Value Measures.

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 consists primarily of operating personnel (which includes yard management, clerical and yard employees) and their related benefits, rent, vehicle transportation, insurance, property related taxes, fuel, and equipment maintenance and repair.

General and Administrative Expenses

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

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 $7.5 million, $5.9 million, and $5.6 million for the years ended July 31, 2019, 2018 and 2017, respectively.

Other (Expense) Income

Other (expense) income consists primarily of interest expense, interest income, gains and losses from the disposal of fixed assets, rental income, earnings from unconsolidated affiliates, and currency related gains and losses.

Income Taxes and Deferred Tax Assets

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company considers the need to maintain a valuation allowance on deferred tax assets based on an assessment of whether it is more likely than not that the Company would realize those deferred tax assets based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable income within the carryforward period available under the applicable tax law. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Excess tax benefits and deficiencies related to exercises of stock options are recognized as expense or benefit in the income statement as discrete items in the reporting period in which they occur.

The Company recognizes and measures uncertain tax positions in accordance with ASC740, Income Taxes, pursuant to which the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. ASC740 further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter in which such change occurs. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

The Company files annual income tax returns in multiple taxing jurisdictions. A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved. The Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, where appropriate in light of changing facts and circumstances.

The Company accounted for the tax effects of the Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in the six months ended January 31, 2018 consolidated financial statements. The Company completed its accounting as of January 31, 2019, within the one year measurement period from the enactment date.

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 and Cash Equivalents

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, domestic certificates of deposit, 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.

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 receivable from the Company’s sellers and the gross sales price of the vehicle due from buyers, are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash. 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.

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 risk 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. 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 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 amounts 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 the Company’s consolidated revenues for the years ended July 31, 2019, 2018 and 2017. As of July 31, 2019 and 2018, no customer accounted for more than 10% of the Company’s consolidated accounts receivable.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and amortization. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the respective improvements, which is between seven and ten 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 are computed on a straight-line basis over the estimated useful lives: three to seven years for internally developed or purchased software; three to twenty years for transportation and other equipment; three to five years for office furniture and equipment; and 7 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.

Goodwill

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 assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. The Company has identified two reporting units, which are consistent with its two operating and reportable segments, U.S. and International. The Company has historically evaluated goodwill for impairment annually as of the beginning of the fourth quarter, or when an indicator of impairment exists.

The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of fiscal 2019 and 2018, did not result in an impairment charge. This qualitative analysis, which is referred to as step zero under ASC 350, considered all relevant factors specific to the reporting units, including macroeconomic conditions; industry and market considerations; overall financial performance and relevant entity-specific events.

Segments and Other Geographic Reporting

The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results, including total revenues and operating income.

Capitalized Software Costs

The Company capitalizes system development costs and website development costs related to the enterprise computing services during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three to seven years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that impact the recoverability of these assets. Total gross capitalized software as of July 31, 2019 and 2018 was $39.4 million and $30.7 million, respectively. Accumulated amortization expense related to software as of July 31, 2019 and 2018 totaled $23.6 million and $16.0 million, respectively. During the year ended July 31, 2018, the Company retired fully amortized capitalized software of $15.5 million, which were no longer being utilized. Additionally, during the year ended July 31, 2017, the Company recognized a $19.4 million charge primarily related to fully impairing costs previously capitalized in connection with the development of business operating software.

Stock-Based Compensation

The Company accounts for 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 awards made to employees, consultants and directors based on estimated fair value. ASC 718 requires companies to estimate the fair value of stock-based 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.

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,
		2019				2018				2017
Expected life (in years)		5.3 – 6.6				5.3 – 6.9				5.5 – 7.4
Risk-free interest rate		1.80 – 2.69				1.88 – 2.62				1.20 – 2.07
Estimated volatility		21.6 – 22.1				19.7 – 20.7				20.0 – 22.7
Expected dividends		—		%		—		%		—		%
Weighted average fair value at measurement date		$	15.47			$	8.88			$	7.05

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

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 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.

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

Net cash proceeds from the exercise of stock options were $34.4 million, $44.5 million and $31.2 million for the years ended July 31, 2019, 2018 and 2017, respectively.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the years ended July 31, 2019, 2018 and 2017, accumulated other comprehensive income (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.

Acquisitions

The Company recognizes and measures identifiable assets acquired and liabilities assumed in acquired entities in accordance with ASC 805, Business Combinations. The allocation of the purchase consideration for acquisitions can require extensive use of accounting estimates and judgments to allocate the purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets and liabilities is recorded as goodwill. Critical estimates in valuing certain identifiable assets include but are not limited to expected long-term revenues; future expected operating expenses; cost of capital; appropriate attrition; and discount rates.

Recently Issued Accounting Pronouncements

Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. On August 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts. Results for reporting periods beginning August 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition.

Pending

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The current standard, ASC Topic 740 - Income Taxes, requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. This includes the tax effects of items in accumulated other comprehensive income ("AOCI") that were originally recognized in other comprehensive income, subsequently creating stranded tax effects. ASU 2018-02 allows a reclassification from AOCI to retained earnings for stranded tax effects specifically resulting from the U.S. federal government's recently enacted tax bill, the Tax Cuts and Jobs Act. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The adoption of ASU 2018-02 will result in a reclassification from AOCI to retained earnings and will have no impact on the Company’s consolidated results of operations, financial position or cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU 2017-04 amends the requirement that entities compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, entities should perform their annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment if the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. The Company’s adoption of ASU 2017-04 will not have a material impact on the Company’s consolidated results of operations and financial position.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for annual and interim periods within those annual reporting periods beginning after December 15, 2018 and adoption is to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. Most of the Company’s operating lease commitments are subject to the

new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on the Company’s consolidated balance sheets. The Company has evaluated the impact the adoption will have on the consolidated financial statements and is finalizing the calculation of its cumulative effect adjustment. Policy elections and practical expedients that the Company expects to implement as part of adopting ASU 2016-02 include: (i) excluding from the balance sheet leases with terms that are less than one year; (ii) for agreements that contain both lease and non-lease components, combining these components together and accounting for them as a single lease; (iii) the package of practical expedients, which allows the Company to avoid reassessing contracts that commenced prior to adoption that were properly evaluated under legacy GAAP; and (iv) the policy election that eliminates the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance. The adoption of ASU 2016-02 will result in the recording of a right-of-use asset and a lease liability in the first quarter of fiscal 2020, within a range of $120.0 million to $135.0 million as a result of the initial application of the standard and will not have a material impact to the Company’s consolidated results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and must be applied on a modified retrospective basis. The Company is continuing its assessment, which may identify additional impacts ASU 2016-13 may have on the Company’s consolidated results of operations, financial position, and related disclosures.

NOTE 2 — Accounts Receivable, Net

Accounts receivable, net consisted of:

		July 31,
(In thousands)		2019				2018
Advance charges receivable		$	280,835			$	230,092
Trade accounts receivable		89,274				125,255
Other receivables		2,098				1,698
		372,207				357,045
Less: Allowance for doubtful accounts		(4,942		)		(5,444		)
Accounts receivable, net		$	367,265			$	351,601

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. As advance charges are recovered within one year, the Company has not adjusted the amount of consideration received from the customer for a significant financing component. Trade accounts receivable includes fees and gross auction proceeds to be collected from insurance companies and buyers.

The movements in the allowance for doubtful accounts were as follows:

		July 31,
(In thousands)		2019				2018				2017
Balance at beginning of year		$	5,444			$	4,311			$	4,120
Charged to costs and expenses		2,409				4,255				2,928
Deductions to bad debt		(2,911		)		(3,122		)		(2,737		)
Balance at end of year		$	4,942			$	5,444			$	4,311

NOTE 3 — Property and Equipment, Net

Property and equipment, net consisted of the following:

		July 31,
(In thousands)		2019				2018
Transportation and other equipment		$	236,282			$	190,900
Office furniture and equipment		63,200				58,477
Software		39,434				30,680
Land		939,817				762,524
Buildings and leasehold improvements		686,615				610,964
		1,965,348				1,653,545
Less: Accumulated depreciation and amortization		(537,622		)		(490,120		)
Property and equipment, net		$	1,427,726			$	1,163,425

Depreciation expense on property and equipment was $66.8 million, $58.8 million and $39.6 million for the years ended July 31, 2019, 2018 and 2017, respectively. Amortization expense of software was $7.6 million, $5.7 million and $10.6 million for the years ended July 31, 2019, 2018 and 2017, respectively. During the year ended July 31, 2018, the Company retired fully amortized capitalized software of $15.5 million, which were no longer being utilized. Additionally, during the year ended July 31, 2017, the Company recognized a $19.4 million charge primarily related to fully impairing costs previously capitalized in connection with the development of business operating software.

NOTE 4 — Goodwill

The change in the carrying amount of goodwill was as follows:

		July 31,
(In thousands)		2019				2018
Beginning balance		$	337,235			$	340,243
Goodwill adjustments and acquisitions during the period		563				(1,839		)
Effect of foreign currency exchange rates		(4,477		)		(1,169		)
Ending balance		$	333,321			$	337,235

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 during the fourth quarter of fiscal 2019 and 2018 and goodwill was not impaired.

NOTE 5 — Intangibles, Net

The following table sets forth amortizable intangible assets by major asset class:

		Gross Carrying Amount								Accumulated Amortization								Net Book Value								Weighted Average Remaining Useful Life (in years)
		July 31,								July 31,								July 31,								July 31,
(In thousands, except remaining useful life)		2019				2018				2019				2018				2019				2018				2019		2018
Amortized intangibles:
Supply contracts and customer relationships		$	49,109			$	71,787			$	(11,900	)		$	(29,601	)		$	37,209			$	42,186			9		10
Trade names		23,501				24,173				(8,010		)		(6,405		)		15,491				17,768				7		1
Licenses and databases		7,688				9,291				(5,232		)		(4,363		)		2,456				4,928				2		2
Covenants not to compete		—				1,666				—				(1,656		)		—				10				0		0
Total Intangibles		$	80,298			$	106,917			$	(25,142	)		$	(42,025	)		$	55,156			$	64,892

Aggregate amortization expense on intangible assets was $10.5 million, $14.0 million and $6.8 million for the years ended July 31, 2019, 2018 and 2017, respectively. During the year ended July 31, 2018, the Company recognized a $1.1 million charge primarily related to fully impairing a supply contract in the International segment. Intangible amortization expense for the next five fiscal years based upon July 31, 2019 intangible assets is expected to be as follows:

(In thousands)
2020		$	8,613
2021		6,129
2022		6,074
2023		5,973
2024		5,729
Thereafter		22,638
Total future intangible amortization expense		$	55,156

NOTE 6 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

		July 31,
(In thousands)		2019				2018
Trade accounts payable		$	45,520			$	65,057
Accounts payable to sellers		68,427				68,660
Buyer deposits and prepayments		73,421				62,443
Accrued compensation and benefits		41,400				37,218
Accrued insurance		8,507				4,376
Other accrued liabilities		33,643				33,190
Total accounts payable and accrued expenses		$	270,918			$	270,944

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, including an estimate for reported and unreported claims. The estimated liability is not discounted and is established based upon analysis of historical data, including the severity of the Company’s frequency of claims, actuarial estimates and is reviewed periodically by management to ensure that the liability is appropriate.

NOTE 7 — Long-Term Debt

Credit Agreement

On December 3, 2014, the Company entered into a Credit Agreement (as amended from time to time, the “Credit Amendment”) with Wells Fargo Bank, National Association, as administrative agent, and Bank of America, N.A., as syndication agent. The Credit Agreement provided for (a) a secured revolving loan facility in an aggregate principal amount of up to $300.0 million (the “Revolving Loan Facility”), and (b) a secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Loan”), which was fully drawn at closing. The Term Loan amortized $18.8 million per quarter.

On March 15, 2016, the Company entered into a First Amendment to Credit Agreement (the “Amendment to Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent and Bank of America, N.A. The Amendment to Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014. The Amendment to Credit Agreement provided for (a) an increase in the secured revolving credit commitments by $50.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $350.0 million, (b) a new secured term loan (the “Incremental Term Loan”) in the aggregate principal amount of $93.8 million having a maturity date of March 15, 2021, and (c) an extension of the termination date of the Revolving Loan Facility and the maturity date of the Term Loan from December 3, 2019 to March 15, 2021. The Amendment to Credit Agreement extended the amortization period for the Term Loan and decreased the quarterly amortization payments for that loan to $7.5 million per quarter. The Amendment to Credit Agreement additionally reduced the pricing levels under the Credit Agreement to a range of 0.15% to 0.30% in the

case of the commitment fee, 1.125% to 2.0% in the case of the applicable margin for LIBOR loans, and 0.125% to 1.0% in the case of the applicable margin for base rate loans, based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. The Company borrowed the entire $93.8 million principal amount of the Incremental Term Loan concurrent with the closing of the Amendment to Credit Agreement.

On July 21, 2016, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment to Credit Agreement”) with Wells Fargo Bank, National Association, SunTrust Bank, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank). The Second Amendment to Credit Agreement amends certain terms of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15, 2016. The Second Amendment to Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $500.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $850.0 million, (b) the repayment of existing term loans outstanding under the Credit Agreement, (c) an extension of the termination date of the revolving credit facility under the Credit Agreement from March 15, 2021 to July 21, 2021, and (d) increased covenant flexibility.

Concurrent with the closing of the Second Amendment to Credit Agreement, the Company prepaid in full the outstanding $242.5 million principal amount of the Term Loan and Incremental Term Loan under the Credit Agreement without premium or penalty. The Second Amendment to Credit Agreement reduced the pricing levels under the Credit Agreement to a range of 0.125% to 0.20% in the case of the commitment fee, 1.00% to 1.75% in the case of the applicable margin for LIBOR loans, and 0.0% to 0.75% in the case of the applicable margin for base rate loans, in each case depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. The principal purposes of these financing transactions were to increase the size and availability under the Company’s Revolving Loan Facility and to provide additional long-term financing. The proceeds are being used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company’s expansion strategies in domestic and international markets.

The Revolving Loan Facility under the Credit Agreement bears interest, at the election of the Company, at either (a) the Base Rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii) the Federal Funds Rate in effect on such date plus 0.50%; or (iii) the LIBOR rate plus 1.0%, in each case plus an applicable margin ranging from 0.0% to 0.75% based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter; or (b) the LIBOR rate plus an applicable margin ranging from 1.00% to 1.75% depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the LIBOR rate. The interest rate as of July 31, 2019 on the Company’s Revolving Loan Facility was the one month LIBOR rate of 2.22% plus an applicable margin of 1.00%. The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximates fair value at July 31, 2019, and was classified within Level II of the fair value hierarchy.

Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21, 2021. The Company is obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The commitment fee rate ranges from 0.125% to 0.20%, depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter, on the average daily unused portion of the revolving credit commitment under the Credit Agreement. The Company had no outstanding borrowings under the Revolving Loan Facility as of July 31, 2019 and 2018.

The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the Second Amendment to Credit Agreement, dated July 21, 2016, among the Company, the subsidiary guarantors from time to time party thereto, and Bank of America, N.A., as collateral agent.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated

total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment. As of July 31, 2019, the consolidated total net leverage ratio was 0.30:1. Minimum liquidity as of July 31, 2019 was $1.0 billion. Accordingly, the Company does not believe that the provisions of the Credit Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Credit Agreement as of July 31, 2019.

Note Purchase Agreement

On December 3, 2014, the Company entered into a Note Purchase Agreement and sold to certain purchasers (collectively, the “Purchasers”) $400.0 million in aggregate principal amount of senior secured notes (the “Senior Notes”) consisting of (i) $100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due December 3, 2024; (ii) $100.0 million aggregate principal amount of 4.19% Senior Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0 million aggregate principal amount of 4.35% Senior Notes, Series D, due December 3, 2029. Interest is due and payable quarterly, in arrears, on each of the Senior Notes. Proceeds from the Note Purchase Agreement are being used for general corporate purposes.

On July 21, 2016, the Company entered into Amendment No. 1 to Note Purchase Agreement (the “First Amendment to Note Purchase Agreement”) which amended certain terms of the Note Purchase Agreement, including providing for increased flexibility substantially consistent with the changes included in the Second Amendment to Credit Agreement, including among other things increased covenant flexibility.

The Company may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes.

The Company’s obligations under the Note Purchase Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Note Purchase Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and assets of the subsidiary guarantors. The obligations of the Company and its subsidiary guarantors under the Note Purchase Agreement will be treated on a pari passu basis with the obligations of those entities under the Credit Agreement as well as any additional debt the Company may obtain.

The Note Purchase Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Note Purchase Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment on a pro forma basis. As of July 31, 2019, the consolidated total net leverage ratio was 0.30:1. Minimum liquidity as of July 31, 2019 was $1.0 billion. Accordingly, the Company does not believe that the provisions of the Note Purchase Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Note Purchase Agreement as of July 31, 2019.

Related to the execution of the Credit Agreement, First Amendment to Credit Agreement, Second Amendment to Credit Agreement, and the Note Purchase Agreement, the Company incurred $3.4 million in costs, of which $2.0 million was capitalized as debt issuance fees and $1.4 million was recorded as a reduction of the long-term debt proceeds as a debt discount. Both the debt issuance fees and debt discount are amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability.

As of July 31, 2019, future payments on the Revolving Loan Facility and Note Purchase Agreement were as follows:

(In thousands)		July 31, (1)
2020		$	—
2021		—
2022		—
2023		—
2024		100,000
Thereafter		300,000
Total future payments		$	400,000

(1)	Currently there are no outstanding balances on the Revolving Loan Facility and none are currently expected based on management’s intent of the use of the Revolving Loan Facility, which may change on a quarter by quarter basis.

NOTE 8 – Fair Value Measures

The following table summarizes the fair value of the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis based on inputs used to derive their fair values:

	July 31, 2019								July 31, 2018
(In thousands)	Fair Value Total				Significant Observable Inputs (Level II)				Fair Value Total				Significant Observable Inputs (Level II)
Assets
Cash equivalents	$	12,389			$	12,389			$	130,769			$	130,769
Total Assets	$	12,389			$	12,389			$	130,769			$	130,769
Liabilities
Long-term fixed rate debt, including current portion	$	411,510			$	411,510			$	381,230			$	381,230
Total Liabilities	$	411,510			$	411,510			$	381,230			$	381,230

During the year ended July 31, 2019, no transfers were made between any levels within the fair value hierarchy. See Note 1 — Summary of Significant Accounting Policies and Note 7 — Long-Term Debt.

NOTE 9 — Stockholders’ Equity

General

The Company has authorized the issuance of 400 million shares of common stock, with a par value of $0.0001, of which 229,790,268 shares were issued and outstanding at July 31, 2019. As of July 31, 2019 and 2018, the Company had reserved 20,502,335 and 25,621,327 shares of common stock, respectively, for the issuance of options granted under the Company’s stock option plans and 1,426,698 and 1,603,741 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 five million shares of preferred stock, with a par value of $0.0001, none of which were issued or outstanding at July 31, 2019 or 2018, which have the rights and preferences as the Company’s Board of Directors shall determine, from time to time.

Stock Repurchases

On September 22, 2011, the Company’s Board of Directors approved an 80 million share increase in the stock repurchase program, bringing the total current authorization to 196 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 fiscal 2019, the Company repurchased 7,635,596 shares of its common stock under the program at a weighted average price of $47.81 per share totaling $365.0 million. For fiscal 2018 and 2017, the Company did not repurchase any shares of its common stock under the program. As of July 31, 2019, the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program.

During fiscal 2018 and 2017, certain executive officers and members of the Company’s Board of Directors exercised stock options through cashless exercises. During fiscal 2019, the Company’s former President exercised all of his vested stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. The Company remitted $45.6 million, no amounts and $134.6 million for the years ended July 31, 2019, 2018 and 2017, respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements.

The exercised stock options, utilizing a cashless exercise, are summarized in the following table:

Period		Options Exercised			Weighted Average Exercise Price				Shares Net Settled for Exercise			Shares Withheld for Taxes (1)			Net Shares to Employees			Weighted Average Share Price for Withholding				Employee Stock Based Tax Withholding (in 000s)
FY 2017—Q1		18,000,000			$	7.70			5,408,972			5,255,322			7,335,706			$	25.62			$	134,615
FY 2018—Q2		80,000			6.54				11,996			—			68,004			43.60				—
FY 2019—Q3		3,000,000			17.81				945,162			806,039			1,248,799			56.53				45,565

(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 10 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. In 2014, a new ESPP was approved by the Board of Directors and 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% 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% 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 the years ended July 31, 2019, 2018 and 2017 was 177,043; 185,168; and 190,713; respectively. As of July 31, 2019, there were 8,653,376 shares of common stock issued pursuant to the ESPP and 1,426,698 shares remain available for purchase under the ESPP.

Stock Options

In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (Plan), presently covering an aggregate of 32 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. As of July 31, 2019, 5,847,583 shares were available for grant under the Plan and the number of options that were in-the-money was 14,551,639 at July 31, 2019.

In October 2013, the Compensation Committee of the Company’s Board of Directors, subject to stockholder approval (which was subsequently obtained at the December 16, 2013 annual meeting of stockholders), approved the grant to each of the Company’s former President, and A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 3,000,000 and 4,000,000 shares of the Company’s common stock, respectively, at an exercise price of $17.81 per share, which equaled the closing price of the Company’s common stock on December 16, 2013, 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 became exercisable over five years, subject to continued service by Mr. Adair and the Company’s former President, with 20% vesting on April 15, 2015 and December 16, 2014, respectively, and the balance vesting monthly over the subsequent four years. On December 16, 2018, the option held by the Company’s former President became fully vested and on April 15, 2019, the option held by Mr. Adair became fully vested. The fair value of each option at the date of grant using the Black-Scholes Merton option-pricing model was $5.72. The total compensation expense recognized by the Company over the five year service period for these options was $38.8 million. The Company

recognized $4.3 million, $7.2 million, and $7.5 million in compensation expenses for these grants in the years ended July 31, 2019, 2018 and 2017, respectively.

The following table details stock-based compensation recognized by the Company for stock options and restricted stock awards:

		Year Ended July 31,
(In thousands)		2019				2018				2017
General and administrative		$	18,254			$	19,351			$	17,622
Yard operations		5,191				3,870				3,286
Total stock-based compensation		$	23,445			$	23,221			$	20,908

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2019 and 2018. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. In accordance with ASC 718, Compensation - Stock Compensation, the Company made an estimate of expected forfeitures and recognized compensation cost only for those equity awards expected to vest.

A summary of the status of the Company’s non-vested shares from stock option awards and its activity during the year ended July 31, 2019 was as follows:

(In thousands, except per share amounts)		Number of Shares			Weighted Average Grant- date Fair Value
Non-vested shares at July 31, 2018		5,516			$	6.96
Grants of non-vested shares		1,950			15.47
Vested		(3,125	)		6.81
Forfeitures or expirations		(132	)		6.18
Non-vested shares at July 31, 2019		4,209			$	11.05

The following is a summary of activity for the Company’s stock options for the year ended July 31, 2019:

(In thousands, except per share and term data)		Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value
Outstanding as of July 31, 2018		17,797			$	20.29			6.19		$	660,268
Grants of options		1,950			57.91
Exercises		(5,063	)		17.35
Forfeitures or expirations		(132	)		27.29
Outstanding as of July 31, 2019		14,552			$	26.29			6.04		$	745,592
Exercisable as of July 31, 2019		10,343			$	19.77			5.13		$	597,352
Vested and expected to vest as of July 31, 2019		14,024			$	25.68			5.99		$	727,091

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, 2019 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, 2019. The aggregate intrinsic value of options exercised was $215.4 million, $111.5 million and $366.7 million in the years ended July 31, 2019, 2018 and 2017, 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, 2019, the total compensation cost related to non-vested stock-based awards granted to employees under the Company’s stock option plans but not yet recognized was $38.1 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.2 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested for the years ended July 31, 2019, 2018 and 2017 was $21.3 million, $19.1 million and $18.6 million, respectively.

The Company recognizes compensation expense for restricted stock awards on a straight-line basis over the requisite service period of the award. The following is a summary of activity for the Company’s restricted stock for the for the year ended July 31, 2019:

(In thousands, except per share data)		Restricted Shares			Weighted Average Grant Date Fair Value
Outstanding as of July 31, 2018		28			$	36.12
Grants of restricted stock		162			55.57
Vested restricted stock		(52	)		42.70
Forfeited restricted stock		(4	)		49.54
Outstanding as of July 31, 2019		134			$	56.62

The following table summarizes stock options outstanding and exercisable as of July 31, 2019:

(In thousands, except per share amounts)		Options Outstanding									Options Exercisable
Range of Exercise Prices		Number			Weighted Average Remaining Contractual Life		Weighted Average Exercise Price				Number			Weighted Average Exercise Price
$8.28–$17.64		891			2.60		$	11.94			871			$	11.82
$17.73–$17.81		6,110			4.87		17.78				5,592			17.79
$18.06–$34.78		4,208			6.23		23.16				3,289			21.52
$36.32–$77.51		3,343			8.84		49.60				591			40.57
Outstanding as of July 31, 2019		14,552			6.04		$	26.29			10,343			$	19.77

NOTE 10 — Income Taxes

Income before taxes consisted of the following:

		Year Ended July 31,
(In thousands)		2019				2018				2017
U.S.		$	634,874			$	501,961			$	385,526
International		70,077				60,550				54,574
Total income before taxes		$	704,951			$	562,511			$	440,100

Income tax expense (benefit) from continuing operations consisted of the following:

		Year Ended July 31,
(In thousands)		2019				2018				2017
Federal:
Current		$	59,848			$	109,804			$	12,752
Deferred		27,779				17,094				20,094
		87,627				126,898				32,846
State:
Current		12,720				9,100				1,659
Deferred		702				(111		)		499
		13,422				8,989				2,158
International:
Current		12,508				8,820				11,468
Deferred		(299		)		(203		)		(633		)
		12,209				8,617				10,835
Income tax expense		$	113,258			$	144,504			$	45,839

A reconciliation of the expected U.S. statutory tax rate to the actual effective income tax rate is as follows:

		Year Ended July 31,
(In thousands)		2019			2018			2017
Federal statutory rate		21.0	%		26.9	%		35.0	%
State income taxes, net of federal income tax benefit		1.4	%		1.3	%		1.3	%
International rate differential		0.3	%		(0.8	)%		(1.8	)%
Compensation and fringe benefits (1)		(6.4	)%		(3.5	)%		(24.3	)%
Provisional transition tax		(0.7	)%		2.2	%		—	%
Deferred tax remeasurement		—	%		(0.8	)%		—	%
Other differences		0.5	%		0.4	%		0.2	%
Effective tax rate		16.1	%		25.7	%		10.4	%

(1)

Included in the compensation and fringe benefits rate reconciliation is the impact of the Company’s adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this standard, all excess tax benefits and tax deficiencies related to exercises of stock options are recognized as income tax expense or benefit in the income statement as discrete items in the reporting period in which they occur.

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

		July 31,
(In thousands)		2019				2018
Deferred tax assets:
Allowance for doubtful accounts		$	919			$	1,068
Accrued compensation and benefits		18,397				17,704
State taxes		559				580
Accrued other		3,312				1,930
Deferred revenue		1,322				929
Losses carried forward		7,631				3,065
Federal tax benefit		7,998				6,441
Total gross deferred tax assets		40,138				31,717
Less: Valuation allowance		(8,578		)		(4,592		)
Net deferred tax assets		31,560				27,125
Deferred tax liabilities:
Vehicle pooling costs		(15,731		)		(6,523		)
Property and equipment		(38,475		)		(14,147		)
Prepaid insurance		(987		)		(708		)
Intangibles and goodwill		(24,639		)		(25,010		)
Total gross deferred tax liabilities		(79,832		)		(46,388		)
Net deferred tax liabilities		$	(48,272	)		$	(19,263	)

The above net deferred tax assets and liabilities have been reflected in the accompanying consolidated balance sheets as follows:

		July 31,
(In thousands)		2019				2018
U.S. non-current liabilities		$	(44,499	)		$	(16,018	)
International non-current liabilities		(3,773		)		(3,245		)
Net deferred tax liabilities		$	(48,272	)		$	(19,263	)

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act included a one-time tax on accumulated unremitted earnings of the Company’s foreign subsidiaries (“Transition Tax”). SEC Staff Accounting Bulletin No. 118 allows the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act has not been completed. Provisional amounts must be adjusted within one year from the enactment date of the Act. As of July 31, 2018, the Company recorded a $12.4 million provisional Transition Tax charge. No adjustment to the provisional Transition Tax charge was made in the first quarter of fiscal year 2019. The Company completed its accounting for the tax effects of the enactment of the Tax Act during the three months ended January 31, 2019, and recorded a discrete decrease in tax expense of $1.1 million, whose effect on the Company’s effective tax rate was immaterial.

The Act reduced the federal statutory tax rate from 35.0% to 21.0%, effective January 1, 2018, which results in federal statutory tax rates for the Company of 21.0%, 26.9%, and 35.0% for fiscal years 2019, 2018 and 2017, respectively. In fiscal year 2018 the Company recorded a $4.3 million benefit to remeasure deferred taxes as of the enactment date of the Act to reflect the federal statutory rate reduction.

The Act contains Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impact the Company in fiscal year 2019. The GILTI provisions effectively subject income earned by the Company's foreign subsidiaries to current U.S. tax at a rate of 10.5%, less foreign tax credits. Under U.S. GAAP, the Company can make an accounting policy election to either recognize deferred taxes for temporary differences expected to impact GILTI in future years or provide for tax expense related to GILTI in the year the tax is incurred as a period expense. The Company has elected to treat tax generated by GILTI provisions as a period expense.

The Act also includes a favorable tax treatment for certain Foreign Derived Intangible Income (“FDII”), effective for the Company starting August 1, 2018. The Company’s estimate for both GILTI and FDII did not materially impact the effective income tax rate or income tax expense for the fiscal year ended July 31, 2019.

As of July 31, 2019 and 2018, the Company had foreign operating losses and a U.S. federal tax credit carryforward of $8.2 million and $3.8 million, respectively. The foreign operating losses, subject to certain limitations, usually can be carried forward indefinitely. The U.S. federal related tax credit, if not used, would start to expire after 2026.

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, 2019 and 2018 was $8.6 million and $4.6 million, respectively. The valuation allowance for deferred tax assets primarily related to operating losses in certain international jurisdictions and certain tax credits that are unlikely to be realized.

As of July 31, 2019 and 2018, if recognized, the portion of liabilities for unrecognized tax benefits resulting from uncertain tax positions that would favorably affect the Company’s effective tax rate was $22.0 million and $16.0 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 resulting from uncertain tax positions:

		July 31,
(In thousands)		2019				2018				2017
Beginning balance		$	21,322			$	19,269			$	20,715
Increases related to current year tax position		6,588				5,169				2,807
Prior year tax positions:
Prior year increase		800				554				2,694
Prior year decrease		(305		)		(2,079		)		(3,605		)
Cash settlement		(534		)		(519		)		(1,123		)
Lapse of statute of limitations		(334		)		(1,072		)		(2,219		)
Ending balance		$	27,537			$	21,322			$	19,269

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, 2019, 2018 and 2017, the Company had accrued interest and penalties related to unrecognized tax benefits of $7.6 million, $6.0 million and $5.3 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by certain taxing authorities in the U.S. for fiscal years from 2014. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position.

The Act eliminated any additional federal tax upon repatriation of outside basis difference primarily resulted from undistributed foreign earnings; however, those undistributed earnings may still be subject to foreign withholding taxes if they are repatriated. As of July 31, 2019, the Company's foreign subsidiaries have accumulated undistributed earnings of $165.0 million. No deferred tax liability has been recognized for the repatriation of these earnings or any residual outside basis difference as the Company intends to permanently reinvest them.

The Company’s effective income tax rates were 16.1%, 25.7%, and 10.4% for fiscal 2019, 2018 and 2017, respectively. The Company’s U.S. federal statutory tax rate for fiscal year 2019 is 21.0% and was favorably impacted by $10.2 million of discrete tax items related to amending previously filed income tax returns. The effective tax rate for the fiscal year ending July 31, 2018, was computed based on a reduced blended U.S. federal statutory tax rate of 26.9% and included the effects of the Act. The tax rates in the prior years were also impacted from the result of recognizing excess tax benefits from the exercise of employee stock options of $46.1 million, $21.3 million and $107.6 million, for the years ended July 31, 2019, 2018 and 2017, respectively.

NOTE 11 — Net Income Per Share

The table below reconciles basic weighted shares outstanding to diluted weighted average shares outstanding:

		Year Ended July 31,
(In thousands)		2019			2018			2017
Weighted average common shares outstanding		230,489			231,793			228,686
Effect of dilutive securities — stock options		9,964			10,084			8,333
Weighted average common and dilutive potential common shares outstanding		240,453			241,877			237,019

There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 3,045,000; 4,788,004; and 3,058,808 options to purchase the Company’s common stock for the years ended July 31, 2019, 2018 and 2017, respectively, because their inclusion would have been anti-dilutive.

NOTE 12 — Segments and Other Geographic Reporting

The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results, including total revenues and operating income.

The following tables present financial information by segment:

		Year Ended July 31, 2019
(In thousands)		United States				International				Total
Service revenues		$	1,537,431			$	218,263			$	1,755,694
Vehicle sales		119,138				167,125				286,263
Total service revenues and vehicle sales		1,656,569				$	385,388			$	2,041,957
Yard operations		751,653				136,458				888,111
Cost of vehicle sales		112,268				143,236				255,504
General and administrative		151,854				30,013				181,867
Operating income		$	640,794			$	75,681			$	716,475
Depreciation and amortization		$	75,135			$	9,760			$	84,895
Capital expenditures, including acquisitions		311,472				63,156				374,628
Total assets		2,094,592				453,025				2,547,617
Goodwill		256,998				76,323				333,321

		Year Ended July 31, 2018
(In thousands)		United States				International				Total
Service revenues		$	1,385,238			$	193,264			$	1,578,502
Vehicle sales		105,784				121,409				227,193
Total service revenues and vehicle sales		1,491,022				314,673				1,805,695
Yard operations		730,865				116,003				846,868
Cost of vehicle sales		101,130				95,331				196,461
General and administrative		144,140				32,750				176,890
Impairment of long-lived assets		—				1,131				1,131
Operating income		$	514,887			$	69,458			$	584,345
Depreciation and amortization		$	67,779			$	10,819			$	78,598
Capital expenditures, including acquisitions		255,868				40,829				296,697
Total assets		1,856,058				451,640				2,307,698
Goodwill		256,434				80,801				337,235

		Year Ended July 31, 2017
(In thousands)		United States				International				Total
Service revenues		$	1,128,990			$	157,262			$	1,286,252
Vehicle sales		64,198				97,531				161,729
Total service revenues and vehicle sales		1,193,188				254,793				1,447,981
Yard operations		585,587				92,814				678,401
Cost of vehicle sales		61,484				76,068				137,552
General and administrative		130,392				20,972				151,364
Impairment of long-lived assets		19,365				—				19,365
Operating income		$	396,360			$	64,939			$	461,299
Depreciation and amortization		$	47,507			$	9,493			$	57,000
Capital expenditures, including acquisitions		317,646				15,344				332,990
Total assets		1,514,018				468,483				1,982,501
Goodwill		259,162				81,081				340,243

NOTE 13 — 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 cost 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.

The future minimum lease commitments for the next five fiscal years, under non-cancelable capital and operating leases with initial or remaining lease terms in excess of one year were as follows:

Years Ending July 31, (In thousands)		Capital Leases				Operating Leases
2020		$	644			$	30,158
2021		619				25,177
2022		505				20,211
2023		—				17,794
2024		—				13,516
Thereafter		—				35,291
Subtotal		1,768				142,147
Less: Amount relating to interest		(41		)		—
Total		$	1,727			$	142,147

Facilities rental expense for the years ended July 31, 2019, 2018 and 2017 was $30.6 million, $45.6 million and $26.8 million, respectively. Yard operations equipment rental expense for the years ended July 31, 2019, 2018 and 2017 was $1.8 million, $2.8 million and $2.9 million, respectively.

Commitments

Letters of Credit

Under a letter of credit facility separate from our Revolving Loan Facility, the Company had outstanding letters of credit of $25.1 million at July 31, 2019, 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, contract disputes, and handling or disposal of vehicles. There are no material pending legal proceedings to which the Company is a party, or with respect to which any of the Company’s property is subject.

The Company provides for costs relating to matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of any such 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 any such matters. The Company believes that any ultimate liability would not have a material effect on its consolidated results of operations, financial position or cash flows. However, the amount of the liabilities associated with 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.

NOTE 14 — Guarantees — Indemnifications to Officers and Directors

The Company typically enters into indemnification agreements with its directors and certain of its officers 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 and officers as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors and officers are sued as a result of their service to the Company.

NOTE 15 — Related Party Transactions

There were no amounts due to or from related parties as of July 31, 2019 and 2018 that are not separately or previously disclosed.

NOTE 16 — 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 expenses of $1.7 million for the year ended July 31, 2019, and $0.9 million for the years ended July 31, 2018 and 2017, respectively, related to this plan.

The Company also sponsors an additional defined contribution plan for 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 expenses of $0.9 million, for the year ended July 31, 2019, and $0.7 million for the years ended July 31, 2018, and 2017, respectively, related to this plan.

NOTE 17 — Quarterly Financial Information (Unaudited)****(1)

		Fiscal Quarter
Fiscal Year 2019 (In thousands, except per share data)		First				Second				Third				Fourth
Total revenue		$	461,368			$	484,898			$	553,116			$	542,575
Gross profit		195,918				208,226				251,579				242,619
Operating income		151,440				164,739				207,494				192,802
Income before income taxes		148,786				164,966				204,129				187,070
Net income attributable to Copart, Inc.		114,083				131,373				192,741				153,496
Basic net income per common share		$	0.49			$	0.57			$	0.85			$	0.67
Diluted net income per common share		$	0.47			$	0.55			$	0.81			$	0.64

		Fiscal Quarter
Fiscal Year 2018 (In thousands, except per share data)		First				Second				Third				Fourth
Total revenue		$	419,168			$	459,106			$	478,198			$	449,223
Gross profit		163,264				191,609				219,068				188,425
Operating income		123,942				150,947				174,619				134,837
Income before income taxes		114,128				144,438				171,216				132,729
Net income attributable to Copart, Inc.		77,515				103,256				127,348				109,748
Basic net income per common share		$	0.34			$	0.45			$	0.55			$	0.47
Diluted net income per common share		$	0.32			$	0.43			$	0.52			$	0.45

(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.

NOTE 18 — Subsequent Events

Exercise of Stock Options

In September 2019, A. Jayson Adair, the Company’s Chief Executive Officer, exercised through a cashless exercise, options to acquire an aggregate of 4,000,000 shares of the Company’s common stock subject to options outstanding under the Company’s stand-alone stock option agreements dated April 14, 2009. As a result of the cashless exercise, a portion of the options exercised were net settled in satisfaction of the exercise price and the executive’s tax withholding obligations. The Company issued the executive a net number of 1,902,686 shares of its common stock. All shares surrendered to satisfy the exercise price and tax withholding obligations were canceled.

EXHIBIT INDEX

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		Quarterly Report on Form 10-Q, (File No. 000-23255), Exhibit No. 3.1		February 25, 2016
3.2			Certificate of Amendment to the Copart, Inc. Certificate of Incorporation		Current Report on Form 8-K, (File No. 000-23255), Exhibit No. 2		December 22, 2016
3.3			Bylaws of Copart, Inc.		Current Report on Form 8-K, (File No. 000-23255), Exhibit No. 3		December 22, 2016
4.1			Description of Capital Stock		—		Filed herewith
10.1		*	Copart Inc. 2007 Equity Incentive Plan, as Amended and Restated (2007 EIP)		Current Report on Form 8-K, (File No. 000-23255), Exhibit No. 1		December 22, 2016
10.2		*	Form of Performance Share Award Agreement for use with 2007 EIP		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		December 12, 2007
10.3		*	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
10.4		*	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
10.5		*	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
10.6		*	Copart, Inc. Executive Bonus Plan		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.13b		August 3, 2006
10.7		*	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
10.8		*	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

					Incorporated by reference herein
Exhibit Number			Description		Form		Date
10.9			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
10.10			Credit Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as administrative agent, dated as of December 3, 2014		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		December 4, 2014
10.11			Security Agreement among the Registrant, the lenders from time to time party thereto, and Wells Fargo Bank, N.A., as collateral agent, dated as of December 3, 2014		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.2		December 4, 2014
10.12			Note Purchase Agreement among the Registrant and each of the purchasers listed on Schedule B dated as of December 3, 2014		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.3		December 4, 2014
10.13		*	Copart, Inc. 2014 Employee Stock Purchase Plan		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		December 5, 2014
10.14		*	Executive Officer Employment Agreement, effective January 4, 2016, between the Registrant and Jeffrey Liaw.		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.26		November 23, 2015
10.15			First Amendment to Credit Agreement, dated as of March 15, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc. party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		March 17, 2016
10.16			Second Amendment to Credit Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc. party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent.		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1		July 27, 2016
10.17			First Amendment to Note Purchase Agreement, dated as of July 21, 2016, by and among Copart, Inc., the subsidiaries of Copart, Inc. party thereto and the purchasers party thereto.		Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.2		July 27, 2016

					Incorporated by reference herein
Exhibit Number			Description		Form		Date
21.1			List of subsidiaries of Registrant		—		Filed herewith
23.1			Consent of Independent Registered Public Accounting Firm		—		Filed herewith
24.1			Power of Attorney (included on signature page)		—		Filed herewith
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		—		Filed herewith
32.1		(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- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
104			Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).
(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