D
U
R
I
N
G
UNPRECE D E N T
T I M ES
D
E
14185 Dallas Pkwy., Suite #300 | Dallas, TX 75254 | Ph: 972-391-5000
Copart, Inc.
2020 annual report
A Comprehensive Financial Year in Review
Photos were taken prior to and during COVID-19, which is why some do not
show staff social distancing or wearing masks.
2020 HIGHLIGHTS
2016
2017
2018
2019
2020
As of July 31,
(In thousands, except per share amounts)
OPERATING RESULTS ($)
Revenue .......................................................................
Operating Income......................................................
EBITDA ..........................................................................
Impairment ...................................................................
Depreciation and Amortization .............................
Other Expense ...........................................................
Income Before Taxes ................................................
Net Income ..................................................................
1,268,449
406,470
455,045
—
(48,575)
(10,605)
395,865
270,360
1,447,981
461,299
537,664
(19,365)
(57,000)
(21,199)
440,100
394,261
Basic Net Income Per Common Share ................
Basic Weighted Average Shares...........................
1.18
228,846
1.72
228,686
Diluted Net Income Per Common Share ............
Diluted Weighted Average Shares .......................
1.11
244,295
1.66
237,019
1,805,695
584,345
664,074
(1,131)
(78,598)
(21,834)
562,511
418,007
1.80
231,793
1.73
241,877
BALANCE SHEET DATA ($)
Cash, Cash Equivalents, and Restricted Cash .....
Working Capital ..........................................................
Total Assets .................................................................
Total Debt .....................................................................
Stockholders’ Equity.................................................
155,849
220,523
1,649,820
640,492
774,456
210,100
285,108
1,982,501
633,038
1,098,600
274,520
431,860
2,307,698
399,898
1,581,099
2,041,957
716,475
801,370
—
(84,895)
(11,524)
704,951
591,693
2.57
230,489
2.46
240,453
186,319
405,163
2,547,617
401,229
1,778,381
2,205,583
816,099
917,489
—
(101,390)
(15,260)
800,839
699,907
3.00
233,202
2.93
238,656
477,718
607,715
3,455,261
397,787
2,489,516
REVENUE (in millions)
NET INCOME (in millions)
OPERATING INCOME (in millions)
2,400
2,100
1,800
1,500
1,200
900
600
300
0
16
17
18
19
20
800
700
600
500
400
300
200
100
0
900
800
700
600
500
400
300
200
100
0
16
17
18
19
20
16
17
18
19
20
EBITDA (in millions)
DILUTED EPS (in dollars)
G&A EXPENSES (in millions)
1000
900
800
700
600
500
400
300
200
100
0
16
17
18
19
20
3.0
2.5
2.0
1.5
1.0
0.5
0
200
180
160
140
120
100
80
60
40
20
0
16
17
18
19
20
16
17
18
19
20
A LETTER FROM COPART’S CEO
This calendar year 2020 will no doubt be remembered for the most
disruptive social and economic event of our lifetimes – the arrival of the
COVID-19 pandemic and its eff ects on society, business, education, our
health care system, and every other corner of our lives. In the second half of
our fi scal year, we observed disruptions on a scale that we have never seen
before – massive increases in unemployment; shutdowns of schools, gyms,
and businesses across our economy; stay-at-home orders; and of course
the illnesses, hospitalizations and deaths of collectively millions of people.
We wish we all could have avoided the pandemic and yearn for a return to
a fully functioning society. However, in times of crisis, at Copart, we seek to
distinguish ourselves in how we serve our customers, our people, and the
communities in which we live. While we cannot claim to have anticipated
this event, we do believe we were uniquely prepared for it.
Throughout the pandemic, we have taken very seriously our responsibility
to extend the maturity and expand the size of its undrawn revolving
credit facility to $1.05 billion. In a time of crisis, our customers have an
abundance of concerns and disruptions of their own – they know that
Copart, however, is a bedrock service provider with the balance sheet to
serve them well under virtually any circumstances.
We are a relentlessly process-oriented company. We adapted our business
processes on the fl y to accommodate the workfl ow modifi cations that our
customers required, including virtualizing many of the appraisal functions
they had previously conducted in person. We enabled many of our
employees to work remotely. And we refused to accept the notion that we
were merely “stabilizing” our business – instead we continued deploying
new processes and new technologies, and recruiting more buyers for
our vehicles. We have picked up cars even faster during the pandemic
crisis than beforehand when we were already the industry leader. We
to the communities in which we do business. In most of these jurisdictions,
have generated record-high selling prices and record-high growth rates
government agencies have consistently recognized the essential nature of
in selling prices for our vehicles, substantially eclipsing the increases
our business. Our uninterrupted retrieval and remarketing of vehicles from
we’ve observed in prices for used cars. Despite many global currencies
impound yards, repair shops, and our roads and highways has enabled the
depreciating relative to the U.S. dollar, we have more views, bidders, and
smooth functioning of the roadways in most of the countries in which we do
bids, than ever before in the history of our auctions, and have achieved
business. As a society, we are acutely dependent on our road infrastructure
record selling prices in every market in which we do business.
and the free fl ow of delivery vehicles, fi rst responders, and commuters.
There remain a multitude of open questions that the pandemic has raised
Although we don’t know how and when this crisis will resolve itself, we do
about society, our industry, and our business, with near and long-term
believe that in hindsight, we will see that our core principles served us well.
ramifi cations. When will a vaccine or treatment solutions enable us to return
to “normal”? For how long will driving activity remain suppressed, and to
As a company, we have embraced and leveraged technology since our
what extent? Will elevated values for durable goods persist, particularly
inception. Technology enables us to serve our customers more effi ciently and
for the various types of vehicles that Copart remarkets? How much will
to achieve superior results. While other industry participants were compelled
higher selling prices drive total loss frequency upwards in the near and
by the pandemic to adapt their auctions to a virtual format, we benefi ted
medium term? Will companies adopt and maintain permanent remote work
from having made this specifi c migration 17 years ago. We recognized,
arrangements? Will mass transit and air travel lose share to driving?
even then, that all-digital auctions not only generated higher returns for
our customers; they also mitigated the risk of various forms of business
The transparent answer on the future of pandemic-related matters is “we
interruption, including inclement weather – and now a global pandemic.
don’t know yet,” and the correct answer is “it doesn’t matter.” Because
We’re grateful for having made that leap so long ago, and with the benefi t
regardless of the specifi c answers to the above, we will invest in serving
of countless iterative enhancements since. Technology has also enabled us
to keep our employees, customers, members, and service providers safe –
when the crisis fi rst emerged in our major markets, in a matter of 48 hours, we
developed and deployed to our facilities an in-house SMS-enabled Virtual
Queue product to allow our customers, members, and service providers to
await service in the comfort of their own vehicles instead of a crowded offi ce.
Copart has always chosen to maintain a conservative balance sheet.
In good times, our approach may appear too prudent. But, during the
COVID-19 crisis, our capitalization meant that our focus was not on
liquidity and covenants, but instead on our customers, employees, and
our customers and growing our business.
Here is what we know:
Total loss frequency will continue its 40+ year trend of rising virtually
every year. As vehicle complexity increases and repair costs rise, still more
cars will be totaled year after year. We are not just passive benefi ciaries of
these forces – our active cultivation of global buyers and market-leading
auction technology generates the returns that cause insurance carriers
to total more vehicles. Total loss frequency has grown approximately six-
fold in 40 years, not just because repairing a vehicle is less economically
members. We did not suspend capital expenditures in support of our
business; instead we accelerated them – in FY2020 alone, we invested
attractive, but because totaling a car and auctioning it to the highest
bidder worldwide has become more economically attractive.
over $600 million and added 2,000 acres of owned land to our portfolio.
Instead of widespread cost-cutting measures, we continued to recruit,
hire, develop, and promote the talented people who are the lifeblood of
our business. We were the rare company at the height of the pandemic
We will invest in our growth internationally. In Germany for example, we
are now operating in 12 yards and hosting auctions twice a week. We
are achieving record-high returns at our Copart auctions and record-high
spreads in comparison to values provided by listing services who are the
incumbent price discovery mechanism for German insurance carriers.
We are serving German insurance carriers on a consignment basis and
expect to further demonstrate the superiority of the Copart model, both
for reduced loss expenses, but also a better policyholder experience.
We will grow our non-insurance business. In Copart’s early days, many of
the cars we auctioned were sold for their metal content, as a more effi cient
substitute for de novo metals extraction from the earth. Years later, we sold
vehicles that were instead harvested for parts, substantially raising their
value. Today, we sell many of our insurance cars as repairable, drivable
vehicles. Our member base has become the natural audience for an
increasing population of undamaged cars as well. For example, our dealer
business continues to grow substantially, a byproduct of our naturally
expanding addressable market, as well as our proactive sales eff orts. Our
Division, to become Copart’s Chief Operating Offi cer. I have worked with
Steve for 25 years since our acquisition of NER (otherwise known as New
England Recovery). Steve leads Copart’s operations team, consisting
of over 4,500 employees across more than 200 locations, optimizing
processes and technology to ensure excellent service for Copart’s
customers and members. He will no doubt continue to raise the bar in our
operations and exceed our customer’s expectations. We also hired Scott
Booker as our Chief Marketing Offi cer and Chief Product Offi cer. Scott
leads Copart’s eff orts to recruit, retain, empower, and serve the company’s
global member network via robust and strategic web, promotional,
public relations, creative and international marketing campaigns. In his
product leadership role, Scott is responsible for evaluating, building,
and enhancing Copart’s product portfolio. Additionally, we are excited
to welcome John North as Chief Financial Offi cer. John leads Copart’s
fi nance and accounting functions to help enable the company’s ongoing
auctions create and benefi t from the classic fl ywheel eff ect – every vehicle
profi table growth. John brings a wealth of prior experience in a 20+ year
we auction, whatever the source, location, vehicle type, age, or condition –
career in related industries – his judgment, leadership skills, and analytical
invariably supports the outcome of the next vehicle we sell.
capabilities will help us achieve our objectives.
We will invest in land, technology, and people. When we announced our
20-20-20 land acquisition project in April 2016, we declared internally and
externally our intentions to invest massive resources in expanding capacity.
These leaders will bring new perspectives and ideas that will contribute to
the innovation engine that is core to who we are.
History proves that we were not nearly ambitious enough. In the past fi ve
While the world around us has arguably never felt more uncertain, I have
years alone, we have invested more in our land and technology than we
never had this much conviction in who we are and where we’re going. We
did in the preceding 21 years since Copart became a public company.
have the right values, people, processes, technology, and assets to serve
Copart will continue its commitment to environmental stewardship. We
of course adhere to the environmental regulations in the places we do
crisis of 2008-2009, we learned that our business model was recession
resistant; in 2020, we learned that we could support our customers and
our customers and communities for decades to come. During the fi nancial
business, but we aspire to do much more. And at our core, our business
succeed in a global pandemic.
plays a crucial role in enabling the recycling, refurbishing, and reuse of
metals, parts, and vehicles. We’ll have much more to say, including on
Copart President Jeff Liaw and I thank you for all your continued support, and
quantifying the benefi ts of these activities, in future years.
we thank our employees for their relentless commitment to our customers.
In any other year, I would have written at length about the new additions to
Copart’s senior leadership team. First, we extend our best wishes to Sean
Eldridge, who retired as Copart’s Chief Operating Offi cer after a storybook
30-year career with Copart. I hired Sean at Yard 1 to wash cars – through
his intellect, work ethic, selfl essness, and leadership skills, he advanced
to the senior-most ranks of the company and no doubt played a
signifi cant role in making Copart what it is today. I have
enjoyed working with you all these years, Sean.
Thank you! We promoted Steve Powers,
previously Vice President of our Eastern
Jay Adair
CEO
GLOBAL FOOTPRINT
AR
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Location Legend
Copart Lounges with
Authorized Representative
AR
Authorized Representative
© Jakob Ebrey Photography
AR
LITH.
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Copart Buyers
es
es
AR
COPART’S SUCCESS
Geared to Win
Copart was rightly optimistic about being able to continue providing top notch customer service when
the world was impacted by COVID-19. Because 100% of Copart auctions were already online, our
E-SIGN
E-Signatures
LP LOG
Loan Payoff with LOG
Copart’s E-Sign allows vehicle sellers to
Loan Payoff with Letter of Guarantee
generate state-approved documents,
such as Powers of Attorney and
Odometer Disclosures, securely send
them to vehicle owners and get them
signed for electronic signatures. The
allows sellers to digitally obtain real-
time payoff quotes with per diem and
request letters of guarantee from
lenders. This saves both insurance
carriers and lenders valuable time
benefi ts to our insurance partners are
and resources.
reduced costs, better compliance, quicker
turnaround, and customer satisfaction.
3
9
9
1
-
2
8
9
1
2
8
9
1
First Copart
location opened
in Vallejo,
California
Copart opens 11
locations in Northern
California, Texas and
the Pacific Northwest.
4
9
9
1
Copart became a public
company and debuted
on the NASDAQ under
the symbol "CPRT."
5
9
9
1
6
9
9
1
Copart goes nationwide
Copart.com
8
0
0
2
Copart opens website
to the public.
0
1
0
2
400k+
Member base grows to
more than 400,000.
2
1
0
2
Copart expands international
presence to UAE, Brazil and
Germany and moved its
Global Headquarters to
Dallas, Texas
5
1
0
2
Copart expands
international pres
to Bahrain and th
Sultanate of Oma
members continued to search, bid on and purchase vehicles as usual. We immediately focused on
enhancing our existing technology to provide an even safer experience. Below are highlights of new and
enhanced off erings for Copart buyers and sellers in Fiscal Year 2020.
Virtual
Queue
Copart’s Virtual Queue was developed
in March 2020 to provide visitors with
a convenient and safe way to secure
a place in line while visiting a Copart
location. Yard visitors simply scan a
QR code at the location entrance or
use the Copart Mobile App to join in a
virtual line to be helped by a customer
service agent.
Copart has accepted online
payments via credit card for
years. In 2020, we made it easier
for our members to pay for their
registration by adding Apple Pay,
Google Pay and PayPal to the list of
accepted payment types.
1
0
0
2
-
8
9
9
1
First to accept proxy bids
for online bidding, first to
post images online, and
first to launch hybrid
auction model.
3
0
0
2
Copart expands to 100
locations, opens its first yard
in Canada, and is the first in
the industry to launch its
proprietary 100% online
auction platform, VB2.
7
0
0
2
m launches
Copart expands to the
United Kingdom.
7
1
0
2
8
1
0
2
Acquires National
Powersport Auctions
(NPA), one of the top
powersport remarketing
providers.
sence
he
an.
0
2
0
2
9
1
0
2
Copart expands
international
presence to Finland.
Copart.com and auction
platform refresh
Copart created and adopted Virtual
Queue which is an alternative to
physical lines for visitors waiting for
assistance at locations.
COPART’S NEW AND
EXPANDED LOCATIONS IN 2020
NEW
LOCATION
EXPANDED
LOCATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number: 000-23255
COPART, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
000-23255
(Commission
File Number)
94-2867490
(I.R.S. Employer
Identification No.)
14185 Dallas Parkway Suite 300 Dallas Texas 75254
(Address of principal executive offices, including zip code)
(972) 391-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001
Trading Symbol(s)
CPRT
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Act:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting Common Stock held by non-affiliates of the registrant as of January 31, 2020 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $20,623,302,411 based upon the closing sales price reported for such date on the NASDAQ Global Select
Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held
by officers and directors of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily
conclusive for other purposes.
As of September 25, 2020, 235,971,920 shares of the registrant’s common stock were outstanding.
Portions of our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, also referred to in this Annual Report on Form 10-K as
our Proxy Statement, which will be filed with the Securities and Exchange Commission, or SEC, pursuant to Regulation 14A within 120 days after the
registrant’s fiscal year end of July 31, 2020, have been incorporated by reference in Part III hereof. Except with respect to the information specifically
incorporated by reference, the Proxy Statement is not deemed to be filed as a part hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Copart, Inc.
Index to the Annual Report on Form 10-K
For the Fiscal Year Ended July 31, 2020
TABLE OF CONTENTS
PART I ................................................................................................................................................................................
Business ...............................................................................................................................................
Item 1.
Industry Overview ...............................................................................................................................
Operating and Growth Strategy ..........................................................................................................
Our Competitive Advantages ..............................................................................................................
Our Business Segments .......................................................................................................................
Our Service Offerings .........................................................................................................................
Sales .....................................................................................................................................................
Members ..............................................................................................................................................
Competition .........................................................................................................................................
Management Information Systems ......................................................................................................
Employees ............................................................................................................................................
Environmental Matters ........................................................................................................................
Governmental Regulations ..................................................................................................................
Intellectual Property and Proprietary Rights ......................................................................................
Seasonality ...........................................................................................................................................
Item 1A.
Risk Factors .........................................................................................................................................
Unresolved Staff Comments................................................................................................................
Item 1B.
Properties .............................................................................................................................................
Item 2.
Item 3.
Legal Proceedings ...............................................................................................................................
Item 4.
Mine Safety Disclosure .......................................................................................................................
PART II ...............................................................................................................................................................................
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities .................................................................................................
Selected Financial Data .......................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ............................................................
Item 8.
Financial Statements and Supplementary Data ...................................................................................
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............
Controls and Procedures ......................................................................................................................
Item 9A.
Item 9B.
Other Information ................................................................................................................................
PART III..............................................................................................................................................................................
Directors, Executive Officers and Corporate Governance .................................................................
Item 10.
Executive Compensation .....................................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.
Related Stockholder Matters ...............................................................................................................
Certain Relationships and Related Transactions, and Director Independence ...................................
Item 13.
Item 14.
Principal Accounting Fees and Services .............................................................................................
PART IV .............................................................................................................................................................................
Item 15.
Exhibits, Financial Statement Schedules ............................................................................................
Item 16.
Form 10-K Summary ...........................................................................................................................
Signatures ...........................................................................................................................................................................
ii
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JOB TITLE COPART Annual Report
REVISION 2
JOB NUMBER 381682-1
TYPE
SERIAL
PAGE NO. 1
DATE Saturday, October 31, 2020
OPERATOR MARCUSA
PART I
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended July 31, 2020, or this Form 10-K, including the information
incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act), including forward-looking statements concerning the potential impact of the COVID-19 pandemic on our business,
operations, and operating results. All statements other than statements of historical facts are statements that could be deemed
forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “expect,” “plan,” “intend,” “ forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or
the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-K
involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part I, Item 1A
under the caption entitled “Risk Factors” in this Form 10-K and those discussed elsewhere in this Form 10-K. Unless the
context otherwise requires, references in this Form 10-K to “Copart,” the “Company,” “we,” “us,” or “our” refer to Copart,
Inc. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as
in the other documents we file with the Securities and Exchange Commission (“the SEC”). We may from time to time make
additional written and oral forward-looking statements, including statements contained in our filings with the SEC. We do not
undertake to update any forward-looking statement that may be made from time to time by or on behalf of us.
Although we believe that, based on information currently available to us and our management, the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking statements.
Item 1.
Business
Corporate Information
We were incorporated in California in 1982, became a public company in 1994 and were reincorporated into Delaware in
January 2012. Our principal executive offices are located at 14185 Dallas Parkway, Suite 300, Dallas, Texas 75254 and our
telephone number there is (972) 391-5000. Our website is www.copart.com. The contents of our website are not incorporated
by reference into this Form 10-K. We provide free of charge, through a link on our website, access to our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as amendments to those reports, as
soon as reasonably practical after the reports are electronically filed with, or furnished to, the SEC.
Copart®, VB2®, BID4U®, CI & Design®, DRIVE Auto Auctions™, 1-800 CAR BUYER®, CA$HFORCARS.COM®,
COPART & DESIGN®, VB2 & DESIGN®, VB3 & DESIGN®, VB3® and CrashedToys.com® are trademarks of Copart, Inc.
or one of its direct or indirect wholly-owned subsidiaries. This Form 10-K also includes other trademarks of Copart and of
other companies.
Overview
We are a leading provider of online auctions and vehicle remarketing services with operations in the United States (“U.S.”),
Canada, the United Kingdom (“U.K.”), Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates (“U.A.E.”),
Oman, Bahrain, and Spain.
Our goals are to generate sustainable profits for our stockholders, while also providing environmental and social benefits
for the world around us. With respect to our environmental stewardship, we believe our business is a critical enabler for the
global re-use and recycling of vehicles, parts, and raw materials. We are not responsible for the carbon emissions resulting
from new vehicle manufacturing, governmental fuel emissions standards or vehicle use by consumers. Each vehicle that enters
1
<12345678> JOB TITLE COPART Annual Report
REVISION 2
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OPERATOR MARCUSA
our business operations is an existing fact, with whatever fuel technology and efficiency it was designed and built to have, and
the substantial carbon emissions associated with the vehicle’s manufacture are already sunk costs. However, upon our receipt
of an existing vehicle, we help decrease its total environmental impact by extending its useful life and thereby avoiding the
carbon emissions associated with the alternative of new vehicle and auto parts manufacturing. For example, many of the cars
we process and remarket are subsequently restored to drivable condition, reducing the new vehicle manufacturing burden
the world would otherwise face. Many of our cars are purchased by dismantlers, who recycle and refurbish parts for vehicle
repairs, again reducing new and aftermarket parts manufacturing. And finally, some of our vehicles are returned to their raw
material inputs through scrapping, reducing the need for further new resource extraction. In each of these cases, our business
reduces the carbon and other environmental footprint of the global transportation industry.
Beyond our environmental stewardship, we also support the world’s communities in two important ways. First, we believe
that we contribute to economic development and well-being by enabling more affordable access to mobility around the world.
For example, many of the automobiles sold through our auction platform are purchased for use in developing countries where
affordable transportation is a critical enabler of education, health care, and well-being more generally. Secondly, because
of the special role we play in responding to catastrophic weather events, we believe we contribute to disaster recovery and
resilience in the communities we serve. For example, we mobilized our people, entered into emergency leases, and engaged
with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in the
Houston, Texas metropolitan area in the wake of Hurricane Harvey in the summer of 2017.
We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our
Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3. Vehicle sellers consist
primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers and from
individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers,
exporters, and in some jurisdictions, to the general public. The majority of the vehicles sold on behalf of insurance companies
are either damaged vehicles deemed a total loss; 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. We offer vehicle sellers a full
range of services that help 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 U.S., Canada, Brazil, the Republic of Ireland, Finland, the U.A.E., Oman, and Bahrain, we sell vehicles primarily as
an agent and derive 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 U.K., Germany, and Spain,
we operate both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the
vehicles for our own account. In Germany and Spain, we also derive 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.
Through our Virtual Bidding Third Generation (VB3) auction platform, our sales process is open to registered buyers
(whom we refer to as “members”) anywhere in the world with access to the internet. This technology and model employ a two-
step bidding process. The first step is an open preliminary bidding feature that allows members to enter bids either at a bidding
station at the storage facility or over the internet during the preview period. To improve the effectiveness of bidding, the VB3
system lets members see the current high bids on the vehicles they want to purchase. The preliminary bidding step is an open
bid format similar to eBay®. Members enter the maximum price they are willing to pay for a vehicle and VB3’s BID4U feature
incrementally bids on the vehicle on their behalf during all phases of the auction. Preliminary bidding ends at a specified time
prior to the start of a second bidding step, an internet-only virtual auction. This second step allows bidders the opportunity
to bid against each other and the high preliminary bidder. The bidders enter bids via the internet in real time while BID4U
submits bids for the high preliminary bidder up to their maximum bid. When bidding stops, a countdown is initiated. If no bids
are received during the countdown, the vehicle sells to the highest bidder.
We believe our virtual auction platform increases the pool of available buyers for each sale, which brings added competition
and an increase in the amount buyers are willing to pay for vehicles. We also believe that it improves the efficiency of our
operations by eliminating the expense and capital requirements which would be associated with holding live auctions.
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OPERATOR MARCUSA
For fiscal 2020, sales of U.S. vehicles, on a unit basis, to members registered outside the state where the vehicle was located
accounted for 60.5% of total vehicles sold; of which 24.8% of vehicles were sold to out of state members within the U.S. and
35.7% were sold to International members, based on the IP address utilized during the auction process.
We believe that we offer the highest level of service in the auction and vehicle remarketing industry and have established
our leading market position by:
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providing coverage that facilitates seller access to buyers around the world, reducing towing and third-party storage
expenses, offering a local presence for vehicle inspection stations, and providing prompt response to catastrophes and
natural disasters by specially trained teams;
providing a comprehensive range of services that includes merchandising, efficient title processing, timely pick-up and
delivery of vehicles, and internet sales;
establishing and efficiently integrating new facilities and acquisitions;
increasing the number of bidders that can participate at each sale through the ease and convenience of internet bidding;
applying technology to enhance operating efficiency through internet bidding, web-based order processing, salvage
value quotes, electronic communication with members and sellers, and vehicle imaging; and
providing a venue for insurance customers through our Virtual Insured Exchange (“VIX”) product to contingently sell
a vehicle through our auction process to assess true market value, equipping our insurance customers with market data
in its negotiations with owners who wish to retain their damaged vehicles.
Historically, we believe our business has grown as a result of (i) acquisitions, (ii) increases in overall volume in the salvage
car market, (iii) growth in market share, (iv) increases in the amount of revenue generated per sales transaction resulting from
increases in the gross selling price and the addition of value-added services for both members and sellers, and (v) growth in
non-insurance company sellers. For fiscal 2020, our revenues were $2.2 billion and our operating income was $816.1 million.
In fiscal 2018, we opened three new operational facilities in the U.S., a new operational facility in the U.K., a new
operational facility in Germany, and acquired four locations in Finland.
In fiscal 2019, we opened one new operational facility in Brazil; seven new operational facilities in Germany; and eleven
new operational facilities in the U.S., and acquired an operational facility in Greenville, Kentucky.
In fiscal 2020, we opened two new operational facilities in Germany, one new operational facility in Brazil, and three new
operational facilities in the U.S.
Our service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services.
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 our facility; title processing and preparation fees; vehicle storage fees; bidding fees;
and vehicle loading fees. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the
amount of such fees charged. Purchased vehicle revenue includes the gross sales price of the vehicles which we have purchased
or are otherwise considered to own. We have certain contracts with insurance companies, primarily in the U.K., in which we
act as a principal, purchasing vehicles and reselling them for our own account. We also purchase vehicles in the open market,
primarily from individuals, and resell them for our own account.
Operating costs 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; marketing costs
directly related to the auction process; and costs of vehicles sold under the purchase contracts. General and administrative
expenses consist primarily of executive management; accounting; data processing; sales personnel; professional services;
marketing expenses; and system maintenance and enhancements.
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Industry Overview
The auction and vehicle remarketing services industry provides a venue for sellers to dispose of or liquidate vehicles to
a broad domestic and international buyer pool. Sellers generally auction or sell their vehicles on a consignment basis either
for a fixed fee or a percentage of the sales price. Occasionally, companies in our industry purchase vehicles from the largest
segment of sellers, insurance companies, and resell the vehicles for their own account. The vehicles are usually purchased at
a price based on the vehicles’ estimated pre-accident value (“PAV”) and the extent of damage. Vehicle remarketers typically
operate from multiple facilities where vehicles are processed, viewed, stored and released to the buyer. While companies in
this industry remarket vehicles through a physical auction or a hybrid internet and physical auction, we sell virtually all our
vehicles on our internet selling platform VB3, thus eliminating the requirement for buyers to travel to an auction location to
participate in the sales process.
Although there are other sellers of vehicles, such as banks, finance companies, charities, fleet operators, dealers and from
individuals, our primary sellers of vehicles are insurance companies.
The primary buyers of vehicles at our auctions are vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers,
exporters, and in some jurisdictions, the general public. Vehicle dismantlers, which we believe are the largest group of vehicle
buyers, based on volume of vehicles purchased, either dismantle a salvage vehicle and sell parts individually or sell the entire
vehicle to rebuilders, used vehicle dealers, or the general public. Vehicle rebuilders and vehicle repair licensees generally
purchase salvage vehicles to repair and resell. Used vehicle dealers generally purchase recovered stolen or slightly damaged
vehicles for resale.
Most of our vehicles are sold on behalf of insurance companies and are usually vehicles involved in an accident or to a
lesser extent a natural disaster. Typically, the damaged vehicle is towed to a storage facility or a vehicle repair facility for
temporary storage pending insurance company examination. The vehicle is inspected by the insurance company’s adjuster,
who estimates the costs of repairing the vehicle and gathers information regarding the damaged vehicle’s mileage, options and
condition in order to estimate its PAV, otherwise known as actual cash value (“ACV”). The adjuster determines whether to pay
for repairs or to classify the vehicle as a total loss based upon the adjuster’s estimate of repair costs, vehicle’s salvage value,
and the PAV, as well as customer service considerations. If the cost of repair is greater than the PAV less the estimated salvage
value, the insurance company generally will classify the vehicle as a total loss. The insurance company will thereafter assign
the vehicle to a vehicle auction and remarketing services company, settle with the insured and receive title to the vehicle.
Automobile manufacturers continuously incorporate new standard features, including unibody construction utilizing exotic
metals, passenger safety cages with surrounding crumple zones to absorb impacts, plastic and ceramic components, airbags,
adaptive headlights, computer systems, advanced cameras, collision warning systems, and navigation systems. We believe that
one effect of these additional features is that newer vehicles involved in accidents are more costly to repair and, accordingly,
more likely to be deemed a total loss for insurance purposes.
We believe the primary factors that insurance companies consider when selecting an auction and vehicle remarketing
services company include:
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the anticipated percentage return on salvage (i.e., gross salvage proceeds, minus vehicle handling and selling
expenses, divided by the PAV);
the services provided by the company and the degree to which such services reduce their administrative costs and expenses;
the price the company charges for its services;
geographic coverage;
the ability to respond to natural disasters;
the ability to provide analytical data to the seller; and
in the U.K., in certain situations, the actual amount paid for the vehicle.
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In the U.K., some insurance companies tender periodic contracts for the purchase of salvaged vehicles. Under these
circumstances, insurance companies will generally award the contract to the company that is willing to pay the highest price
for the vehicles.
Generally, upon receipt of the pickup order (the assignment), we arrange for the transportation of a vehicle to our nearest
facility. As a service to the vehicle seller, we will customarily pay advance charges (reimbursable charges paid on behalf of
vehicle sellers) to obtain the vehicle’s release from a towing company, vehicle repair facility or impound facility. Advance
charges paid on behalf of the vehicle seller are either recovered upon sale of the vehicle, invoiced separately to the seller or
deducted from the net proceeds due to the seller.
The salvage vehicle then remains in storage at one of our facilities until ownership documents are transferred from the
insured vehicle owner and the title to the vehicle is cleared through the appropriate state’s motor vehicle regulatory agency,
or DMV. In the U.S., total loss vehicles may be sold in most states only after obtaining a salvage title from the DMV. Upon
receipt of the appropriate documentation from the DMV, which is generally received within 45 to 60 days of vehicle pick-up,
the vehicle is sold either on behalf of the insurance company or for our own account, depending on the terms of the contract. In
the U.K., upon release of interest by the vehicle owner, the insurance company notifies us that the vehicle is available for sale.
Generally, sellers of non-salvage vehicles will arrange to deliver the vehicle to one of our locations. At that time, the vehicle
information will be uploaded to our system and made available for buyers to review online. The vehicle is then sold at auction
on VB3 typically within seven days. Proceeds are then collected from the member, typically seller fees are subtracted, and the
remainder is remitted to the seller.
Operating and Growth Strategy
Our growth strategy is to increase revenues and profitability by, among other things, (i) acquiring and developing
additional vehicle storage facilities in key markets, including foreign markets; (ii) pursuing global, national and regional
vehicle seller agreements; (iii) increasing our service offerings; and (iv) expanding the application of VB3 into new markets.
In addition, we implement our pricing structure and auction procedures, and attempt to introduce cost efficiencies at each of
our acquired facilities by implementing our operational procedures, integrating our management information systems, and
redeploying personnel, when necessary.
As part of our overall expansion strategy, our objective is to increase our revenues, operating profits, and market share in
the vehicle remarketing industry. To implement our growth strategy, we intend to continue to do the following:
Acquire and Develop New Vehicle Storage Facilities in Key Markets Including Foreign Markets
Our strategy is to offer integrated services to vehicle sellers on a global, national or regional basis by acquiring or
developing facilities in new and existing markets. We integrate our new acquisitions into our global network and capitalize on
certain operating efficiencies resulting from, among other things, the reduction of duplicative overhead and the implementation
of our operating procedures.
Pursue Global, National and Regional Vehicle Supply Agreements
Our broad global presence enhances our ability to enter into local, regional, national or global supply agreements with
vehicle sellers. We actively seek to establish global, national, and regional supply agreements with insurance companies by
promoting our ability to achieve high net returns and broader access to buyers through our national coverage and electronic
commerce capabilities. By utilizing our existing insurance company seller relationships, we are able to build new seller
relationships and pursue additional supply agreements in existing and new markets.
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Expand Our Service Offerings to Sellers and Members
Over the past several years, we have expanded our available service offerings to vehicle sellers and members. The primary
focus of these new service offerings is to maximize returns to our sellers and maximize product value to our members. This
includes, for our sellers, real-time access to sales data over the internet, the ability to respond on a national scale and, for
our members, the implementation of VB3 real-time bidding at substantially all of our facilities, permitting members at any
location worldwide to participate in the sales at our yards. We plan to continue to refine and expand our services, including
offering software that can assist our sellers in expediting claims and salvage management tools that help sellers integrate their
systems with ours.
Our Competitive Advantages
We believe that the following attributes and the services that we offer position us to take advantage of many opportunities
in the online vehicle auction and services industry:
Geographic Coverage and Ability to Respond on a Global Scale
Since our inception in 1982, we have expanded from a single facility in Vallejo, California to an integrated network
of facilities located in the U.S., Canada, the U.K., Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman,
Bahrain, and Spain. In Germany and Spain, we also derive 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. We offer integrated
services to our vehicle sellers, which allow us to respond to the needs of our sellers and members with maximum efficiency.
Our coverage provides our sellers with key advantages, including:
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attractiveness and efficiency to buyers, leading to enhanced selling prices for vehicles;
a reduction in administrative time and effort;
a reduction in overall vehicle transportation costs;
convenient local facilities;
improved access to buyers throughout the world;
a prompt response in the event of a natural disaster or other catastrophe; and
consistency in products and services.
Value-Added Services
We believe that we offer the most comprehensive range of services in our industry, including:
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internet bidding, internet proxy bidding, and virtual sales powered by VB3, which enhance the competitive bidding
process;
• mobile applications, which allow members to search, bid, create watch lists, join auctions and bid in numerous
languages from anywhere;
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a tailored experience by way of predictive analytics through collaborative filtering, such as the Recommendations
Engine feature that suggests similar makes and models based on a member’s behavior;
• Buy It Now, which provides an option to our members to purchase specific pre-qualified vehicles immediately at a set
price before the live auction process;
• Make An Offer, which provides an option to our members to submit an offer amount on certain selected vehicles and
if the offer is accepted, purchase the vehicle before the live auction process;
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online payment capabilities via our ePay product, credit cards and dealer financing programs;
email notifications available in numerous languages to potential buyers of vehicles that match desired characteristics;
sophisticated vehicle processing at storage sites, including digital imaging of each vehicle and the scanning of each
vehicle’s title and other significant documents such as body shop invoices, all of which are available from us over the
internet;
specialty sales, which allow buyers the opportunity to focus on such select types of vehicles as motorcycles, heavy
equipment, boats, recreational vehicles and rental cars;
interactive online counter-bidding, which allows sellers who have placed a minimum bid or a bid to be approved on a
vehicle to directly counter-bid the current high bidder; and
• Night Cap sales, which provides an additional opportunity for bidding on vehicles that have not previously achieved
their minimum bid.
Proven Ability to Acquire and Integrate Acquisitions
We have a proven track record of successfully acquiring and integrating facilities. Since becoming a public company in
1994, we have completed acquisitions of facilities in the U.S., Canada, the U.K., Brazil, the U.A.E., Germany, Finland, and
Spain. As part of our acquisition and integration strategy, we seek to:
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expand our global presence;
strengthen our networks and access new markets;
utilize our existing corporate and technology infrastructure over a larger base of operations; and
introduce our comprehensive services and operational expertise.
We strive to integrate all new facilities, when appropriate, into our existing network without disruption of service to vehicle
sellers. We work with new sellers to implement our fee structures and new service programs. We typically retain existing
employees at acquired facilities in order to retain knowledge about, and respond to, the local market. We also assign a special
integration team to help convert newly acquired facilities to our own management information and proprietary software
systems, helping enable us to ensure a smooth and consistent transition to our business operating and sales systems.
Technology to Enhance and Expand Our Business
We have developed management information and proprietary software systems that allow us to deliver a fully integrated
service offering. Our proprietary software programs provide vehicle sellers with online access to data and reports regarding
their vehicles being processed at any of our facilities. This technology allows vehicle sellers to monitor each stage of our
vehicle sales process, from pick up to sale and settlement by the buyer. Our full range of internet services allows us to expedite
each stage of the vehicle sales process and helps to minimize the administrative and processing costs for us, as well as our
sellers. We believe that our integrated technology systems generate improved capacity and financial returns for our clients,
resulting in high client retention, and allow us to expand our national supply contracts.
Our Business Segments
Our 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, operating income and income before income taxes. Our revenues for the year ended
July 31, 2020 were distributed as follows: U.S. 84.4% and International 15.6%. Geographic information as well as comparative
segment revenues and related financial information pertaining to the U.S. and International segments for the years ended
July 31, 2020, 2019 and 2018 are presented in the tables in Note 13 — Segments and Other Geographic Reporting, to the Notes
to Consolidated Financial Statements, which are included in Part II, Item 8 of this Form 10-K.
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Our Service Offerings
We offer vehicle sellers a full range of vehicle services, which expedite each stage of the vehicle sales process, helping
to maximize proceeds and minimize costs. Not all service offerings are available in all markets. Additionally, in some cases
a service offering may be applicable only to a particular subsidiary or operating segment. Our service offerings include
the following:
Online Seller Access
Through Copart Access, our internet-based service for vehicle sellers, we enable sellers to assign vehicles for sale, check
sales calendars, view vehicle images and history, view and reprint body shop invoices and towing receipts and view the
historical performance of the vehicles sold at our sales.
Salvage Estimation Services
We offer Copart ProQuote, a proprietary service that assists sellers in the vehicle claims evaluation process by providing
online salvage value estimates, which helps sellers determine whether to repair a vehicle or deem it a total loss.
IntelliSeller
We offer IntelliSeller, an automated tool leveraging our vast and detailed vehicle and sales data to assist our sellers in
making vital auction decisions. Using machine learning, IntelliSeller optimizes the utilization of our vehicle and sales data
to determine when to establish minimum bid values and suggest when to re-auction a unit to ensure optimal returns while
minimizing cycle time.
Estimating Services
We offer vehicle sellers in the U.K. estimating services for vehicles taken to our facilities. Estimating services provide
our insurance company sellers repair estimates which allow the insurance company to determine if the vehicle is a total loss
vehicle. If the vehicle is determined to be a total loss, it is generally assigned to us to sell.
End-of-Life Vehicle Processing
In the U.K., we are an authorized treatment facility for the disposal of end-of-life vehicles.
Virtual Insured Exchange (VIX)
We provide a venue for insurance customers through our Virtual Insured Exchange (“VIX”) product to contingently sell
a vehicle through our auction process to assess true market value, equipping our insurance customers with market data in its
negotiations with owners who wish to retain their damaged vehicles.
Transportation Services
In the U.S. and Canada, we perform transportation services through a combination of our fleet of over 90 vehicles and
predominately using third-party vehicle transport companies. We maintain contracts with third-party vehicle transport
companies, which enable us to pick up most of our sellers’ vehicles within 24 hours. Our national network and transportation
capabilities provide cost and time savings to our vehicle sellers and ensure on-time vehicle pick up and prompt response
to catastrophes and natural disasters in the U.S. and Canada. In the U.K., we perform transportation services through
a combination of our fleet of over 230 vehicles and third-party vehicle transport companies. In Germany, we perform
transportation services through our fleet of over 25 vehicles.
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Vehicle Inspection Stations
We offer some of our major insurance company sellers office and yard space to house vehicle inspection stations on-site at
our facilities. We have over 100 vehicle inspection stations at our facilities. An on-site vehicle inspection station provides our
insurance company sellers with a central location to inspect potential total loss vehicles, which reduces storage charges that
otherwise may be incurred at the initial storage or repair facility.
On-Demand Reporting
We provide vehicle sellers with real time data for vehicles that we process for the seller. This includes vehicle sellers’
gross and net returns on each vehicle, service charges, and other data that enable our vehicle sellers to more easily administer
and monitor the vehicle disposition process. In addition, we have developed a database containing over 300 fields of real-
time and historical information accessible by our sellers allowing for their generation of custom ad hoc reports and customer
specific analysis.
Title Processing and Procurement
We have extensive expertise in DMV document and title processing. We have developed a computer system which
provides a direct link to the DMV computer systems of multiple states, allowing us to expedite the processing of vehicle title
paperwork. We also facilitate the title transfer from the original owner or financial institutions on behalf of some of our sellers
to streamline the documentation and vehicle auction process.
Loan Payoff
We can quickly and electronically obtain up-to-date loan payoff information from hundreds of automotive lenders,
including the remaining balance due and per diem on a vehicle loan, to expedite the loan payoff and title transfer process.
Flexible Vehicle Processing Programs
At the election of the seller, we sell vehicles pursuant to our Percentage Incentive Program, which we refer to as PIP,
Consignment Program, or Purchase Program.
Percentage Incentive Program. Our Percentage Incentive Program is an innovative processing program designed to
broadly serve the needs of vehicle sellers. Under PIP, we agree to sell all of the vehicles of a seller in a specified market,
usually for a predetermined percentage of the vehicle sales price. Because our revenues under PIP are directly linked to the
vehicle’s sale price, we have an incentive to actively merchandise those vehicles to maximize the net return. We provide the
vehicle seller, at our expense, with transportation of the vehicle to our nearest facility, as well as DMV document and title
processing. In addition, we provide merchandising services such as covering or taping openings to protect vehicle interiors
from weather, washing vehicle exteriors, vacuuming vehicle interiors, cleaning and polishing dashboards and tires, making
keys for drivable vehicles, and identifying drivable vehicles. We believe our merchandising efforts increase the sales prices of
the vehicles, thereby increasing the return on salvage vehicles to both vehicle sellers and us.
Consignment Program. Under our Consignment Program, we sell vehicles for a fixed consignment fee. Although
sometimes included in the consignment fee, we may also charge additional fees for the cost of transporting the vehicle to our
nearest facility, storage of the vehicle, and other incidental costs.
Purchase Program. Under the Purchase Program, we purchase vehicles from a vehicle seller at a formula price, based on a
percentage of the vehicles’ estimated PAV, otherwise known as ACV, and sell the vehicles for our own account. Currently, the
purchase program is offered primarily in the U.K.
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Buy It Now, Make An Offer
We offer an option to our members to purchase specific pre-qualified vehicles immediately at a set price before the live
auction process. This enables us to provide a fast, easy, transparent and comprehensive buying option on these pre-qualified
vehicles. Additionally, members have the option of submitting an offer amount on certain selected vehicles. If an offer is
accepted, the member can purchase the vehicle before the live auction process.
Member Network
We maintain a database of thousands of registered members (“buyers”) in the vehicle dismantling and recycling, rebuilding,
used vehicle dealer and export industries, as well as members that are a part of the general public, where applicable. Our
database includes each member’s vehicle preference and purchasing history. This data enables us to notify prospective buyers
throughout the world via email of vehicles available for bidding that match their vehicle preferences. Listings of vehicles to be
sold on a day and location are also made available on the internet.
Sales Process
We offer a flexible and unique sales process designed to maximize the sale prices of the vehicles utilizing VB3. VB3
opens our sales process to members and to individuals who have not registered to view auctions via our website and our
mobile application anywhere in the world where internet access is available. The VB3 technology and model employs a two-
step bidding process. The first step is an open preliminary bidding feature that allows a member to enter bids either over the
internet or at a bidding station at the storage facility during the preview days. To improve the effectiveness of bidding, the VB3
system lets a member see the current high bid on the vehicle they want to purchase. The preliminary bidding step is an open
bid format similar to eBay®. Members enter the maximum price they are willing to pay for a vehicle and VB3’s BID4U feature
will incrementally bid the vehicle on their behalf during all steps of the auction. Preliminary bidding ends at a specified time
prior to the start of a second bidding step, an internet-only virtual auction. This second step allows bidders the opportunity to
bid against each other and the highest preliminary bidder. The bidders enter bids via the internet in real time, and then BID4U
submits bids for the highest preliminary bidder, up to their maximum bid. When bidding stops, a countdown is initiated. If no
bids are received during the countdown or any extensions, the vehicle sells to the highest bidder.
Copart Dealer Services
We provide franchise and independent dealers with a convenient method to sell their trade-ins through any of our facilities.
We have a dedicated group of employees in the U.S. that target these dealers and work with them throughout the sales process.
Cash For Cars
We provide the general public with a fast and convenient method to sell their vehicles. Anyone can go to CashForCars.com;
CashForCars.ca; or CashForCars.de and arrange to obtain a valid offer to purchase their vehicle. Upon acceptance of our offer
to purchase their vehicle, we provide them payment for their vehicle and then sell the vehicle on our own behalf.
National Powersport Auctions
In the U.S., we provide non-salvage powersport vehicle remarketing services through live and online auction platforms
to dealers, financial institutions and OEMs through our subsidiary National Powersport Auctions, or NPA. NPA also offers
comprehensive data services including the NPA Value GuideTM, which we believe is the industry’s most accurate wholesale
valuation tool. NPA has facilities in San Diego, California; Philadelphia, Pennsylvania; Dallas, Texas; Cincinnati, Ohio;
Atlanta, Georgia; Littleton, Colorado; Madison, Wisconsin; Portland, Oregon; Sacramento, California; and Orlando, Florida.
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U-Pull-It
In the U.K., we have two facilities from which the public can purchase parts from salvaged and end-of-life vehicles. In
general, the buyer is responsible for detaching the parts from the vehicle and any associated hauling or transportation of the
parts after detachment. After the valuable parts have been removed by the buyer, the remaining parts and car body are sold for
their scrap value.
Copart 360
We pioneered posting vehicle images online for buyers in 2001, and, we have been improving the technology to provide
top quality photos since then. In July 2020, we enhanced online images and videos by launching Copart 360 (“C360”), our
proprietary technology that captures clear 360-degree views of interiors and exteriors of cars, trucks, and vans across U.S.
Copart locations. Interested buyers can view everything from the backseat to the dashboard to the tires. Buyers can also zoom
in and out or expand to full screen on computers or mobile devices.
Buyers can access this feature by clicking the 360° icon under vehicle images on select lot details pages on Copart.com.
Membership Tiers
We now offer three tiers of membership in the U.S. - Guest, Basic and Premier - for those registering to buy vehicles
through Copart.com.
Guest Member Benefits
Guest members can sign up for free to add their favorite vehicles to their Watchlist, set up Vehicle Alerts to get notified
when we add specific vehicles they’re looking for and view our inventory from their desktop or mobile device via our
Mobile App.
Basic Member Benefits
Basic member benefits include:
•
•
•
•
view multiple online auctions in real-time (live);
bid on one vehicle at a time without a deposit, or up to five with a deposit;
save favorite searches; and
get access to member appreciation events.
Premier Member Benefits
Premier member benefits include all basic member benefits, as well as, the following:
•
•
•
•
bid on multiple vehicles at the same time;
get priority placement in phone and chat support;
access the Virtual Queue which provides expedited service at our locations; and
get a complimentary safety vest (one per membership year) and water bottle at our locations.
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Virtual Queue
We always strive to maintain the highest safety guidelines to protect the health and well-being of our members and
employees. As soon as COVID-19 began impacting businesses globally, we rolled out the Virtual Queue at all locations to
reinforce safety measures.
The Virtual Queue, available in multiple languages, is a safe way to secure a place in line while visiting one of our
locations. Whether a visitor is at a location to make a payment or preview a vehicle, the Virtual Queue lets them conveniently
maintain social distancing practices. Rather than wait in line inside a location, our visitors can save their place and receive an
estimated wait time, using our mobile app, in the comfort of their own vehicle. We notify them via text message when it is their
turn to speak to a customer service agent.
Sales
We process vehicles from hundreds of different vehicle sellers. No single customer accounted for more than 10% of
our consolidated revenues for fiscal 2020, 2019 and 2018. We obtained 81%, 80%, and 78% of the total number of vehicles
processed during fiscal 2020, 2019 and 2018, respectively, from insurance company sellers.
We typically contract with the regional or branch office of an insurance company or other vehicle sellers. The agreements
are customized to each vehicle seller’s needs and often provide for the disposition of different types of salvage vehicles by
differing methods. Our arrangements generally provide that we will sell total loss and recovered stolen vehicles generated by
the vehicle seller in a designated geographic area.
We market our services to vehicle sellers through an in-house sales force that utilizes a variety of sales techniques,
including targeted mailing of our sales literature, telemarketing, follow-up personal sales calls, internet search engines,
employee referrals, tow shop referrals, participation in trade shows and vehicle and insurance industry conventions. We market
our services to franchise and independent dealerships, as well as the general public. We may, when appropriate, provide
vehicle sellers with detailed analysis of the net return on vehicles and a proposal setting forth ways in which we believe that we
can improve net returns on vehicles and reduce administrative costs and expenses.
During the last three years, most of our revenue was generated within the U.S. and a majority of our long-lived assets
are located within the U.S. Please see Note 13 — Segments and Other Geographic Reporting in our Notes to Consolidated
Financial Statements for information regarding the geographic location of our sales and our long-lived assets.
Members
We maintain a database of thousands of registered members (“buyers”) in the vehicle dismantling and recycling,
rebuilding, used vehicle dealer and export industries, as well as members that are a part of the general public, where applicable.
We believe that we have established a broad international and domestic buyer base by providing members with a variety of
programs and services. To become a registered member, a person or business must complete a basic application either online or
through our mobile applications. Before any member may purchase a vehicle, they must provide copies of current government
issued photo identification. Additionally, business members must provide current business information, including copies of
licenses, which may include vehicle dismantler, dealer, resale, repair or export licenses, and as needed, completed sales tax
exemption certificates. Registration entitles a member to transact business at any of our sales, subject to local licensing and
permitting requirements. In certain jurisdictions, we may sell to the general public either directly or members may purchase a
vehicle offered at Copart through a registered broker who meets local licensing and permitting requirements. Strict admission
procedures are intended to prevent frivolous bids that will not result in a completed sale. We market to members online and
via email notifications, sales notices, telemarketing, direct mail, in-location marketing, search engines, social media, radio,
television, trade publications and participation in trade show events.
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Competition
We face significant competition from other remarketers of both salvage and non-salvage vehicles. We believe our
principal competitors include vehicle auction and sales companies and vehicle dismantlers. These national, regional and
local competitors may have established relationships with vehicle sellers and buyers and may have financial resources that
are greater than ours. The largest national or regional vehicle auctioneers in the U.S. include Insurance Auto Auctions, Inc
(“IAA”).; KAR Auction Services, Inc. (“KAR”) (including its subsidiary ADESA, Inc.); Auction Broadcasting Company,
LLC; and Manheim, Inc. The largest national dismantler is LKQ Corporation (“LKQ”). LKQ, in addition to trade groups
of dismantlers such as the American Recycling Association and the United Recyclers Group, LLC, may purchase salvage
vehicles directly from insurance companies, thereby bypassing vehicle remarketing companies entirely. In our International
markets, our principal competitors are vehicle auction and sales companies, vehicle dismantlers and privately held
independent remarketers.
Management Information Systems
Our primary yard management information system consists of a series of IBM AS/400 mainframe computer systems and
other servers which run our proprietary software developed to process salvage sales vehicles throughout the auction process.
This system is integrated with the internet to enable buyers to view salvage vehicles and bid on them. It can also be integrated
with the seller’s system and enables the sellers to monitor their vehicles and analyze the progression of vehicles through the
auction process. Our auction-style service product, VB3, is served by an array of identical high-density, high-performance
servers. Each individual sale is configured to run on an available server in the array and can be rapidly provisioned to any
other available server in the array as required.
We have invested in production data centers that are designed to continuously operate to support the business, even in
the event of an emergency. The data centers’ electrical and mechanical systems are continually monitored. The data centers
are located in areas generally considered to be free of frequent weather-related disasters and earthquakes. We operate fully
redundant infrastructure to ensure ongoing operations, even in the event of physical damage to one of our data centers.
We have developed a proprietary enterprise operating system to enable us to address our international expansion needs.
This proprietary system is designed to provide multi-language and multi-currency capabilities. We began using our internally
developed proprietary system with our expansion into Spain in fiscal 2016 and Germany in fiscal 2017. We intend to continue
development of this system and implement it in certain additional locations in the future.
Employees
As of July 31, 2020, we had 7,600 full-time employees, of whom 1,388 were engaged in general and administrative
functions and 6,212 were engaged in yard operations. We are not currently subject to any collective bargaining agreements and
believe our relationships with our employees are good. Employees per geographic region are as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,395
2,205
7,600
Environmental Matters
Our operations are subject to federal, state, national, international, provincial and local laws and regulations regarding the
protection of the environment in the countries in which we have storage facilities. In some cases, we may acquire land with
existing environmental issues, including landfills as an example. In the salvage vehicle remarketing industry, large numbers of
wrecked vehicles are stored at storage facilities, requiring us to actively monitor and manage potential environmental impacts.
In the U.K., we provide vehicle de-pollution and crushing services for end-of-life program vehicles. We could incur substantial
expenditures for preventative, investigative, or remedial action and could be exposed to liability arising from our operations,
contamination by previous users of certain of our acquired facilities or facilities which we may acquire in the future, or the
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disposal of our waste at off-site locations. In addition to conducting environmental diligence on new site acquisitions, we also
take such actions as may be necessary under laws in the U.S. to avoid liability for activities of prior owners, and we have from
time to time acquired insurance with respect to acquired facilities with known environmental risks. There can be no assurances,
however, that these efforts to mitigate environmental risk will prove sufficient if we were to face material liabilities. We have
incurred expenses for environmental remediation in the past, and environmental laws and regulations could become more
stringent over time. There can be no assurance that we or our operations will not be subject to significant costs in the future
or that environmental enforcement agencies at the state and federal level will not pursue enforcement actions against us. In
addition to acquiring insurance in connection with certain acquisitions, we have also obtained indemnification for pre-existing
environmental liabilities from many of the persons and entities from whom we have acquired facilities, but there can be no
assurance that such indemnifications will be available or sufficient. Any such expenditures or liabilities could have a material
adverse effect on our consolidated results of operations, financial position, or cash flows.
Governmental Regulations
Our operations are subject to regulation, supervision and licensing under various federal, national, international,
provincial, state and local statutes, ordinances and regulations. The acquisition and sale of damaged and recovered stolen
vehicles is regulated by various state, provincial and foreign motor vehicle departments. In addition to the regulation of
sales and acquisitions of vehicles, we are also subject to various local zoning requirements with regard to the location of our
storage facilities. These zoning requirements vary from location to location. At various times, we may be involved in disputes
with local governmental officials regarding the development and/or operation of our business facilities. We believe that we
are in compliance, in all material respects, with applicable regulatory requirements. We may be subject to similar types of
regulations by federal, national, international, provincial, state and local governmental agencies in new markets.
Intellectual Property and Proprietary Rights
In 2008, we obtained a patent issued by the United States Patent and Trademark Office that covers certain aspects of our
virtual bidding auction platform. Generally, patents issued in the U.S. are effective for 20 years from the earliest asserted filing
date of the patent application. The duration of foreign patents varies in accordance with the provisions of applicable local law.
We also rely on a combination of trade secret, copyright and trademark laws, as well as contractual agreements to
safeguard our proprietary rights in technology and products. In seeking to limit access to sensitive information to the greatest
practical extent, we routinely enter into confidentiality and assignment of invention agreements with certain of our employees
and consultants and nondisclosure agreements with our key customers and vendors.
Seasonality
Historically, our consolidated results of operations have been subject to quarterly variations based on a variety of factors,
of which the primary influence is the seasonal change in weather patterns. During the winter months we tend to have higher
demand for our services because there are more weather-related accidents.
Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties
described below before making an investment decision. Our business could be harmed if any of these risks, as well as other
risks not currently known to us or that we currently deem immaterial, materialize. The trading price of our common stock
could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. In assessing the
risks described below, you should also refer to the other information contained in this Form 10-K, including our consolidated
financial statements and the related notes and schedules, and other filings with the SEC.
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We expect the worldwide COVID-19 pandemic to have an adverse impact on our near-term revenues principally as
a result of lower auction inventories. The geographic extent, length, and economic impact of the pandemic is unknown,
but we expect it will adversely affect our business and operating results.
We saw substantial declines in vehicle assignments, which we attribute principally to reduced accident volume as miles driven
dramatically declined in response to shelter-in-place orders across the globe. As we do not recognize the majority of our transactional
revenues until the completion of our auctions, a substantial portion of the declines in assignments we experienced in the most recent
quarter will be reflected in future quarters. We cannot predict how the pandemic will continue to develop, whether and to what
extent new shelter-in-place orders will be issued, or to what extent the pandemic may have longer term unanticipated impacts on our
markets, including, for example, the risk of long-term reductions in miles driven. To the extent that the pandemic results in temporary
or longer-term declines in the number of vehicles we process, our business and operating results could be adversely affected.
Although we have been deemed an “essential business” in the jurisdictions in which we operate and have largely been
able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce
efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time. To date, we have
not made modifications that materially affect our operating expenses, and while we regularly monitor them, we may not be
able to respond with sufficient speed to align revenues and operating expenses when necessary, which could result in a drop
in our stock price as a result of our operating or net income for one or more fiscal periods being less than market expectations.
Additional, non-exclusive examples of pandemic-related factors that could adversely affect our future business or operating
results include the potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; “second wave”
outbreaks of COVID-19 in one or more of our geographic markets; a reduction in miles driven due to one or more factors
relating to the COVID-19 pandemic; any further government actions in response to COVID-19 outbreaks that restrict business
activity or travel; disruptions of governmental administrative operations due to COVID-19 outbreaks that adversely impact our
core business activities, such as vehicle title processing; and deteriorating economic conditions generally.
We depend on a limited number of major vehicle sellers for a substantial portion of our revenues. The loss of one or
more of these major sellers could adversely affect our consolidated results of operations and financial position, and an
inability to increase our sources of vehicle supply could adversely affect our growth rates.
Although no single customer accounted for more than 10% of our consolidated revenues for fiscal 2020, a limited number
of vehicle sellers historically have collectively accounted for a substantial portion of our revenues. Vehicle sellers have
terminated agreements with us in the past in particular markets, which has affected revenues in those markets. There can be
no assurance that our existing agreements will not be canceled. Furthermore, there can be no assurance that we will be able
to enter into future agreements with vehicle sellers or that we will be able to retain our existing supply of salvage vehicles.
A reduction in vehicles from a significant vehicle seller or any material changes in the terms of an arrangement with a
significant vehicle seller could have a material adverse effect on our consolidated results of operations and financial position.
In addition, a failure to increase our sources of vehicle supply could adversely affect our earnings and revenue growth rates.
Our expansion into markets outside the U.S., including expansions in Europe, Brazil, and the Middle East expose
us to risks arising from operating in international markets. Any failure to successfully integrate businesses acquired
or operational capabilities established outside the U.S. could have an adverse effect on our consolidated results of
operations, financial position or cash flows.
We first expanded our operations outside the U.S. in fiscal 2003 with an acquisition in Canada. Subsequently, in
fiscal 2007 and fiscal 2008 we made significant acquisitions in the U.K., followed by acquisitions in the U.A.E., Brazil,
Germany, and Spain in fiscal 2013, expansions into Bahrain and Oman in fiscal 2015, expansion into the Republic of Ireland
and India in fiscal 2016, and an acquisition in Finland in fiscal 2018. In addition, we continue to evaluate acquisitions and
other opportunities outside of the U.S. Acquisitions or other strategies to expand our operations outside of the U.S. pose
substantial risks and uncertainties that could have an adverse effect on our future operating results. In particular, we may
not be successful in realizing anticipated synergies from these acquisitions, or we may experience unanticipated costs or
expenses integrating the acquired operations into our existing business. We have and may continue to incur substantial
expenses establishing new yards and operations, acquiring buyers and sellers, and implementing shared services capabilities
in international markets. Among other things, we plan to ultimately deploy our proprietary auction technologies at all of
our foreign operations and we cannot predict whether this deployment will be successful or will result in increases in the
revenues or operating efficiencies of any acquired companies relative to their historic operating performance. Integration of
our respective operations, including information technology and financial and administrative functions, may not proceed as
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anticipated and could result in unanticipated costs or expenses such as capital expenditures that could have an adverse effect
on our future operating results. We cannot provide any assurance that we will achieve our business and financial objectives in
connection with these acquisitions or our strategic decision to expand our operations internationally. For example, although we
continue to operate a technology and operations center in India for administrative support, we decided to suspend our salvage
operations in India in fiscal 2018, which did not have a material effect on our consolidated results of operations and financial
position, until the Indian market develops in a manner better suited to our business model.
As we continue to expand our business internationally, we will need to develop policies and procedures to manage our
business on a global scale. Operationally, acquired businesses typically depend on key seller relationships, and our failure to
maintain those relationships would have an adverse effect on our consolidated results of operations and could have an adverse
effect on our future operating results. Moreover, success in opening and operating facilities in new markets can be dependent
upon establishing new relationships with buyers and sellers, and our failure to establish those relationships could have an
adverse effect on our consolidated results of operations and future operating results.
In addition, we anticipate our international operations will continue to subject us to a variety of risks associated with
operating on an international basis, including:
•
•
•
•
•
•
•
the difficulty of managing and staffing foreign offices;
the increased travel, infrastructure, and legal compliance costs associated with multiple international locations;
the need to localize our product offerings, particularly the need to implement our online auction platform in foreign
countries;
the need to comply with complex foreign and U.S. laws and regulations that apply to our international operations;
tariffs, trade barriers, trade disputes, and other regulatory or contractual limitations on our ability to operate in certain
foreign markets;
exposure to foreign currency exchange rate risk, which may have an adverse impact on our revenues and revenue
growth rates;
adapting to different business cultures, languages, and market structures, particularly where we seek to implement our
auction model in markets where insurers have historically not played a substantial role in the disposition of salvage vehicles;
•
repatriation of funds currently held in foreign jurisdictions to the U.S. may result in higher effective tax rates;
• military actions;
•
•
•
•
public health issues;
environmental issues;
natural and man-made disasters; and
political issues.
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and
effectively manage these and other risks associated with our international operations. Our failure to manage any of these risks
successfully could harm our international operations and have an adverse effect on our operating results.
On January 29, 2020, the European Parliament approved the U.K.’s withdrawal from the European Union, commonly
referred to as “Brexit.” The U.K. officially left the European Union on January 31, 2020 and entered into a transition period
that is scheduled to expire on December 31, 2020 during which the U.K.’s trading relationship with the European Union is
expected to remain largely the same while the two parties negotiate a trade agreement as well as other aspects of the U.K.’s
relationship with the European Union. The ultimate effects of Brexit on us are difficult to predict, but adverse consequences
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concerning Brexit or the European Union could include deterioration in global economic conditions, instability in global
financial markets, political uncertainty, volatility in currency exchange rates, or adverse changes in the cross-border
agreements currently in place, any of which could have an adverse impact on our financial results in the future. The ultimate
effects of Brexit on us will also depend on the terms of agreements, if any, that the U.K. and the European Union make to
retain access to each other’s respective markets either during a transitional period or more permanently.
In addition, certain acquisitions in the U.K. may be reviewed by the Competition and Markets Authority (U.K. Regulator).
If an inquiry is made by the U.K. Regulator, we may be required to demonstrate that our acquisitions will not result, or be
expected to result, in a substantial lessening of competition in the U.K. market. Although we believe that there will not be
a substantial lessening of competition in the U.K. market, based on our analysis of the relevant U.K. markets, there can be
no assurance that the U.K. Regulator will agree with us if it decides to make an inquiry. If the U.K. Regulator determines
that by our acquisitions of certain assets, there is or likely will be a substantial lessening of competition in the U.K. market,
we could be required to divest some portion of our U.K. assets. In the event of a divestiture order by the U.K. Regulator, the
assets disposed may be sold for substantially less than their carrying value. Accordingly, any divestiture could have a material
adverse effect on our operating results in the period of the divestiture.
Our business activities and public policy interests expose us to political, regulatory, economic, and reputational risks.
Our business activities, facilities expansions, and civic and public policy interests may be unpopular in certain
communities, exposing us to reputational and political risk. For example, public opposition in some communities to different
aspects of our business operations has impacted our ability to obtain required business use permits. Additionally, our interests
in legislative and regulatory processes at different levels of government in the geographies in which we operate have been
opposed by competitors and other interest groups. Although we believe we generally enjoy positive community relationships
and political support in our range of operations, shifting public opinion sentiments and sociopolitical dynamics could have an
adverse effect on our business and reputation.
Our operations and acquisitions in certain foreign areas expose us to political, regulatory, economic, and reputational risks.
Although we have implemented policies, procedures, and training designed to ensure compliance with anti-bribery laws,
trade controls and economic sanctions, and similar regulations, our employees or agents may take actions in violation of our
policies. We may incur costs or other penalties in the event that any such violations occur, which could have an adverse effect
on our business and reputation.
In some cases, the enforcement practices of governmental regulators in certain foreign areas and the procedural and
substantive rights and remedies available to us may vary significantly from those in the United States, which could have an
adverse effect on our business.
Although we face risks associated with international expansion in each of the non-U.S. markets where we operate, our
current focus on the German market heightens the risks we face relating to our expansion plans in Germany.
In addition, some of our recent acquisitions have required us to integrate non-U.S. companies which had not, until our
acquisition, been subject to U.S. law. In many countries outside of the United States, particularly in those with developing
economies, it may be common for persons to engage in business practices prohibited by laws and regulations applicable to us,
such as the U.S. Foreign Corrupt Practices Act (“FCPA”), U.K. Bribery Act, Brazil Clean Companies Act, India’s Prevention
of Corruption Act, 1988 or similar local anti-bribery laws. These laws generally prohibit companies and their employees or
agents from making improper payments for the purpose of obtaining or retaining business. Failure by us and our subsidiaries
to comply with these laws could subject us to civil and criminal penalties that could have a material adverse effect on our
consolidated operating results and financial position.
We face risks associated with the implementation of our salvage auction model in markets that may not operate
on the same terms as the U.S. market. For example, certain markets operate on a principal rather than agent basis,
which may have an adverse impact on our gross margin percentages and expose us to inventory risks that we do not
experience in the U.S.
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Some of our target markets outside the U.S. operate in a manner substantially different than our historic market in the U.S.
For example, new markets may operate either wholly or partially on the principal model, in which the vehicle is purchased and
then resold for our own account, rather than the agency model employed in the U.S., in which we generally act as a sales agent
for the legal owner of vehicles. Further, operating on a principal basis exposes us to inventory risks, including losses from
theft, damage, and obsolescence. In addition, our business in the U.S., Canada, and the U.K. has been established and grown
based largely on our ability to build relationships with insurance carriers. In other markets, including Germany, insurers have
traditionally been less involved in the disposition of salvage vehicles. As we expand into markets outside the U.S., Canada,
and the U.K., including Germany in particular, we cannot predict whether markets will readily adapt to our strategy of online
auctions of automobiles sourced principally through vehicle insurers. Any failure of new markets to adopt our business model
could adversely affect our consolidated results of operations and financial position.
Acquisitions typically will increase our sales and profitability although, given the typical size of our acquisitions to date,
most acquisitions will not individually have a material impact on our consolidated results of operations and financial position.
We may not always be able to introduce our processes and selling platform to acquired companies due to different operating
models in international jurisdictions or other facts. As a result, the associated benefits of acquisitions may be delayed for years
in some international situations. During this period, the acquisitions may operate at a loss and certain acquisitions, while
profitable, may operate at a margin percentage that is below our overall operating margin percentage and, accordingly, have
an adverse impact on our consolidated results of operations and financial position. Hence, the conversion periods vary from
weeks to years and cannot be predicted.
We have developed a new proprietary enterprise operating system, and we may experience difficulties operating our
business as we continue to design and develop this system.
We have developed a new proprietary enterprise operating system to address our international expansion needs. The
ongoing design, development, and implementation of our enterprise operating systems carries certain risks, including the
risk of significant design or deployment errors causing disruptions, delays or deficiencies, which may make our website and
services unavailable. This type of interruption could prevent us from processing vehicles for our sellers and may prevent
us from selling vehicles through our internet bidding platform, VB3, which would adversely affect our consolidated results
of operations and financial position. In addition, the transition to our internally developed proprietary system will continue
to require us to commit substantial financial, operational and technical resources before the volume of business increases,
without assurance that the volume of business will increase. We began using our internally developed proprietary system with
our expansion into Spain in fiscal 2016 and Germany in fiscal 2017.
We may also implement additional or enhanced information systems in the future to accommodate our growth and
to provide additional capabilities and functionality. The implementation of new systems and enhancements is frequently
disruptive to the underlying business of an enterprise and can be time-consuming and expensive, increase management
responsibilities and divert management attention. Any disruptions relating to our system enhancements or any problems with
the implementation, particularly any disruptions impacting our operations or our ability to accurately report our financial
performance on a timely basis during the implementation period, could materially and adversely affect our business. Even
if we do not encounter these material and adverse effects, the implementation of these enhancements may be much more
costly than we anticipated. If we are unable to successfully implement the information systems enhancements as planned, our
financial position, results of operations, and cash flows could be negatively impacted.
Our success depends on maintaining the integrity of our systems and infrastructure. As our operations continue to grow
in both size and scope, domestically and internationally, we must continue to provide reliable, real-time access to our systems
by our customers through improving and upgrading our systems and infrastructure for enhanced products, services, features
and functionality. Any failure to maintain the integrity of our systems and infrastructure may result in loss of customers
due, among other things, to slow delivery times, unreliable service levels, or insufficient capacity, any of which could have a
material adverse effect on our business, consolidated financial position, and results of operations.
The impairment of internally developed capitalized software costs could adversely affect our consolidated results of
operations and financial condition.
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We capitalize certain costs associated with the development of new software products, new software for internal use and
major software enhancements to existing software. These costs are amortized over the estimated useful life of the software
beginning with its introduction or roll-out. If, at any time, it is determined that capitalized software provides a reduced
economic benefit, the unamortized portion of the capitalized development costs will be expensed, in part or in full, as an
impairment, which may have a material impact on our consolidated results of operations and financial position.
Disruptions to our information technology systems, including failure to prevent outages, maintain security,
and prevent unauthorized access to our information technology systems and other confidential information, could
disrupt our business and materially and adversely affect our reputation, consolidated results of operations, and
financial condition.
Information availability and security risks for online commerce companies have significantly increased in recent years
because of, in addition to other factors, the proliferation of new technologies, the use of the internet and telecommunications
technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers,
terrorists, and other external parties. These threats may derive from fraud or malice on the part of third parties or current
or former employees. In addition, human error or accidental technological failure could make us vulnerable to information
technology system disruptions and/or cyber-attacks, including the introduction of malicious computer viruses or code into our
system, phishing attacks, or other information technology data security incidents.
Our operations rely on the secure processing, transmission, and storage of confidential, proprietary and other information in
our computer systems and networks. Our customers and other parties in the payments value chain rely on our digital technologies,
computer and email systems, software, and networks to conduct their operations. In addition, to access our products and services,
our customers increasingly use personal smartphones, tablet PCs, and other mobile devices that may be beyond our control.
Information technology system disruptions, cyber-attacks, or other cyber security incidents could materially and adversely
affect our reputation, operating results, or financial condition by, among other things, making our auction platform inoperable for
a period of time, damaging our reputation with buyers, sellers, and insurance companies as a result of the unauthorized disclosure
of confidential information (including account data information), or resulting in governmental investigations, litigation, liability,
fines, or penalties against us. If such attacks are not detected immediately, their effect could be compounded. While we maintain
insurance coverage that may, subject to policy terms and conditions, cover certain aspects of these cyber risks, our insurance
coverage may be insufficient to cover all losses and would not remedy damage to our reputation.
We have in the past identified attempts by unauthorized third parties to access our systems and disrupt our online auctions.
These attempts have caused minor service interruptions, which were promptly addressed and resolved, and our online service
was restored to normal business. For example, in April 2015, we identified that unauthorized third parties had gained access
to data provided to us by our members that is considered to be personal information in certain jurisdictions. We immediately
investigated, including the engagement of an external expert security firm, and made the required notifications to members
whose information may have been accessed and to regulatory agencies.
We are regularly evaluating and implementing new technologies and processes to manage risks relating to cyber-attacks and
system and network disruptions, including but not limited to usage errors by our employees, power outages, and catastrophic
events such as fires, tornadoes, floods, hurricanes, and earthquakes. We have further enhanced our security protocols based on
the investigation we conducted in response to the security incident. Nevertheless, we cannot provide assurances that our efforts
to address prior data security incidents and mitigate against the risk of future data security incidents or system failures will be
successful. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and are often
not recognized immediately. We may be unable to anticipate these techniques or implement adequate preventative measures and
believe that cyber-attacks and threats against us have occurred in the past and are likely to continue in the future. If our systems
are compromised again in the future, become inoperable for extended periods of time, or cease to function properly, we may have
to make a significant investment to fix or replace them, and our ability to provide many of our electronic and online solutions
to our customers may be impaired. In addition, as cyber-threats continue to evolve, we may be required to expend significant
additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information
security vulnerabilities. Any of the risks described above could materially and adversely affect our consolidated financial position
and results of operations.
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Our business is exposed to risks associated with online commerce security and credit card fraud.
Consumer concerns over the security of transactions conducted on the internet or the privacy of users may inhibit the
growth of the internet and online commerce. To securely transmit confidential information such as customer credit card
numbers, we rely on encryption and authentication technology. Unanticipated events or developments could result in a
compromise or breach of the systems we use to protect customer transaction data. Furthermore, our servers may also be
vulnerable to viruses transmitted via the internet and other points of access. While we proactively check for intrusions into our
infrastructure, a new or undetected virus could cause a service disruption.
We maintain an information security program and our processing systems incorporate multiple levels of protection in order
to address or otherwise mitigate these risks. Despite these mitigation efforts, there can be no assurance that we will be immune
to these risks and not suffer losses in the future. Under current credit card practices, we may be held liable for fraudulent credit
card transactions and other payment disputes with customers. As such, we have implemented certain anti-fraud measures,
including credit card verification procedures. However, a failure to adequately prevent fraudulent credit card transactions
could adversely affect our consolidated financial position and results of operations.
Our security measures may also be breached due to employee error, malfeasance, insufficiency, or defective design.
Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive
information in order to gain access to our data or our users’ or customers’ data. Any such breach or unauthorized access could
result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our
products and services that could have an adverse effect on our consolidated financial position and results of operations.
Our business is subject to a variety of domestic and international laws and other obligations regarding privacy and
data protection.
We are subject to federal, state and international laws, directives, and regulations relating to the collection, use, retention,
disclosure, security, and transfer of personal data. These laws, directives, and regulations, and their interpretation and
enforcement continue to evolve and may be inconsistent from jurisdiction to jurisdiction. For example, the General Data
Protection Regulation (“GDPR”), which went into effect in the European Union on May 25, 2018, applies to all of our activities
conducted from an establishment in the European Union and may also apply to related products and services that we offer to
European Union users. Similarly, the California Consumer Privacy Act, or AB375 (“CCPA”) and the Brazilian General Data
Protection Law (“LGPD”), were also recently enacted and became effective in 2020 and these laws create new data privacy
rights for individuals. Complying with the GDPR, the CCPA, and similar emerging and changing privacy and data protection
requirements may cause us to incur substantial costs or require us to change our business practices. Noncompliance with our
legal obligations relating to privacy and data protection could result in penalties, legal proceedings by governmental entities or
others, and significant legal and financial exposure and could affect our ability to retain and attract customers. Any of the risks
described above could adversely affect our consolidated financial position and results of operations.
Implementation of our online auction model in new markets may not result in the same synergies and benefits that
we achieved when we implemented the model in the U.S., Canada, and the U.K.
We believe that the implementation of our proprietary auction technologies across our operations over the last decade had
a favorable impact on our results of operations by increasing the size and geographic scope of our buyer base, increasing the
average selling price for vehicles sold through our sales, and lowering expenses associated with vehicle sales.
We implemented our online system across all of our U.S., Canada, and U.K. salvage yards beginning in fiscal 2004
and 2008, respectively, and experienced increases in revenues and average selling prices, as well as improved operating
efficiencies in those markets. In considering new markets, we consider the potential synergies from the implementation of
our model based in large part on our experience in the U.S., Canada, and the U.K. However, we cannot predict whether these
synergies will also be realized in new markets.
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Failure to have sufficient capacity to accept additional cars at one or more of our storage facilities could adversely
affect our relationships with insurance companies or other sellers of vehicles.
Capacity at our storage facilities varies from period to period and from region to region. For example, following adverse
weather conditions in a particular area, our yards in that area may fill and limit our ability to accept additional salvage vehicles
while we process existing inventories. For example, Hurricanes Katrina, Rita, Sandy, and Harvey had, in certain quarters,
an adverse effect on our operating results, in part because of yard capacity constraints in the impacted areas of the U.S. We
regularly evaluate our capacity in all our markets and where appropriate, and seek to increase capacity through the acquisition
of additional land and yards. We may not be able to reach agreements to purchase independent storage facilities in markets
where we have limited excess capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to
expand our capacity through acquisitions of new land. Failure to have sufficient capacity at one or more of our yards could
adversely affect our relationships with insurance companies or other sellers of vehicles, which could have an adverse effect on
our consolidated results of operations and financial position.
Because the growth of our business has been due in large part to acquisitions and development of new facilities, the
rate of growth of our business and revenues may decline if we are not able to successfully complete acquisitions and
develop new facilities.
We seek to increase our sales and profitability through the acquisition of additional facilities and the development of new
facilities. For example, in fiscal 2018, we opened three new operational facilities in the U.S., a new operational facility in
the U.K., a new operational facility in Germany, and acquired four locations in Finland. In fiscal 2019, we opened one new
operational facility in Brazil; seven new operational facilities in Germany; and eleven new operational facilities in the U.S.,
and acquired an operational facility in Greenville, Kentucky. In fiscal 2020, we opened two new operational facilities in
Germany, one new operational facility in Brazil, and three new operational facilities in the U.S. Acquisitions are difficult to
identify and complete for a number of reasons, including competition among prospective buyers, the availability of affordable
financing in the capital markets and the need to satisfy applicable closing conditions and obtain antitrust and other regulatory
approvals on acceptable terms. There can be no assurance that we will be able to:
•
•
•
•
continue to acquire additional facilities on favorable terms;
expand existing facilities in no-growth regulatory environments;
obtain or retain buyers, sellers, and sales volumes in new markets or facilities;
increase revenues and profitability at acquired and new facilities;
• maintain the historical revenue and earnings growth rates we have been able to obtain through facility openings and
strategic acquisitions;
•
•
create new vehicle storage facilities that meet our current revenue and profitability requirements; or
obtain necessary regulatory approvals under applicable antitrust and competition laws.
In addition, certain of the acquisition agreements under which we have acquired companies require the former owners
to indemnify us against certain liabilities related to the operation of the company before we acquired it. In most of these
agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their
indemnification responsibilities. We cannot assure that these indemnification provisions will protect us fully or at all, and as a
result we may face unexpected liabilities that adversely affect our financial statements. Any failure to continue to successfully
identify and complete acquisitions and develop new facilities could have a material adverse effect on our consolidated results
of operations and financial position.
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As we continue to expand our operations, our failure to manage growth could harm our business and adversely
affect our consolidated results of operations and financial position.
Our ability to manage growth depends not only on our ability to successfully integrate new facilities, but also on our ability to:
•
•
•
•
hire, train and manage additional qualified personnel;
establish new relationships or expand existing relationships with vehicle sellers;
identify and acquire or lease suitable premises on competitive terms;
secure adequate capital; and
• maintain the supply of vehicles from vehicle sellers.
Our inability to control or manage these growth factors effectively could have a material adverse effect on our consolidated
results of operations and financial position.
Our annual and quarterly performance may fluctuate, causing the price of our stock to decline.
Our revenues and operating results have fluctuated in the past and can be expected to continue to fluctuate in the future on
a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Factors that may affect
our operating results include, but are not limited to, the following:
•
•
•
•
•
•
fluctuations in the market value of salvage and used vehicles;
fluctuations in commodity prices, particularly the per ton price of crushed car bodies;
the impact of foreign exchange gain and loss as a result of international operations;
our ability to successfully integrate our newly acquired operations in international markets and any additional markets
we may enter;
the availability of salvage vehicles or other vehicles we sell;
variations in vehicle accident rates;
• member participation in the internet bidding process;
•
•
•
•
•
•
•
•
delays or changes in state title processing;
changes in international, state or federal laws, regulations, or treaties affecting the vehicles we sell;
changes in the application, interpretation, and enforcement of existing laws, regulations or treaties;
trade disputes and other political, diplomatic, legal, or regulatory developments;
inconsistent application or enforcement of laws or regulations by regulators, governmental or quasi-governmental
entities, or law enforcement or quasi-law enforcement agencies, as compared to our competitors;
changes in laws affecting who may purchase the vehicles we sell;
the timing and size of our new facility openings;
the announcement of new vehicle supply agreements by us or our competitors;
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•
•
•
•
•
•
•
the severity of weather and seasonality of weather patterns;
the amount and timing of operating costs and capital expenditures relating to the maintenance and expansion of our
business, operations, and infrastructure;
the availability and cost of general business insurance;
labor costs and collective bargaining;
changes in the current levels of out of state and foreign demand for salvage vehicles;
the introduction of a similar internet product by a competitor;
the ability to obtain or maintain necessary permits to operate;
• military actions;
•
•
•
natural and man-made disasters;
public health issues, including COVID-19 and other pandemics; and
political issues.
Due to the foregoing factors, our operating results in one or more future periods can be expected to fluctuate. As a result,
we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance. In the event such fluctuations result in our financial performance being
below the expectations of public market analysts and investors, the price of our common stock could decline substantially.
Our internet-based sales model has increased the relative importance of intellectual property assets to our business,
and any inability to protect those rights could have a material adverse effect on our business, financial position, or
results of operations.
Our intellectual property rights include patents relating to our auction technologies, as well as trademarks, trade secrets,
copyrights and other intellectual property rights. In addition, we may enter into agreements with third parties regarding
the license or other use of our intellectual property. Effective intellectual property protection may not be available in every
country in which our products and services are distributed, deployed, or made available. We seek to maintain certain
intellectual property rights as trade secrets. The secrecy could be compromised by third parties, or intentionally or accidentally
by our employees, which would cause us to lose the competitive advantage resulting from those trade secrets. Any significant
impairment of our intellectual property rights, or any inability to protect our intellectual property rights, could have a material
adverse effect on our consolidated results of operations and financial position.
We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business.
Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be
unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our
trademarks and other proprietary rights.
We have in the past been and may in the future be subject to intellectual property rights claims, which are costly to
defend, could require us to pay damages, and could limit our ability to use certain technologies in the future.
Litigation based on allegations of infringement or other violations of intellectual property rights are common among
companies who rely heavily on intellectual property rights. Our reliance on intellectual property rights has increased
significantly in recent years as we have implemented our auction-style sales technologies across our business and ceased
conducting live auctions. Recent U.S. Supreme Court precedent potentially restricts patentability of software inventions by
affirming that patent claims merely requiring application of an abstract idea on standard computers utilizing generic computer
functions are patent ineligible, which may impact our ability to enforce our issued patent and obtain new patents. As we face
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increasing competition, the possibility of intellectual property rights claims against us increases. Litigation and any other
intellectual property claims, whether with or without merit, can be time-consuming, expensive to litigate and settle, and can
divert management resources and attention from our core business. An adverse determination in current or future litigation
could prevent us from offering our products and services in the manner currently conducted. We may also have to pay
damages or seek a license for the technology, which may not be available on reasonable terms and which may significantly
increase our operating expenses, if it is available for us to license at all. We could also be required to develop alternative
non-infringing technology, which could require significant effort and expense.
If we experience problems with our subhaulers and trucking fleet operations, our business could be harmed.
We rely primarily upon independent subhaulers to pick up and deliver vehicles to and from our storage facilities in the U.S.,
Canada, Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain. We also utilize, to a lesser
extent, independent subhaulers in the U.K. Our failure to pick up and deliver vehicles in a timely and accurate manner could
harm our reputation and brand, which could have a material adverse effect on our business. Further, an increase in fuel cost
may lead to increased prices charged by our independent subhaulers, which may significantly increase our cost. We may not be
able to pass these costs on to our sellers or buyers.
In addition to using independent subhaulers, in the U.K. we utilize a fleet of company trucks to pick up and deliver
vehicles from our U.K. storage facilities. In connection therewith, we are subject to the risks associated with providing
trucking services, including inclement weather, disruptions in transportation infrastructure, accidents and related injury
claims, availability and price of fuel, any of which could result in an increase in our operating expenses and reduction in our
net income.
We are partially self-insured for certain losses and if our estimates of the cost of future claims differ from actual
trends, our results of operations could be harmed.
We are partially self-insured for certain losses related to our different lines of insurance coverage including, without
limitation, medical insurance, general liability, workers’ compensation and auto liability. Our liability represents an estimate
of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established
based upon analysis of historical data and actuarial estimates. Further, we utilize independent actuaries to assist us in
establishing the proper amount of reserves for anticipated payouts associated with these self-insured exposures. While we
believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of
claims and medical cost inflation, differ from our estimates, our results of operations could be impacted.
Our executive officers, directors and their affiliates hold a large percentage of our stock and their interests may
differ from other stockholders.
Our executive officers, directors and their affiliates beneficially own, in the aggregate, more than 10% of our common
stock as of July 31, 2020. If they were to act together, these stockholders would have significant influence over most matters
requiring approval by stockholders, including the election of directors, any amendments to our certificate of incorporation
and certain significant corporate transactions, including potential merger or acquisition transactions. In addition, without the
consent of these stockholders, we could be delayed or prevented from entering into transactions that could be beneficial to us
or our other investors. These stockholders may take these actions even if they are opposed by our other investors.
We have certain provisions in our certificate of incorporation and bylaws which may have an anti-takeover effect or
that may delay, defer or prevent acquisition bids for us that a stockholder might consider favorable and limit attempts
by our stockholders to replace or remove our current management.
Our Board of Directors is authorized to create and issue from time to time, without stockholder approval, up to an
aggregate of 5,000,000 shares of undesignated preferred stock, the terms of which may be established and shares of which
may be issued without stockholder approval, and which may include rights superior to the rights of the holders of common
stock. In addition, our bylaws establish advance notice requirements for nominations for elections to our Board of Directors
or for proposing matters that can be acted upon by stockholders at stockholder meetings. These anti-takeover provisions
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and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of
our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and
make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions the
stockholders desire.
If we lose key management or are unable to attract and retain the talent required for our business, we may not be
able to successfully manage our business or achieve our objectives.
Our future success depends in large part upon the leadership and performance of our executive management team, all of
whom are employed on an at-will basis and none of whom are subject to any agreements not to compete. If we lose the service
of one or more of our executive officers or key employees, in particular Willis J. Johnson, our Chairman, A. Jayson Adair,
our Chief Executive Officer, and Jeffrey Liaw, our President and acting Chief Financial Officer, or if one or more of these
executives decide to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully
manage our business or achieve our business objectives.
Cash investments are subject to risks.
We may invest our excess cash in securities or money market funds backed by securities, which may include U.S.
treasuries, other federal, state and municipal debt, bonds, preferred stock, commercial paper, insurance contracts and other
securities both privately and publicly traded. All securities are subject to risk, including fluctuations in interest rates, credit
risk, market risk and systemic economic risk. Changes or movements in any of these investment-related risk items may result
in a loss or impairment to our invested cash and may have a material effect on our consolidated results of operations and
financial position.
Rapid technological changes may render our technology obsolete or decrease the competitiveness of our services.
To remain competitive, we must continue to enhance and improve the functionality and features of our websites and
software. The internet and the online commerce industry are rapidly changing. In particular, the online commerce industry
is characterized by increasingly complex systems and infrastructures. If competitors introduce new services embodying new
technologies or if new industry standards and practices emerge, our existing websites and proprietary technology and systems
may become obsolete. Our future success will depend on our ability to:
•
•
enhance our existing services;
develop, access, acquire, and license new services and technologies that address the increasingly sophisticated and
varied needs of our current and prospective customers; and
•
respond to technological advances and emerging industry standards and practices in a cost-effective and timely basis.
Developing our websites and other proprietary technology entails significant technical and business risks. We may use new
technologies ineffectively or we may fail to adapt our websites, transaction-processing systems, and network infrastructure to
customer requirements or emerging industry standards. If we face material delays in introducing new services, products, and
enhancements, our customers and suppliers may forego the use of our services and use those of our competitors.
New member programs could impact our operating results.
We have or will initiate programs to open our auctions to the general public. These programs include the Registered Broker
program through which the public can purchase vehicles through a registered member and the Market Maker and Copart
Lounge programs through which registered members can open Copart storefronts in foreign markets with internet kiosks
enabling the general public to search our inventory and purchase vehicles. Initiating programs that allow access to our online
auctions to the general public will involve material expenditures and we cannot predict what future benefit, if any, will be
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derived. These programs could also create additional risks including heightened regulation and litigation risk related to vehicle
sales to the general public, and heightened branding, reputational, and intellectual property risk associated with allowing
Copart registered members to establish Copart-branded storefronts in foreign jurisdictions.
Factors such as mild weather conditions can have an adverse effect on our revenues and operating results, as well
as our revenue and earnings growth rates, by reducing the available supply of salvage vehicles. Conversely, extreme
weather conditions can result in an oversupply of salvage vehicles that requires us to incur abnormal expenses to
respond to market demands.
Mild weather conditions tend to result in a decrease in the available supply of salvage vehicles because traffic accidents
decrease and fewer automobiles are damaged. Accordingly, mild weather can have an adverse effect on our salvage vehicle
supply, only a portion of which are referred to as inventory, which would be expected to have an adverse effect on our revenue
and operating results and related growth rates. Conversely, our salvage vehicle supply will tend to increase in poor weather
such as a harsh winter or as a result of adverse weather-related conditions such as flooding. During periods of mild weather
conditions, our ability to increase our revenues and improve our operating results and related growth will be increasingly
dependent on our ability to obtain additional vehicle sellers and to compete more effectively in the market, each of which
is subject to the other risks and uncertainties described in these sections. In addition, extreme weather conditions, although
they increase the available supply of salvage cars, can have an adverse effect on our operating results. For example, during
fiscal 2006, fiscal 2013 and fiscal 2018, we recognized substantial additional costs associated with Hurricanes Katrina, Rita,
Sandy, and Harvey. Weather events have had, in certain quarters, an adverse effect on our operating results, in part because
of yard capacity constraints in the impacted areas of the U.S. These additional costs were characterized as “abnormal” under
ASC 330, Inventory, and included premiums for subhaulers, payroll, equipment, and facilities expenses directly related to the
operating conditions created by the hurricanes. In the event that we were to again experience extremely adverse weather or
other anomalous conditions that result in an abnormally high number of salvage vehicles in one or more of our markets, those
conditions could have an adverse effect on our future operating results.
Macroeconomic factors such as high fuel prices, declines in commodity prices, declines in used car prices, and
vehicle-related technological advances may have an adverse effect on our revenues and operating results, as well as our
earnings growth rates.
Macroeconomic factors that affect oil prices and the automobile and commodity markets can have adverse effects on our
revenues, revenue growth rates (if any), and operating results. Significant increases in the cost of fuel could lead to a reduction
in miles driven per car and a reduction in accident rates. A material reduction in accident rates, whether due to, among other
things, a reduction in miles driven per car, vehicle-related technological advances such as accident avoidance systems and, to
the extent widely adopted, the advent of autonomous vehicles, could have a material impact on revenue growth. In addition,
under our Percentage Incentive Program contracts, which we refer to as PIP, the cost of transporting the vehicle to one of our
facilities is included in the PIP fee. We may incur increased fees, which we may not be able to pass on to our vehicle sellers.
A material increase in transportation rates could have a material impact on our operating results. Volatility in fuel, commodity,
and used car prices could have a material adverse effect on our revenues and revenue growth rates in future periods.
The vehicle sales industry is highly competitive and we may not be able to compete successfully.
We face significant competition for the supply of salvage and other vehicles and for the buyers of those vehicles. We believe
our principal competitors include other auction and vehicle remarketing service companies with whom we compete directly in
obtaining vehicles from insurance companies and other sellers, and large vehicle dismantlers, who may buy salvage vehicles
directly from insurance companies, bypassing the salvage sales process. Many of the insurance companies have established
relationships with competitive remarketing companies and large dismantlers. Certain of our competitors may have greater
financial resources than us. Due to the limited number of vehicle sellers, particularly in the U.K., and other foreign markets,
the absence of long-term contractual commitments between us and our sellers and the increasingly competitive market
environment, there can be no assurance that our competitors will not gain market share at our expense.
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We may also encounter significant competition for local, regional, and national supply agreements with vehicle sellers.
There can be no assurance that the existence of other local, regional, or national contracts entered into by our competitors
will not have a material adverse effect on our business or our expansion plans. Furthermore, we are likely to face competition
from major competitors in the acquisition of vehicle storage facilities, which could significantly increase the cost of such
acquisitions and thereby materially impede our expansion objectives or have a material adverse effect on our consolidated
results of operations. These potential new competitors may include consolidators of automobile dismantling businesses,
organized salvage vehicle buying groups, automobile manufacturers, automobile auctioneers and software companies. While
most vehicle sellers have abandoned or reduced efforts to sell salvage vehicles directly without the use of service providers
such as us, there can be no assurance that this trend will continue, which could adversely affect our market share, consolidated
results of operations and financial position. Additionally, existing or new competitors may be significantly larger and have
greater financial and marketing resources than us; therefore, there can be no assurance that we will be able to compete
successfully in the future.
Regulation of the vehicle sales industry may impair our operations, increase our costs of doing business, and create
potential liability.
Participants in the vehicle sales industry are subject to, and may be required to expend funds to ensure compliance with a
variety of laws, regulations, and ordinances. These include, without limitation, land use ordinances, business and occupational
licensure requirements and procedures, vehicle titling, sales, and registration rules and procedures, and laws and regulations
relating to the environment, anti-money laundering, anti-corruption, exporting, and reporting and notification requirements
to agencies and law enforcement relating to vehicle transfers. Many of these laws and regulations are frequently complex and
subject to interpretation, and failure to comply with present or future regulations or changes in interpretations of existing laws
or regulations may result in impairment or suspension of our operations and the imposition of penalties and other liabilities.
At various times, we may be involved in disputes with local governmental officials regarding the development and/or operation
of our business facilities. We may be subject to similar types of regulations by governmental agencies in new markets. In
addition, new legal or regulatory requirements or changes in existing requirements may delay or increase the cost of opening
new facilities, may limit our base of vehicle buyers, may decrease demand for our vehicles, and may adversely impact our
ability to conduct business.
Changes in laws or the interpretation of laws, including foreign laws and regulations, affecting the import and
export of vehicles may have an adverse effect on our business and financial condition.
Our internet-based auction-style model has allowed us to offer our products and services to international markets and
has increased our international buyer base. As a result, foreign importers of vehicles now represent a significant part of our
total buyer base. As a result our foreign buyers may be subject to a variety of foreign laws and regulations, including the
imposition of import duties by foreign countries. Changes in laws, regulations, and treaties that restrict or impede or negatively
affect the economics surrounding the importation of vehicles into foreign countries may reduce the demand for vehicles and
impact our ability to maintain or increase our international buyer base. In addition, we and our vehicle buyers must work with
foreign customs agencies and other non-U.S. governmental officials, who are responsible for the interpretation, application,
and enforcement of these laws, regulations, and treaties. Any inability to obtain requisite approvals or agreements from such
authorities could adversely impact the ability of our buyers to import vehicles into foreign countries. In addition, any disputes
or disagreements with foreign agencies or officials over import duties, tariffs, or similar matters, including disagreements
over the value assigned to imported vehicles, could adversely affect our costs and the ability and costs of our buyers to import
vehicles into foreign countries. For example, in March 2008, a decree issued by the president of Mexico became effective
that placed restrictions on the types of vehicles that can be imported into Mexico from the U.S. The adoption of similar
laws or regulations in other jurisdictions that have the effect of reducing or curtailing our activities abroad, changes in the
interpretation, application, and enforcement of laws, regulations, or treaties, any failure to comply with non-U.S. laws or
regulatory interpretations, or any legal or regulatory interpretations or governmental actions that significantly increase our
costs or the costs of our buyers could have a material adverse effect on our consolidated results of operations and financial
position by reducing the demand for our products and services and our ability to compete in non-U.S. markets.
The operation of our storage facilities poses certain environmental risks, which could adversely affect our
consolidated financial position, results of operations or cash flows.
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Our operations are subject to federal, state, national, international, provincial and local laws and regulations regarding the
protection of the environment in the countries in which we have storage facilities. In some cases, we may acquire land with
existing environmental issues, including landfills as an example. In the salvage vehicle remarketing industry, large numbers of
wrecked vehicles are stored at storage facilities, requiring us to actively monitor and manage potential environmental impacts.
In the U.K., we provide vehicle de-pollution and crushing services for end-of-life program vehicles. We could incur substantial
expenditures for preventative, investigative, or remedial action and could be exposed to liability arising from our operations,
contamination by previous users of certain of our acquired facilities or facilities which we may acquire in the future, or the
disposal of our waste at off-site locations. In addition to conducting environmental diligence on new site acquisitions, we
also take such actions as may be necessary under laws in the U.S. to avoid liability for activities of prior owners, and we
have from time to time acquired insurance with respect to acquired facilities with known environmental risks. There can
be no assurances, however, that these efforts to mitigate environmental risk will prove sufficient if we were to face material
liabilities. We have incurred expenses for environmental remediation in the past, and environmental laws and regulations
could become more stringent over time. There can be no assurance that we or our operations will not be subject to significant
costs in the future or that environmental enforcement agencies at the state and federal level will not pursue enforcement
actions against us. In addition to acquiring insurance in connection with certain acquisitions, we have also obtained
indemnification for pre-existing environmental liabilities from many of the persons and entities from whom we have acquired
facilities, but there can be no assurance that such indemnifications will be available or sufficient. Any such expenditures or
liabilities could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.
Adverse U.S. and international economic conditions may negatively affect our business, operating results, and
financial condition.
The capital and credit markets have historically experienced extreme volatility and disruption, which has in the past and
may in the future lead to economic downturns in the U.S. and abroad. As a result of any economic downturn, the number
of miles driven may decrease, which may lead to fewer accident claims, a reduction of vehicle repairs, and fewer salvage
vehicles. Increases in unemployment, as a result of any economic downturn, may lead to an increase in the number of
uninsured motorists. Uninsured motorists are responsible for disposition of their vehicle if involved in an accident. Disposition
generally is either the repair or disposal of the vehicle. In the situation where the owner of the wrecked vehicle, and not an
insurance company, is responsible for its disposition, we believe it is more likely that vehicle will be repaired or, if disposed,
disposed through channels other than us. Adverse credit markets may also affect the ability of members to secure financing
to purchase salvaged vehicles which may adversely affect demand. In addition, if the banking system or the financial markets
deteriorate or are volatile, our credit facility or our ability to obtain additional debt or equity financing may be affected. These
adverse economic conditions and events may have a negative effect on our business, consolidated results of operations, and
financial position.
If we determine that our goodwill has become impaired, we could incur significant charges that would have a
material adverse effect on our consolidated results of operations.
Goodwill represents the excess of cost over the fair market value of assets acquired in business combinations. As of July 31,
2020, the amount of goodwill on our consolidated balance sheet subject to future impairment testing was $343.6 million.
Pursuant to ASC 350, Intangibles—Goodwill and Other, we are required to annually test goodwill to determine if
impairment has occurred, either through a quantitative or qualitative analysis. Additionally, interim reviews must be
performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing
performed indicates that impairment has occurred, we are required to record a non-cash impairment charge in the period the
determination is made. The annual goodwill impairment analysis, which was performed qualitatively in the fourth quarter
of fiscal 2020, considered all relevant factors specific to our reporting units, including macroeconomic conditions; industry
and market considerations; overall financial performance; the impact of the COVID-19 pandemic; and relevant entity-specific
events. Changes in these factors, or changes in actual performance could affect the fair value of goodwill, which may result in
an impairment charge. For example, deterioration in worldwide economic conditions could affect these assumptions and lead
us to determine that goodwill impairment is required. We cannot accurately predict the amount or timing of any impairment
of assets. We considered the above factors noting none involved significant uncertainty. Our calculated fair value exceeded
carrying value for each reporting unit by a substantial amount in our previous quantitative analysis, indicating no material
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risk as of July 31, 2020, with respect to potential goodwill impairments. Should the value of our goodwill become impaired,
it could have a material adverse effect on our consolidated results of operations and could result in our incurring net losses in
future periods.
Changes in federal, state and local, or foreign tax laws, changing interpretations of existing tax laws, or adverse
determinations by tax authorities could increase our tax burden or otherwise adversely affect our financial condition
and results of operations.
We are subject to taxation at the federal, state, provincial, and local levels in the U.S., the U.K., and various other countries
and jurisdictions in which we operate, including income taxes, sales taxes, value-added (“VAT”) taxes, and similar taxes and
assessments. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations.
Although we believe our tax positions are reasonable, we are subject to audit by the Internal Revenue Service in the
United States, HM Revenue and Customs in the United Kingdom, state tax authorities in the states in which we operate, and
other similar tax authorities in international jurisdictions. We have been subject to audits and challenges from applicable
federal, state, or foreign tax authorities in past, and may be subject to similar audits and challenges in the future. While we
believe we comply with all applicable tax laws, rules, and regulations in the relevant jurisdictions, tax authorities may elect
to audit us and determine that we owe additional taxes, which could result in a significant increase in our liabilities for taxes,
interest, and penalties in excess of our accrued liabilities.
New tax legislative initiatives may be proposed from time to time, such as proposals for comprehensive tax reform in the
United States, which may impact our effective tax rate and which could adversely affect our tax positions or tax liabilities.
Our future effective tax rate could be adversely affected by, among other things, changes in the composition of earnings in
jurisdictions with differing tax rates, changes in statutory rates and other legislative changes, changes in interpretations of
existing tax laws, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time,
U.S. federal, state and local, and foreign governments make substantive changes to tax rules and their application, which could
result in materially higher taxes than would be incurred under existing tax law and which could adversely affect our financial
condition or results of operations.
The Tax Cuts and Jobs Act (“Tax Reform” or “Tax Act”) was enacted on December 22, 2017. The Tax Act significantly
revamped U.S. taxation of corporations, including a reduction of the federal income tax rate from 35% to 21%, a repeal of
the exceptions to the $1.0 million deduction limitation for performance-based compensation to covered employees, and a
new tax regime for foreign earnings. Any subsequent repeal of the Tax Act could adversely affect our financial condition or
results of operations. Many of the provisions of the Tax Act are highly complex and may be subject to further interpretive
guidance from the IRS or others. Some of the provisions of the Tax Act may be changed by a future Congress or challenged
by the World Trade Organization (“WTO”). Although we cannot predict the nature or outcome of such future interpretive
guidance, or actions by a future Congress or WTO, they could adversely impact our consolidated results of operations and
financial position.
New accounting pronouncements or new interpretations of existing standards could require us to make adjustments
to accounting policies that could adversely affect the consolidated financial statements.
The Financial Accounting Standards Board, the Public Company Accounting Oversight Board, and the SEC, from time to
time issue new pronouncements or new interpretations of existing accounting standards that require changes to our accounting
policies and procedures. To date, we do not believe any new pronouncements or interpretations have had a material adverse
effect on our consolidated results of operations and financial position, but future pronouncements or interpretations could
require a change or changes in our policies or procedures.
Fluctuations in foreign currency exchange rates could result in declines in our reported revenues and earnings.
Our reported revenues and earnings are subject to fluctuations in currency exchange rates. We do not engage in foreign
currency hedging arrangements; consequently, foreign currency fluctuations may adversely affect our revenues and earnings.
Should we choose to engage in hedging activities in the future we cannot be assured our hedges will be effective or that
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the costs of the hedges will exceed their benefits. Fluctuations in the rate of exchange between the U.S. dollar and foreign
currencies, primarily the British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and
Bahraini dinar could adversely affect our consolidated results of operations and financial position.
On January 29, 2020, the European Parliament approved the U.K.’s withdrawal from the European Union, commonly
referred to as “Brexit.” The U.K. officially left the European Union on January 31, 2020 and entered into a transition period
that is scheduled to expire on December 31, 2020 during which the U.K.’s trading relationship with the European Union is
expected to remain largely the same while the two parties negotiate a trade agreement as well as other aspects of the U.K.’s
relationship with the European Union. The ultimate effects of Brexit on us are difficult to predict, but adverse consequences
concerning Brexit or the European Union could include deterioration in global economic conditions, instability in global
financial markets, political uncertainty, volatility in currency exchange rates, or adverse changes in the cross-border
agreements currently in place, any of which could have an adverse impact on our financial results in the future. The ultimate
effects of Brexit on us will also depend on the terms of agreements, if any, that the U.K. and the European Union make to
retain access to each other’s respective markets either during a transitional period or more permanently.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters are located in Dallas, Texas. In the U.S., we own or lease facilities in every state except
Vermont. In Canada, we own or lease facilities in the provinces of Ontario, Quebec, Alberta, Nova Scotia, British Columbia,
Newfoundland and New Brunswick. In the U.K., we own or lease eighteen operating facilities. In Brazil, we own or lease
thirteen operating facilities. In the Republic of Ireland, we own one operating facility. In the U.A.E., Oman, and Bahrain,
we lease one operating facility in each country. In Finland, we own or lease four operating facilities. In Germany we operate
an online platform and own or lease twelve operating facilities. In Spain, we operate an online platform, own one operating
facility and lease five additional storage locations. We believe that our existing facilities are adequate to meet current
requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of
operations and additional offices on commercially acceptable terms.
Item 3.
Legal Proceedings
Legal Proceedings
We are subject to threats of litigation and are 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 we are party, or with respect to which our property is subject.
We have provided 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 our 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. We believe that any ultimate liability would not have a material effect on our 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. We maintain insurance which may or may not provide coverage for claims made against us. There is no
assurance that there will be insurance coverage available when and if needed. Additionally, the insurance that we carry
requires that we pay for costs and/or claims exposure up to the amount of the insurance deductibles.
Item 4.
Mine Safety Disclosure
Not applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
As of July 31, 2020, there were 235,315,337 shares outstanding. Our common stock has been quoted on the NASDAQ
Global Select Market under the symbol “CPRT” since March 17, 1994. As of September 25, 2020, we had 828 stockholders
of record. On July 31, 2020, the last reported sale price of our common stock on the NASDAQ Global Select Market was
$93.25 per share.
Repurchases of Our Common Stock
On September 22, 2011, our 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 we deem appropriate and may be discontinued at any time. For fiscal 2020 and 2018, we did not repurchase
any shares of our common stock under the program. For fiscal 2019, we repurchased 7,635,596 shares of our common stock
under the program at a weighted average price of $47.81 per share totaling $365.0 million. As of July 31, 2020, the total
number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under
our program.
The number and average price of shares purchased in each fiscal year are set forth in the table below:
Period
Fiscal 2018
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Program
Maximum Number
of Shares That May
Yet be Purchased
Under the Program(1)
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,635,596
$
47.81
7,635,596
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 1, 2020 through May 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . .
June 1, 2020 through June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . .
July 1, 2020 through July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
89,086,398
89,086,398
89,086,398
89,086,398
89,086,398
81,450,802
81,450,802
81,450,802
81,450,802
81,450,802
81,450,802
81,450,802
81,450,802
81,450,802
(1)
Our stock repurchase program was announced on February 20, 2003. On September 22, 2011, our Board of Directors approved
an 80 million share increase in our stock repurchase program, bringing the total current authorization to 196 million shares. The
repurchase 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 we deem appropriate and may be discontinued at any time.
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In fiscal 2018, certain members of our Board of Directors exercised stock options through cashless exercises. In fiscal
2019, our former President exercised all of his vested stock options through a cashless exercise. In fiscal 2020, our Chief
Executive Officer exercised all of his vested stock options through a cashless exercise. A portion of the options exercised
were net settled in satisfaction of the exercise price. We remitted $101.3 million, $45.6 million, and no amounts for the years
ended July 31, 2020, 2019 and 2018, 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 2018—Q2 . . . . . .
80,000
$
FY 2019—Q3 . . . . . .
FY 2020—Q1 . . . . . .
3,000,000
4,000,000
6.54
17.81
17.81
11,996
945,162
865,719
—
68,004
$
43.60
$
806,039
1,248,799
1,231,595
1,902,686
56.53
82.29
—
45,565
101,348
(1)
Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against our stock
repurchase program.
Dividend Policies
We have not paid a cash dividend since becoming a public company in 1994. We currently intend to retain any earnings for
use in our business. The Credit Agreement to which we are a party contains customary affirmative and negative covenants,
including covenants that limit or restrict us and our subsidiaries’ ability to, among other things, pay dividends, subject to
certain exceptions. For further detail see Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt and Note 11
— Stockholders’ Equity and under the subheadings “Credit Agreement” and “Note Purchase Agreement” in the Liquidity and
Capital Resources sections of this Annual Report on Form 10-K.
Issuances of Unregistered Securities
There were no issuances of unregistered securities in the year ended July 31, 2020.
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Performance Graph
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following
information relating to the price performance of our common stock shall not be deemed “ filed” with the SEC or “Soliciting
Material” under the Exchange Act, or subject to Regulation 14A or 14C, or to liabilities of Section 18 of the Exchange
Act except to the extent we specifically request that such information be treated as soliciting material or to the extent we
specifically incorporate this information by reference.
The following is a line graph comparing the cumulative total return to stockholders of our common stock at July 31, 2020
since July 31, 2015, to the cumulative total return over such period of (i) the NASDAQ Composite Index, (ii) the NASDAQ
Industrial Index, and (iii) the NASDAQ Q-50 (NXTQ).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Copart, Inc., the NASDAQ Composite Index,
the NASDAQ Industrial Index, the S&P 500 Index, and the NASDAQ Q-50 (NXTQ)
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
7/15
7/16
7/17
7/18
7/19
7/20
Copart, Inc.
NASDAQ Composite
NASDAQ Industrial
S&P 500 Index
NASDAQ Q-50 (NXTQ)
2015
2016
2017
2018
2019
2020
Fiscal Year Ended July 31,
Copart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Q-50 (NXTQ) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
100.00
100.00
100.00
100.00
100.00
$
$
$
$
$
139.99
101.92
106.49
105.61
92.67
$
$
$
$
$
174.80
126.80
126.97
122.56
108.01
$
$
$
$
$
318.57
154.86
150.17
142.46
121.15
$
$
$
$
$
430.36
166.85
159.06
153.84
135.28
$
$
$
$
$
517.62
221.55
204.20
172.23
178.45
*
Assumes that $100.00 was invested on July 31, 2015 in our common stock, in the NASDAQ Composite Index, the NASDAQ
Industrial Index, the NASDAQ Q-50 (NXTQ), and the S&P 500 Index and that all dividends were reinvested. No dividends have
been declared on our common stock. Stockholder returns over the indicated period should not be considered indicative of future
stockholder returns.
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
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Item 6.
Selected Financial Data
The following selected consolidated financial data should be read in conjunction with our “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of this Form 10-K, and “Financial Statements
and Supplementary Data” in Part II, Item 8 of this Form 10-K. Our historical results of operations are not necessarily
indicative of results of operations to be expected for any future period.
(In thousands, except per share)
Operating Data
Fiscal Year Ended July 31,
2020
2019
2018
2017
2016
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,205,583 $ 2,041,957 $ 1,805,695 $ 1,447,981 $ 1,268,449
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per common share . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . . . . . . .
Diluted net income per common share. . . . . . . . . . . . . . . . . . .
$
$
$
816,099
800,839
100,932
716,475
704,951
113,258
584,345
562,511
144,504
461,299
440,100
45,839
406,470
395,865
125,505
699,907 $
591,693 $
418,007 $
394,261 $
270,360
3.00 $
2.57
$
1.80 $
1.72 $
1.18
233,202
230,489
231,793
228,686
228,846
2.93 $
2.46
$
1.73 $
1.66 $
1.11
Diluted weighted average common shares outstanding. . . . . .
238,656
240,453
241,877
237,019
244,295
Balance Sheet Data
Cash, cash equivalents, and restricted cash . . . . . . . . . . . . . . .
$
477,718
$
186,319
$
274,520 $
210,100 $
155,849
Working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
607,715
405,163
431,860
285,108
220,523
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,455,261
2,547,617
2,307,698
1,982,501
1,649,820
Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397,787
401,229
399,898
633,038
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,489,516
1,778,381
1,581,099
1,098,600
640,492
774,456
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended July 31, 2020, or this Form 10-K, including the information
incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act), including forward-looking statements concerning the potential impact of the COVID-19 pandemic on our business,
operations, and operating results. All statements other than statements of historical facts are statements that could be deemed
forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “expect,” “plan,” “intend,” “ forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or
the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-K
involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part I, Item 1A
under the caption entitled “Risk Factors” in this Form 10-K and those discussed elsewhere in this Form 10-K. Unless the
context otherwise requires, references in this Form 10-K to “Copart,” the “Company,” “we,” “us,” or “our” refer to Copart,
Inc. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as
in the other documents we file with the Securities and Exchange Commission (“the SEC”). We may from time to time make
additional written and oral forward-looking statements, including statements contained in our filings with the SEC. We do not
undertake to update any forward-looking statement that may be made from time to time by or on behalf of us.
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All references to numbered Notes are to specific Notes to our Consolidated Financial Statements included in this Annual
Report on Form 10-K and which descriptions are incorporated into the applicable response by reference. Capitalized terms
used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operation
(“MD&A”) have the same meanings as in such Notes.
Overview
We are a leading provider of online auctions and vehicle remarketing services with operations in the United States
(“U.S.”), Canada, the United Kingdom (“U.K.”), Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates
(“U.A.E.”), Oman, Bahrain, and Spain.
Our goals are to generate sustainable profits for our stockholders, while also providing environmental and social benefits
for the world around us. With respect to our environmental stewardship, we believe our business is a critical enabler for the
global re-use and recycling of vehicles, parts, and raw materials. We are not responsible for the carbon emissions resulting
from new vehicle manufacturing, governmental fuel emissions standards or vehicle use by consumers. Each vehicle that enters
our business operations is an existing fact, with whatever fuel technology and efficiency it was designed and built to have, and
the substantial carbon emissions associated with the vehicle’s manufacture are already sunk costs. However, upon our receipt
of an existing vehicle, we help decrease its total environmental impact by extending its useful life and thereby avoiding the
carbon emissions associated with the alternative of new vehicle and auto parts manufacturing. For example, many of the cars
we process and remarket are subsequently restored to drivable condition, reducing the new vehicle manufacturing burden
the world would otherwise face. Many of our cars are purchased by dismantlers, who recycle and refurbish parts for vehicle
repairs, again reducing new and aftermarket parts manufacturing. And finally, some of our vehicles are returned to their raw
material inputs through scrapping, reducing the need for further new resource extraction. In each of these cases, our business
reduces the carbon and other environmental footprint of the global transportation industry.
Beyond our environmental stewardship, we also support the world’s communities in two important ways. First, we believe
that we contribute to economic development and well-being by enabling more affordable access to mobility around the world.
For example, many of the automobiles sold through our auction platform are purchased for use in developing countries where
affordable transportation is a critical enabler of education, health care, and well-being more generally. Secondly, because
of the special role we play in responding to catastrophic weather events, we believe we contribute to disaster recovery and
resilience in the communities we serve. For example, we mobilized our people, entered into emergency leases, and engaged
with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in the
Houston, Texas metropolitan area in the wake of Hurricane Harvey in the summer of 2017.
We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our
Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3. Vehicle sellers consist
primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers and from
individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers,
exporters, and in some jurisdictions, to the general public. The majority of the vehicles sold on behalf of insurance companies
are either damaged vehicles deemed a total loss; 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. We offer vehicle sellers a full
range of services that help 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 U.S., Canada, Brazil, the Republic of Ireland, Finland, the U.A.E., Oman, and Bahrain, we sell vehicles primarily as
an agent and derive 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 U.K., Germany, and Spain
we operate both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the
vehicles for our own account. In Germany and Spain, we also derive 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.
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We monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate
our financial and operating performance. Such indicators include:
Service and Vehicle Sales Revenue: Our service revenue consists of auction and auction related sales transaction fees
charged for vehicle remarketing services. 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 our facility; title processing and
preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These fees are recognized as net revenue (not
gross vehicle selling price) at the time of auction in the amount of such fees charged. Purchased vehicle revenue includes the
gross sales price of the vehicles which we have purchased or are otherwise considered to own. We have certain contracts with
insurance companies, primarily in the U.K., in which we act as a principal, purchasing vehicles and reselling them for our own
account. We also purchase vehicles in the open market, primarily from individuals, and resell them for our own account.
Our revenue is impacted by several factors, including total loss frequency and the average vehicle auction selling price,
as a significant amount of our service revenue is associated in some manner with the ultimate selling price of the vehicle.
Vehicle auction selling prices are driven primarily by: (i) market demand for rebuildable, drivable vehicles; (ii) used car
pricing, which we also believe has an impact on total loss frequency; (iii) end market demand for recycled and refurbished
parts as reflected in demand from dismantlers; (iv) the mix of cars sold; (v) changes in the U.S. dollar exchange rate to foreign
currencies, which we believe has an impact on auction participation by international buyers, and; (vi) changes in commodity
prices, particularly the per ton price for crushed car bodies, as we believe this has an impact on the ultimate selling price of
vehicles sold for scrap and vehicles sold for dismantling. We cannot specifically quantify the financial impact that commodity
pricing, used car pricing, and product sales mix has on the selling price of vehicles, our service revenues, or financial results.
Total loss frequency is the percentage of cars involved in accidents that insurance companies salvage rather than repair and is
driven by the relationship between repair costs, used car values, and auction returns. Over the last several years, we believe
there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency. The increase
in total loss frequency may have been driven by the change in used car values and repair costs, which we believe are generally
trending upward. Changes in used car prices and repair costs, may impact total loss frequency and affect our growth rate. Used
car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average
age of cars on the road. The average age of cars on the road continued to increase, growing from 9.6 years in 2002 to 11.9 years
in 2020. Repair costs are generally based on damage severity, vehicle complexity, repair parts availability, repair parts costs,
labor costs, and repair shop lead times. The factors that can influence repair costs, used car pricing, and auction returns are
many and varied and we cannot predict their movements. Accordingly, we cannot predict future trends in total loss frequency.
Beginning in March 2020, our business and operations began to experience the impact of the worldwide COVID-19
pandemic, first within our European operations and as the month progressed throughout the balance of our global operations.
In materially all of our jurisdictions, we have been deemed by local authorities an essential business because our operations
ensure the removal of vehicles from repair shops, impound yards, and streets and highways, enabling the critical function of
road infrastructure. As a result, we have continued to operate our facilities as well as our online-only auctions, while following
appropriate health and safety protocols to ensure safe working conditions for our employees as well as for our sellers, buyers,
and other business partners with whom we come in contact.
From a financial perspective, our operating results were adversely affected by lower processed vehicle volume during
the last five months of the year ended July 31, 2020. We saw substantial declines in vehicle assignments, which we attribute
principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the
globe. As we do not recognize the majority of our transactional revenues until the completion of our auctions, a substantial
portion of the declines in assignments we experienced in the most recent quarter will be reflected in future quarters. We
cannot predict how the pandemic will continue to develop, whether and to what extent new shelter-in-place orders will be
issued, or to what extent the pandemic may have longer term unanticipated impacts on our markets, including, for example, the
risk of long-term reductions in miles driven. To the extent that the pandemic results in temporary or longer-term declines in the
number of vehicles we process, our business and operating results could be adversely affected.
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Although we have been deemed an “essential business” in the jurisdictions in which we operate and have largely been
able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce
efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time. We adjusted,
but did not make material modifications to, our operating expenses to be able to continue providing employment for our
employees, service to our sellers, and process incoming vehicles for sale in future quarters. We expect the pandemic to have
an adverse effect on our quarterly revenues in future quarters, with the magnitude and timing of these effects dependent
upon the extent and duration of suspended economic activity across our markets. The longer-term impact on our business
will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; “second wave”
outbreaks of COVID-19 in one or more of our geographic markets; a reduction in miles driven due to one or more factors
relating to the COVID-19 pandemic; any further government actions in response to COVID-19 outbreaks that restrict business
activity or travel; disruptions of governmental administrative operations due to COVID-19 outbreaks that adversely impact
our core business activities, such as vehicle title processing; and deteriorating economic conditions generally, and the potential
availability, among other things, of vaccines or treatments, none of which we can predict. For a further discussion of risks
to our business and operating results arising from the pandemic, please see the section of this Annual Report on Form 10-K
captioned “Risk Factors.”
On March 20, 2020, we filed a Current Report on Form 8-K to announce our draw down of funds under our available credit
facilities in order to ensure financial flexibility given current uncertainties; we subsequently repaid all outstanding borrowings
under these facilities. As of July 31, 2020, we had cash, cash equivalents, and restricted cash of $477.7 million, an increase of
$384.2 million over January 31, 2020, and had $1.5 billion of liquidity. These incremental available cash equivalents may be
used for investments in land, technology, acquisitions, working capital, share repurchases, or general corporate purposes as
permitted by the applicable credit agreements.
Operating Costs and Expenses: 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; marketing costs directly related to the auction process; and costs of vehicles sold under the purchase
contracts. General and administrative expenses consist primarily of executive management; accounting; data processing; sales
personnel; professional services; marketing expenses; and system maintenance and enhancements.
Other Income and Expense: Other income primarily includes foreign exchange rate gains and losses, and gains and losses
from the disposal of assets, which will fluctuate based on the nature of these activities each period. Other expense consists
primarily of interest expense on long-term debt. See Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt.
Liquidity and Cash Flows: Our primary source of working capital is cash operating results and debt financing. The
primary source of our liquidity is our cash and cash equivalents and Revolving Loan Facility. The primary factors affecting
cash operating results are: (i) seasonality; (ii) market wins and losses; (iii) supplier mix; (iv) accident frequency; (v) total
loss frequency; (vi) volume from our existing suppliers; (vii) commodity pricing; (viii) used car pricing; (ix) foreign
currency exchange rates; (x) product mix; (xi) contract mix to the extent applicable; (xii) our capital expenditures; and other
macroeconomic factors such as COVID-19. These factors are further discussed in the Results of Operations and Risk Factors
sections of this Annual Report on Form 10-K.
Potential internal sources of additional working capital and liquidity are the sale of assets or the issuance of shares through
option exercises and shares issued under our Employee Stock Purchase Plan. A potential external source of additional working
capital and liquidity is the issuance of additional debt with new lenders and equity. However, we cannot predict if these sources
will be available in the future or on commercially acceptable terms.
Acquisitions and New Operations
As part of our overall expansion strategy of offering integrated services to vehicle sellers, we anticipate acquiring and
developing facilities in new regions, as well as the regions currently served by our facilities. We believe that these acquisitions
and openings will strengthen our coverage, as we have facilities located in the U.S., Canada, the U.K., Brazil, the Republic
of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain with the intention of providing global coverage for our
sellers. All of these acquisitions have been accounted for using the purchase method of accounting.
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The following tables set forth operational facilities that we have opened and began operations from August 1, 2017 through
July 31, 2020:
United States Locations
Date
June 2018
Andrews, Texas (Midland) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 2017
Exeter, Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 2017
Lumberton, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spartanburg, South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 2018
Madison, Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harleyville, South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Macon, Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mocksville, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Antelope, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sacramento, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2019
Fredericksburg, Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 2019
West Mifflin, Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 2019
July 2019
Hartford, Connecticut. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 2019
Buffalo, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fort Wayne, Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2020
Concord, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2020
Salt Lake City, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 2020
September 2018
January 2019
January 2019
January 2019
January 2019
International Locations
Geographic Service Area
Nobitz, Thuringia (Leipzig) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Belfast, Northern Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom
Curitiba, Paraná . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil
Mannheim, Rhineland-Palatinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Stuttgart, Baden-Württemberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Frankfurt, Hessen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Itzehoe, Schleswig-Holstein (Hamburg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Furth, Bavaria (Nuremberg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Massen, Brandenburg (Berlin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Friesack, Brandenburg (Berlin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Niederlehme, Brandenburg (Berlin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
Pilsting, Bavaria (Munich) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Germany
São Paulo, São Paulo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil
Date
April 2018
April 2018
September 2018
October 2018
November 2018
November 2018
November 2018
November 2018
November 2018
December 2018
November 2019
December 2019
May 2020
The following table sets forth operational facilities obtained through business acquisitions from August 1, 2017 through
July 31, 2020:
Locations
Geographic Service Area
Greenville, Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States
Espoo, Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finland
Pirkkala, Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finland
Oulu, Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finland
Turku, Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finland
Date
March 2019
March 2018
March 2018
March 2018
March 2018
The period-to-period comparability of our consolidated operating results and financial position is affected by business
acquisitions, new openings, weather and product introductions during such periods.
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In addition to growth through business acquisitions, we seek to increase revenues and profitability by, among other things,
(i) acquiring and developing additional vehicle storage facilities in key markets, including foreign markets; (ii) pursuing
global, national and regional vehicle seller agreements; (iii) increasing our service offerings; and (iv) expanding the application
of VB3 into new markets. In addition, we implement our pricing structure and auction procedures, and attempt to introduce
cost efficiencies at each of our acquired facilities by implementing our operational procedures, integrating our management
information systems, and redeploying personnel, when necessary.
Results of Operations
The following table shows certain data from our consolidated statements of income expressed as a percentage of total
service revenues and vehicle sales for fiscal 2020, 2019 and 2018:
(In percentages)
Service revenues and vehicle sales:
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of Fiscal Years ended July 31, 2020 and 2019 and 2018
Year Ended July 31,
2020
2019
2018
88 %
12 %
100 %
44 %
10 %
9 %
— %
63 %
37 %
(1)%
36 %
4 %
32 %
86 %
14 %
100 %
43 %
13 %
9 %
— %
65 %
35 %
(1)%
34 %
5 %
29 %
87 %
13 %
100 %
47 %
11 %
10 %
— %
68 %
32 %
(1)%
31 %
8 %
23 %
The following table presents a comparison of service revenues for fiscal 2020, 2019 and 2018:
(In thousands)
Service revenues
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
2020
2019
2018
Change
% Change
Change
% Change
United States . . . . . . . . . . . . . . . . . . . . .
$ 1,714,724 $ 1,537,431 $ 1,385,238 $
177,293
11.5 % $
152,193
International . . . . . . . . . . . . . . . . . . . . .
232,416
218,263
193,264
14,153
6.5 %
24,999
Total service revenues. . . . . . . . . . . . . .
$ 1,947,140 $ 1,755,694 $ 1,578,502 $
191,446
10.9 % $
177,192
11.0 %
12.9 %
11.2 %
Service Revenues. The increase in service revenues for fiscal 2020 of $191.4 million, or 10.9% as compared to fiscal 2019
came from (i) an increase in the U.S. of $177.3 million and (ii) an increase in International of $14.2 million. The increase in the
U.S. was driven primarily by (i) increased volume and (ii) an increase in revenue per car due to higher average auction selling
prices. The increase in volume in the U.S. was derived from (i) growth in the number of units sold from new and expanded
contracts with insurance companies and (ii) growth from existing suppliers, driven by what we believe was an increase in total
loss frequency. Excluding the detrimental impact of $6.9 million due to changes in foreign currency exchange rates, primarily
from the change in the British pound and Brazilian real to U.S. dollar exchange rates, the increase in International of $21.1
million was driven primarily by increased revenue per car.
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JOB TITLE COPART Annual Report
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JOB NUMBER 381682-1
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OPERATOR MARCUSA
The following table presents a comparison of vehicle sales for fiscal 2020, 2019 and 2018:
(In thousands)
Vehicle sales
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
2020
2019
2018
Change
% Change
Change
% Change
United States . . . . . . . . . . . . . . . . . . . . .
$
145,962 $ 119,138 $
105,784 $
26,824
22.5 % $
13,354
International . . . . . . . . . . . . . . . . . . . . .
112,481
167,125
121,409
(54,644)
(32.7)%
45,716
Total vehicle sales . . . . . . . . . . . . . . . . .
$
258,443 $ 286,263 $
227,193 $
(27,820)
(9.7)% $
59,070
12.6 %
37.7 %
26.0 %
Vehicle Sales. The decrease in vehicle sales for fiscal 2020 of $27.8 million, or 9.7% as compared to fiscal 2019 came
from (i) a decrease in International of $54.6 million partially offset by (ii) an increase in the U.S. of $26.8 million. Excluding a
detrimental impact of $2.4 million due to changes in foreign currency exchange rates, primarily from the change in the British
pound and European Union euro to U.S. dollar exchange rates, the decline in International of $52.2 million was primarily the
result of decreased volume driven by contractual shift from purchase contracts to fee based service contracts and a change in
mix of vehicles sold. The increase in the U.S. was primarily the result of increased volume and higher average auction selling
prices, which we believe was due to a change in the mix of vehicles sold and increased demand.
The following table presents a comparison of yard operations expense for fiscal 2020, 2019 and 2018:
(In thousands)
Yard operations expenses
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
2020
2019
2018
Change
% Change
Change
% Change
United States . . . . . . . . . . . . . . . . . . . . .
$
827,802 $ 751,653 $ 730,865 $
76,149
10.1 % $
20,788
International . . . . . . . . . . . . . . . . . . . . .
144,685
136,458
116,003
8,227
6.0 %
20,455
Total yard operations expenses. . . . . . .
$
972,487 $ 888,111 $ 846,868 $
84,376
9.5 % $
41,243
Yard operations expenses, excluding
depreciation and amortization
United States . . . . . . . . . . . . . . . . . . . . .
$
759,779 $ 697,115 $ 683,079 $
62,664
9.0 % $
14,036
International . . . . . . . . . . . . . . . . . . . . .
135,709
127,829
106,559
7,880
6.2 %
21,270
Yard depreciation and amortization
United States . . . . . . . . . . . . . . . . . . . . .
$
68,023 $
54,538 $
47,786 $
13,485
24.7 % $
6,752
International . . . . . . . . . . . . . . . . . . . . .
8,976
8,629
9,444
347
4.0 %
(815)
2.8 %
17.6 %
4.9 %
2.1 %
20.0 %
14.1 %
(8.6)%
Yard Operations Expenses. The increase in yard operations expenses for fiscal 2020 of $84.4 million, or 9.5% as
compared to fiscal 2019 resulted from (i) an increase in the U.S. of $76.1 million, primarily from growth in volume, an
increase in the cost to process each car, and a $13.5 million increase in depreciation; and (ii) an increase in International of
$8.2 million related primarily from an increase in the cost to process each car partially offset by the beneficial impact of $4.1
million due to changes in foreign currency exchange rates, primarily from changes in the British pound, Brazilian real and
European Union euro to U.S. dollar exchange rate. The increase in yard operations depreciation and amortization expenses
resulted primarily from depreciating new and expanded facilities placed into service in the U.S.
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The following table presents a comparison of cost of vehicle sales for fiscal 2020, 2019 and 2018:
(In thousands)
Cost of vehicle sales
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
2020
2019
2018
Change
% Change
Change
% Change
United States . . . . . . . . . . . . . . . . . . . . .
$
135,095 $ 112,268 $ 101,130 $
22,827
20.3 % $
11,138
International . . . . . . . . . . . . . . . . . . . . .
90,199
143,236
95,331
(53,037)
(37.0)%
47,905
Total cost of vehicle sales . . . . . . . . . . .
$
225,294 $ 255,504 $ 196,461 $
(30,210)
(11.8)% $
59,043
11.0 %
50.3 %
30.1 %
Cost of Vehicle Sales. The decrease in cost of vehicle sales for fiscal 2020 of $30.2 million, or 11.8% as compared to fiscal
2019 was the result of (i) a decrease in International of $53.0 million and (ii) an increase in the U.S. of $22.8 million. Excluding
the beneficial impact of $1.9 million due to changes in foreign currency exchange rates, primarily from changes in the British
pound and European euro to U.S. dollar exchange rate, the decrease in International of $54.9 million was primarily the result
of decreased volume driven by contractual shifts from purchase contracts to fee based service contracts and a change in the
mix of vehicles sold. The increase in the U.S. was primarily the result of increased volume and higher average purchase prices,
which we believe is due to a change in the mix of vehicles sold and increased demand.
The following table presents a comparison of general and administrative expenses for fiscal 2020, 2019 and 2018:
(In thousands)
2020
2019
2018
Change
% Change
Change
% Change
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
General and administrative expenses
United States . . . . . . . . . . . . . . . . . . . .
$
149,012 $ 151,854 $ 144,140 $
(2,842)
(1.9)% $
7,714
International . . . . . . . . . . . . . . . . . . . .
42,691
30,013
32,750
12,678
42.2 %
(2,737)
5.4 %
(8.4)%
Total general and administrative
expenses . . . . . . . . . . . . . . . . . . . .
General and administrative
expenses, excluding depreciation
and amortization
$
191,703 $ 181,867 $ 176,890 $
9,836
5.4 % $
4,977
2.8 %
United States . . . . . . . . . . . . . . . . . . . .
$
126,400 $ 131,257 $ 124,147 $
(4,857)
(3.7)% $
7,110
International . . . . . . . . . . . . . . . . . . . .
40,912
28,882
31,375
12,030
41.7 %
(2,493)
5.7 %
(7.9)%
General and administrative depreciation
and amortization
United States . . . . . . . . . . . . . . . . . . . .
$
22,612 $
20,597 $
19,993 $
2,015
9.8 % $
International . . . . . . . . . . . . . . . . . . . .
1,779
1,131
1,375
648
57.3 %
604
(244)
3.0 %
(17.7)%
General and Administrative Expenses. The increase in general and administrative expenses for fiscal 2020 of $9.8
million, or 5.4% as compared to fiscal 2019 came primarily from an increase in International of $12.7 million, partially
offset by a decrease in the U.S. of $2.8 million. Excluding depreciation and amortization, the increase in International of
$12.0 million resulted primarily from our international growth strategy through the expansion of our European businesses
partially offset by the beneficial impact of $1.7 million due to changes in foreign currency exchange rates, primarily from the
change in the British pound, Brazilian real and European Union euro to U.S. dollar exchange rate. Excluding depreciation and
amortization, the decrease in the U.S. of $4.9 million resulted primarily from decreases in legal and travel costs and higher
capitalizable software development, partially offset by increases in payroll taxes from the exercise of employee stock options
and by supporting our continued growth initiatives.
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The following table summarizes impairment, total other expenses and income taxes for fiscal 2020, 2019 and 2018:
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
(In thousands)
2020
2019
2018
Change
% Change
Change
% Change
Impairment . . . . . . . . . . . . . . .
$
— $
— $
1,131
$
—
—% $
(1,131)
(100.0)%
Total other expenses . . . . . . . .
Income taxes . . . . . . . . . . . . . .
(15,260)
100,932
(11,524)
113,258
(21,834)
144,504
(3,736)
(12,326)
(32.4)%
(10.9)%
10,310
(31,246)
47.2%
(21.6)%
Other Expenses. The increase in total other expenses for fiscal 2020 of $3.7 million, or 32.4% as compared to fiscal
2019 was primarily due to lower gains on the disposal of certain non-operating assets in the current year and losses of
unconsolidated affiliates, partially offset by an increase in currency gains, primarily due to the change in the British pound to
U.S. dollar exchange rate.
Income Taxes. Our effective income tax rates were 12.6%, 16.1%, and 25.7% for fiscal 2020, 2019 and 2018, respectively.
The current year’s effective tax rate was computed based on the U.S. federal statutory tax rate of 21.0% for the fiscal year
ending July 31, 2020 and was negatively impacted by $1.7 million of discrete tax items related to amending previously filed
income tax returns. The prior year’s effective tax rate was computed based on the U.S. federal statutory tax rate of 21.0% for
the fiscal year ending July 31, 2019 and was favorably impacted by $10.2 million of discrete tax items related to amending
previously filed income tax returns. The effective tax rates in the current and prior years were also impacted from the result of
recognizing excess tax benefits from the exercise of employee stock options of $92.5 million, $46.1 million, and $21.3 million
for fiscal years 2020, 2019 and 2018, respectively.
Discussion of Fiscal Year ended July 31, 2019 compared to Fiscal Year ended July 31, 2018
For a discussion of fiscal 2019 as compared to fiscal 2018, please refer to Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended July 31, 2019, filed with
the SEC on September 30, 2019.
Liquidity and Capital Resources
The following table presents a comparison of key components of our liquidity and capital resources for fiscal 2020, 2019
and 2018, excluding additional funds available to us through our Revolving Loan Facility:
(In thousands)
2020
Cash, cash equivalents, and
July 31,
2019
2020 vs. 2019
2019 vs. 2018
2018
Change
% Change
Change
% Change
restricted cash . . . . . . . . . . . . $
477,718 $
186,319 $
274,520 $
Working capital . . . . . . . . . . . . .
607,715
405,163
431,860
291,399
202,552
156.4% $
50.0%
(88,201)
(26,697)
(32.1)%
(6.2)%
Year Ended July 31,
2020 vs. 2019
2019 vs. 2018
(In thousands)
2020
2019
2018
Change
% Change
Change
% Change
Operating cash flows . . . . . . . . . $
917,885 $
646,646 $
535,069 $
271,239
41.9% $
111,577
20.9%
Investing cash flows . . . . . . . . . .
(601,208)
(356,267)
Financing cash flows . . . . . . . . .
(27,414)
(370,304)
(288,476)
(182,038)
(244,941)
(68.8)%
(67,791)
(23.5)%
342,890
92.6%
(188,266)
(103.4)%
Capital expenditures,
excluding acquisitions . . . . . . $
(591,972) $
(373,883) $
(287,910) $
(218,089)
(58.3)% $
(85,973)
(29.9)%
Acquisitions, net of
cash acquired . . . . . . . . . . . .
(11,702)
(745)
(8,787)
(10,957)
(1,470.7)%
8,042
91.5%
Net repayments on revolving
loan facility . . . . . . . . . . . . . .
—
—
(231,000)
—
—%
231,000
100.0%
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Cash, cash equivalents, and restricted cash and working capital increased $291.4 million and $202.6 million at July 31,
2020, respectively, as compared July 31, 2019. Cash and cash equivalents increased primarily due to cash generated from
operations and proceeds from stock option exercises, partially offset by payments for employee stock-based tax withholdings
and capital expenditures. Working capital increased primarily from cash generated from operations and timing of cash receipts
and payments partially offset by capital expenditures, our operating lease liabilities, certain income tax benefits related to
stock option exercises and timing of cash payments. Cash equivalents consisted of bank deposits, domestic certificates of
deposit, and funds invested in money market accounts, which bear interest at variable rates.
Historically, we have financed our growth through cash generated from operations, public offerings of common stock,
equity issued in conjunction with certain acquisitions and debt financing. Our primary source of cash generated by operations
is from the collection of service fees and reimbursable advances from the proceeds of vehicle sales. We expect to continue to
use cash flows from operations to finance our working capital needs and to develop and grow our business. In addition to our
stock repurchase program, we are considering a variety of alternative potential uses for our remaining cash balances and our
cash flows from operations. These alternative potential uses include additional stock repurchases, repayments of long-term
debt, the payment of dividends, and acquisitions. For further detail, see Notes to Consolidated Financial Statements, Note 8 —
Long-Term Debt and Note 11 — Stockholders’ Equity and under the subheadings “Credit Agreement” and “Note Purchase
Agreement” below.
Our business is seasonal as inclement weather during the winter months increases the frequency of accidents and
consequently, the number of cars involved in accidents which the insurance companies salvage rather than repair. During the
winter months, most of our facilities process 5% to 20% more vehicles than at other times of the year. This increased volume
requires the increased use of our cash to pay out advances and handling costs of the additional business.
We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient
to satisfy our operating and working capital requirements for at least the next 12 months. We expect to acquire or develop
additional locations and expand some of our current facilities in the foreseeable future. We may be required to raise additional
cash through drawdowns on our Revolving Loan Facility or issuance of additional equity to fund this expansion. Although
the timing and magnitude of growth through expansion and acquisitions are not predictable, the opening of new greenfield
yards is contingent upon our ability to locate property that (i) is in an area in which we have a need for more capacity; (ii) has
adequate size given the capacity needs; (iii) has the appropriate shape and topography for our operations; (iv) is reasonably
close to a major road or highway; and (v) most importantly, has the appropriate zoning for our business. Costs to develop a new
yard can range from $3.0 to $50.0 million, depending on size, location and developmental infrastructure requirements.
As of July 31, 2020, $124.8 million of the $477.7 million of cash and cash equivalents was held by our foreign subsidiaries.
If these funds are needed for our operations in the U.S., the repatriation of these funds could still be subject to the foreign
withholding tax following the U.S. Tax Reform. However, our intent is to permanently reinvest these funds outside of the U.S.
and our current plans do not require repatriation to fund our U.S. operations.
Net cash used in operating activities increased for fiscal 2020 as compared to fiscal 2019 due to improved cash operating
results from an increase in service revenues, partially offset by an increase in yard operations and general and administrative
expenses, and changes in operating assets and liabilities. The change in operating assets and liabilities was primarily the result
of an increase of funds received on accounts receivables of $76.8 million, decreases in funds used to pay accounts payable
of $30.5 million, cash generated from the sale of inventory of $25.1 million, decreases in funds primarily used to pay land
acquisition deposits of $12.4 million, and partially offset by net income taxes receivable of $3.6 million primarily related to
excess tax benefits from stock option exercises.
Net cash used in investing activities increased for fiscal 2020 as compared to fiscal 2019 due primarily to increases
in capital expenditures and acquisitions, partially offset by proceeds from the sale of assets. Our capital expenditures are
primarily related to lease buyouts of certain facilities, acquiring land, opening and improving facilities, capitalized software
development costs for new software for internal use and major software enhancements, and acquiring yard equipment. We
continue to develop, expand, and invest in new and existing facilities and standardize the appearance of existing locations.
As of July 31, 2020, we have no material non-cancelable commitments for future capital expenditures. Capitalized software
development costs were $13.2 million, $8.4 million and $7.4 million for fiscal 2020, 2019 and 2018, respectively. If, at any
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time it is determined that capitalized software provides a reduced economic benefit, the unamortized portion of the capitalized
development costs will be impaired. See Notes to Consolidated Financial Statements, Capitalized Software Costs in Note 1 —
Summary of Significant Accounting Policies.
Net cash used in financing activities decreased in fiscal 2020 as compared to fiscal 2019 due primarily to lower
repurchases of our common stock as part of our stock repurchase program as discussed in further detail under the subheading
“Stock Repurchases”, and an increase in proceeds from the exercise of stock options, partially offset by payments for employee
stock-based tax withholdings as discussed in further detail under the subheading “Stock Repurchases” and the Notes to
Consolidated Financial Statements, Note 11 — Stockholders’ Equity, debt issuance costs for the restructuring of our revolving
loan facility as discussed in further detail under the subheading Credit Agreement, and payments on .
For a discussion of fiscal 2019 as compared to fiscal 2018, please refer to Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended July 31, 2019, filed with
the SEC on September 30, 2019.
Contractual Obligations
We lease certain domestic and foreign facilities, and certain equipment under non-cancelable operating leases. In addition
to the minimum future lease commitments presented, the leases generally require us to pay property taxes, insurance,
maintenance and repair costs which are not included in the table because we have determined these items are not material. The
following table summarizes our significant contractual obligations and commercial commitments as of July 31, 2020:
Payments Due by Fiscal Year
(In thousands)
Contractual Obligations
Less than
1 year
1–3 Years
3–5 Years
More than
5 Years
Other
Total
Long-term debt, revolving loan facility, including
current portion(1) . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
100,000 $
300,000 $
— $
400,000
Interest payments on long-term debt, revolving
loan facility, including current portion(1) . . . . . .
Operating leases(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax liabilities(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,426
27,718
768
—
38,788
41,974
558
—
31,007
25,136
13
—
34,354
45,807
—
—
—
—
—
44,965
123,575
140,635
1,339
44,965
Total contractual obligations . . . . . . . . . . . . . . . . . . $
47,912 $
81,320 $
156,156 $
380,161 $
44,965 $
710,514
Commercial Commitments(4)
Less than
1 year
1–3 Years
3–5 Years
More than
5 Years
Other
Total
Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
24,590 $
— $
— $
— $
— $
24,590
Amount of Commitment Expiration Per Period
(1)
(2)
(3)
(4)
Revolving loan facility payments of zero and related interest payments reflect management’s intent for the use of the Revolving
Loan Facility, which may change on a quarter by quarter basis.
Contractual obligations consist of future non-cancelable minimum lease payments under finance and operating leases, used in the
normal course of business.
Tax liabilities include the long-term liabilities in the consolidated balance sheet for unrecognized tax positions. At this time,
we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to
uncertainties in the timing of tax audit outcomes.
Commercial commitments consist primarily of letters of credit provided for insurance programs and certain business transactions
including cash collateralized bank guarantees.
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Stock Repurchases
On September 22, 2011, our 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 we deem appropriate and may be discontinued at any time. For fiscal 2020 and 2018, we did not repurchase
any shares of our common stock under the program. For fiscal 2019, we repurchased 7,635,596 shares of our common stock
under the program at a weighted average price of $47.81 per share totaling $365.0 million. As of July 31, 2020, the total
number of shares repurchased under the program was 114,549,198 and 81,450,802 shares were available for repurchase under
our program.
In fiscal 2018, certain members of our Board of Directors exercised stock options through cashless exercises. During
fiscal 2019, our former President exercised all of his vested stock options through a cashless exercise. In fiscal 2020, our Chief
Executive Officer exercised all of his vested stock options through a cashless exercise. A portion of the options exercised
were net settled in satisfaction of the exercise price. We remitted $101.3 million, $45.6 million and no amounts for the years
ended July 31, 2020, 2019 and 2018, 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
Weighted
Average
Exercise
Price
Options
Exercised
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 2018—Q2 . . . . . . . . . . . . . .
80,000
$
FY 2019—Q3 . . . . . . . . . . . . . .
3,000,000
FY 2020—Q1 . . . . . . . . . . . . . .
4,000,000
6.54
17.81
17.81
11,996
945,162
865,719
—
68,004
$
43.60
$
—
806,039
1,231,595
1,248,799
1,902,686
56.53
82.29
45,565
101,348
(1)
Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against our stock
repurchase program.
Credit Agreement
On December 3, 2014, we entered into a Credit Agreement (as amended from time to time, the “Credit Amendment”) with
Wells Fargo Bank, National Association, as administrative agent, and Bank of America, N.A., as syndication agent. The Credit
Agreement provided for (a) a secured revolving loan facility in an aggregate principal amount of up to $300.0 million (the
“Revolving Loan Facility”), and (b) a secured term loan facility in an aggregate principal amount of $300.0 million (the “Term
Loan”), which was fully drawn at closing. The Term Loan amortized $18.8 million per quarter.
On March 15, 2016, we entered into a First Amendment to Credit Agreement (the “Amendment to Credit Agreement”)
with Wells Fargo Bank, National Association, as administrative agent and Bank of America, N.A. The Amendment to
Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014. The Amendment to Credit
Agreement provided for (a) an increase in the secured revolving credit commitments by $50.0 million, bringing the aggregate
principal amount of the revolving credit commitments under the Credit Agreement to $350.0 million, (b) a new secured term
loan (the “Incremental Term Loan”) in the aggregate principal amount of $93.8 million having a maturity date of March 15,
2021, and (c) an extension of the termination date of the Revolving Loan Facility and the maturity date of the Term Loan from
December 3, 2019 to March 15, 2021. The Amendment to Credit Agreement extended the amortization period for the Term
Loan and decreased the quarterly amortization payments for that loan to $7.5 million per quarter. The Amendment to Credit
Agreement additionally reduced the pricing levels under the Credit Agreement to a range of 0.15% to 0.30% in the case of the
commitment fee, 1.125% to 2.0% in the case of the applicable margin for LIBOR loans, and 0.125% to 1.0% in the case of the
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applicable margin for base rate loans, based on our consolidated total net leverage ratio during the preceding fiscal quarter.
We borrowed the entire $93.8 million principal amount of the Incremental Term Loan concurrent with the closing of the
Amendment to Credit Agreement.
On July 21, 2016, we entered into a Second Amendment to Credit Agreement (the “Second Amendment to Credit
Agreement”) with Wells Fargo Bank, National Association, SunTrust Bank, and Bank of America, N.A., as administrative
agent (as successor in interest to Wells Fargo Bank). The Second Amendment to Credit Agreement amends certain terms of the
Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15,
2016. The Second Amendment to Credit Agreement provides for, among other things, (a) an increase in the secured revolving
credit commitments by $500.0 million, bringing the aggregate principal amount of the revolving credit commitments under the
Credit Agreement to $850.0 million, (b) the repayment of existing term loans outstanding under the Credit Agreement, (c) an
extension of the termination date of the revolving credit facility under the Credit Agreement from March 15, 2021 to July 21,
2021, and (d) increased covenant flexibility.
Concurrent with the closing of the Second Amendment to Credit Agreement, we prepaid in full the outstanding
$242.5 million principal amount of the Term Loan and Incremental Term Loan under the Credit Agreement without premium
or penalty. The Second Amendment to Credit Agreement reduced the pricing levels under the Credit Agreement to a range of
0.125% to 0.20% in the case of the commitment fee, 1.00% to 1.75% in the case of the applicable margin for LIBOR loans, and
0.0% to 0.75% in the case of the applicable margin for base rate loans, in each case depending on our consolidated total net
leverage ratio during the preceding fiscal quarter.
On July 21, 2020, we entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National
Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and
Bank of America, N.A., as administrative agent. The First Amended and Restated Credit Agreement amends certain terms
of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of
March 15, 2016, as amended by the Second Amendment to Credit Agreement, dated as July 21, 2016. The First Amended and
Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by
$200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement
to $1,050.0 million, and (b) an extension of the termination date of the revolving credit facility under the Credit Agreement
from July 21, 2021 to July 21, 2023. The First Amended and Restated Credit Agreement additionally increased the pricing
levels under the Credit Agreement to a range of 0.25% to 0.35% in the case of the commitment fee, 1.50% to 2.25% in the
case of the applicable margin for Eurodollar Rate Loans, and 0.50% to 1.25% in the case of the applicable margin for base rate
loans, in each case depending on our consolidated total net leverage ratio during the preceding fiscal quarter. The principal
purposes of these financing transactions were to increase the size and availability under our Revolving Loan Facility and to
provide additional long-term financing. The proceeds may be used for general corporate purposes, including working capital
and capital expenditures, potential share repurchases, acquisitions, or other investments relating to our expansion strategies in
domestic and international markets.
The Revolving Loan Facility under the Credit Agreement bears interest, at our election, at either (a) the Base Rate, which
is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii) the Federal
Funds Rate in effect on such date plus 0.50%; or (iii) the Eurodollar Rate plus 1.0%, subject to an interest rate floor of 0.75%,
in each case plus an applicable margin ranging from 0.50% to 1.25% based on our consolidated total net leverage ratio during
the preceding fiscal quarter; or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50% to 2.25% depending on
our consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable in arrears, at the end
of each calendar quarter for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month
interval in the case of loans with interest periods greater than three months) in the case of Eurodollar Rate Loans. The interest
rate as of July 31, 2020 on our Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%.
The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating
interest rate structure. Accordingly, the carrying value approximated fair value at July 31, 2020, and was classified within
Level II of the fair value hierarchy.
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Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21,
2023. We are obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The commitment fee
rate ranges from 0.25% to 0.35%, depending on our consolidated total net leverage ratio during the preceding fiscal quarter,
on the average daily unused portion of the revolving credit commitment under the Credit Agreement. We had no outstanding
borrowings under the Revolving Loan Facility as of July 31, 2020 and 2019.
Our obligations under the Credit Agreement are guaranteed by certain of our domestic subsidiaries meeting materiality
thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of our
assets and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the First Amended and Restated
Credit Agreement, dated July 21, 2020, among us, the subsidiary guarantors from time to time party thereto, and Bank of
America, N.A., as collateral agent.
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict us
and our 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. We are also required to maintain compliance, measured at the
end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Credit
Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the
consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment
on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated
total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an
aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate
amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both
before and after giving effect to any such dividend or restricted payment. As of July 31, 2020, the consolidated total net
leverage ratio was (0.03):1. Minimum liquidity as of July 31, 2020 was $1.5 billion. Accordingly, we do not believe that the
provisions of the Credit Agreement represent a significant restriction to our ability to pay dividends or to the successful
future operations of the business. We have not paid a cash dividend since becoming a public company in 1994. We were in
compliance with all covenants related to the Credit Agreement as of July 31, 2020.
Related to the execution of the First Amended and Restated Credit Agreement, we incurred $2.8 million in costs, which
was capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective debt
instruments and are classified as reductions of the outstanding liability.
Note Purchase Agreement
On December 3, 2014, we entered into a Note Purchase Agreement and sold to certain purchasers (collectively, the
“Purchasers”) $400.0 million in aggregate principal amount of senior secured notes (the “Senior Notes”) consisting of
(i) $100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due December 3, 2024; (ii) $100.0 million
aggregate principal amount of 4.19% Senior Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal
amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0 million aggregate principal amount of 4.35%
Senior Notes, Series D, due December 3, 2029. Interest is due and payable quarterly, in arrears, on each of the Senior Notes.
Proceeds from the Note Purchase Agreement are being used for general corporate purposes.
On July 21, 2016, we entered into Amendment No. 1 to Note Purchase Agreement (the “First Amendment to Note Purchase
Agreement”) which amended certain terms of the Note Purchase Agreement, including providing for increased flexibility
substantially consistent with the changes included in the Second Amendment to Credit Agreement, including among other
things increased covenant flexibility.
We may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum
amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments
under the Senior Notes.
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Our obligations under the Note Purchase Agreement are guaranteed by certain of our domestic subsidiaries meeting
materiality thresholds set forth in the Note Purchase Agreement. Such obligations, including the guaranties, are secured by
substantially all of our assets and the assets of the subsidiary guarantors. Our obligations and our subsidiary guarantors under
the Note Purchase Agreement will be treated on a pari passu basis with the obligations of those entities under the Credit
Agreement as well as any additional debt that we may obtain.
The Note Purchase Agreement contains customary affirmative and negative covenants, including covenants that limit or
restrict us and our subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose
of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions
and repurchase stock, in each case subject to certain exceptions. We are also required to maintain compliance, measured at
the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Note
Purchase Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long
as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted
payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the
consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than
3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available,
in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0
million both before and after giving effect to any such dividend or restricted payment on a pro forma basis. As of July 31, 2020,
the consolidated total net leverage ratio was (0.03):1. Minimum liquidity as of July 31, 2020 was $1.5 billion. Accordingly,
we do not believe that the provisions of the Note Purchase Agreement represent a significant restriction to our ability to pay
dividends or to the successful future operations of the business. We have not paid a cash dividend since becoming a public
company in 1994. We were in compliance with all covenants related to the Note Purchase Agreement as of July 31, 2020.
Off-Balance Sheet Arrangements
As of July 31, 2020, we had no off-balance sheet arrangements pursuant to Item 303(a)(4) of Regulation S-K promulgated
under the Securities Exchange Act of 1934, as amended.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, vehicle
pooling costs; income taxes; stock-based compensation; purchase price allocations; and contingencies. We base our estimates
on historical experience and on various other judgments that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
Management has discussed the selection of critical accounting policies and estimates with the Audit Committee of the
Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting policies and estimates
in this Annual Report on Form 10-K. Our significant accounting policies are described in the Notes to Consolidated Financial
Statements, Note 1 — Summary of Significant Accounting Policies. The following is a summary of the more significant
judgments and estimates included in our critical accounting policies used in the preparation of our consolidated financial
statements. We discuss, where appropriate, sensitivity to change based on other outcomes reasonably likely to occur.
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and
related Notes in Part I., Item I., “Financial Statements.”
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Revenue Recognition
Our 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.
There were no contract liabilities on the consolidated balance sheets at July 31, 2020. Our disaggregation between service
revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of our revenues and
cash flows are impacted by economic factors. We report sales taxes on relevant transactions on a net basis in our consolidated
results of operations, and therefore do not include sales taxes in revenues or costs.
Service revenues
Our service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing
services. Within this revenue category, our 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 our 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. We do not take ownership of these consigned vehicles, which are stored at our 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.
We have a separate performance obligation related to providing access to our online auction platform. We charge members
an annual registration fee for the right to participate in our online auctions and access our 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 we provide
for bad debt expense in the case of non-performance by our buyers or sellers.
(In thousands)
Service revenues
Year Ended July 31,
2020
2019
2018
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,714,724
$
1,537,431
$
1,385,238
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,416
218,263
193,264
Total service revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,947,140
$
1,755,694
$
1,578,502
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Vehicle sales
Certain vehicles are purchased and remarketed on our own behalf. We have 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 we act as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue.
(In thousands)
Vehicle sales
Year Ended July 31,
2020
2019
2018
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
145,962
112,481
258,443
$
$
119,138
167,125
286,263
$
$
105,784
121,409
227,193
Contract assets
We capitalize 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 we expect to recognize the related revenues and
are amortized as an offset to the associated revenues on a straight-line basis. We assess these costs for impairment at least
quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The contract asset
costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within
general and administrative expenses in the accompanying statements of income.
Vehicle Pooling Costs
We defer costs that relate directly to the fulfillment of our contracts associated with vehicles consigned to and received
by us, but not sold as of the end of the period. We quantify the deferred costs using a calculation that includes the number of
vehicles at our 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.
Fair Value of Financial Instruments
We record our 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,
as amended by Accounting Standards Update (“ASU”) 2011-04, we consider 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.
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The amounts recorded for financial instruments in our consolidated financial statements, which included cash, accounts
receivable, accounts payable, accrued liabilities and Revolving Loan Facility approximated their fair values for fiscal 2020
and 2019 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 Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt and Note 9 – Fair
Value Measures.
Capitalized Software Costs
We capitalize system development costs and website development costs related to our 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. Management 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, 2020 and 2019 was $52.6 million and $39.4 million, respectively. Accumulated amortization expense related to
software as of July 31, 2020 and 2019 totaled $33.5 million and $23.6 million, respectively. During the year ended July 31,
2018, we retired fully amortized capitalized software of $15.5 million, which were no longer being utilized.
Valuation of Goodwill
We evaluate the impairment of goodwill for our reporting units annually or on an interim basis if certain indicators are
present, either through a quantitative or qualitative analysis. The annual goodwill impairment analysis, which was performed
qualitatively during the fourth quarter of fiscal 2020, considered all relevant factors specific to our reporting units, including
macroeconomic conditions; industry and market considerations; overall financial performance; the impact of the COVID-19
pandemic; and relevant entity-specific events. Management considered the above factors noting none involved significant
uncertainty. In addition, the industry in which we operate improved over the observable period, and our calculated fair value
exceeded carrying value for each reporting unit by a substantial amount in our prior year quantitative analysis, indicating no
material risk as of July 31, 2020, with respect to potential goodwill impairments.
Income Taxes and Deferred Tax Assets
We account for income tax exposures as required under ASC 740, Income Taxes (“ASC 740”). We are subject to income
taxes in the U.S., Canada, the U.K., Brazil, Spain, Finland, Germany, and other emerging markets around the world. In
arriving at a provision of income taxes, we first calculate taxes payable in accordance with the prevailing tax laws in the
jurisdictions in which we operate. Then we analyze the timing differences between the financial reporting and tax basis of
our assets and liabilities, such as various accruals, depreciation and amortization. The tax effects of the timing difference are
presented as deferred tax assets and liabilities in the consolidated balance sheets. We consider the need to maintain a valuation
allowance on deferred tax assets based on management’s assessment of whether it is more likely than not that we 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. As of July 31, 2020, we have
$15.4 million of valuation allowance arising from both our U.S. and International operations. To the extent we establish a
valuation allowance or change the amount of valuation allowance in a period, we reflect the change with a corresponding
increase or decrease in our income tax provision in the consolidated statements of income.
Historically, our income tax provision has been sufficient to cover our actual income tax liabilities among the jurisdictions
in which we operate. Nonetheless, our future effective tax rate could still be adversely affected by several factors, including
(i) the geographical allocation of our future earnings; (ii) the change in tax laws or our interpretation of tax laws; (iii) the
changes in governing regulations and accounting principles; (iv) the changes in the valuation of our deferred tax assets and
liabilities; and (v) the outcome of the income tax examinations. We routinely assess the possibilities of material changes
resulting from the aforementioned factors to determine the adequacy of our income tax provision. The repatriation of
our accumulated foreign earnings could also affect our effective tax rate, nevertheless, we intend to indefinitely reinvest
these earnings in our foreign operations and do not anticipate the need for any of our foreign subsidiaries’ cash in the U.S.
operations. Accordingly, we do not provide for U.S. federal income and foreign withholding tax on these earnings.
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We file annual income tax returns in multiple taxing jurisdictions. A number of years may elapse before an uncertain tax
position is audited by the relevant tax authorities and finally resolved. We recognize and measure uncertain tax positions in
accordance with ASC 740, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits
of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We report a liability for
unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. ASC 740
further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized
in earnings in the quarter in which such change occurs. We recognize interest and penalties, if any, related to unrecognized tax
benefits in income tax expense.
We believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the
related interest, where appropriate in light of changing facts and circumstances. Settlement of any particular position could
require the use of cash.
Stock-based Compensation
We account for stock-based awards to employees and non-employees using the fair value method as required by ASC 718,
Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense
for all stock-based awards made to employees, consultants and directors based on estimated fair value. ASC 718 requires
companies to estimate the fair value of stock-based awards on the measurement date using an option-pricing model. The value
of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods. ASC
718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.
The fair value of each option, 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, the Monte Carlo
simulation model was used. The BSM option pricing model utilizes assumptions, including future stock price volatility and
expected time until exercise, which greatly affect the calculated fair value on the measurement date. If actual results are
not consistent with our assumptions and judgments used in estimating the key assumptions, we may be required to record
additional compensation or income tax expense, which could have a material impact on our consolidated results of operations
and financial position.
Foreign Currency Translation
We record foreign currency translation adjustments from the process of translating the functional currency of the financial
statements of our 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 our 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.
Accounting for Acquisitions
We recognize and measure identifiable assets acquired and liabilities assumed in acquired entities in accordance with
ASC 805, Business Combinations. The allocation of the purchase consideration for acquisitions can require extensive use of
accounting estimates and judgments to allocate the purchase consideration to the identifiable tangible and intangible assets
acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase consideration
over the values of the identifiable assets and liabilities is recorded as goodwill. Critical estimates in valuing certain identifiable
assets include but are not limited to expected long-term revenues; future expected operating expenses; cost of capital;
appropriate attrition; and discount rates.
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Segment Reporting
Our 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. Our revenues for the year ended July 31, 2020 were
distributed as follows: U.S. 84.4% and International 15.6%. Geographic information as well as comparative segment revenues
and related financial information pertaining to the U.S. and International segments for the years ended July 31, 2020, 2019
and 2018 are presented in the tables in Note 13 — Segments and Other Geographic Reporting, to the Notes to Consolidated
Financial Statements, which are included in Part II, Item 8 of this Form 10-K.
Recently Issued Accounting Standards
For a description of the new accounting standards that affect us, refer to the Notes to Consolidated Financial Statements,
Note 1 — Summary of Significant Accounting Policies.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our principal exposures to financial market risk are interest rate risk, foreign currency risk and translation risk. We do not
hold or issue financial instruments for trading purposes.
Interest Income Risk
The primary objective of our investment activities is to preserve principal while secondarily maximizing yields without
significantly increasing risk. To achieve this objective in the current uncertain global financial markets, all cash and cash
equivalents were held in bank deposits and money market funds as of July 31, 2020. As the interest rates on a material
portion of our cash and cash equivalents are variable, a change in interest rates earned on our investment portfolio would
impact interest income along with cash flows but would not materially impact the fair market value of the related underlying
instruments. As of July 31, 2020, we held no direct investments in auction rate securities, collateralized debt obligations,
structured investment vehicles or mortgaged-backed securities. Based on the average cash balance held for fiscal 2020, a
hypothetical 10% adverse change in our interest yield would not have materially affected our operating results.
Interest Expense Risk
Our total borrowings under the Revolving Loan Facility under the Credit Agreement were zero as of July 31, 2020. The
Revolving Loan Facility under the Credit Agreement bears interest, at our election, at either (a) the Base Rate, which is defined
as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii) the Federal Funds Rate
in effect on such date plus 0.50%; or (iii) the Eurodollar Rate plus 1.0%, subject to an interest rate floor of 0.75%, in each
case plus an applicable margin ranging from 0.50% to 1.25% based on our consolidated total net leverage ratio during the
preceding fiscal quarter; or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50% to 2.25% depending on our
consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable, in arrears, at the end of
each calendar quarter for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month
interval in the case of loans with interest periods greater than three months) in the case of Eurodollar Rate Loans. If interest
rates were to increase by 10%, our interest expense would increase by $2.0 million.
Foreign Currency and Translation Exposure
Fluctuations in foreign currencies create volatility in our reported results of operations because we are required to
consolidate the results of operations of our foreign currency denominated subsidiaries. International net revenues are typically
denominated in the local currency of each country and result from transactions by our operations in Canada, the U.K., Brazil,
the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain. These operations also incur a majority
of their expenses in the local currency, the British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E.
dirham, Omani rial, and Bahraini dinar. Our international operations are subject to risks associated with foreign exchange rate
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volatility, which could have a material and adverse impact on our future results. A hypothetical 10% adverse change in the
value of the U.S. dollar relative to the British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham,
Omani rial, and Bahraini dinar would have resulted in a decrease in operating income of $7.0 million for fiscal 2020.
On January 29, 2020, the European Parliament approved the U.K.’s withdrawal from the European Union, commonly
referred to as “Brexit.” The U.K. officially left the European Union on January 31, 2020 and entered into a transition period
that is scheduled to expire on December 31, 2020 during which the U.K.’s trading relationship with the European Union is
expected to remain largely the same while the two parties negotiate a trade agreement as well as other aspects of the U.K.’s
relationship with the European Union. The ultimate effects of Brexit on us are difficult to predict, but adverse consequences
concerning Brexit or the European Union could include deterioration in global economic conditions, instability in global
financial markets, political uncertainty, volatility in currency exchange rates, or adverse changes in the cross-border
agreements currently in place, any of which could have an adverse impact on our financial results in the future. The ultimate
effects of Brexit on us will also depend on the terms of agreements, if any, that the U.K. and the European Union make to
retain access to each other’s respective markets either during a transitional period or more permanently.
Fluctuations in foreign currencies also create volatility in our consolidated financial position because we are required to
remeasure substantially all assets and liabilities held by our foreign subsidiaries at the current exchange rate at the close of the
accounting period. At July 31, 2020, the cumulative effect of foreign exchange rate fluctuations on our consolidated financial
position was a net translation loss of $121.1 million. This loss was recognized as an adjustment to stockholders’ equity through
accumulated other comprehensive income. A hypothetical 10% adverse change in the value of the U.S. dollar relative to the
British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar would
not have materially affected our consolidated financial position.
We do not hedge our exposure to translation risks arising from fluctuations in foreign currency exchange rates.
Item 8.
Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Annual Report on Form 10-K in Item 15. See Part IV,
Item 15(a) for an index to the consolidated financial statements and supplementary financial information.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), or Disclosure Controls, as of the end of the period covered
by this Annual Report on Form 10-K. This evaluation, or Controls Evaluation, was performed under the supervision and with
the participation of management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”).
Disclosure Controls are controls and procedures designed to provide reasonable assurance that information required to be
disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls include, without limitation,
controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports
filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons
performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our Disclosure Controls
include some, but not all, components of our internal control over financial reporting.
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Based upon the Controls Evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this
Annual Report on Form 10-K, our Disclosure Controls were effective to provide reasonable assurance that information
required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including the
CEO and CFO, to allow timely decisions regarding required disclosure, and that such information is recorded, processed,
summarized and reported within the time periods specified by the SEC.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f)) to provide reasonable assurance regarding the reliability of our financial reporting
and the preparation of consolidated financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
the consolidated financial statements. We have investments in unconsolidated affiliates. Since we do not control or manage
those affiliates, our controls and procedures with respect to those affiliates are substantially more limited than those we
maintain with respect to our consolidated subsidiaries.
Management assessed our internal control over financial reporting for the fiscal year ended July 31, 2020. Management
based its assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of
such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting
policies, and our overall control environment.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of
the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
The certifications of our principal executive officer and principal financial officer attached as Exhibits 31.1 and 31.2 to this
Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning our disclosure controls
and procedures and internal controls over financial reporting. We reviewed the results of management’s assessment with the
Audit Committee of our Board of Directors.
Our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of our
internal control over financial reporting as of July 31, 2020. Ernst & Young LLP has issued an attestation report which appears
on the following page of this Annual Report on Form 10-K.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Copart, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited the internal control over financial reporting of Copart, Inc. (the Company) as of July 31, 2020, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Copart, Inc. maintained, in all material respects,
effective internal control over financial reporting as of July 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2020 consolidated financial statements of the Company, and our report dated September 28, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
September 28, 2020
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Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over
financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within Copart have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in
the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have
materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Other Information
None.
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PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we intend to file a
definitive proxy statement for our 2020 Annual Meeting of Stockholders (the Proxy Statement) not later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information to be included therein is
incorporated herein by reference.
Item 10.
Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated by reference to the proposal captioned “Election of Directors,” and the
sections titled “Corporate Governance and Board of Directors” and “Related Person Transactions and Section 16(a) Beneficial
Ownership Compliance” in our Proxy Statement.
Delinquent Section 16(a) Reports
There were no delinquent Section 16(a) Reports during fiscal 2020.
Code of Ethics
We have adopted the Copart, Inc. Code of Ethics for Principal Executive and Senior Financial Officers (“Code of Ethics”).
The Code of Ethics applies to our principal executive officer, our principal financial officer, our principal accounting officer or
controller, and persons performing similar functions and responsibilities who shall be identified by our Audit Committee from
time to time.
The Code of Ethics is available at our website, located at http://www.copart.com.
We intend to satisfy disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of the Code of Ethics by posting such information on our website, at the address and location specified above, or as
otherwise required by the NASDAQ Global Select Market.
Item 11.
Executive Compensation
The information required by this item is incorporated herein by reference from the Proxy Statement (to be filed with the
Securities and Exchange Commission within 120 days of our July 31, 2020 fiscal year end) under the heading “Executive
Compensation,” “Compensation of Directors,” and “Corporate Governance and Board of Directors.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference from the Proxy Statement (to be filed with the
Securities and Exchange Commission within 120 days of our July 31, 2020 fiscal year end) under the headings “Security
Ownership” and “Executive Compensation,” subheading “Equity Compensation Plan Information.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference from the Proxy Statement (to be filed with the
Securities and Exchange Commission within 120 days of our July 31, 2020 fiscal year end) under the heading “Related Person
Transactions and Section 16(a) Beneficial Ownership Compliance,” “Corporate Governance and Board of Directors,” and
under the proposal captioned “Election of Directors.”
Item 14.
Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference from the proposal captioned “Ratification of
Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement (to be filed with the Securities and
Exchange Commission within 120 days of our July 31, 2020 fiscal year end).
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PART IV
Item 15.
Exhibits, Financial Statement Schedules
The following documents are filed as part of this Form 10-K:
(a) Financial statements:
Our consolidated financial statements at July 31, 2020 and 2019 and for each of the three years in the period ended July 31,
2020 and the notes thereto, together with the report of the independent registered public accounting firm on those consolidated
financial statements are hereby filed as part of this annual report on Form 10-K.
(b) Financial statement schedules:
No financial statement schedules are presented since the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the consolidated financial
statements and notes thereto.
(c) Exhibits:
Exhibits are filed as part of this Report and are hereby incorporated by reference. Refer to Exhibit Index included herein.
Item 16.
Form 10-K Summary
None.
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The following Exhibits are filed as part of, or incorporated by reference into this report.
EXHIBIT INDEX
Exhibit
Number
Description
3.1
Copart, Inc. Certificate of Incorporation
3.2
Certificate of Amendment to the Copart, Inc. Certificate of
Incorporation
3.3
Bylaws of Copart, Inc.
4.1
Description of Capital Stock
10.1 *
Copart Inc. 2007 Equity Incentive Plan, as Amended and
Restated
(2007 EIP)
10.2 *
Form of Performance Share Award Agreement for use with
2007 EIP
10.3 *
Form of Restricted Stock Unit Award Agreement for use with
2007 EIP
10.4 *
Form of Stock Option Award Agreement for use with 2007 EIP
10.5 *
Form of Restricted Stock Award Agreement for use with 2007
EIP
10.6 *
Copart, Inc. Executive Bonus Plan
10.7 *
Amended and Restated Executive Officer Employment
Agreement between the Registrant and William E. Franklin,
dated September 25, 2008
10.8 *
Form of Indemnification Agreement signed by executive officers
and directors
60
Incorporated by reference herein
Form
Date
February 25, 2016
December 22, 2016
December 22, 2016
September 30,
2019
December 22, 2016
December 12, 2007
December 12, 2007
December 12, 2007
December 12, 2007
August 3, 2006
December 10, 2008
October 1, 2012
Quarterly Report
on Form 10-Q,
(File No. 000-23255),
Exhibit No. 3.1
Current Report
on Form 8-K,
(File No. 000-23255),
Exhibit No. 2
Current Report
on Form 8-K,
(File No. 000-23255),
Exhibit No. 3
Annual Report
on Form 10-K
(File No. 000-23255),
Exhibit No. 4.1
Current Report
on Form 8-K,
(File No. 000-23255),
Exhibit No. 1
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.3
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.5
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.4
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.13b
Quarterly Report
on Form 10-Q
(File No. 000-23255),
Exhibit No. 10.1
Annual Report
on Form 10-K
(File No. 000-23255),
Exhibit No. 10.17
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Exhibit
Number
10.9
Description
Credit Agreement among the Registrant, the lenders from
time to time party thereto, and Wells Fargo Bank, N.A., as
administrative agent, dated as of December 3, 2014
10.10
Security Agreement among the Registrant, the lenders from time
to time party thereto, and Wells Fargo Bank, N.A., as collateral
agent, dated as of December 3, 2014
10.11
Note Purchase Agreement among the Registrant and each of the
purchasers listed on Schedule B dated as of December 3, 2014
10.12 *
Copart, Inc. 2014 Employee Stock Purchase Plan
10.13 *
Executive Officer Employment Agreement, effective January 4,
2016, between the Registrant and Jeffrey Liaw.
Incorporated by reference herein
Form
Date
December 4, 2014
December 4, 2014
December 4, 2014
December 5, 2014
November 23, 2015
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.2
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.3
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.26
10.14
10.15
10.16
10.17
21.1
23.1
24.1
31.1
31.2
First Amendment to Credit Agreement, dated as of March 15,
2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.
party thereto, the lenders party thereto, and Wells Fargo Bank,
National Association, as administrative agent.
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
Second Amendment to Credit Agreement, dated as of July 21,
2016, by and among Copart, Inc., the subsidiaries of Copart, Inc.
party thereto, the lenders party thereto, and Bank of America,
N.A., as administrative agent.
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
First Amendment to Note Purchase Agreement, dated as of July
21, 2016, by and among Copart, Inc., the subsidiaries of Copart,
Inc. party thereto and the purchasers party thereto.
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.2
March 17, 2016
July 27, 2016
July 27, 2016
First Amended and Restated Credit Agreement, dated as of
July 21, 2020, by and among Copart, certain subsidiaries of
Copart. the lenders party thereto, and Bank of America, N.A., as
administrative agent.
Current Report
on Form 8-K
(File No. 000-23255),
Exhibit No. 10.1
July 27, 2020
List of subsidiaries of Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included on signature page)
Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 (1) Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 (1) Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
61
—
—
—
—
—
—
—
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
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Incorporated by reference herein
Form
Date
Exhibit
Number
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
(1)
Description
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.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Extension Definition
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File, formatted in Inline Extensible
Business Reporting Language (iXBRL).
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
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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.
SIGNATURES
Registrant
Copart, Inc.
By:
/s/ A. Jayson Adair
A. Jayson Adair
Chief Executive Officer
(Principal Executive Officer and Director)
Copart, Inc.
By:
/s/ Jeffrey Liaw
Jeffrey Liaw, President and Chief Financial Officer
(Principal Financial and Accounting Officer and duly
Authorized Officer)
Date: September 28, 2020
Date: September 28, 2020
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POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints A. Jayson Adair and Jeffrey Liaw, and each of them, as his or her true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity in Which Signed
Date
/s/ A. Jayson Adair
A. Jayson Adair
/s/ Jeffrey Liaw
Jeffrey Liaw
/s/ Willis J. Johnson
Willis J. Johnson
/s/ Matt Blunt
Matt Blunt
Chief Executive Officer (Principal
Executive Officer and Director)
September 28, 2020
President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
September 28, 2020
Chairman of the Board
September 28, 2020
Director
September 28, 2020
/s/ Steven D. Cohan
Director
September 28, 2020
Steven D. Cohan
/s/ Daniel Englander
Director
September 28, 2020
Daniel Englander
/s/ Stephen Fisher
Stephen Fisher
/s/ James E. Meeks
James E. Meeks
Director
Director
September 28, 2020
September 28, 2020
/s/ Diane M. Morefield
Director
September 28, 2020
Diane M. Morefield
/s/ Thomas N. Tryforos
Director
September 28, 2020
Thomas N. Tryforos
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Copart, Inc.
Index to Consolidated Financial Statements
and Financial Statement Schedule
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of July 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended July 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended July 31, 2020, 2019 and 2018 . . . . . . . . .
Consolidated Statements of Stockholder’s Equity for the years ended July 31, 2020, 2019 and 2018 . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended July 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
Number
66
68
69
70
71
72
73
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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, 2020 and 2019,
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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 2020, 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, 2020, 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 28, 2020 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.
66
<12345678> JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 67
OPERATOR MARCUSA
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.
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Uncertain Tax Positions
As discussed in Note 12 to the consolidated financial statements, the Company has recorded a
liability for unrecognized tax benefits resulting from uncertain tax positions, including accrued
interest and penalties, of $45.0 million as of July 31, 2020. 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.
We tested the Company’s controls that address the risks of material misstatement relating to
uncertain tax positions. For example, we tested controls over management’s identification of
uncertain tax positions and its application of the recognition and measurement principles, including
management’s review of the inputs and calculations of unrecognized tax benefits resulting from
uncertain tax positions.
We involved our tax professionals to assess the technical merits of the Company’s tax positions. Our
substantive audit procedures included, among others, evaluating changes in tax law that occurred
during the year and assessing the Company’s interpretation of those changes under the relevant
jurisdiction’s tax law. In addition, we inspected correspondence, assessments, and settlements from
taxing authorities to assess the Company’s determination of the likelihood of its tax positions to be
sustained upon examination. We also evaluated the Company’s income tax disclosures included in
Note 12 in relation to these matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since fiscal year 2006.
Dallas, Texas
September 28, 2020
67
<12345678>
JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 68
OPERATOR MARCUSA
July 31,
2020
2019
Current assets:
ASSETS
Cash, cash equivalents, and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
477,718
$
186,319
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,207
367,265
Vehicle pooling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,684
20,080
26,740
15,330
963,759
1,941,719
118,455
47,772
343,622
213
39,721
76,548
20,941
19,526
16,568
687,167
1,427,726
—
55,156
333,321
411
43,836
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,455,261
$
2,547,617
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
318,530
$
270,918
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and finance lease obligations, net of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 235,315,337 and
229,790,268 shares issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,233
3,709
24,821
751
356,044
71,686
44,965
95,584
397,036
430
965,745
—
24
672,727
(121,088)
1,937,853
2,489,516
6,466
3,482
—
1,138
282,004
48,683
35,116
—
400,091
3,342
769,236
—
23
572,559
(132,529)
1,338,328
1,778,381
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,455,261
$
2,547,617
68
COPART, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share amounts)The accompanying notes are an integral part of these consolidated financial statements.<12345678> JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 69
OPERATOR MARCUSA
Year Ended July 31,
2020
2019
2018
Service revenues and vehicle sales:
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,947,140
$
1,755,694
$
1,578,502
Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
258,443
286,263
227,193
Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,205,583
2,041,957
1,805,695
Operating expenses:
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
972,487
225,294
191,703
—
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,389,484
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
816,099
888,111
255,504
181,867
—
1,325,482
716,475
Other expense:
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,230)
(19,810)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Copart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,359
3,611
(15,260)
800,839
100,932
699,907
—
699,907
3.00
233,202
$
$
2,225
6,061
(11,524)
704,951
113,258
591,693
—
591,693
2.57
230,489
$
$
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.93
$
2.46
Diluted weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . .
238,656
240,453
846,868
196,461
176,890
1,131
1,221,350
584,345
(20,368)
1,293
(2,759)
(21,834)
562,511
144,504
418,007
140
417,867
1.80
231,793
1.73
241,877
$
$
$
69
COPART, INC.CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share amounts)The accompanying notes are an integral part of these consolidated financial statements.<12345678> JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 70
OPERATOR MARCUSA
Year Ended July 31,
2020
2019
2018
Comprehensive income, net of tax:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
699,907
$
591,693
$
418,007
Other comprehensive income:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interest . . . . . . . . . . . . . .
11,441
711,348
—
(24,601)
567,092
—
(7,252)
410,755
140
Comprehensive income attributable to Copart, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . .
$
711,348
$
567,092
$
410,615
70
COPART, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands)The accompanying notes are an integral part of these consolidated financial statements.<12345678> JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 71
OPERATOR MARCUSA
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7171
COPART, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts)The accompanying notes are an integral part of these consolidated financial statements.<12345678><12345678>
JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 72
OPERATOR MARCUSA
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities: . . . . . . . . . . . . . .
Depreciation and amortization, including debt cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in losses of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicle pooling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current and non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets and lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Year Ended July 31,
2019
2018
2020
$ 699,907
$ 591,693
$ 418,007
104,257
1,670
—
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23,322
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15,993
2,590
1,348
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(572)
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1,615
(7,216)
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498
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85,334
(429)
—
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23,445
(3,073)
23,167
(60,808)
(16,418)
(4,719)
(12,265)
—
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(4,215)
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664
646,646
79,040
1,142
1,157
750
23,221
3,240
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(40,335)
(3,353)
(3,959)
(706)
—
53,320
(520)
(8,916)
(3,149)
(587)
535,069
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of assets and liabilities in connection with acquisitions, net of cash acquired . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of majority-owned subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(591,972)
(11,702)
2,466
—
(601,208)
(373,883)
(745)
18,361
—
(356,267)
(287,910)
(8,787)
6,425
1,796
(288,476)
Cash flows from financing activities:
Proceeds from the exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of Employee Stock Purchase Plan shares . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for employee stock-based tax withholdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash, cash equivalents, and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents, and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents, and restricted cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,640
8,276
—
(103,451)
—
(2,814)
(1,065)
—
(27,414)
2,136
291,399
186,319
$ 477,718
34,398
7,183
(364,997)
(46,888)
—
—
—
—
(370,304)
(8,276)
(88,201)
274,520
$ 186,319
44,459
5,853
—
(1,115)
(231,000)
—
—
(235)
(182,038)
(135)
64,420
210,100
$ 274,520
$ 19,728
$ 83,770
$ 19,289
$ 82,448
$ 20,343
$ 142,161
72
COPART, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)The accompanying notes are an integral part of these consolidated financial statements.<12345678>
JOB TITLE COPART Annual Report
REVISION 2
SERIAL
DATE Saturday, October 31, 2020
JOB NUMBER 381682-1
TYPE
PAGE NO. 73
OPERATOR MARCUSA
COPART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2020
NOTE 1 — Summary of Significant Accounting Policies
Basis of Presentation and Description of Business
Copart, Inc. was incorporated under the laws of the State of California in 1982. In January 2012, the Company changed
the state in which it is incorporated (the “Reincorporation”) and is now incorporated under the laws of the State of Delaware.
All references to “we,” “us,” “our,” or “the Company” herein refer to the California corporation prior to the date of the
Reincorporation, and to the Delaware corporation on and after the date of the Reincorporation.
The Company provides vehicle sellers with a full range of services to process and sell vehicles over the internet through
the Company’s Virtual Bidding Third Generation (“VB3”) internet auction-style sales technology. Sellers are primarily
insurance companies but also include banks, finance companies, charities, fleet operators, dealers and from individuals. The
Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and
in some jurisdictions, the Company sells directly to the general public. The majority of vehicles sold on behalf of insurance
companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are
recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. The Company
offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative
and processing costs and maximize the ultimate sales price through the online auction process. In the United States (“U.S.”),
Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (“U.A.E.”), Oman, 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, including its foreign wholly-owned subsidiaries. The Company also had a 59.5% voting interest in a company,
which was acquired as part of the Cycle Express, LLC acquisition (“majority-owned subsidiary”), which provided various
repossession services for the powersports auction industry. The noncontrolling interest consisted of a 40.5% outside voting
interest in the majority-owned subsidiary. Net income or loss of the majority-owned subsidiary was allocated to the members’
interests in accordance with the operating agreement. During the year ended July 31, 2018, the Company sold the majority-
owned subsidiary and disposed of its related goodwill. The proceeds from the sale of the majority-owned subsidiary were
$1.8 million resulting in a realized gain of $0.9 million recorded in other income. Significant intercompany transactions and
balances have been eliminated in consolidation. 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; purchase price
allocations; and contingencies. Actual results may differ from these estimates.
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OPERATOR MARCUSA
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.
There were no contract liabilities on the consolidated balance sheets at July 31, 2020 or July 31, 2019. The Company’s
disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and
uncertainty of its revenues and cash flows are impacted by economic factors. The Company reports sales taxes on relevant
transactions on a net basis in the Company’s consolidated results of operations, and therefore does not include sales taxes in
revenues or costs.
Service revenues
The Company’s service revenue consists of auction and auction related sales transaction fees charged for vehicle
remarketing services. Within this revenue category, the Company’s primary performance obligation is the auctioning of
consigned vehicles through an online auction process. These auction and auction related services may include a combination
of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of
the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of
the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from the Company’s facility;
title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These services are not
distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance
obligation is satisfied at the completion of the auction process. The Company does not take ownership of these consigned
vehicles, which are stored at the Company’s facilities located throughout the U.S. and at its international locations. These fees
are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged.
The Company 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 bad debt expense in the case of non-performance by its buyers or sellers.
(In thousands)
Service revenues
Year Ended July 31,
2020
2019
2018
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,714,724 $
1,537,431 $
1,385,238
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,416
218,263
193,264
Total service revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,947,140 $
1,755,694 $
1,578,502
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OPERATOR MARCUSA
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.
(In thousands)
Vehicle sales
Year Ended July 31,
2020
2019
2018
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
145,962 $
119,138 $
105,784
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,481
167,125
121,409
Total vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
258,443 $
286,263 $
227,193
Contract assets
The Company capitalizes certain contract assets related to obtaining a contract, where the amortization period for the
related asset is greater than one year. These assets are amortized over the expected life of the customer relationship. Contract
assets are classified as current or long-term other assets, based on the timing of when the Company expects to recognize the
related revenues and are amortized as an offset to the associated revenues on a straight-line basis. The Company assesses
these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an
impairment exists. The contract asset costs where the amortization period for the related asset is one year or less are expensed
as incurred and recorded within general and administrative expenses in the accompanying statements of income.
The change in the carrying amount of contract assets was as follows (In thousands):
Balance as of July 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
11,840
Capitalized contract assets during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs amortized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,130
(4,875)
(521)
Balance as of July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,574
Capitalized contract assets during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs amortized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,875
(3,541)
172
Balance as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,080
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.
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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, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (107,928)
(24,601)
Cumulative loss on foreign currency translation as of July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (132,529)
Gain on foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,441
Cumulative loss on foreign currency translation as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (121,088)
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, as amended by Accounting Standards Update (“ASU”) 2011-04, the Company considers fair value as an exit
price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants under current market conditions. This framework establishes a fair value hierarchy that prioritizes
the inputs used to measure fair value:
Level I
Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in
active markets.
Level II
Inputs other than quoted prices included within Level I that are observable for the asset or liability, either
directly or indirectly.
Level III
Inputs that are generally unobservable. These inputs may be used with internally developed methodologies
that result in management’s best estimate.
The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash,
restricted cash, accounts receivable, accounts payable, accrued liabilities, and Revolving Loan Facility approximated their fair
values as of July 31, 2020 and 2019, due to the short-term nature of those instruments and are classified within Level II of the
fair value hierarchy. Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using
quoted market prices of the underlying investments. See Note 8 — Long-Term Debt and Note 9 – Fair Value Measures.
Cost of Vehicle Sales
Cost of vehicle sales includes the purchase price of vehicles sold for the Company’s own account.
Yard Operations
Yard operations consists primarily of operating personnel (which includes yard management, clerical and yard employees)
and their related benefits; rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and
repair; and marketing costs directly related to the auction process.
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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 $7.7 million, $7.5 million, and $5.9 million for the years ended July 31, 2020, 2019 and
2018, respectively.
Other (Expense) Income
Other (expense) income consists primarily of interest expense; interest income; gains and losses from the disposal of fixed
assets; earnings from unconsolidated affiliates; and currency related gains and losses.
Income Taxes and Deferred Tax Assets
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities, their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company considers the need to maintain a valuation allowance on
deferred tax assets based on an assessment of whether it is more likely than not that the Company would realize those deferred
tax assets based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable
income within the carryforward period available under the applicable tax law. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Excess tax benefits and
deficiencies related to exercises of stock options are recognized as expense or benefit in the consolidated statements of income
as discrete items in the reporting period in which they occur.
The Company files annual income tax returns in multiple taxing jurisdictions. A number of years may elapse before an
uncertain tax position is audited by the relevant tax authorities and finally resolved. The Company recognizes and measures
uncertain tax positions in accordance with ASC 740, Income Taxes (“ASC 740”), pursuant to which the Company only
recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement. The Company reports a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax return. ASC 740 further requires that a change in judgment
related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter in which
such change occurs. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income
tax expense.
The Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these
reserves, as well as the related interest, where appropriate in light of changing facts and circumstances.
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.
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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, domestic
certificates of deposit, and money market accounts. The Company periodically invests its excess cash in money market
funds and U.S. Treasury Bills. The Company’s cash, 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
doubtful accounts based on historical collection trends, the age of outstanding receivables and existing economic conditions.
If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is
given to the collectability of those balances and the allowance is adjusted accordingly. Past-due account balances are written
off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due. The Company does
not have off-balance sheet credit exposure related to its customers and to date. The Company has not experienced significant
credit-related losses.
No single customer accounted for more than 10% of the Company’s consolidated revenues for the years ended July 31,
2020, 2019 and 2018. As of July 31, 2020 and 2019, no customer accounted for more than 10% of the Company’s consolidated
accounts receivable.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Leasehold improvements
are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the respective
improvements, which is between seven and ten years. Significant improvements which substantially extend the useful lives
of assets are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and
amortization are computed on a straight-line basis over the estimated useful lives: three to seven years for internally developed
or purchased software; three to twenty years for transportation and other equipment; three to five years for office furniture
and equipment; and 7 to 40 years or the lease term, whichever is shorter, for buildings and improvements. Amortization of
equipment under finance leases is included in depreciation expense.
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Goodwill
In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is not amortized but is tested for
potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist. The Company
assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an
operating segment, referred to as a reporting unit. The Company has identified two reporting units, which are consistent with
its two operating and reportable segments, U.S. and International. The Company evaluates goodwill for impairment annually
as of the beginning of the fourth quarter, or when an indicator of impairment exists.
The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter
of fiscal 2020 and 2019, 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.
Segments and Other Geographic Reporting
The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two
reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates
resources and measures results, including total revenues and operating income.
Capitalized Software Costs
The Company capitalizes system development costs and website development costs related to the enterprise computing
services during the application development stage. Costs related to preliminary project activities and post implementation
activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful
life, generally three to seven years. The Company evaluates the useful lives of these assets on an annual basis and tests for
impairment whenever events or changes in circumstances occur that impact the recoverability of these assets. Total gross
capitalized software as of July 31, 2020 and 2019 was $52.6 million and $39.4 million, respectively. Accumulated amortization
expense related to software as of July 31, 2020 and 2019 totaled $33.5 million and $23.6 million, respectively. During the
year ended July 31, 2018, the Company retired fully amortized capitalized software of $15.5 million, which were no longer
being utilized.
Stock-Based Compensation
The Company accounts for stock-based awards to employees and non-employees using the fair value method as required
by ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of
compensation expense for all stock-based awards made to employees, consultants and directors based on estimated fair value.
ASC 718 requires companies to estimate the fair value of stock-based awards on the measurement date using an option-pricing
model. The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite
service periods. The Company has elected to estimate forfeitures at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
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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 the Monte Carlo
simulation model was used. The Black-Scholes Merton option-pricing model utilized the following assumptions:
2020
July 31,
2019
2018
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.4 — 5.7
5.3 — 6.6
5.3 — 6.9
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.29% — 1.67% 1.80% — 2.69% 1.88% — 2.62%
Estimated volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.7% — 27.6% 21.6% — 22.1% 19.7% — 20.7%
Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—%
—%
Weighted average fair value at measurement date . . . . . . . . . . . . . . . . . . . . . . .
$
21.54
$
15.47
$
—%
8.88
Expected life—The Company’s expected life represents the period that the Company’s stock-based awards are expected to
be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to
the terms of its stock-based awards.
Risk-free interest rate—The Company bases the risk-free interest rate used in the BSM option-pricing model on the implied
yield currently available on U.S. Treasury zero-coupon issues with the same or substantially equivalent expected life.
Estimated volatility—The Company uses the trading history of its common stock in determining an estimated volatility
factor when using the BSM option-pricing model to determine the fair value of options granted.
Expected dividend—The Company has not declared dividends. Therefore, the Company uses a zero value for the expected
dividend value factor when using the BSM option-pricing model to determine the fair value of options granted.
Estimated forfeitures—When estimating forfeitures, the Company considers voluntary and involuntary termination
behavior as well as analysis of actual option forfeitures.
Net cash proceeds from the exercise of stock options were $71.6 million, $34.4 million and $44.5 million for the years
ended July 31, 2020, 2019 and 2018, respectively.
Comprehensive Income
Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the
years ended July 31, 2020, 2019 and 2018, accumulated other comprehensive income (loss) was the effect of foreign currency
translation adjustments. Deferred taxes are not provided on cumulative translation adjustments where the Company expects
earnings of a foreign subsidiary to be indefinitely reinvested.
Acquisitions
The Company recognizes and measures identifiable assets acquired and liabilities assumed in acquired entities in
accordance with ASC 805, Business Combinations. The allocation of the purchase consideration for acquisitions can require
extensive use of accounting estimates and judgments to allocate the purchase consideration to the identifiable tangible and
intangible assets acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase
consideration over the values of the identifiable assets and liabilities is recorded as goodwill. Critical estimates in valuing
certain identifiable assets include but are not limited to expected long-term revenues; future expected operating expenses; cost
of capital; appropriate attrition; and discount rates.
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Recently Issued Accounting Pronouncements
Adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The current standard, ASC
Topic 740 - Income Taxes, requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or
rates with the effect included in income from continuing operations in the reporting period that includes the enactment date.
This includes the tax effects of items in accumulated other comprehensive income (“AOCI”) that were originally recognized
in other comprehensive income, subsequently creating stranded tax effects. ASU 2018-02 allows a reclassification from AOCI
to retained earnings for stranded tax effects specifically resulting from the U.S. federal government’s recently enacted tax bill,
the Tax Cuts and Jobs Act. The adoption of ASU 2018-02, in the first quarter of fiscal 2020, did not result in a reclassification
from AOCI to retained earnings and did not have an impact on the Company’s consolidated results of operations, financial
position, or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that supersedes all existing guidance on accounting
for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring
lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to
classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement
of income. ASU 2016-02 is effective for annual and interim periods within those annual reporting periods beginning after
December 15, 2018 and adoption is to be applied with a modified retrospective approach to each prior reporting period
presented with various optional practical expedients. Most of the Company’s operating lease commitments are subject to the
new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant
increase in the assets and liabilities on the Company’s consolidated balance sheets. The Company implemented policy
elections and practical expedients as part of adopting ASU 2016-02 including: (i) excluding from the balance sheet leases
with terms that are less than one year; (ii) for agreements that contain both lease and non-lease components, combining
these components together and accounting for them as a single lease; (iii) the package of practical expedients, which allowed
the Company to avoid reassessing contracts that commenced prior to adoption that were properly evaluated under legacy
U.S. GAAP; and (iv) the policy election that eliminated the need for adjusting prior period comparable financial statements
prepared under legacy lease accounting guidance. The adoption of ASU 2016-02 resulted in the recording of a right-of-use
asset and a lease liability in the first quarter of fiscal 2020, as a result of the application of the standard and did not have a
material impact to the Company’s consolidated results of operations. See Note 4 — Leases for additional disclosures as a result
of the adoption of the standard.
Pending
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU 2017-04 amends the
requirement that entities compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill
impairment test. As a result, entities should perform their annual or interim goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount and recognize an impairment if the carrying amount exceeds the reporting
unit’s fair value. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. The Company’s adoption of
ASU 2017-04 will not have a material impact on the Company’s consolidated results of operations and financial position.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 requires
entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using
this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires
waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard
that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This
pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2019, and must be applied on a modified retrospective basis. The Company’s adoption of ASU 2016-13 will not have a material
impact on the Company’s consolidated results of operations and financial position.
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In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates
certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an
interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other
aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and
interim periods within those fiscal years. The Company’s adoption of ASU 2019-12 will not have a material impact on the
Company’s consolidated results of operations and financial position.
NOTE 2 — Accounts Receivable, Net
Accounts receivable, net consisted of:
(In thousands)
July 31,
2020
2019
Advance charges receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
260,196
$
280,835
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94,281
2,120
356,597
(6,390)
89,274
2,098
372,207
(4,942)
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
350,207
$
367,265
Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the
Company will be reimbursed when the vehicle is sold. As advance charges are recovered within one year, the Company has
not adjusted the amount of consideration received from the customer for a significant financing component. Trade accounts
receivable includes fees and gross auction proceeds to be collected from insurance companies and buyers.
The movements in the allowance for doubtful accounts were as follows:
(In thousands)
2020
July 31,
2019
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,942
$
5,444
$
Charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs to bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,591
(4,143)
2,409
(2,911)
2018
4,311
4,255
(3,122)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,390
$
4,942
$
5,444
NOTE 3 — Property and Equipment, Net
Property and equipment, net consisted of the following:
(In thousands)
July 31,
2020
2019
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,235,315
$
939,817
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
932,976
274,422
70,926
52,621
686,615
236,282
63,200
39,434
2,566,260
1,965,348
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(624,541)
(537,622)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,941,719
$ 1,427,726
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Depreciation expense on property and equipment was $82.1 million, $66.8 million and $58.8 million for the years ended
July 31, 2020, 2019 and 2018, respectively. Amortization expense of software was $10.4 million, $7.6 million and $5.7 million
for the years ended July 31, 2020, 2019 and 2018, respectively. During the year ended July 31, 2018, the Company retired fully
amortized capitalized software of $15.5 million, which were no longer being utilized.
NOTE 4 — Leases
The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a
lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease
if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time
in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic
benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating
or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the
lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the
Company’s discretion.
Leases - Lessee
The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which
are recorded as right-of-use assets and lease liabilities. Certain leases provide the Company with either a right of first refusal
to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option
clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or
tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease
liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis
over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as
incurred. The lease term commences on the date when the Company has the right to control the use of the leased property,
which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal
periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes,
insurance and maintenance costs, in addition to the lease payments. At lease inception, the Company includes all renewals or
option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease
would impose an economic penalty.
Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease
payments over the expected lease term. To determine the present value of lease payments not yet paid, the Company estimates
incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated
in the Company’s leases.
Components of lease expense were as follows:
(In thousands)
Year Ended
July 31, 2020
Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
31,628
Finance lease expense:
Amortization of right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
882
189
8,555
1,635
Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
42,889
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Facilities rental expense for the years ended July 31, 2019 and 2018 was $30.6 million and $45.6 million, respectively under
ASC 840, Operating Leases.
The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (In thousands):
Lease Asset and Liabilities
Balance Sheet Classification (In thousands)
July 31, 2020
Operating lease right-of-use assets . . . . . . . . . . Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118,455
Finance lease right-of-use assets . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities - current . . . . . . . . . . Current portion of operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities - current . . . . . . . . . . . . Current portion of finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities - non-current . . . . . . Operating lease liabilities, net of current portion . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities - non-current . . . . . . . . Long-term debt and finance lease obligations, net of discount . . . . . . . . . . .
$
$
1,409
119,864
24,821
751
95,584
566
Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
121,722
The weighted-average remaining lease terms and discount rates as of July 31, 2020 were as follows:
Weighted-Average
Remaining Lease Term
(In years)
Weighted-Average
Discount Rate(1)
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.96
1.83
3.04%
1.85%
(1)
The Company cannot determine the interest rate implicit in the Company’s leases. Therefore, the discount rate represents the
Company’s incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to
the Company’s corporate credit rating for a secured or collateralized instrument.
Supplemental cash flow information related to leases as of July 31, 2020 were as follows (In thousands):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
29,799
Operating cash flows related to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows related to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for new operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for new finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187
1,065
42,860
2,899
The annual maturities of the Company’s lease liabilities as of July 31, 2020 were as follows:
Fiscal year (In thousands)
Finance leases Operating leases
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
768
$
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
534
24
13
—
—
Total future lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,339
$
Less: imputed interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22)
27,718
22,619
19,355
14,980
10,156
45,807
140,635
(20,230)
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,317
$
120,405
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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, 2020 were
as follows:
Fiscal year (In thousands)
Operating leases
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future lease payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,492
6,221
5,179
5,115
5,079
16,995
46,081
The cost of the leased space was $64.8 million as of July 31, 2020. The accumulated depreciation associated with the leased
assets was $0.9 million as of July 31, 2020. 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 for the year ended July 31, 2020,
was $6.2 million, and is included within Service revenues on the consolidated statements of income.
NOTE 5 — Goodwill
The change in the carrying amount of goodwill was as follows:
(In thousands)
July 31,
2020
2019
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
333,321
$
337,235
Acquisitions during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,713
4,588
563
(4,477)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
343,622
$
333,321
In accordance with the guidance in ASC 350, goodwill is tested for impairment on an annual basis or upon the occurrence
of circumstances that indicate that goodwill may be impaired. The Company’s annual impairment tests were performed during
the fourth quarter of fiscal 2020 and 2019 and goodwill was not impaired.
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NOTE 6 — Intangibles, Net
The following table sets forth amortizable intangible assets by major asset class:
Gross
Carrying Amount
July 31,
Accumulated
Amortization
July 31,
Net
Book Value
July 31,
Weighted Average
Remaining Useful
Life (in years)
July 31,
(In thousands, except remaining useful life)
2020
2019
2020
2019
2020
2019
2020
2019
Amortized intangibles:
Supply contracts and
customer relationships . . . . . . . . . . . .
$
50,600 $ 49,109 $ (16,780) $ (11,900) $ 33,820 $ 37,209
Trade names . . . . . . . . . . . . . . . . . . . . . . .
23,635
23,501
(10,075)
(8,010)
13,560
15,491
Licenses and databases . . . . . . . . . . . . . .
7,630
7,688
(7,238)
(5,232)
392
2,456
8
6
3
9
7
2
Total Intangibles . . . . . . . . . . . . . . . . . . . . .
$
81,865 $ 80,298 $ (34,093) $ (25,142) $ 47,772 $ 55,156
Aggregate amortization expense on intangible assets was $8.9 million, $10.5 million and $14.0 million for the years ended
July 31, 2020, 2019 and 2018, respectively. During the year ended July 31, 2018, the Company recognized a $1.1 million charge
primarily related to fully impairing a supply contract in the International segment.
Intangible amortization expense for the next five fiscal years based upon July 31, 2020 intangible assets is expected to be
as follows:
(In thousands)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,795
6,138
6,054
5,842
5,842
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,101
Total future intangible amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
47,772
NOTE 7 — Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
(In thousands)
July 31,
2020
2019
Accounts payable to sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
92,013 $
Buyer deposits and prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,020
40,906
42,053
17,036
9,315
28,187
68,427
73,421
45,520
41,400
3,881
8,507
29,762
Total accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
318,530 $
270,918
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The Company is required to charge for and to collect value added taxes ("VAT") on its sales on behalf of the various
international taxing authorities. The Company records VAT that the Company has billed to the buyers as VAT payable. In
addition, the Company is required to pay VAT on our purchases. The Company records VAT that is charged by its vendors as
VAT receivable. The Company is required to file VAT returns on at least a quarterly basis with the various international taxing
authorities and are entitled to claim the VAT charged by the Company's vendors as VAT credit and these credits can be applied
to the Company's VAT payables billed to the buyers. Accordingly, these VAT payables and receivables are presented as net
amounts for financial statement purposes.
The Company is partially self-insured for certain losses related to general liability, workers’ compensation and auto
liability. Accrued insurance liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet
date, including an estimate for reported and unreported claims. The estimated liability is not discounted and is established
based upon analysis of historical data, including the severity of the Company’s frequency of claims, actuarial estimates and is
reviewed periodically by management to ensure that the liability is appropriate.
NOTE 8 — Long-Term Debt
Credit Agreement
On December 3, 2014, the Company entered into a Credit Agreement (as amended from time to time, the “Credit
Amendment”) with Wells Fargo Bank, National Association, as administrative agent, and Bank of America, N.A., as
syndication agent. The Credit Agreement provided for (a) a secured revolving loan facility in an aggregate principal amount of
up to $300.0 million (the “Revolving Loan Facility”), and (b) a secured term loan facility in an aggregate principal amount of
$300.0 million (the “Term Loan”), which was fully drawn at closing. The Term Loan amortized $18.8 million per quarter.
On March 15, 2016, the Company entered into a First Amendment to Credit Agreement (the “Amendment to Credit
Agreement”) with Wells Fargo Bank, National Association, as administrative agent and Bank of America, N.A. The
Amendment to Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014. The
Amendment to Credit Agreement provided for (a) an increase in the secured revolving credit commitments by $50.0 million,
bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $350.0 million,
(b) a new secured term loan (the “Incremental Term Loan”) in the aggregate principal amount of $93.8 million having a
maturity date of March 15, 2021, and (c) an extension of the termination date of the Revolving Loan Facility and the maturity
date of the Term Loan from December 3, 2019 to March 15, 2021. The Amendment to Credit Agreement extended the
amortization period for the Term Loan and decreased the quarterly amortization payments for that loan to $7.5 million per
quarter. The Amendment to Credit Agreement additionally reduced the pricing levels under the Credit Agreement to a range of
0.15% to 0.30% in the case of the commitment fee, 1.125% to 2.0% in the case of the applicable margin for LIBOR loans, and
0.125% to 1.0% in the case of the applicable margin for base rate loans, based on the Company’s consolidated total net leverage
ratio during the preceding fiscal quarter. The Company borrowed the entire $93.8 million principal amount of the Incremental
Term Loan concurrent with the closing of the Amendment to Credit Agreement.
On July 21, 2016, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment to Credit
Agreement”) with Wells Fargo Bank, National Association, SunTrust Bank, and Bank of America, N.A., as administrative
agent (as successor in interest to Wells Fargo Bank). The Second Amendment to Credit Agreement amends certain terms of the
Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15,
2016. The Second Amendment to Credit Agreement provides for, among other things, (a) an increase in the secured revolving
credit commitments by $500.0 million, bringing the aggregate principal amount of the revolving credit commitments under the
Credit Agreement to $850.0 million, (b) the repayment of existing term loans outstanding under the Credit Agreement, (c) an
extension of the termination date of the revolving credit facility under the Credit Agreement from March 15, 2021 to July 21,
2021, and (d) increased covenant flexibility.
Concurrent with the closing of the Second Amendment to Credit Agreement, the Company prepaid in full the outstanding
$242.5 million principal amount of the Term Loan and Incremental Term Loan under the Credit Agreement without premium
or penalty. The Second Amendment to Credit Agreement reduced the pricing levels under the Credit Agreement to a range of
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0.125% to 0.20% in the case of the commitment fee, 1.00% to 1.75% in the case of the applicable margin for LIBOR loans, and
0.0% to 0.75% in the case of the applicable margin for base rate loans, in each case depending on the Company’s consolidated
total net leverage ratio during the preceding fiscal quarter.
On July 21, 2020, the Company entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank,
National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A.,
and Bank of America, N.A., as administrative agent. The First Amended and Restated Credit Agreement amends certain
terms of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of
March 15, 2016, as amended by the Second Amendment to Credit Agreement, dated as July 21, 2016. The First Amended and
Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by
$200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to
$1,050.0 million, and (b) an extension of the termination date of the revolving credit facility under the Credit Agreement from
July 21, 2021 to July 21, 2023. The First Amended and Restated Credit Agreement additionally increased the pricing levels
under the Credit Agreement to a range of 0.25% to 0.35% in the case of the commitment fee, 1.50% to 2.25% in the case of the
applicable margin for Eurodollar Rate Loans, and 0.50% to 1.25% in the case of the applicable margin for base rate loans, in
each case depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. The principal
purposes of these financing transactions were to increase the size and availability under the Company’s Revolving Loan
Facility and to provide additional long-term financing. The proceeds may be used for general corporate purposes, including
working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the
Company’s expansion strategies in domestic and international markets.
The Revolving Loan Facility under the Credit Agreement bears interest, at the election of the Company, at either (a) the
Base Rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii)
the Federal Funds Rate in effect on such date plus 0.50%; or (iii) the Eurodollar Rate plus 1.0%, subject to an interest rate floor
of 0.75%, in each case plus an applicable margin ranging from 0.50% to 1.25% based on the Company’s consolidated total net
leverage ratio during the preceding fiscal quarter; or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50%
to 2.25% depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. Interest is
due and payable in arrears, at the end of each calendar quarter for loans bearing interest at the Base Rate, and at the end of an
interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case
of Eurodollar Rate Loans. The interest rate as of July 31, 2020 on the Company’s Revolving Loan Facility was the Eurodollar
Rate of 0.75% plus an applicable margin of 1.50%. The carrying amount of the Credit Agreement is comprised of borrowings
under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximated fair
value at July 31, 2020, and was classified within Level II of the fair value hierarchy.
Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21,
2023. The Company is obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The
commitment fee rate ranges from 0.25% to 0.35%, depending on the Company’s consolidated total net leverage ratio during the
preceding fiscal quarter, on the average daily unused portion of the revolving credit commitment under the Credit Agreement.
The Company had no outstanding borrowings under the Revolving Loan Facility as of July 31, 2020 and 2019.
The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries
meeting materiality thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by
substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Agreement as
part of the First Amended and Restated Credit Agreement, dated July 21, 2020, among the Company, the subsidiary guarantors
from time to time party thereto, and Bank of America, N.A., as collateral agent.
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict
the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose
of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions
on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance,
measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage
ratio. The Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined,
as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or
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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, 2020,
the consolidated total net leverage ratio was (0.03):1. Minimum liquidity as of July 31, 2020 was $1.5 billion. Accordingly,
the Company does not believe that the provisions of the Credit Agreement represent a significant restriction to its ability
to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since
becoming a public company in 1994. The Company was in compliance with all covenants related to the Credit Agreement as of
July 31, 2020.
Related to the execution of the First Amended and Restated Credit Agreement, the Company incurred $2.8 million in costs,
which was capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective
debt instruments and are classified as reductions of the outstanding liability.
Note Purchase Agreement
On December 3, 2014, the Company entered into a Note Purchase Agreement and sold to certain purchasers (collectively,
the “Purchasers”) $400.0 million in aggregate principal amount of senior secured notes (the “Senior Notes”) consisting of
(i) $100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due December 3, 2024; (ii) $100.0 million
aggregate principal amount of 4.19% Senior Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal
amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0 million aggregate principal amount of
4.35% Senior Notes, Series D, due December 3, 2029. Interest is due and payable quarterly, in arrears, on each of the Senior
Notes. Proceeds from the Note Purchase Agreement are being used for general corporate purposes.
On July 21, 2016, the Company entered into Amendment No. 1 to Note Purchase Agreement (the “First Amendment to
Note Purchase Agreement”) which amended certain terms of the Note Purchase Agreement, including providing for increased
flexibility substantially consistent with the changes included in the Second Amendment to Credit Agreement, including among
other things increased covenant flexibility.
The Company may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including
minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest
payments under the Senior Notes.
The Company’s obligations under the Note Purchase Agreement are guaranteed by certain of the Company’s domestic
subsidiaries meeting materiality thresholds set forth in the Note Purchase Agreement. Such obligations, including the
guaranties, are secured by substantially all of the assets of the Company and assets of the subsidiary guarantors. The
obligations of the Company and its subsidiary guarantors under the Note Purchase Agreement will be treated on a pari passu
basis with the obligations of those entities under the Credit Agreement as well as any additional debt the Company may obtain.
The Note Purchase Agreement contains customary affirmative and negative covenants, including covenants that limit or
restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate,
dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make
distributions and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain
compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest
coverage ratio. The Note Purchase Agreement contains no restrictions on the payment of dividends and other restricted
payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to
any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is
not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a
pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses
(1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined,
shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment on a pro
forma basis. As of July 31, 2020, the consolidated total net leverage ratio was (0.03):1. Minimum liquidity as of July 31, 2020
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was $1.5 billion. Accordingly, the Company does not believe that the provisions of the Note Purchase Agreement represent
a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company
has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants
related to the Note Purchase Agreement as of July 31, 2020.
As of July 31, 2020, future payments on the Revolving Loan Facility and Note Purchase Agreement were as follows:
(In thousands)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Currently there are no outstanding balances on the Revolving Loan Facility.
NOTE 9 – Fair Value Measures
July 31,(1)
—
—
—
—
100,000
300,000
$
400,000
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:
(In thousands)
Assets
July 31, 2020
July 31, 2019
Carrying
Value Total
Fair Value
Total
Carrying
Value Total
Fair Value
Total
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Long-term fixed rate debt, including current portion . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
11,483
11,483
399,698
399,698
$
$
$
$
11,483
11,483
449,731
449,731
$
$
$
$
12,389
12,389
399,638
399,638
$
$
$
$
12,389
12,389
411,510
411,510
During the year ended July 31, 2020, no transfers were made between any levels within the fair value hierarchy. The fair
value of the Senior Notes is based on the discounted value of each interest and principal payment calculated utilizing market
interest rates of similar types of borrowing arrangements and was classified within Level II of the fair value hierarchy. See
Note 1 — Summary of Significant Accounting Policies and Note 8 — Long-Term Debt.
NOTE 10 — Net Income Per Share
The table below reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:
(In thousands)
Year Ended July 31,
2020
2019
2018
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
233,202
230,489
231,793
Effect of dilutive securities — stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,454
9,964
10,084
Weighted average common and dilutive potential common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . .
238,656
240,453
241,877
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 1,575,167; 3,045,000; and 4,788,004 options to purchase the Company’s common
stock for the years ended July 31, 2020, 2019 and 2018, respectively, because their inclusion would have been anti-dilutive.
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NOTE 11 — Stockholders’ Equity
General
The Company has authorized the issuance of 400 million shares of common stock, with a par value of $0.0001, of which
235,315,337 shares were issued and outstanding at July 31, 2020. As of July 31, 2020 and 2019, the Company had reserved
12,977,173 and 20,502,335 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 1,303,592 and 1,426,698 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, 2020 or 2019, 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 2020 and
2018, the Company did not repurchase any shares of its common stock under the program. For fiscal 2019, the Company
repurchased 7,635,596 shares of its common stock under the program at a weighted average price of $47.81 per share
totaling $365.0 million. As of July 31, 2020, 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 2018, certain members of the Company’s Board of Directors exercised stock options through cashless exercises.
In fiscal 2019, the Company’s former President exercised all of his vested stock options through a cashless exercise. In fiscal
2020, the Company’s Chief Executive Officer exercised all of his vested stock options through a cashless exercise. A portion of
the options exercised were net settled in satisfaction of the exercise price. The Company remitted $101.3 million, $45.6 million,
and no amounts for the years ended July 31, 2020, 2019 and 2018, 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 2018—Q2 . . . .
80,000
$
FY 2019—Q3 . . . .
FY 2020—Q1 . . . .
3,000,000
4,000,000
6.54
17.81
17.81
11,996
945,162
865,719
—
68,004
$
43.60
$
806,039
1,248,799
1,231,595
1,902,686
56.53
82.29
—
45,565
101,348
(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
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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, 2020, 2019 and 2018 was 123,106; 177,043;
and 185,168; respectively. As of July 31, 2020, there were 8,776,482 shares of common stock issued pursuant to the ESPP and
1,303,592 shares remain available for purchase under the ESPP.
Stock Options
In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (Plan), presently covering an
aggregate of 32 million shares of the Company’s common stock. The Plan provides for the grant of incentive stock options,
restricted stock, restricted stock units and other equity-based awards to employees and non-qualified stock options, restricted
stock, restricted stock units and other equity-based awards to employees, officers, directors and consultants at prices not less
than 100% of the fair market value for incentive and non-qualified stock options, as determined by the Board of Directors at
the grant date. Incentive and non-qualified stock options may have terms of up to ten years and vest over periods determined
by the Board of Directors. Options generally vest ratably over a five year period. The Plan replaced the Company’s 2001 Stock
Option Plan. As of July 31, 2020, 4,833,806 shares were available for grant under the Plan and the number of options that were
in-the-money was 8,058,644 at July 31, 2020.
In October 2013, the Compensation Committee of the Company’s Board of Directors, subject to stockholder approval
(which was subsequently obtained at the December 16, 2013 annual meeting of stockholders), approved the grant to each
of the Company’s former President, and A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock
options to purchase 3,000,000 and 4,000,000 shares of the Company’s common stock, respectively, at an exercise price of
$17.81 per share, which equaled the closing price of the Company’s common stock on December 16, 2013, the effective date
of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of
any additional equity incentives for a five year period. Each option became exercisable over five years, subject to continued
service by Mr. Adair and the Company’s former President, with 20% vesting on April 15, 2015 and December 16, 2014,
respectively, and the balance vesting monthly over the subsequent four years. On December 16, 2018, the option held by the
Company’s former President became fully vested and on April 15, 2019, the option held by Mr. Adair became fully vested.
The fair value of each option at the date of grant using the Black-Scholes Merton option-pricing model was $5.72. The total
compensation expense recognized by the Company over the five year service period for these options was $38.8 million. The
Company recognized no expense, $4.3 million, and $7.2 million in compensation expenses for these grants in the years ended
July 31, 2020, 2019 and 2018, respectively.
In June 2020, the Compensation Committee of the Company’s Board of Directors, approved the grant to A. Jayson
Adair, the Company’s Chief Executive Officer of nonqualified stock options to purchase 1,000,000 shares of the Company’s
common stock at an exercise price of $85.04 per share, which equaled the closing price of the Company’s common stock on
June 12, 2020, the effective date of grant. The grant was made in lieu of any cash salary or bonus compensation in excess of
$1.00 per year or the grant of any additional equity incentives for five years. The option will become exercisable over five
years, subject to continued service by Mr. Adair, with 20% vesting on June 12, 2021, and the balance vesting monthly over the
subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to market based
vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common
stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent
to 125% of the exercise price of the options) for a period of 20 consecutive trading days. The option held by Mr. Adair will
become fully vested, assuming continued service by Mr. Adair on June 12, 2025. The fair value of each option at the date of
grant using the Monte Carlo simulation model was $25.47, with an expected life of 7.64 years, a risk-free interest rate of 0.71%,
estimated volatility of 25.2%, and no expected dividends. The total estimated compensation expense to be recognized by the
Company over the five year estimated service period for these options is $25.5 million.
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The following table details stock-based compensation recognized by the Company for stock options and restricted
stock awards:
(In thousands)
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended July 31,
2020
2019
2018
$
17,567
5,755
$
18,254
5,191
19,351
3,870
Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
23,322
$
23,445
$
23,221
There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2020 and 2019. The
Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period
of the award. In accordance with ASC 718, Compensation - Stock Compensation, the Company made an estimate of expected
forfeitures and recognized compensation cost only for those equity awards expected to vest.
A summary of the status of the Company’s non-vested shares from stock option awards and its activity during the year
ended July 31, 2020 was as follows:
(In thousands, except per share amounts)
Weighted
Average Grant-
date Fair Value
Shares
Non-vested shares at July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,209
$
Grants of non-vested shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,175
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,874)
Forfeitures or expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(207)
Non-vested shares at July 31, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,303
$
11.05
24.89
9.98
7.82
17.58
The following is a summary of activity for the Company’s stock options for the year ended July 31, 2020:
(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, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .
14,552
$
Grants of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures or expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and expected to vest as of July 31, 2020 . . . . . . . . . . . . .
1,175
(7,461)
(207)
8,059
4,756
7,758
$
$
$
26.29
85.45
19.15
29.95
41.44
28.17
41.14
6.04
$
745,592
6.72
5.46
6.77
$
$
$
417,529
309,493
404,240
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the
Company’s closing stock price on the last trading day of the year ended July 31, 2020 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, 2020.
The aggregate intrinsic value of options exercised was $476.3 million, $215.4 million and $111.5 million in the years ended
July 31, 2020, 2019 and 2018, 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, 2020, 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 $49.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average
remaining term of 3.49 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options
vested for the years ended July 31, 2020, 2019 and 2018 was $19.2 million, $21.3 million and $19.1 million, respectively.
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The following table summarizes stock options outstanding and exercisable as of July 31, 2020:
(In thousands, except per share amounts)
Options Outstanding
Options Exercisable
Range of Exercise Prices
Number
$12.48—$17.64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17.73—$27.93 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.97—$36.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43.96—$88.58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259
3,138
1,393
3,269
8,059
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Number
2.53
$
4.90
7.12
8.62
6.72
$
14.26
19.81
35.69
66.81
41.44
258 $
3,045
573
880
4,756 $
14.25
19.64
35.73
56.87
28.17
The Company recognizes compensation expense for restricted stock awards on a straight-line basis over the requisite
service period of the award. The following is a summary of activity for the Company’s restricted stock for the for the year
ended July 31, 2020:
(In thousands, except per share data)
Restricted
Shares
Weighted
Average Grant
Date Fair Value
Outstanding as of July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
$
Grants of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
(74)
(23)
105
$
56.62
82.33
60.74
59.03
69.86
NOTE 12 — Income Taxes
Income before taxes consisted of the following:
(In thousands)
Year Ended July 31,
2020
2019
2018
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
740,171 $
634,874
$
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,668
70,077
Total income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
800,839 $
704,951
$
501,961
60,550
562,511
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Income tax expense (benefit) from continuing operations consisted of the following:
(In thousands)
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended July 31,
2020
2019
2018
$
53,942
21,019
74,961
12,095
565
12,660
13,333
(22)
13,311
59,848
27,779
87,627
12,720
702
13,422
12,508
(299)
12,209
$
109,804
17,094
126,898
9,100
(111)
8,989
8,820
(203)
8,617
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
100,932
$
113,258
$
144,504
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)
2020
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0 %
State income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6 %
0.1 %
Compensation and fringe benefits(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11.2)%
GILTI, FDII, and transition tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)%
Deferred tax remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— %
1.4 %
2019
21.0%
1.4%
0.3%
(6.4)%
(0.7)%
—%
0.5%
2018
26.9%
1.3%
(0.8)%
(3.5)%
2.2%
(0.8)%
0.4%
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.6 %
16.1%
25.7%
(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.
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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) are
presented below:
(In thousands)
Deferred tax assets:
July 31,
2020
2019
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,141
$
919
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,217
18,397
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
460
4,763
1,950
15,092
9,872
46,495
(15,429)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,066
Deferred tax liabilities:
Vehicle pooling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,291)
(62,123)
(1,411)
(23,714)
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102,539)
559
3,312
1,322
7,631
7,998
40,138
(8,578)
31,560
(15,731)
(38,475)
(987)
(24,639)
(79,832)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(71,473)
$
(48,272)
The above net deferred tax assets and liabilities have been reflected in the accompanying consolidated balance sheets
as follows:
(In thousands)
July 31,
2020
2019
U.S. non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(66,082)
$
(44,499)
International non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,391)
(3,773)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(71,473)
$
(48,272)
On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act
included a one-time tax on accumulated unremitted earnings of the Company’s foreign subsidiaries (“Transition Tax”). In
fiscal 2018, the Company recorded a $12.4 million Transition Tax charge. The Act reduced the federal statutory tax rate from
35.0% to 21.0%, effective January 1, 2018, which results in federal statutory tax rates for the Company of 21.0%, 21.0%, and
26.9% for fiscal years 2020, 2019 and 2018, respectively. In fiscal year 2018 the Company recorded a $4.3 million benefit to
remeasure deferred taxes as of the enactment date of the Act to reflect the federal statutory rate reduction. In fiscal year 2019,
the Company completed its accounting for the tax effects of the enactment of the Tax Act and recorded a discrete decrease in
tax expense of $1.1 million, whose effect on the Company’s effective tax rate was immaterial.
The Act 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.
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The Act also includes a favorable tax treatment for certain Foreign Derived Intangible Income (“FDII”), effective for the
Company starting August 1, 2018. The Company’s estimate for both GILTI and FDII did not materially impact the effective
income tax rate or income tax expense for the fiscal year ended July 31, 2020 or 2019.
As of July 31, 2020 and 2019, the Company had foreign operating losses and a U.S. federal tax credit carryforward of
$15.1 million and $8.2 million, respectively. The foreign operating losses, subject to certain limitations, usually can be carried
forward indefinitely. The U.S. federal related tax credit, if not used, would start to expire after 2026.
The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income.
Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax
assets is uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing
additional valuation allowances against certain deferred tax assets. The valuation allowance for the years ended July 31, 2020
and 2019 was $15.4 million and $8.6 million, respectively. The valuation allowance for deferred tax assets primarily related to
operating losses in certain international jurisdictions and certain tax credits that are unlikely to be realized.
The following table summarizes the activities related to the Company’s unrecognized tax benefits resulting from uncertain
tax positions:
(In thousands)
2020
July 31,
2019
2018
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
27,537
$
21,322
$
19,269
Increases related to current year tax position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,196
6,588
5,169
Prior year tax positions:
Prior year increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,390
(1,603)
(1,182)
(3,215)
800
(305)
(534)
(334)
554
(2,079)
(519)
(1,072)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36,123
$
27,537
$
21,322
As of July 31, 2020 and 2019, 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 $29.0 million and $22.0 million, respectively. It
is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates
or future audit outcomes; however, an estimate of the range of the possible change cannot be made at this time.
The Company recognizes interest and penalties related to income tax matters in income tax expense. As of July 31, 2020,
2019 and 2018, the Company had accrued interest and penalties related to unrecognized tax benefits of $8.9 million, $7.6
million and $6.0 million, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The
Company is currently under examination by certain taxing authorities in the U.S. for fiscal years between 2014 and 2018. At
this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s
consolidated results of operations and financial position.
The Act significantly lowered the additional federal income tax upon the repatriation of undistributed earnings generated
by our foreign subsidiaries. As the Company determined these undistributed foreign earnings along with any additional
outside basis differences were indefinitely reinvested as of July 31, 2020, no deferred tax was therefore provided. Although the
Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings, which
were $163.0 million as of July 31, 2020, nevertheless, it is not practical to estimate the amount of deferred tax liability related
to the entire outside basis differences due to the complexity of the calculation and the uncertainty regarding assumptions
necessary to compute the tax.
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The Company’s effective income tax rates were 12.6%, 16.1%, and 25.7% for fiscal 2020, 2019 and 2018, respectively.
The Company’s U.S. federal statutory tax rate for fiscal year 2020 was 21.0% and was negatively impacted by $1.7 million of
discrete tax items related to amending previously filed income tax returns. The effective tax rate for the fiscal year ending
July 31, 2019, was computed based on a reduced blended U.S. federal statutory tax rate of 21.0% and was favorably impacted
by $10.2 million of discrete tax items related to amending previously filed income tax returns. The effective tax rate for
the fiscal year ending July 31, 2018, was computed based on a reduced blended U.S. federal statutory tax rate of 26.9% and
included the effects of the Act. The tax rates were also impacted from the result of recognizing excess tax benefits from the
exercise of employee stock options of $92.5 million, $46.1 million and $21.3 million, for the years ended July 31, 2020, 2019
and 2018, respectively.
NOTE 13 — Segments and Other Geographic Reporting
The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two
reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates
resources and measures results, including total revenues and operating income.
The following tables present financial information by segment:
(In thousands)
Year Ended July 31, 2020
United States
International
Total
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,714,724
145,962
$
Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,860,686
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
827,802
135,095
149,012
$
232,416
112,481
344,897
144,685
90,199
42,691
1,947,140
258,443
2,205,583
972,487
225,294
191,703
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
748,777
$
67,322
$
816,099
90,635
$
10,755
$
Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
568,472
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,901,158
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
262,423
35,202
554,103
81,199
(In thousands)
Year Ended July 31, 2019
United States
International
Total
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,537,431
119,138
$
Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,656,569
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
751,653
112,268
151,854
$
218,263
167,125
385,388
136,458
143,236
30,013
1,755,694
286,263
2,041,957
888,111
255,504
181,867
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
640,794
$
75,681
$
716,475
75,135
$
9,760
$
Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
311,472
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,094,592
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,998
63,156
453,025
76,323
98
101,390
603,674
3,455,261
343,622
84,895
374,628
2,547,617
333,321
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(In thousands)
Year Ended July 31, 2018
United States
International
Total
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,385,238
105,784
$
Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,491,022
Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
730,865
101,130
144,140
—
$
193,264
121,409
314,673
116,003
95,331
32,750
1,131
1,578,502
227,193
1,805,695
846,868
196,461
176,890
1,131
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
514,887
$
69,458
$
584,345
67,779
$
10,819
$
Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255,868
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,856,058
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,434
40,829
451,640
80,801
NOTE 14 — Commitments and Contingencies
Commitments
Letters of Credit
78,598
296,697
2,307,698
337,235
Under a letter of credit facility separate from our Revolving Loan Facility, the Company had outstanding letters of credit of
$24.6 million at July 31, 2020, which are primarily used to secure certain insurance obligations.
Contingencies
Legal Proceedings
The Company is subject to threats of litigation and is involved in actual litigation and damage claims arising in the
ordinary course of business, such as actions related to injuries, property damage, contract disputes, and handling or disposal of
vehicles. There are no material pending legal proceedings to which the Company is a party, or with respect to which any of the
Company’s property is subject.
The Company provides for costs relating to matters when a loss is probable and the amount can be reasonably estimated.
The effect of the outcome of any such matters on the Company’s future consolidated results of operations and cash flows cannot
be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of
any such matters. The Company believes that any ultimate liability would not have a material effect on its consolidated results
of operations, financial position, or cash flows. However, the amount of the liabilities associated with claims, if any, cannot
be determined with certainty. The Company maintains insurance which may or may not provide coverage for claims made
against the Company. There is no assurance that there will be insurance coverage available when and if needed. Additionally,
the insurance that the Company carries requires that the Company pay for costs and/or claims exposure up to the amount of the
insurance deductibles.
NOTE 15 — Guarantees — Indemnifications to Officers and Directors
The Company typically enters into indemnification agreements with its directors and certain of its officers to indemnify
them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages
incurred by the directors and officers as a result of any lawsuit, or any judicial, administrative or investigative proceeding in
which the directors and officers are sued as a result of their service to the Company.
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NOTE 16 — Related Party Transactions
There were no amounts due to or from related parties as of July 31, 2020 and 2019.
NOTE 17 — Employee Benefit Plan
The Company sponsors a 401(k) defined contribution plan covering its eligible employees. The plan is available to all U.S.
employees who meet minimum age and service requirements and provides employees with tax deferred salary deductions and
alternative investment options. The Company matches 20% of employee contributions up to 15% of employee salary deferral.
The Company recognized expenses of $1.9 million, $1.7 million, and $0.9 million, for the years ended July 31, 2020, 2019 and
2018, respectively, related to this plan.
The Company also sponsors an additional defined contribution plan for its U.K. employees, which is available to all
U.K. employees who meet minimum service requirements. The Company matches up to 5% of employee contributions. The
Company recognized expenses of $1.2 million, $0.9 million, and $0.7 million for the years ended July 31, 2020, 2019 and 2018,
respectively, related to this plan.
NOTE 18 — Quarterly Financial Information (Unaudited)(1)
Fiscal Quarter
Fiscal Year 2020 (In thousands, except per share data)
First
Second
Third
Fourth
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
554,424
$
575,140
$
550,360
$
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Copart, Inc. . . . . . . . . . . . . . . . . . . .
254,869
205,391
202,082
218,180
259,889
209,892
205,074
168,707
242,613
195,101
191,800
147,487
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . .
$
$
0.94
0.91
$
$
0.73
0.71
$
$
0.63
0.62
$
$
525,659
250,431
205,715
201,883
165,533
0.70
0.69
Fiscal Quarter
Fiscal Year 2019 (In thousands, except per share data)
First
Second
Third
Fourth
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
461,368
$
484,898
$
553,116
$
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Copart, Inc. . . . . . . . . . . . . . . . . . . .
195,918
151,440
148,786
114,083
208,226
164,739
164,966
131,373
251,579
207,494
204,129
192,741
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . .
$
$
0.49
0.47
$
$
0.57
0.55
$
$
0.85
0.81
$
$
542,575
242,619
192,802
187,070
153,496
0.67
0.64
(1)
Earnings per share were computed independently for each of the periods presented; therefore, the sum of the earnings per share
amounts for the quarters may not equal the total for the year.
100
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This page intentionally left blank.<12345678> BOARD OF DIRECTORS AND MANAGEMENT
DIRECTORS
WILLIS J. JOHNSON
CHAIRMAN OF THE BOARD
COPART, INC.
A. JAYSON ADAIR
CHIEF EXECUTIVE OFFICER
COPART, INC.
MATT BLUNT
FORMER GOVERNOR
STATE OF MISSOURI
STEVEN D. COHAN
CHIEF EXECUTIVE OFFICER &
DIRECTOR
LOCO VENTURES, INC.
DANIEL J. ENGLANDER
MANAGING PARTNER
URSULA CAPITAL PARTNERS
STEPHEN D. FISHER
FORMER SENIOR VICE PRESIDENT
& CHIEF TECHNOLOGY OFFICER
EBAY, INC.
JAMES E. MEEKS
FORMER EXECUTIVE VICE PRESIDENT
& CHIEF OPERATING OFFICER
COPART, INC.
DIANE M. MOREFIELD
EXECUTIVE VICE PRESIDENT
& CHIEF FINANCIAL OFFICER
CYRUSONE, INC.
THOMAS N. TRYFOROS
PRIVATE INVESTOR
LEGAL COUNSEL
Wilson Sonsini Goodrich & Rosati, P.C.
Palo Alto, California
STOCKHOLDER SERVICES
You may contact our transfer agent
Computershare Trust Company, N.A.,
by telephone at (877) 282-1168, by
writing Computershare Trust Company,
N.A., P.O. BOX 505000, Louisville,
KY 40233-5000 or via the internet at
www.computershare.com/investor.
INTERNET ADDRESS
INFORMATION
Visit us online at www.copart.com for
more information about Copart and its
products and services. The 2020 Annual
Report is available online by visiting
www.documentview.com/CPRT.
MARKET PRICE DISTRIBUTIONS
The following table summarizes the high
and low sales prices per share of our
common stock for each quarter during the
last two fiscal years. As of July 31, 2020,
there were 235,315,337 shares outstanding.
Our common stock has been quoted on
the NASDAQ Global Select Market under
the symbol “CPRT” since March 17, 1994.
As of September 25, 2020, we had 828
stockholders of record.
2020
High Low
EXECUTIVE OFFICERS
FOURTH QUARTER . . .
93.35 76.28
WILLIS J. JOHNSON
CHAIRMAN OF THE BOARD
A. JAYSON ADAIR
CHIEF EXECUTIVE OFFICER
JEFFREY LIAW
PRESIDENT &
CHIEF FINANCIAL OFFICER
CORPORATE HEADQUARTERS
Copart, Inc.
14185 Dallas Parkway, Suite 300
Dallas, TX 75254
(972) 391-5000
ANNUAL MEETING
The Annual Meeting of Stockholders will
be held at 14185 Dallas Parkway, Suite 300,
Dallas, Texas 75254 at 8:00 a.m., central
time, on December 4, 2020.
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
Dallas, Texas
THIRD QUARTER . . . . . . 104.88 55.69
SECOND QUARTER . . . . . 104.00 80.71
FIRST QUARTER . . . . . . .
85.31 72.90
2019
High Low
FOURTH QUARTER . . .
79.74 64.70
THIRD QUARTER . . . . . .
67.54 50.12
SECOND QUARTER . . . . .
52.19 44.61
FIRST QUARTER . . . . . . .
67.08 46.28
ANNUAL REPORT ON FORM 10-K
Copart will provide, without charge to
each stockholder, upon written request a
copy of its annual report on Form 10-K
as required to be filed with the Securities
and Exchange Commission pursuant
to Rule 13a-1, under the Securities and
Exchange Act of 1934, as amended. All
such requests shall be sent to Copart,
Inc., 14185 Dallas Parkway, Suite 300,
Dallas, TX 75254.
SPECIAL NOTE REGARDING
FORWARD-LOOKING
STATEMENTS
This Annual Report contains
forward-looking statements that are
based on our management’s beliefs
and assumptions and on information
currently available to management. The
forward-looking statements are contained
principally in the sections entitled “Risk
Factors,” “Management’s Discussion
and Analysis of Financial Condition and
Results of Operations,” and “Business.”
Forward-looking statements include
information concerning our possible or
assumed future results of operations,
business strategies, financing plans,
competitive position, industry environment,
potential growth opportunities and the
effects of competition. Forward-looking
statements include statements that are not
historical facts and can be identified by
terms such as “anticipates,” “believes,”
“could,” “seeks,” “estimates,” “expects,”
“intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,”
or similar expressions and the negatives of
those terms.
Forward-looking statements involve known
and unknown risks, uncertainties and
other factors that may cause our actual
results, performance, or achievements to
be materially different from any future
results, performance, or achievements
expressed or implied by the forward-looking
statements. Given these uncertainties, you
should not place undue reliance on any
forward-looking statements. In particular,
Copart cannot predict its future revenues
or operating results or its future rates of
revenue growth, if any. Factors that could
materially affect future results include,
but are not limited to, risks relating to our
dependence on a limited number of major
vehicle sellers for a substantial portion
of our revenues, risks associated with
international operations, our ability to
implement our management information
systems, our need to acquire new facilities,
and the potential for quarterly variations in
our operating results. In addition, investors
in Copart should review the more detailed
discussions of risks and uncertainties
affecting our business described under the
caption “Risk factors” in our Annual Report
on Form 10-K filed with the Securities and
Exchange Commission on September 28,
2020 and supplemented in our subsequent
Quarterly Reports on Form 10-Q.
Except as required by law, we assume
no obligation to update these forward-
looking statements publicly, or to update
the reasons actual results could differ
materially from those anticipated in these
forward-looking statements, even if new
information becomes available in the future.
D
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UNPRECE D E N T
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Copart, Inc.
14185 Dallas Pkwy., Suite #300 | Dallas, TX 75254 | Ph: 972-391-5000
2020 annual report
A Comprehensive Financial Year in Review
Photos were taken prior to and during COVID-19, which is why some do not
show staff social distancing or wearing masks.