Item 16. Form 10-K Summary

None.

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. 3.1						September 16, 2021
4.1						Description of Capital Stock						Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 4.1						September 30, 2019
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. 10.1						March 5, 2021
10.7			*			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
10.08						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
10.09			*			Copart, Inc. 2014 Employee Stock Purchase Plan						Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1						December 5, 2014
10.10			*			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
10.11						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
10.12						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
10.13						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
10.14						First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among Copart, certain subsidiaries of Copart. 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, 2020
10.15			*			Executive Officer Employment Agreement, effective October 5, 2020, between the Registrant and John North						Quarterly Report on Form 10-Q (File No. 000-23255), Exhibit No. 10.1						November 20, 2020

												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

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 27, 2021

			COPART, INC.
			By:						/s/ JOHN NORTH
									John North, Chief Financial Officer (Principal Financial and Accounting Officer and duly Authorized Officer)

Date: September 27, 2021

POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Jayson Adair and John North, 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 27, 2021
A. Jayson Adair
/s/ JOHN NORTH						Chief Financial Officer (Principal Financial and Accounting Officer)						September 27, 2021
John North
/s/ WILLIS J. JOHNSON						Chairman of the Board						September 27, 2021
Willis J. Johnson
/s/ MATT BLUNT						Director						September 27, 2021
Matt Blunt
/s/ STEVEN D. COHAN						Director						September 27, 2021
Steven D. Cohan
/s/ DANIEL ENGLANDER						Director						September 27, 2021
Daniel Englander
/s/ STEPHEN FISHER						Director						September 27, 2021
Stephen Fisher
/s/ CHERYLYN HARLEY LEBON						Director						September 27, 2021
Cherylyn Harley LeBon
/s/ JAMES E. MEEKS						Director						September 27, 2021
James E. Meeks
/s/ DIANE M. MOREFIELD						Director						September 27, 2021
Diane M. Morefield
/s/ CARL SPARKS						Director						September 27, 2021
Carl Sparks
/s/ THOMAS N. TRYFOROS						Director						September 27, 2021
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						59
Consolidated Balance Sheets as of July 31, 2021 and 2020						61
Consolidated Statements of Income for the years ended July 31, 2021, 2020 and 2019						62
Consolidated Statements of Comprehensive Income for the years ended July 31, 2021, 2020 and 2019						63
Consolidated Statements of Stockholder’s Equity for the years ended July 31, 2021, 2020 and 2019						64
Consolidated Statements of Cash Flows for the years ended July 31, 2021, 2020 and 2019						65
Notes to Consolidated Financial Statements						66

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, 2021 and 2020, 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, 2021, 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, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2021, 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, 2021, 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 27, 2021 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 12 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 $54.3 million as of July 31, 2021. 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 obtained an understanding, evaluated the design and tested the operating effectiveness of 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 and 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. We also evaluated the Company’s income tax disclosures included in Note 12 in relation to these matters.

/s/ Ernst & Young LLP

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

Dallas, Texas

September 27, 2021

COPART, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

						July 31,
						2021						2020
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash						$	1,048,260					$	477,718
Accounts receivable, net						480,628						350,207
Vehicle pooling costs						94,449						73,684
Inventories						44,968						20,080
Income taxes receivable						20,012						26,740
Prepaid expenses and other assets						14,294						15,330
Total current assets						1,702,611						963,759
Property and equipment, net						2,296,624						1,941,719
Operating lease right-of-use assets						119,487						118,455
Intangibles, net						45,873						47,772
Goodwill						355,717						343,622
Other assets						41,831						39,934
Total assets						$	4,562,143					$	3,455,261
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities						$	369,826					$	318,530
Deferred revenue						20,973						8,233
Income taxes payable						7,760						3,709
Current portion of operating and finance lease liabilities						22,472						25,572
Total current liabilities						421,031						356,044
Deferred income taxes						63,969						71,686
Income taxes payable						52,345						44,965
Operating and finance lease liabilities, net of current portion						97,961						96,150
Long-term debt and other liabilities, net of discount						397,636						396,900
Total liabilities						1,032,942						965,745
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; 237,014,273 and 235,315,337 shares issued and outstanding, respectively						24						24
Additional paid-in capital						761,834						672,727
Accumulated other comprehensive loss						(100,860)						(121,088)
Retained earnings						2,868,203						1,937,853
Total stockholders’ equity						3,529,201						2,489,516
Total liabilities and stockholders’ equity						$	4,562,143					$	3,455,261

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,
						2021						2020						2019
Service revenues and vehicle sales:
Service revenues						$	2,291,867					$	1,947,140					$	1,755,694
Vehicle sales						400,644						258,443						286,263
Total service revenues and vehicle sales						2,692,511						2,205,583						2,041,957
Operating expenses:
Yard operations						1,003,292						972,487						888,111
Cost of vehicle sales						346,128						225,294						255,504
General and administrative						206,665						191,703						181,867
Total operating expenses						1,556,085						1,389,484						1,325,482
Operating income						1,136,426						816,099						716,475
Other expense:
Interest expense, net						(20,247)						(18,871)						(17,585)
Other income, net						5,667						3,611						6,061
Total other expense						(14,580)						(15,260)						(11,524)
Income before income taxes						1,121,846						800,839						704,951
Income tax expense						185,351						100,932						113,258
Net income						$	936,495					$	699,907					$	591,693
Basic net income per common share						$	3.96					$	3.00					$	2.57
Weighted average common shares outstanding						236,252						233,202						230,489
Diluted net income per common share						$	3.90					$	2.93					$	2.46
Diluted weighted average common shares outstanding						240,290						238,656						240,453

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,
						2021						2020						2019
Comprehensive income, net of tax:
Net income						$	936,495					$	699,907					$	591,693
Other comprehensive income:
Foreign currency translation adjustments						20,228						11,441						(24,601)
Comprehensive income						$	956,723					$	711,348					$	567,092

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												Stockholders’ Equity
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
Net income						—						—						—						—						699,907												699,907
Currency translation adjustment						—						—						—						11,441						—												11,441
Exercise of stock options, net of repurchased shares						5,401,963						1						68,570						—						(100,382)												(31,811)
Employee stock-based compensation						—						—						23,322						—						—												23,322
Shares issued for Employee Stock Purchase Plan						123,106						—						8,276						—						—												8,276
Balances at July 31, 2020						235,315,337						24						672,727						(121,088)						1,937,853												2,489,516
Net income						—						—						—						—						936,495												936,495
Currency translation adjustment						—						—						—						20,228						—												20,228
Exercise of stock options, net of repurchased shares						1,589,557						—						39,049						—						(6,145)												32,904
Employee stock-based compensation						—						—						40,922						—						—												40,922
Shares issued for Employee Stock Purchase Plan						109,379						—						9,136						—						—												9,136
Balances at July 31, 2021						237,014,273						$	24					$	761,834					$	(100,860)					$	2,868,203											$	3,529,201

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,
						2021						2020						2019
Cash flows from operating activities:
Net income						$	936,495					$	699,907					$	591,693
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost						123,084						104,257						85,334
Allowance for credit loss						(1,121)						1,670						(429)
Equity in (earnings) losses of unconsolidated affiliates						(3,240)						1,401						419
Stock-based compensation						40,922						23,322						23,445
Gain on sale of property and equipment						(1,480)						(1,913)						(3,073)
Deferred income taxes						(7,951)						23,082						23,167
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable						(127,513)						15,993						(60,808)
Vehicle pooling costs						(20,476)						2,590						(16,418)
Inventories						(24,602)						1,348						(4,719)
Prepaid expenses and other current and non-current assets						7,025						141						(12,265)
Operating lease right-of-use assets and lease liabilities						570						(572)						—
Accounts payable and accrued liabilities						44,613						41,648						11,126
Deferred revenue						8,781						1,615						2,056
Income taxes receivable						6,739						(7,216)						(4,215)
Income taxes payable						9,045						10,114						10,669
Other liabilities						—						498						664
Net cash provided by operating activities						990,891						917,885						646,646
Cash flows from investing activities:
Purchases of property and equipment						(462,996)						(591,972)						(373,883)
Purchases of assets and liabilities in connection with acquisitions, net of cash acquired						(5,000)						(11,702)						(745)
Proceeds from sale of property and equipment						2,530						2,466						18,361
Net cash used in investing activities						(465,466)						(601,208)						(356,267)
Cash flows from financing activities:
Proceeds from the exercise of stock options						39,049						71,640						34,398
Proceeds from the issuance of Employee Stock Purchase Plan shares						9,136						8,276						7,183
Repurchases of common stock						—						—						(364,997)
Payments for employee stock-based tax withholdings						(6,145)						(103,451)						(46,888)
Debt offering costs						—						(2,814)						—
Payments of finance lease obligations						(1,118)						(1,065)						—
Net cash provided by (used in) financing activities						40,922						(27,414)						(370,304)
Effect of foreign currency translation						4,195						2,136						(8,276)
Net increase (decrease) in cash, cash equivalents, and restricted cash						570,542						291,399						(88,201)
Cash, cash equivalents, and restricted cash at beginning of period						477,718						186,319						274,520
Cash, cash equivalents, and restricted cash at end of period						$	1,048,260					$	477,718					$	186,319
Supplemental disclosure of cash flow information:
Interest paid						$	19,723					$	19,728					$	19,289
Income taxes paid, net of refunds						$	178,241					$	83,770					$	82,448

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

COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2021

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. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and 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, and Bahrain, 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.”), Germany, and Spain, 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. Significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. 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; and contingencies. Actual results may differ from these estimates.

Revenue Recognition

The Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. Service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction, excluding annual registration fees. Costs to prepare the vehicles for auction, including inbound transportation costs and titling fees, are deferred and recognized at the time of revenue recognition at auction.

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 has a separate performance obligation related to providing access to its online auction platform as the Company charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform. This fee is 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 credit loss expense in the case of non-performance by its buyers or sellers.

									Year Ended July 31,
(In thousands)									2021						2020						2019
Service revenues
			United States						$	2,017,504					$	1,714,724					$	1,537,431
			International						274,363						232,416						218,263
Total service revenues									$	2,291,867					$	1,947,140					$	1,755,694

Vehicle sales

Certain vehicles are purchased and remarketed on the Company’s own behalf. The Company has a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process. Vehicle sales revenue is 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)									2021						2020						2019
Vehicle sales
			United States						$	254,568					$	145,962					$	119,138
			International						146,076						112,481						167,125
Total vehicle sales									$	400,644					$	258,443					$	286,263

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 consolidated statements of income.

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

Balance as of July 31, 2019						$	10,574
Capitalized contract assets during the period						2,875
Costs amortized during the period						(3,541)
Effect of foreign currency exchange rates						172
Balance as of July 31, 2020						$	10,080
Capitalized contract assets during the period						265
Costs amortized during the period						(3,188)
Effect of foreign currency exchange rates						328
Balance as of July 31, 2021						$	7,485

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. 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 British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar 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, 2019						$	(132,529)
Gain on foreign currency translation						11,441
Cumulative loss on foreign currency translation as of July 31, 2020						$	(121,088)
Gain on foreign currency translation						20,228
Cumulative loss on foreign currency translation as of July 31, 2021						$	(100,860)

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 Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, 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, restricted cash, accounts receivable, accounts payable, accrued liabilities, and amounts outstanding under the Revolving Loan Facility approximated their fair values as of July 31, 2021 and 2020, 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 8 — Long-Term Debt and Note 9 – 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 expenses consist primarily of operating personnel (which includes yard management, clerical and yard employees); rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and repair; and marketing costs directly related to the auction process.

General and Administrative Expenses

General and administrative expenses consist primarily of executive management; 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 yard operations expenses for costs directly related to the auction process and the remainder in general and administrative expenses on the consolidated statements of income. Advertising expenses were $13.7 million, $7.7 million, and $7.5 million for the years ended July 31, 2021, 2020 and 2019, respectively.

Other (Expense) Income

Other (expense) income consists primarily of interest expense on long-term debt; foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; and earnings from unconsolidated affiliates.

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 consolidated statements of income as discrete items in the reporting period in which they occur.

The Company applies the provisions of the accounting standard for uncertain tax positions to its income taxes. In determining net income for financial statement purposes, the Company makes certain estimates and judgments in the calculation of tax provisions and the resultant tax liabilities. In the ordinary course of global business, there may be transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the interpretation and application of complex tax laws, and significant judgment is necessary to (i) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (ii) measure the amount of tax benefit that qualifies for recognition. The Company recognizes potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Net Income Per Share

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

Cash, Cash Equivalents, and Restricted Cash

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, cash equivalents, and restricted cash include cash held in checking, certificates of deposit, U.S. Treasury Bills, and money market accounts. The Company periodically invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash, cash equivalents, and restricted cash 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, cash equivalents, and restricted cash, 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 credit loss 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, 2021, 2020 and 2019. As of July 31, 2021 and 2020, 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. Property and 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 seven to forty years or the lease term, whichever is shorter, for buildings and improvements. Amortization of equipment under finance leases is included in depreciation expense.

Goodwill

In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), 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 evaluates 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 2021 and 2020, 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; the impact of the COVID-19 pandemic; and relevant entity-specific events.

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, 2021 and 2020 was $66.2 million and $52.6 million, respectively. Accumulated amortization expense related to software as of July 31, 2021 and 2020 totaled $43.4 million and $33.5 million, respectively.

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.

The fair value of each option, without a market-based condition was estimated on the measurement date using the Black-Scholes Merton (“BSM”) option-pricing model. For options that included a market-based condition either the Monte Carlo simulation model or a lattice model was used. The Black-Scholes Merton option-pricing model utilized the following assumptions:

						July 31,
						2021																		2020																		2019
Expected life (in years)						5.2						—			6.3									5.4						—			5.7									5.3						—			6.6
Risk-free interest rate						0.42			%			—			1.23			%						0.29			%			—			1.67			%						1.80			%			—			2.69			%
Estimated volatility						26.3			%			—			28.7			%						21.7			%			—			27.6			%						21.6			%			—			22.1			%
Expected dividends						—												%						—												%						—												%
Weighted average fair value at measurement date						$	30.43																	$	21.54																	$	15.47

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.

Net cash proceeds from the exercise of stock options were $39.0 million, $71.6 million and $34.4 million for the years ended July 31, 2021, 2020 and 2019, respectively.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the years ended July 31, 2021, 2020 and 2019, 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.

Recently Issued Accounting Pronouncements

Adopted

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 was effective for fiscal years beginning after December 15, 2019. The Company’s adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated results of operations and financial position.

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 the previous incurred loss approach, which required waiting to recognize a loss until it was 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 was effective for fiscal years beginning after December 15, 2019, and was required to be applied on a modified retrospective basis. The Company’s adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated results of operations, financial position, and related disclosures.

Pending

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of ASU 2019-12 is not expected to have a material impact on the Company’s consolidated results of operations and financial position.

NOTE 2 — Accounts Receivable, Net

Accounts receivable, net consisted of:

						July 31,
(In thousands)						2021						2020
Advance charges receivable						$	385,002					$	260,196
Trade accounts receivable						97,249						94,281
Other receivables						4,013						2,120
						486,264						356,597
Less: Allowance for credit loss						(5,636)						(6,390)
Accounts receivable, net						$	480,628					$	350,207

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 credit loss was as follows:

						July 31,
(In thousands)						2021						2020						2019
Balance at beginning of year						$	6,390					$	4,942					$	5,444
Charged to costs and expenses						3,454						5,591						2,409
Write-offs						(4,208)						(4,143)						(2,911)
Balance at end of year						$	5,636					$	6,390					$	4,942

NOTE 3 — Property and Equipment, Net

Property and equipment, net consisted of the following:

						July 31,
(In thousands)						2021						2020
Land						$	1,428,262					$	1,235,315
Buildings and improvements						1,126,414						932,976
Transportation and other equipment						326,622						274,422
Office furniture and equipment						79,928						70,926
Software						66,170						52,621
						3,027,396						2,566,260
Less: Accumulated depreciation and amortization						(730,772)						(624,541)
Property and equipment, net						$	2,296,624					$	1,941,719

Depreciation expense on property and equipment was $105.5 million, $82.1 million and $66.8 million for the years ended July 31, 2021, 2020 and 2019, respectively. Amortization expense of software was $9.5 million, $10.4 million and $7.6 million for the years ended July 31, 2021, 2020 and 2019, respectively.

NOTE 4 — Leases

The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion.

Leases - Lessee

The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which are recorded as right-of-use assets and lease liabilities. 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, the Company includes these items in the determination of the right-of-use asset and the lease liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred. The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, insurance and maintenance costs, in addition to the lease payments. At lease inception, the Company includes all renewals or option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease would impose an economic penalty.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated in the Company’s leases.

Components of lease expense were as follows:

									Year Ended July 31,
(In thousands)									2021						2020
Operating lease expense									$	28,302					$	31,628
Finance lease expense:
			Amortization of right-of-use assets						612						882
			Interest on finance lease liabilities						65						189
Short-term lease expense									4,472						8,555
Variable lease expense									1,586						1,635
Total lease expense									$	35,037					$	42,889

Facilities rental expense for the year ended July 31, 2019 was $30.6 million under ASC 840, Operating Leases.

The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (In thousands):

Lease Asset and Liabilities						Balance Sheet Classification (In thousands)						July 31, 2021						July 31, 2020
Operating lease right-of-use assets						Operating lease right-of-use assets						$	119,487					$	118,455
Finance lease right-of-use assets						Property and equipment, net						563						1,409
Total lease assets, net												$	120,050					$	119,864
Operating lease liabilities - current						Current portion of operating and finance lease liabilities						$	21,942					$	24,821
Finance lease liabilities - current						Current portion of operating and finance lease liabilities						530						751
Operating lease liabilities - non-current						Operating and finance lease liabilities, net of current portion						97,925						95,584
Finance lease liabilities - non-current						Operating and finance lease liabilities, net of current portion						36						566
Total lease liabilities												$	120,433					$	121,722

The weighted-average remaining lease terms and discount rates as of July 31, 2021 were as follows:

						Weighted-Average Remaining Lease Term (In years)						Weighted-Average Discount Rate**(1)**
Operating leases						9.41						2.84		%
Finance leases						1.01						1.85		%

(1)The Company cannot determine the interest rate implicit in the Company’s leases. Therefore, the discount rate represents the Company’s incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to the Company’s corporate credit rating for a secured or collateralized instrument.

Supplemental cash flow information related to leases as of July 31, 2021 were as follows (In thousands):

									Year Ended July 31,
(In thousands)									2021						2020
Cash paid for amounts included in the measurement of lease liabilities
			Operating cash flows related to operating leases						$	28,576					$	29,799
			Operating cash flows related to finance leases						65						187
			Financing cash flows related to finance leases						1,118						1,065
Right-of-use assets obtained in exchange for new operating lease liabilities									41,770						42,860
Right-of-use assets obtained in exchange for new finance lease liabilities									—						2,899

The annual maturities of the Company’s lease liabilities as of July 31, 2021 were as follows:

Fiscal year (In thousands)						Finance leases						Operating leases
2022						$	535					$	24,626
2023						24						20,818
2024						13						16,005
2025						—						13,833
2026						—						10,870
Thereafter						—						53,632
Total future lease commitments						$	572					$	139,784
Less: imputed interest						(6)						(19,917)
Present value of lease liabilities						$	566					$	119,867

Leases - Lessor

The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease. 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, the Company includes these items in the determination of the straight-line rental income. The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as earned.

Future lease payments receivable under operating leases with terms greater than one year as of July 31, 2021 were as follows:

Fiscal year (In thousands)						Operating leases
2022						$	6,537
2023						5,423
2024						5,499
2025						5,468
2026						5,172
Thereafter						14,556
Total future lease payments receivable						$	42,655

The cost of the leased space was $55.5 million and $64.8 million as of July 31, 2021 and 2020, respectively. The accumulated depreciation associated with the leased assets was $1.9 million and $0.9 million as of July 31, 2021 and 2020, respectively. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet. Rental income from these operating leases was $14.8 million and $6.2 million for the years ended July 31, 2021 and 2020, respectively, and is included within Service revenues on the consolidated statements of income.

NOTE 5 — Goodwill

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

						July 31,
(In thousands)						2021						2020
Beginning balance						$	343,622					$	333,321
Acquisitions during the period						7,882						5,713
Effect of foreign currency exchange rates						4,213						4,588
Ending balance						$	355,717					$	343,622

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 each period presented and goodwill was not impaired.

NOTE 6 — 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)						2021						2020						2021						2020						2021						2020						2021						2020
Amortized intangibles:
Supply contracts and customer relationships						$	55,598					$	50,600					$	(21,739)					$	(16,780)					$	33,859					$	33,820					7						8
Trade names						18,944						23,635						(7,163)						(10,075)						11,781						13,560						6						6
Licenses and databases						736						7,630						(503)						(7,238)						233						392						2						3
Total Intangibles						$	75,278					$	81,865					$	(29,405)					$	(34,093)					$	45,873					$	47,772

Aggregate amortization expense on intangible assets was $6.9 million, $8.9 million and $10.5 million for the years ended July 31, 2021, 2020 and 2019, respectively.

Intangible amortization expense for the next five fiscal years based upon July 31, 2021 intangible assets is expected to be as follows (In thousands):

2022						$	7,806
2023						7,696
2024						7,504
2025						5,944
2026						5,843
Thereafter						11,080
Total future intangible amortization expense						$	45,873

NOTE 7 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

						July 31,
(In thousands)						2021						2020
Accounts payable to sellers						$	123,642					$	92,013
Buyer deposits and prepayments						105,369						89,020
Trade accounts payable						39,595						40,906
Accrued compensation and benefits						50,688						42,053
Taxes payable						10,953						17,036
Accrued insurance						8,328						9,315
Other accrued liabilities						31,251						28,187
Total accounts payable and accrued expenses						$	369,826					$	318,530

The Company is required to charge for and to collect value added taxes ("VAT") on its sales on behalf of the various international taxing authorities. The Company records VAT that the Company has billed to the buyers as VAT payable. In addition, the Company is required to pay VAT on our purchases. The Company records VAT that is charged by its vendors as VAT receivable. The Company is required to file VAT returns on at least a quarterly basis with the various international taxing authorities and are entitled to claim the VAT charged by the Company's vendors as VAT credit and these credits can be applied to the Company's VAT payables billed to the buyers. Accordingly, these VAT payables and receivables are presented as net amounts for financial statement purposes.

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 8 — 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”).

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.

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 amended 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 provided 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.

On July 21, 2020, the Company entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of America, N.A., as administrative agent. The First Amended and Restated Credit Agreement amended 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, as amended by the Second Amendment to Credit Agreement, dated as July 21, 2016. The First Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $1,050.0 million, and (b) an extension of the termination date of the revolving credit facility under the Credit Agreement from July 21, 2021 to July 21, 2023. The First Amended and Restated Credit Agreement additionally increased the pricing levels under the Credit Agreement to a range of 0.25% to 0.35% in the case of the commitment fee, 1.50% to 2.25% in the case of the applicable margin for Eurodollar Rate Loans, and 0.50% to 1.25% 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 may be 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 Eurodollar Rate plus 1.0%, subject to an interest rate floor of 0.75%, in each case plus an applicable margin ranging from 0.50% to 1.25% based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter; or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50% to 2.25% depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable in arrears, at the end of each calendar quarter 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 Eurodollar Rate Loans. The interest rate as of July 31, 2021 on the Company’s Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. 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 approximated fair value at July 31, 2021, 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, 2023. The Company is obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The commitment fee rate ranges from 0.25% to 0.35%, 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, 2021 or 2020.

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 First Amended and Restated Credit Agreement, dated July 21, 2020, 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, 2021, the consolidated total net leverage ratio was (0.45):1. Minimum liquidity as of July 31, 2021 was $2.1 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, 2021.

Related to the execution of the First Amended and Restated Credit Agreement, the Company incurred $2.8 million in costs, which was capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability.

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, 2021, the consolidated total net leverage ratio was (0.45):1. Minimum liquidity as of July 31, 2021 was $2.1 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, 2021.

As of July 31, 2021, future payments on the Revolving Loan Facility and Note Purchase Agreement were as follows for the fiscal years ending:

(In thousands)						July 31, (1)
2022						$	—
2023						—
2024						—
2025						100,000
2026						—
Thereafter						300,000
Total future payments						$	400,000

(1)Currently there are no outstanding balances on the Revolving Loan Facility.

NOTE 9 – Fair Value Measures

The following table summarizes the carrying values and fair values of the Company’s financial instruments that were not carried at fair value in the consolidated balance sheets:

			July 31, 2021												July 31, 2020
(In thousands)			Carrying Value Total												Fair Value Total						Carrying Value Total												Fair Value Total
Assets
Cash equivalents			$	754,300											$	754,304					$	11,483											$	11,483
Total Assets			$	754,300											$	754,304					$	11,483											$	11,483
Liabilities
Long-term fixed rate debt, including current portion			$	399,733											$	432,027					$	399,698											$	449,731
Total Liabilities			$	399,733											$	432,027					$	399,698											$	449,731

During the year ended July 31, 2021, no transfers were made between any levels within the fair value hierarchy. The fair value of the Senior Notes is based on the discounted value of each interest and principal payment calculated utilizing market interest rates of similar types of borrowing arrangements and was classified within Level II of the fair value hierarchy. See Note 1 — Summary of Significant Accounting Policies and Note 8 — Long-Term Debt.

NOTE 10 — Net Income Per Share

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

						Year Ended July 31,
(In thousands)						2021						2020						2019
Weighted average common shares outstanding						236,252						233,202						230,489
Effect of dilutive securities						4,038						5,454						9,964
Weighted average common and dilutive potential common shares outstanding						240,290						238,656						240,453

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 4,090,250; 1,575,167; and 3,045,000 options to purchase the Company’s common stock for the years ended July 31, 2021, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive.

NOTE 11 — 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 237,014,273 shares were issued and outstanding at July 31, 2021. As of July 31, 2021 and 2020, the Company had reserved 15,326,030 and 12,977,173 shares of common stock, respectively, for the issuance of options, restricted stock or restricted stock units granted under the Company’s stock option plans and 1,194,213 and 1,303,592 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, 2021 or 2020, 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 2021 and 2020, the Company did not repurchase any shares of its common stock under the program. 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. As of July 31, 2021, 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.

In fiscal 2019, certain members of the Company’s Board of Directors exercised stock options through cashless exercises. In fiscal 2020, the Company’s former President exercised all of his vested stock options through a cashless exercise. In fiscal 2021, certain employees exercised stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. The Company remitted $3.8 million, $101.3 million, and $45.6 million during the years ended July 31, 2021, 2020 and 2019, 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 2019—Q3						3,000,000						$	17.81					945,162						806,039						1,248,799						$	56.53					$	45,565
FY 2020—Q1						4,000,000						17.81						865,719						1,231,595						1,902,686						82.29						101,348
FY 2021—Q4						90,000						17.73						12,366						29,349						48,285						129.01						3,786

(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, 2021, 2020 and 2019 was 109,379; 123,106; and 177,043; respectively. As of July 31, 2021, there were 8,885,861 shares of common stock issued pursuant to the ESPP and 1,194,213 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 36 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, 2021, 7,137,850 shares were available for grant under the Plan and the number of options that were in-the-money was 7,557,157 at July 31, 2021.

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 vested 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 no compensation expenses for these grants in the years ended July 31, 2021 and 2020, respectively, and $4.3 million in compensation expenses for these grants in the year ended July 31, 2019.

In June 2020, the Compensation Committee of the Company’s Board of Directors approved the grant to A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $85.04 per share, which equaled the closing price of the Company’s common stock on June 12, 2020, the effective date of grant. The option will become exercisable over five years, subject to continued service by Mr. Adair,

with 20% vested on June 12, 2021, and the balance vesting monthly over the subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to market based vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent to 125% of the exercise price of the options) for a period of 20 consecutive trading days. The market based vesting condition was satisfied in the first quarter of fiscal 2021. The option held by Mr. Adair will become fully vested, assuming continued service by Mr. Adair on June 12, 2025. The fair value of each option at the date of grant using the Monte Carlo simulation model was $25.47, with an expected life of 7.64 years, a risk-free interest rate of 0.71%, estimated volatility of 25.2%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five year estimated service period for these options is $25.5 million and is recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $13.5 million in compensation expense for this grant in year ended July 31, 2021.

The table below sets forth the stock-based compensation recognized by the Company for stock options, restricted stock, and restricted unit awards:

						Year Ended July 31,
(In thousands)						2021						2020						2019
General and administrative						$	35,633					$	17,567					$	18,254
Yard operations						5,289						5,755						5,191
Total stock-based compensation						$	40,922					$	23,322					$	23,445

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2021 and 2020. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award.

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, 2021 was as follows:

(In thousands, except per share amounts)						Shares						Weighted Average Grant- date Fair Value
Non-vested shares at July 31, 2020						3,303						$	17.58
Grants of non-vested shares						1,310						31.17
Vested						(1,139)						16.65
Forfeitures or expirations						(213)						12.84
Non-vested shares at July 31, 2021						3,261						$	22.80

The following is a summary of activity for the Company’s stock options for the year ended July 31, 2021:

(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, 2020						8,059						$	41.44					6.72						$	417,529
Grants of options						1,310						107.95
Exercises						(1,599)						25.47
Forfeitures or expirations						(213)						47.11
Outstanding as of July 31, 2021						7,557						$	56.19					6.53						$	686,269
Exercisable as of July 31, 2021						4,295						$	38.16					5.17						$	467,433
Vested and expected to vest as of July 31, 2021						7,557						$	56.19					6.52						$	686,269

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, 2021 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, 2021. The aggregate intrinsic value of options exercised was $143.3 million, $476.3 million and $215.4 million in the years ended July 31, 2021, 2020 and 2019, 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, 2021, 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 $60.6 million. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.28 years. The fair value of options vested for the years ended July 31, 2021, 2020 and 2019 was $19.0 million, $19.2 million and $21.3 million, respectively.

The following table summarizes stock options outstanding and exercisable as of July 31, 2021:

(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
$12.48			—			$17.73						890						3.25						$	16.72					890						$	16.72
$17.81			—			$36.32						2,393						5.06						28.16						1,988						26.68
$43.96			—			$58.27						1,740						7.17						55.59						876						53.05
$77.51			—			$134.42						2,534						8.62						96.93						541						91.47
Outstanding as of July 31, 2021												7,557						6.53						$	56.19					4,295						$	38.16

The Company’s restricted stock awards (“RSA”) and restricted stock unit awards (“RSU”) have generally been issued with vesting periods ranging from two years to five years and vest solely on service conditions. Accordingly, the Company recognizes compensation expense for RSA and RSU 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 RSA’s and RSU’s for the for the year ended July 31, 2021:

(In thousands, except per share data)						Restricted Shares						Weighted Average Grant Date Fair Value
Outstanding as of July 31, 2020						105						$	69.86
Grants						61						116.86
Vested						(58)						83.26
Forfeitures or expirations						(6)						67.55
Outstanding as of July 31, 2021						102						$	90.46

NOTE 12 — Income Taxes

Income before taxes consisted of the following:

						Year Ended July 31,
(In thousands)						2021						2020						2019
U.S.						$	1,022,134					$	740,171					$	634,874
International						99,712						60,668						70,077
Total income before taxes						$	1,121,846					$	800,839					$	704,951

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

						Year Ended July 31,
(In thousands)						2021						2020						2019
Federal:
Current						$	135,216					$	53,942					$	59,848
Deferred						(4,259)						21,019						27,779
						130,957						74,961						87,627
State:
Current						34,302						12,095						12,720
Deferred						(3,489)						565						702
						30,813						12,660						13,422
International:
Current						23,575						13,333						12,508
Deferred						6						(22)						(299)
						23,581						13,311						12,209
Income tax expense						$	185,351					$	100,932					$	113,258

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)						2021						2020						2019
Federal statutory rate						21.0		%				21.0		%				21.0		%
State income taxes, net of federal income tax benefit						1.5		%				1.6		%				1.4		%
International rate differential						(0.5)		%				0.1		%				0.3		%
Compensation and fringe benefits (1)						(1.9)		%				(11.2)		%				(6.4)		%
FDII, GILTI, and transition tax						(3.1)		%				(0.3)		%				(0.7)		%
Federal return to provision adjustment						(1.8)		%				—		%				—		%
Other differences						1.3		%				1.4		%				0.5		%
Effective tax rate						16.5		%				12.6		%				16.1		%

(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)						2021						2020
Deferred tax assets:
Allowance for credit loss						$	942					$	1,141
Accrued compensation and benefits						15,541						13,217
State taxes						—						460
Operating lease liabilities						25,176						—
Accrued other						4,551						4,763
Deferred revenue						4,239						1,950
Losses carried forward						24,384						15,092
Federal tax benefit						12,242						9,872
Total gross deferred tax assets						87,075						46,495
Less: Valuation allowance						(24,987)						(15,429)
Net deferred tax assets						62,088						31,066
Deferred tax liabilities:
Vehicle pooling costs						(20,241)						(15,291)
Property and equipment						(55,047)						(62,123)
Operating lease right-of-use assets						(25,253)						—
Other prepaids						(461)						(1,411)
Intangibles and goodwill						(24,602)						(23,714)
Total gross deferred tax liabilities						(125,604)						(102,539)
Net deferred tax liabilities						$	(63,516)					$	(71,473)

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”). The Act contains Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impacted 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 FDII did have a material impact to the effective income tax rate and income tax expense for the fiscal year ended July 31, 2021.

As of July 31, 2021 and 2020, the Company had foreign operating losses and a U.S. federal tax credit carryforward of $24.4 million and $15.1 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, 2021 and 2020 was $25.0 million and $15.4 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.

The following table summarizes the activities related to the Company’s unrecognized tax benefits resulting from uncertain tax positions:

						July 31,
(In thousands)						2021						2020						2019
Beginning balance						$	36,123					$	27,537					$	21,322
Increases related to current year tax positions						13,122						8,196						6,588
Prior year tax positions:
Increases recognized during the period						8,782						6,390						800
Decreases recognized during the period						(5,749)						(1,603)						(305)
Cash settlements during the period						(3,261)						(1,182)						(534)
Lapse of statute of limitations						(1,956)						(3,215)						(334)
Ending balance						$	47,061					$	36,123					$	27,537

As of July 31, 2021 and 2020, 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 $37.8 million and $29.0 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 Company recognizes interest and penalties related to income tax matters in income tax expense. As of July 31, 2021, 2020 and 2019, the Company had accrued interest and penalties related to unrecognized tax benefits of $7.2 million, $8.9 million and $7.6 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 between 2014 and 2018. 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 significantly lowered the additional federal income tax upon the repatriation of undistributed earnings generated by our foreign subsidiaries. As the Company determined these undistributed foreign earnings along with any additional outside basis differences were indefinitely reinvested as of July 31, 2021, no deferred tax was therefore provided. Although the Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings, which were $234.7 million as of July 31, 2021, nevertheless, it is not practical to estimate the amount of deferred tax liability related to the entire outside basis differences due to the complexity of the calculation and the uncertainty regarding assumptions necessary to compute the tax.

The Company’s effective income tax rates were 16.5%, 12.6%, and 16.1% for fiscal 2021, 2020 and 2019, respectively. The Company’s U.S. federal statutory tax rate for fiscal years 2021, 2020 and 2019 was 21.0%. The effective tax rate for fiscal year ending July 31, 2021 was favorably impacted by $19.8 million of discrete tax adjustments made in connection with finalizing the Company’s fiscal year 2020 tax return. The effective tax rate for fiscal year ending July 31, 2020 was negatively impacted by $1.7 million of discrete tax items related to amending previously filed income tax returns. The effective tax rate for the fiscal year ending July 31, 2019, was favorably impacted by $10.2 million of discrete tax items related to amending previously filed income tax returns. The effective tax rates were also impacted by the recognition of excess tax benefits from the exercise of employee stock-based compensation of $29.8 million, $92.5 million, and $46.1 million, for fiscal years ended July 31, 2021, 2020 and 2019, respectively.

NOTE 13 — 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, 2021
(In thousands)						United States						International						Total
Service revenues						$	2,017,504					$	274,363					$	2,291,867
Vehicle sales						254,568						146,076						400,644
Total service revenues and vehicle sales						2,272,072						420,439						2,692,511
Yard operations						849,037						154,255						1,003,292
Cost of vehicle sales						227,365						118,763						346,128
General and administrative						172,115						34,550						206,665
Operating income						$	1,023,555					$	112,871					$	1,136,426
Depreciation and amortization, excluding debt costs						$	107,765					$	14,206					$	121,971
Capital expenditures, including acquisitions						390,706						77,290						467,996
Total assets						3,900,712						661,431						4,562,143
Goodwill						270,305						85,412						355,717

						Year Ended July 31, 2020
(In thousands)						United States						International						Total
Service revenues						$	1,714,724					$	232,416					$	1,947,140
Vehicle sales						145,962						112,481						258,443
Total service revenues and vehicle sales						1,860,686						344,897						2,205,583
Yard operations						828,066						144,421						972,487
Cost of vehicle sales						135,095						90,199						225,294
General and administrative						154,346						37,357						191,703
Operating income						$	743,179					$	72,920					$	816,099
Depreciation and amortization, excluding debt costs						$	90,818					$	10,572					$	101,390
Capital expenditures, including acquisitions						568,773						34,901						603,674
Total assets						2,904,216						551,045						3,455,261
Goodwill						262,423						81,199						343,622

						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						155,180						26,687						181,867
Operating income						$	637,468					$	79,007					$	716,475
Depreciation and amortization, excluding debt costs						$	75,265					$	9,630					$	84,895
Capital expenditures, including acquisitions						311,827						62,801						374,628
Total assets						2,096,549						451,068						2,547,617
Goodwill						256,998						76,323						333,321

NOTE 14 — Commitments and Contingencies

Commitments

Letters of Credit

Under a letter of credit facility separate from our Revolving Loan Facility, the Company had outstanding letters of credit of $24.1 million at July 31, 2021, 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 regarding existing litigation and claims 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 15 — 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 16 — Related Party Transactions

There were no amounts due to or from related parties as of July 31, 2021 and 2020.

NOTE 17 — 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 $1.9 million, for the years ended July 31, 2021, and 2020 and $1.7 million, for the year ended July 31, 2019, 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 $1.4 million, $1.2 million, and $0.9 million for the years ended July 31, 2021, 2020 and 2019, respectively, related to this plan.