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
10.8			*			Copart, Inc. 2014 Employee Stock Purchase Plan						Current Report on Form 8-K (File No. 000-23255), Exhibit No. 10.1						December 5, 2014
10.9			*			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
10.10						Second Amended and Restated Credit Agreement, dated as of December 21, 2021, 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						December 27, 2021

												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 Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002						—						Filed herewith
31.3						Certification of Principal 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 Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002						—						Filed herewith
32.3			(1)			Certification of Principal 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 Co-Chief Executive Officer (Principal Executive Officer), Director

Date: September 27, 2022

			COPART, INC.
			By:						/s/ JEFFREY LIAW
									Jeffrey Liaw Co-Chief Executive Officer (Principal Executive Officer)

Date: September 27, 2022

			COPART, INC.
			By:						/s/ GAVIN RENFREW
									Gavin Renfrew Vice President of Global Accounting (Principal Financial and Accounting Officer and duly Authorized Officer)

Date: September 27, 2022

POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Jayson Adair, and Jeffrey Liaw and Gavin Renfrew, 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						Co-Chief Executive Officer (Principal Executive Officer), Director						September 27, 2022
A. Jayson Adair
/s/ JEFFREY LIAW						Co-Chief Executive Officer (Principal Executive Officer)						September 27, 2022
Jeffrey Liaw
/s/ GAVIN RENFREW						Vice President of Global Accounting (Principal Financial and Accounting Officer)						September 27, 2022
Gavin Renfrew
/s/ WILLIS J. JOHNSON						Chairman of the Board						September 27, 2022
Willis J. Johnson
/s/ MATT BLUNT						Director						September 27, 2022
Matt Blunt
/s/ STEVEN D. COHAN						Director						September 27, 2022
Steven D. Cohan
/s/ DANIEL ENGLANDER						Director						September 27, 2022
Daniel Englander
/s/ STEPHEN FISHER						Director						September 27, 2022
Stephen Fisher
/s/ CHERYLYN HARLEY LEBON						Director						September 27, 2022
Cherylyn Harley LeBon
/s/ JAMES E. MEEKS						Director						September 27, 2022
James E. Meeks
/s/ DIANE M. MOREFIELD						Director						September 27, 2022
Diane M. Morefield
/s/ CARL SPARKS						Director						September 27, 2022
Carl Sparks
/s/ THOMAS N. TRYFOROS						Director						September 27, 2022
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 (PCAOB ID: 42)						55
Consolidated Balance Sheets as of July 31, 2022 and 2021						57
Consolidated Statements of Income for the years ended July 31, 2022, 2021 and 2020						58
Consolidated Statements of Comprehensive Income for the years ended July 31, 2022, 2021 and 2020						59
Consolidated Statements of Stockholders' Equity for the years ended July 31, 2022, 2021 and 2020						60
Consolidated Statements of Cash Flows for the years ended July 31, 2022, 2021 and 2020						61
Notes to Consolidated Financial Statements						62

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, 2022 and 2021, 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, 2022, 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, 2022 and 2021 and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2022, 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, 2022, 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, 2022 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 13 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 $64.6 million as of July 31, 2022. 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 13 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, 2022

COPART, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

						July 31,
						2022						2021
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash						$	1,384,236					$	1,048,260
Accounts receivable, net						578,573						480,628
Vehicle pooling costs						112,242						94,449
Inventories						58,791						44,968
Income taxes receivable						49,882						20,012
Prepaid expenses and other assets						18,731						14,294
Total current assets						2,202,455						1,702,611
Property and equipment, net						2,485,764						2,296,624
Operating lease right-of-use assets						116,303						119,487
Intangibles, net						54,680						45,873
Goodwill						401,954						355,717
Other assets						47,708						41,831
Total assets						$	5,308,864					$	4,562,143
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities						$	399,034					$	369,826
Deferred revenue						20,061						20,973
Income taxes payable						—						7,760
Current portion of operating and finance lease liabilities						21,794						22,472
Total current liabilities						440,889						421,031
Deferred income taxes						80,060						63,969
Income taxes payable						64,637						52,345
Operating and finance lease liabilities, net of current portion						95,683						97,961
Long-term debt and other liabilities, net of discount						1,996						397,636
Total liabilities						683,265						1,032,942
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; 238,040,974 and 237,014,273 shares issued and outstanding, respectively						24						24
Additional paid-in capital						838,532						761,834
Accumulated other comprehensive loss						(169,365)						(100,860)
Retained earnings						3,956,408						2,868,203
Total stockholders’ equity						4,625,599						3,529,201
Total liabilities and stockholders’ equity						$	5,308,864					$	4,562,143

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,
						2022						2021						2020
Service revenues and vehicle sales:
Service revenues						$	2,853,040					$	2,291,867					$	1,947,140
Vehicle sales						647,881						400,644						258,443
Total service revenues and vehicle sales						3,500,921						2,692,511						2,205,583
Operating expenses:
Yard operations						1,309,497						1,003,292						972,487
Cost of vehicle sales						585,203						346,128						225,294
General and administrative						231,224						206,665						191,703
Total operating expenses						2,125,924						1,556,085						1,389,484
Operating income						1,374,997						1,136,426						816,099
Other expense:
Interest expense, net						(16,688)						(20,247)						(18,871)
Loss on extinguishment of debt						(16,759)						—						—
Other (expense) income, net						(596)						5,667						3,611
Total other expense						(34,043)						(14,580)						(15,260)
Income before income taxes						1,340,954						1,121,846						800,839
Income tax expense						250,824						185,351						100,932
Net income						$	1,090,130					$	936,495					$	699,907
Basic net income per common share						$	4.59					$	3.96					$	3.00
Weighted average common shares outstanding						237,419						236,252						233,202
Diluted net income per common share						$	4.52					$	3.90					$	2.93
Diluted weighted average common shares outstanding						241,151						240,290						238,656

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,
						2022						2021						2020
Comprehensive income, net of tax:
Net income						$	1,090,130					$	936,495					$	699,907
Other comprehensive income:
Foreign currency translation adjustments						(68,505)						20,228						11,441
Comprehensive income						$	1,021,625					$	956,723					$	711,348

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, 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						5,364,166						1						68,570						—						(100,382)												(31,811)
Employee stock-based compensation						37,797						—						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						1,557,438												39,049						—						(6,145)												32,904
Employee stock-based compensation						32,119						—						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
Net income						—						—						—						—						1,090,130												1,090,130
Currency translation adjustment						—						—						—						(68,505)						—												(68,505)
Exercise of stock options, net of repurchased shares						905,247						—						28,108						—						(1,925)												26,183
Employee stock-based compensation						27,699						—						38,965						—						—												38,965
Shares issued for Employee Stock Purchase Plan						93,755						—						9,625						—						—												9,625
Balances at July 31, 2022						238,040,974						$	24					$	838,532					$	(169,365)					$	3,956,408											$	4,625,599

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,
						2022						2021						2020
Cash flows from operating activities:
Net income						$	1,090,130					$	936,495					$	699,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost						138,605						123,084						104,257
Allowance for credit loss						1,349						(1,121)						1,670
Equity in (earnings) losses of unconsolidated affiliates						284						(3,240)						1,401
Stock-based compensation						38,965						40,922						23,322
Gain on sale of property and equipment						(939)						(1,480)						(1,913)
Loss on extinguishment of debt						16,759						—						—
Deferred income taxes						17,017						(7,951)						23,082
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable						(97,750)						(127,513)						15,993
Vehicle pooling costs						(18,342)						(20,476)						2,590
Inventories						(10,851)						(24,602)						1,348
Prepaid expenses and other current and non-current assets						(5,156)						7,025						141
Operating lease right-of-use assets and lease liabilities						715						570						(572)
Accounts payable and accrued liabilities						36,306						44,613						41,648
Deferred revenue						(574)						8,781						1,615
Income taxes receivable						(29,884)						6,739						(7,216)
Income taxes payable						49						9,045						10,114
Other liabilities						—						—						498
Net cash provided by operating activities						1,176,683						990,891						917,885
Cash flows from investing activities:
Purchases of property and equipment						(337,448)						(462,996)						(591,972)
Purchases of assets and liabilities in connection with acquisitions						(106,604)						(5,000)						(11,702)
Proceeds from sale of property and equipment						4,333						2,530						2,466
Investment in unconsolidated affiliate						(2,591)						—						—
Purchase of held to maturity securities						(374,866)						—						—
Proceeds from the sale of held to maturity securities						374,866						—						—
Net cash used in investing activities						(442,310)						(465,466)						(601,208)
Cash flows from financing activities:
Proceeds from the exercise of stock options						28,108						39,049						71,640
Proceeds from the issuance of Employee Stock Purchase Plan shares						9,625						9,136						8,276
Payments for employee stock-based tax withholdings						(1,925)						(6,145)						(103,451)
Debt offering costs						(1,212)						—						(2,814)
Principal payments on long-term debt						(416,759)						—						—
Payments of finance lease obligations						(530)						(1,118)						(1,065)
Net cash (used in) provided by financing activities						(382,693)						40,922						(27,414)
Effect of foreign currency translation						(15,704)						4,195						2,136
Net increase in cash, cash equivalents, and restricted cash						335,976						570,542						291,399
Cash, cash equivalents, and restricted cash at beginning of period						1,048,260						477,718						186,319
Cash, cash equivalents, and restricted cash at end of period						$	1,384,236					$	1,048,260					$	477,718
Supplemental disclosure of cash flow information:
Interest paid						$	18,539					$	19,723					$	19,728
Income taxes paid, net of refunds						$	263,226					$	178,241					$	83,770

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

COPART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2022

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 expected credit losses in the case of non-performance by its buyers or sellers.

									Year Ended July 31,
(In thousands)									2022						2021						2020
Service revenues
			United States						$	2,533,165					$	2,017,504					$	1,714,724
			International						319,875						274,363						232,416
Total service revenues									$	2,853,040					$	2,291,867					$	1,947,140

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)									2022						2021						2020
Vehicle sales
			United States						$	411,985					$	254,568					$	145,962
			International						235,896						146,076						112,481
Total vehicle sales									$	647,881					$	400,644					$	258,443

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, 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
Capitalized contract assets during the period						828
Costs amortized during the period						(2,985)
Effect of foreign currency exchange rates						(550)
Balance as of July 31, 2022						$	4,778

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, 2020						$	(121,088)
Gain on foreign currency translation						20,228
Cumulative loss on foreign currency translation as of July 31, 2021						$	(100,860)
Loss on foreign currency translation						(68,505)
Cumulative loss on foreign currency translation as of July 31, 2022						$	(169,365)

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, and accrued liabilities approximated their fair values as of July 31, 2022 and 2021, due to the short-term nature of those instruments and are classified within Level II of the fair value hierarchy. Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using quoted market prices of the underlying investments. See Note 9 — Long-Term Debt and Note 10 – Fair Value Measurements.

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 $15.4 million, $13.7 million, and $7.7 million for the years ended July 31, 2022, 2021 and 2020, 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, 2022, 2021 and 2020.

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.

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, 2022 and 2021 was $78.2 million and $66.2 million respectively. Accumulated amortization expense related to software as of July 31, 2022 and 2021 totaled $52.5 million and $43.4 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 based awards on the measurement date. The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the years ended July 31, 2022, 2021 and 2020, 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 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. The Company’s adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated results of operations and financial position.

Note 2 — Acquisitions

Fiscal Year 2022 Transactions.

On July 5, 2022, the Company acquired 100% of the voting stock of ILT Project Limited which conducts business primarily as Hills Motors (“Hills”), a leading parts recycler in the United Kingdom. Hills predominantly sells recycled parts to the public. The purchase price paid for Hills was $106.6 million.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed for Hills (in thousands).

Cash			$	8,960
Accounts receivable and prepaid expenses			5,348
Inventory			4,913
Property and equipment			22,259
Intangible assets			15,931
Goodwill			56,051
Liabilities assumed			(6,858)
Fair value of net assets and liabilities acquired			$	106,604

The Hills acquisition was undertaken for the strategic fit to the Company. This acquisition has been accounted for using the purchase method in accordance with ASC 805, Business Combinations, which resulted in the recognition of goodwill in the Company’s consolidated financial statements. Goodwill arose because the purchase price reflected a number of factors, including future earnings and cash flow potential; the comparable multiples of earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers; and the complementary strategic fit and resulting synergies brought to existing operations. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and is not amortized for financial reporting purposes. The acquisition of Hills is currently undergoing review by the U.K. Competition and Markets Authority. Given the timing of the acquisition the Company has not completed its determination of the fair value of assets acquired and liabilities assumed and the amount shown in the table above are preliminary amounts. The estimates and assumptions used in the preliminary purchase price allocation are subject to change if additional information, which existed as of the acquisition date, becomes known to the Company. However, the Company believes any potential changes to the preliminary purchase price allocation will not have a material impact to the Company’s consolidated financial position and results of operations.

The Company obtained a third party independent valuation to assist in the determination of the fair value of the land and buildings acquired. The valuation utilized the fair value, market value, and market rent to determine the fair value of the land and buildings acquired. The Company performed a valuation of the customer relationships using the income approach to estimate the fair value. The valuation of these assets was performed using Level III inputs, as the calculated fair values are based on valuation models that utilize unobservable inputs that are significant to the overall fair value measurement. The unobservable inputs reflect the Company’s best estimate of what a market participant would use to determine the value of acquired assets based on the best information available in the circumstances. Intangible assets acquired include customer and supplier relationships, with a useful life of three years. See Note - 7 — Intangibles, Net.

The Hills acquisition did not result in a significant change in the Company’s consolidated results of operations; therefore, pro forma financial information has not been presented. The operating results have been included in the Company’s consolidated financial position and results of operations since the acquisition date.

NOTE 3 — Accounts Receivable, Net

Accounts receivable, net consisted of:

						July 31,
(In thousands)						2022						2021
Advance charges receivable						$	440,650					$	385,002
Trade accounts receivable						137,243						97,249
Other receivables						7,257						4,013
						585,150						486,264
Less: Allowance for credit loss						(6,577)						(5,636)
Accounts receivable, net						$	578,573					$	480,628

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.

NOTE 4 — Property and Equipment, Net

Property and equipment, net consisted of the following:

						July 31,
(In thousands)						2022						2021
Land						$	1,526,446					$	1,428,262
Buildings and improvements						1,209,331						1,126,414
Transportation and other equipment						429,405						326,622
Office furniture and equipment						84,728						79,928
Software						78,216						66,170
						3,328,126						3,027,396
Less: Accumulated depreciation and amortization						(842,362)						(730,772)
Property and equipment, net						$	2,485,764					$	2,296,624

Depreciation expense on property and equipment was $121.3 million, $105.5 million and $82.1 million for the years ended July 31, 2022, 2021 and 2020, respectively. Amortization expense of software was $9.2 million, $9.5 million and $10.4 million for the years ended July 31, 2022, 2021 and 2020, respectively.

NOTE 5— 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)									2022						2021
Operating lease expense									$	27,668					$	28,302
Finance lease expense:
			Amortization of right-of-use assets						520						612
			Interest on finance lease liabilities						5						65
Short-term lease expense									5,649						4,472
Variable lease expense									1,466						1,586
Total lease expense									$	35,308					$	35,037

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, 2022						July 31, 2021
Operating lease right-of-use assets						Operating lease right-of-use assets						$	116,303					$	119,487
Finance lease right-of-use assets						Property and equipment, net						50						563
Total lease assets, net												$	116,353					$	120,050
Operating lease liabilities - current						Current portion of operating and finance lease liabilities						$	21,771					$	21,942
Finance lease liabilities - current						Current portion of operating and finance lease liabilities						23						530
Operating lease liabilities - non-current						Operating and finance lease liabilities, net of current portion						95,670						97,925
Finance lease liabilities - non-current						Operating and finance lease liabilities, net of current portion						13						36
Total lease liabilities												$	117,477					$	120,433

The weighted-average remaining lease terms and discount rates as of July 31, 2022 were as follows:

						Weighted-Average Remaining Lease Term (In years)						Weighted-Average Discount Rate**(1)**
Operating leases						9.12						2.77		%
Finance leases						1.54						2.8		%

(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, 2022 were as follows (In thousands):

									Year Ended July 31,
(In thousands)									2022						2021
Cash paid for amounts included in the measurement of lease liabilities
			Operating cash flows related to operating leases						$	26,620					$	28,576
			Operating cash flows related to finance leases						5						65
			Financing cash flows related to finance leases						530						1,118
Right-of-use assets obtained in exchange for new operating lease liabilities									24,217						41,770
Right-of-use assets obtained in exchange for new finance lease liabilities									—						—

The annual maturities of the Company’s lease liabilities as of July 31, 2022 were as follows:

Fiscal year (In thousands)						Finance leases						Operating leases
2023						$	24					$	24,650
2024						13						20,119
2025						—						17,683
2026						—						14,403
2027						—						10,428
Thereafter						—						48,447
Total future lease commitments						$	37					$	135,730
Less: imputed interest						(1)						(18,289)
Present value of lease liabilities						$	36					$	117,441

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, 2022 were as follows:

Fiscal year (In thousands)						Operating leases
2023						$	5,671
2024						5,533
2025						5,490
2026						5,194
2027						5,209
Thereafter						9,365
Total future lease payments receivable						$	36,462

The cost of the leased space was $51.2 million and $55.5 million as of July 31, 2022 and 2021, respectively. The accumulated depreciation associated with the leased assets was $2.8 million and $1.9 million as of July 31, 2022 and 2021, 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 $14.8 million for the years ended July 31, 2022 and 2021, respectively, and is included within Service revenues on the consolidated statements of income.

NOTE 6 — Goodwill

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

						July 31,
(In thousands)						2022						2021
Beginning balance						$	355,717					$	343,622
Acquisitions during the period						56,051						7,882
Effect of foreign currency exchange rates						(9,814)						4,213
Ending balance						$	401,954					$	355,717

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 goodwill impairment analysis, which was performed qualitatively during the fourth quarter of fiscal 2022 and 2021, 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.

NOTE 7 — 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)						2022						2021						2022						2021						2022						2021						2022						2021
Amortized intangibles:
Supply contracts and customer relationships						$	71,875					$	55,598					$	(27,297)					$	(21,739)					$	44,578					$	33,859					5						7
Trade names						18,896						18,944						(8,867)						(7,163)						10,029						11,781						5						6
Licenses and databases						633						736						(560)						(503)						73						233						1						2
Total Intangibles						$	91,404					$	75,278					$	(36,724)					$	(29,405)					$	54,680					$	45,873

Aggregate amortization expense on intangible assets was $7.5 million, $6.9 million and $8.9 million for the years ended July 31, 2022, 2021 and 2020, respectively.

Intangible amortization expense for the next five fiscal years based upon July 31, 2022 intangible assets is expected to be as follows (In thousands):

2023						$	13,083
2024						12,801
2025						11,242
2026						5,969
2027						5,826
Thereafter						5,759
Total future intangible amortization expense						$	54,680

NOTE 8 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

						July 31,
(In thousands)						2022						2021
Accounts payable to sellers						$	132,294					$	123,642
Buyer deposits and prepayments						121,931						105,369
Trade accounts payable						54,876						39,595
Accrued compensation and benefits						47,206						50,688
Taxes payable						6,906						10,953
Accrued insurance						6,658						8,328
Other accrued liabilities						29,163						31,251
Total accounts payable and accrued expenses						$	399,034					$	369,826

The Company is required to charge for and collect value added taxes ("VAT") on its sales on behalf of 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 9 — Long-Term Debt

Credit Agreement

On December 21, 2021, the Company entered into a Second Amended and Restated Credit Agreement by and among Copart, certain subsidiaries of Copart party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement amends and restates certain terms of the First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among Copart, the lenders party thereto, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank, National Association) (the “Existing Credit Agreement”). The Second 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 Second Amended and Restated Credit Agreement (the “Revolving Loan Facility”) to $1,250.0 million, (b) an increase in the letter of credit sublimit from $60.0 million to $100.0 million, (c) addition of Copart UK Limited, CPRT GmbH and Copart Autos España, S.L.U., each a wholly-owned direct or indirect foreign subsidiary of Copart, as borrowers, (d) addition of the ability to borrow under the Second and Amended and Restated Credit Agreement in certain foreign currencies including Pounds Sterling, Euro and Canadian Dollars, (e) extension of the maturity date of the revolving credit facility under the Existing Credit Agreement from July 21, 2023 to December 21, 2026, (f) replacing the LIBOR interest rate applicable to U.S. Dollar denominated borrowings with a SOFR-based interest rate, and (g) changing the pricing levels with respect to the revolving loans as further described below.

The Second and Amended and Restated Credit Agreement provides for the Revolving Loan Facility of $1,250.0 million maturing on December 21, 2026 (including up to $550.0 million equivalent of borrowings in Pounds Sterling, Euro and Canadian Dollars) with a $150.0 million equivalent sub-facility available to CPRT GmbH, a $150.0 million equivalent sub-facility available to Copart Autos España, S.L.U. and a $250.0 million equivalent sub-facility available to Copart UK Limited. 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.

Borrowings under the Second Amended and Restated Credit Agreement bear interest based on, at our option, either (1) the applicable fixed rate plus 1.00% to 1.75% or (2) the daily rate plus 0% to 0.75%, in each case, depending on Copart’s consolidated total net leverage ratio. Additionally, the unused revolving commitments under the Second Amended and Restated Credit Agreement are subject to the payment of a customary commitment fee at a range of 0.175% to 0.275%, depending on Copart’s consolidated total net leverage ratio. The applicable fixed rates described above with respect to borrowings denominated in (1) U.S. Dollars is SOFR plus certain “spread adjustments” described in the Second Amended and Restated Credit Agreement, (2) Pounds Sterling is SONIA plus certain “spread adjustments” described in the Second Amended and Restated Credit Agreement, (3) Euro is EURIBOR, and (4) Canadian Dollars is CDOR. The Company had no outstanding borrowings under the Revolving Loan Facility as of as of July 31, 2022 or 2021.

The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Second Amended and Restated 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 Documents Confirmation Agreement as part of the Second Amended and Restated Credit Agreement.

The Second Amended and Restated 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 Second Amended and Restated 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, 2022, the consolidated total net leverage ratio was (0.80):1. Minimum liquidity requirement as of July 31, 2022 was $2.6 billion. Accordingly, the Company does not believe that the provisions of the Second Amended and Restated 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 Second Amended and Restated Credit Agreement as of July 31, 2022.

Related to the execution of the second Amended and Restated Credit Agreement, the Company incurred $2.7 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 on each of the Senior Notes was due and payable quarterly, in arrears. The Company used proceeds from the Note Purchase Agreement for general corporate purposes.

Subsequently on May 24, 2022, the Company retired 100% of the Senior Notes*.* The Company paid $420.6 million to retire the Senior Notes which included an additional $16.8 million make-whole payment, to the holders of the Senior Notes, and $3.8 million in accrued interest.

NOTE 10 – Fair Value Measurements

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, 2022												July 31, 2021
(In thousands)			Carrying Value Total												Fair Value Total						Carrying Value Total												Fair Value Total
Assets
Cash equivalents			$	1,236,990											$	1,237,337					$	754,300											$	754,304
Total Assets			$	1,236,990											$	1,237,337					$	754,300											$	754,304
Liabilities
Long-term fixed rate debt, including current portion			$	—											$	—					$	399,733											$	432,027
Total Liabilities			$	—											$	—					$	399,733											$	432,027

During the year ended July 31, 2022, 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 9 — Long-Term Debt.

NOTE 11 — 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)						2022						2021						2020
Weighted average common shares outstanding						237,419						236,252						233,202
Effect of dilutive securities						3,732						4,038						5,454
Weighted average common and dilutive potential common shares outstanding						241,151						240,290						238,656

There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 3,722,762; 4,090,250; and 1,575,167 options to purchase the Company’s common stock for the years ended July 31, 2022, 2021 and 2020, respectively, because their inclusion would have been anti-dilutive.

NOTE 12 — 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 238,040,974 shares were issued and outstanding at July 31, 2022. As of July 31, 2022 and 2021, the Company had reserved 14,378,120 and 15,326,030 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 1,100,458 and 1,194,213 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, 2022 or 2021, 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 2022 and 2021, the Company did not repurchase any shares of its common stock under the program. As of July 31, 2022, 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 2020, the Company’s Chief Executive Officer (now Co-CEO) exercised all of his vested stock options through a cashless exercise. In fiscal 2021, certain employees exercised stock options through a cashless exercise. In fiscal 2022, no employee 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 $0.0 million, $3.8 million and $101.3 million during the years ended July 31, 2022, 2021 and 2020, 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 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
FY 2022						—						—						—						—						—						—						—

(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, 2022, 2021 and 2020 was 93,755; 109,379; and 123,106; respectively. As of July 31, 2022, there were 8,979,616 shares of common stock issued pursuant to the ESPP and 1,100,458 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, 2022, 6,388,684 shares were available for grant under the Plan and the number of options that were in-the-money was 7,005,578 at July 31, 2022.

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)						2022						2021						2020
General and administrative						$	33,838					$	35,633					$	17,567
Yard operations						5,127						5,289						5,755
Total stock-based compensation						$	38,965					$	40,922					$	23,322

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2022 and 2021. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award.

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,
						2022																		2021																		2020
Expected life (in years)						5.1						—			6.8									5.2						—			6.3									5.4						—			5.7
Risk-free interest rate						0.82			%			—			2.7			%						0.42			%			—			1.23			%						0.29			%			—			1.67			%
Estimated volatility						27.9			%			—			30.0			%						26.3			%			—			28.7			%						21.7			%			—			27.6			%
Expected dividends						—												%						—												%						—												%
Weighted average fair value at measurement date						$	42.37																	$	30.43																	$	21.54

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 does not expect to 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 $28.1 million, $39.0 million and $71.6 million for the years ended July 31, 2022, 2021 and 2020, respectively.

A summary of the status of the Company’s unvested stock options awards and its activity during the year ended July 31, 2022 was as follows:

(In thousands, except per share amounts)						Shares						Weighted Average Grant- date Fair Value
Unvested shares at July 31, 2021						3,261						$	22.80
Grants of non-vested shares						665						44.94
Vested						(1,331)						21.72
Forfeitures or expirations						(201)						18.36
Unvested shares at July 31, 2022						2,394						$	29.71

The following is a summary of activity for the Company’s stock options for the year ended July 31, 2022:

(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, 2021						6,427						$	50.69					5.69						$	619,019
Grants of options						340						133.96
Exercises						(905)						31.06
Forfeitures or expirations						(165)						56.11
Outstanding as of July 31, 2022						5,697						$	58.62					5.50						$	398,331
Exercisable as of July 31, 2022						4,270						$	47.28					4.73						$	346,616
Vested and expected to vest as of July 31, 2022						5,637						$	58.12					5.47						$	396,947

The Company grants option awards to certain executives that contain service and market conditions. The options will become exercisable over five years, subject to continued service by the executive, with 20% vesting on the first anniversary of the grant date 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 a market condition requiring the trading price of Copart, Inc. common stock on the NASDAQ Global Select Market to be greater than or equal to 125% of the exercise price of the options, determined both (i) at the time of any exercise, and (ii) based on the closing price on each of the twenty consecutive trading days preceding the date of any exercise. The exercise price of the options is equivalent to the closing price of the Company’s common stock on the grant date. The fair value of the awards is determined at the grant date using either the Lattice or Monte Carlo model, risk-free interest rates ranging from 0.71% to 2.38%, estimated volatility ranging from 25.2% to 25.7%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five-year service period for these options is $45.9 million and will be recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $9.8 million, $13.1 million and $1.6 million in compensation expense related to these awards for the year ended July 31, 2022, 2021 and 2020, respectively.

The following is a summary of activity for the Company’s stock option awards subject to market conditions for the year ended July 31, 2022:

(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, 2021						1,130						$	87.49					8.96						$	67,250
Grants of options						325						125.68
Exercises						—						—
Forfeitures or expirations						(50)						106.31
Outstanding as of July 31, 2022						1,405						$	95.65					8.33						$	45,590
Exercisable as of July 31, 2022						438						$	86.08					7.91						$	18,406
Vested and expected to vest as of July 31, 2022						1,396						$	95.59					8.33						$	45,402

The aggregate intrinsic value in the tables 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, 2022 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, 2022. The aggregate intrinsic value of options exercised was $30.5 million, $143.3 million and $476.3 million in the years ended July 31, 2022, 2021 and 2020, 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, 2022, 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 $68.1 million. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.08 years. The fair value of options vested for the years ended July 31, 2022, 2021 and 2020 was $29.0 million, $19.0 million and $19.2 million, respectively.

The following table summarizes stock options outstanding and exercisable as of July 31, 2022:

(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
$17.47			—			$18.23						929						2.53						$	17.88					929						$	17.88
$18.61			—			$31.24						726						3.80						23.73						726						23.73
$33.74			—			$83.27						2,389						5.71						48.35						1,875						46.23
$85.04			—			$145.62						3,058						7.94						104.30						1,178						101.06
Outstanding as of July 31, 2022												7,102						6.06						$	65.94					4,708						$	50.89

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, 2022:

(In thousands, except per share data)						Restricted Shares						Weighted Average Grant Date Fair Value
Outstanding as of July 31, 2021						102						$	90.46
Grants						142						133.53
Vested						(49)						98.96
Forfeitures or expirations						(18)						112.18
Outstanding as of July 31, 2022						177						$	120.56

NOTE 13 — Income Taxes

Income before taxes consisted of the following:

						Year Ended July 31,
(In thousands)						2022						2021						2020
U.S.						$	1,241,177					$	1,022,134					$	740,171
International						99,777						99,712						60,668
Total income before taxes						$	1,340,954					$	1,121,846					$	800,839

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

						Year Ended July 31,
(In thousands)						2022						2021						2020
Federal:
Current						$	179,840					$	135,216					$	53,942
Deferred						14,115						(4,259)						21,019
						193,955						130,957						74,961
State:
Current						33,078						34,302						12,095
Deferred						1,689						(3,489)						565
						34,767						30,813						12,660
International:
Current						23,247						23,575						13,333
Deferred						(1,145)						6						(22)
						22,102						23,581						13,311
Income tax expense						$	250,824					$	185,351					$	100,932

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)						2022						2021						2020
Federal statutory rate						21.0		%				21.0		%				21.0		%
State income taxes, net of federal income tax benefit						1.3		%				1.5		%				1.6		%
International rate differential						(0.5)		%				(0.5)		%				0.1		%
Compensation and fringe benefits (1)						(0.6)		%				(1.9)		%				(11.2)		%
FDII and/or GILTI						(2.8)		%				(3.1)		%				(0.3)		%
Federal return to provision adjustment						0.6		%				(1.8)		%				—		%
Federal amended return adjustment						(1.3)		%				—		%				—		%
Other differences						1.0		%				1.3		%				1.4		%
Effective tax rate						18.7		%				16.5		%				12.6		%

(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)						2022						2021
Deferred tax assets:
Allowance for credit loss						$	1,210					$	942
Accrued compensation and benefits						16,965						15,541
State taxes						—						—
Operating lease liabilities						24,379						25,176
Accrued other						5,053						4,551
Deferred revenue						4,560						4,239
Losses carried forward						29,936						24,384
Federal tax benefit						14,542						12,242
Total gross deferred tax assets						96,645						87,075
Less: Valuation allowance						(29,171)						(24,987)
Net deferred tax assets						67,474						62,088
Deferred tax liabilities:
Vehicle pooling costs						(23,655)						(20,241)
Property and equipment						(72,975)						(55,047)
Operating lease right-of-use assets						(24,369)						(25,253)
Other prepaids						(728)						(461)
Intangibles and goodwill						(25,431)						(24,602)
Total gross deferred tax liabilities						(147,158)						(125,604)
Net deferred tax liabilities						$	(79,684)					$	(63,516)

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. 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 Company has no GILTI inclusion for the fiscal year ended July 31, 2022.

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 had a material impact to the effective income tax rate and income tax expense for the fiscal year ended July 31, 2022.

The Company’s effective income tax rates were 18.7%, 16.5%, and 12.6% for fiscal 2022, 2021 and 2020, respectively. The Company’s U.S. federal statutory tax rate for fiscal years 2022, 2021 and 2020 was 21.0%. The effective tax rate for the fiscal year ending July 31, 2022 was unfavorably impacted by $8.2 million of discrete tax adjustments made in connection with finalizing the Company’s fiscal year 2021 tax return, favorably impacted by $17.0 million of discrete tax items related to amending previously filed income tax returns, and favorably impacted by a $37.2 million FDII deduction in the current year. The effective tax rate for the 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 the 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 rates were also impacted by the recognition of excess tax benefits from the exercise of employee stock-based compensation of $14.4 million, $29.8 million, and $92.5 million, for fiscal years ended July 31, 2022, 2021 and 2020, respectively.

The Company invested in renewable energy which is expected to generate investment tax credits of approximately $10 million the Company can utilize to reduce its tax liability on its fiscal year 2022 tax return.

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. During fiscal year 2022, the Company recorded a $4.2 million increase in valuation allowances primarily due to additional operating losses generated in foreign jurisdictions unlikely to be realized.

As of July 31, 2022 and 2021, the Company had foreign operating losses of $29.9 million and $24.4 million, respectively. The foreign operating losses, subject to certain limitations, usually can be carried forward indefinitely. However, these losses are subject to valuation allowance based on realizability. The valuation allowance for the fiscal year ended July 31, 2022 and 2021 was $29.2 million and $25.0 million, respectively, which are primarily related to operating losses in certain foreign jurisdictions.

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

						July 31,
(In thousands)						2022						2021						2020
Beginning balance						$	47,061					$	36,123					$	27,537
Increases related to current year tax positions						14,809						13,122						8,196
Prior year tax positions:
Increases recognized during the period						1,393						8,782						6,390
Decreases recognized during the period						(2,163)						(5,749)						(1,603)
Cash settlements during the period						(3,524)						(3,261)						(1,182)
Lapse of statute of limitations						(1,822)						(1,956)						(3,215)
Ending balance						$	55,754					$	47,061					$	36,123

As of July 31, 2022 and 2021, 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 $44.2 million and $37.8 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, 2022, 2021 and 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $8.9 million, $7.2 million and $8.9 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 2016 and 2019. 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, 2022, no deferred tax was therefore provided. The undistributed earnings, as of July 31, 2022, were estimated to be approximately $300.0 million. The Company believes it is not practicable 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. However, the Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings.

NOTE 14 — 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, 2022
(In thousands)						United States						International						Total
Service revenues						$	2,533,165					$	319,875					$	2,853,040
Vehicle sales						411,985						235,896						647,881
Total service revenues and vehicle sales						2,945,150						555,771						3,500,921
Yard operations						1,123,986						185,511						1,309,497
Cost of vehicle sales						380,928						204,275						585,203
General and administrative						192,667						38,557						231,224
Operating income						$	1,247,569					$	127,428					$	1,374,997
Depreciation and amortization, excluding debt costs						$	120,635					$	17,350					$	137,985
Capital expenditures, including acquisitions						297,632						146,420						444,052
Total assets						4,615,788						693,076						5,308,864
Goodwill						270,269						131,685						401,954

						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

NOTE 15 — 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 $23.4 million at July 31, 2022, 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 16 — 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 17 — Related Party Transactions

There were no amounts due to or from related parties as of July 31, 2022 and 2021.

NOTE 18 — Employee Benefit Plan

The Company sponsors a 401(k) defined contribution plan covering its eligible employees. The plan is available to all U.S. employees who meet minimum age and service requirements and provides employees with tax deferred salary deductions and alternative investment options. The Company matches 20% of employee contributions up to 15% of employee salary deferral. The Company recognized expenses of $1.9 million, for the years ended July 31, 2022, and $1.9 million, for the year ended July 31, 2021and 2020, 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, $1.4 million, and $1.2 million for the years ended July 31, 2022, 2021 and 2020, respectively, related to this plan.