2021 ANNUAL REPORT A Comprehensive Financial Year in Review DELIVERING DELIVERING SUSTAINABILITY AND AND GROWTH Copart-2021-AnnualReport.indd 1 10/23/21 1:38 AM Copart-2021-AnnualReport.indd 2 10/23/21 1:38 AM 2021 HIGHLIGHTS 2017 2018 2019 2020 2021 As of July 31, (In thousands, except per share amounts) OPERATING RESULTS ($) Revenue ....................................................................... Operating Income...................................................... EBITDA .......................................................................... Impairment ................................................................... Depreciation and Amortization ............................. Other Expense ........................................................... Income Before Taxes ................................................ Net Income .................................................................. 1,447,981 461,299 537,664 (19,365) (57,000) (21,199) 440,100 394,261 Basic Net Income Per Common Share ................ Basic Weighted Average Shares........................... 1.72 228,686 Diluted Net Income Per Common Share ............ Diluted Weighted Average Shares ....................... 1.66 237,019 1,805,695 584,345 664,074 (1,131) (78,598) (21,834) 562,511 418,007 1.80 231,793 1.73 241,877 BALANCE SHEET DATA ($) Cash, Cash Equivalents, and Restricted Cash ..... Working Capital .......................................................... Total Assets ................................................................. Total Debt ..................................................................... Stockholders’ Equity................................................. 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 2,692,511 1,136,426 1,258,397 — (121,971) (14,580) 1,121,846 936,495 3.96 236,252 3.90 240,290 477,718 607,715 3,455,261 396.900 2,489,516 1,048,260 1,281,580 4,562,143 397,636 3,529,201 REVENUE (in millions) NET INCOME (in millions) OPERATING INCOME (in millions) 2,800 2,400 2,000 1,600 1,200 800 400 0 1,000 800 600 400 200 0 1,200 1,000 800 600 400 200 0 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 EBITDA (in millions) DILUTED EPS (in dollars) G&A EXPENSES (in millions) 1,400 1,200 1,000 800 600 400 200 0 17 18 19 20 21 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 210 180 150 120 90 60 30 0 17 18 19 20 21 17 18 19 20 21 396733_Copart-2021-AnnualReport_NAR_R2.indd 3 10/23/21 2:00 AM A LETTER TO SHAREHOLDERS At this time a year ago, we were six months into a global pandemic The global liquidity of our marketplace provides superior economic and eagerly awaiting the arrival of a vaccine to restore our way outcomes for our sellers and drives a virtuous cycle of rising total loss of life. In a fitting twist to the plot, we then experienced both the frequency and increased supply of vehicles at auction. successful deployment of multiple vaccines and also an extension and amplification of Covid-19’s disruptive effects via the emergence While this phenomenon generates returns for our customers and of new disease variants. Schools, restaurants, factories, offices, places Copart alike, a substantial benefit is also conferred to our members of worship and government agencies fluctuated between business as and the communities in which they reside. The vehicles that we auction usual and total lockdown status. A range of unforeseen second-order from our origin markets – in particular the US, Canada, the Middle effects emerged as well, including semiconductor shortages, global East, and Western Europe – are essential contributors to physical and supply chain outages and commodity price spikes, among others. We socioeconomic mobility in emerging economies in Central and South could not have anticipated the range of surprises the world had in store America, Eastern Europe, and Africa, where transportation is not for us, but we are proud that Copart delivered for our customers and just a response to rising incomes and well being but also a pathway our shareholders, while keeping our own people safe and secure. towards them. Environmental Sustainability In 2022, we plan to release our inaugural Sustainability Report, in which Over the past several years, companies across all industries have increasingly been measured on dimensions beyond their Disaster Relief and Community Recovery enhancement of shareholder value alone. Specifically, shareholders we will address these themes in greater detail. and their representatives have focused on companies’ maximizing their Copart has always played an essential role in helping communities contributions to environmental sustainability, or at a minimum mitigating to recover from natural disasters by clearing roads and highways, their environmental harm. From our inception in 1982, we have played a freeing capacity in repair shops and storage facilities, and ensuring critical role in the automotive circular economy as the key intermediary the timely settlement of policyholder claims. With each passing year, enabling the recycling and reuse of automobiles and automotive parts, it becomes clearer that adverse weather events are increasing in both while facilitating access to transportation around the world. frequency and severity. As examples of some of our actions in the last year to promote While these catastrophic events are financially costly to Copart, sustainability, we have updated our yard storage patterns to maximize we believe that our ability to support our customers and affected space utilization and reduce load times and fuel consumption; deployed communities in their most difficult times distinguishes us against our new, more efficient loaders and transport vehicles to reduce emissions; competition. We continue to invest still more resources to prepare and leveraged telematics to reduce idle time and fuel usage by our us for the next storm. Since Hurricane Harvey struck Houston, Texas capital equipment. in 2017, we have doubled the size of our elite Copart “Cat Team” and more than tripled the size of our owned fleet. We have opened Copart remarkets over three million cars a year. By matching vehicles dedicated “mega-yards” in storm-prone areas that remain largely idle with their optimal owners, we enable the return to service of automobiles in anticipation of high-volume events. These investments enable us to that otherwise would have been scrapped, and the recycling and reuse respond more quickly and more nimbly in our customers’ most acute of parts that otherwise would have been deposited into landfills. In both times of need. In recent days, we served our customers well in severe cases, Copart’s marketplace reduces the need for de novo resource flooding events in Germany as well as during Hurricane Ida which extraction and parts and vehicle manufacturing. stretched from Louisiana to New Jersey. Manufacturing a new vehicle produces nearly 2,000 kilograms Diversity and Inclusion of CO21. The manufacturing and transportation of replacement parts are likewise energy- and resource-intensive, with the total We believe diversity among our people in life, at work, and in environmental footprint of such activities reduced by reusing educational experiences contributes to our success. Across the recycled parts proximate to the location of the repair. globe, approximately half of our employees are women, and 52% are non-Caucasian. Furthermore, our management team is 35% women While the majority of vehicles we sell in our US auctions and 33% people of color. remain in-country, the majority of the value of our auctions is exported around the world, as lesser damaged vehicles In 2021, we welcomed two new board members to Copart, Carl Sparks elicit greater foreign buyer demand and justify the logistical and Cherylyn Harley LeBon. With their additions, three of our board cost of moving automobiles across oceans and borders. members are women and/or ethnic minorities. 1 Greenhouse gases, Regulated Emissions and Energy use in Technologies model 2021 (GREET-2021) 396733_Copart-2021-AnnualReport_NAR_R2.indd 4 10/23/21 2:00 AM Mr. Sparks has extensive technology experience, both prior to and We have stepped up our investment in ProQuote, our proprietary including through his current role as Managing Partner of Interlock machine-learning enabled tool that provides insurance carriers with Partners, a venture capital firm focused on early stage, transformative a timely, accurate estimate for the value of a damaged vehicle to technology companies. He has previously served as a director at support their repair and total loss decisions. Over time, insurance several publicly traded companies. Ms. LeBon currently serves as carriers are incorporating ProQuote earlier in their claims process, to a Partner with the law firm of Dunlap, Bennett & Ludwig based in avoid unnecessary re-work, storage, rental vehicle costs and delayed Washington, D.C., where she is a member of the firm’s Corporate and policyholder settlements. Government Contracts practice. She is a former Senior Counsel with the U.S. Senate Judiciary Committee. To support an increasing supply of vehicles at auction, we continue to proactively cultivate a global buyer network. Our efforts include Both new Board members bring a wealth of knowledge and experience investments in physical infrastructure, including 21 new independently that will help us achieve our objectives and we are excited to work with operated Copart storefronts (known as “lounges”) in nine different them going forward. Looking Forward overseas markets in fiscal 2021 alone, in traditional and social media, and in conventional relationship management such as a phone call or in-person visit. This past year, we experienced all-time high selling prices for our vehicles at auction, a function in part, yes, of supply chain Our business today bears only a passing resemblance to the single shortages worldwide for new and used vehicles, but also as a byproduct salvage yard our founder Willis Johnson opened in Vallejo, California, of our best-in-class buyer base. Recent history, pre-pandemic, would nearly 40 years ago, though our operating principles remain steadfast. indicate that rising prices are a secular phenomenon as well. We pursue our customers’ and Copart’s long-term prosperity by investing relentlessly in our business, including in physical capacity, As our marketplace has steadily grown in its two-sided liquidity, and our people, and our world-class technology platform. as rising total loss frequency shifts our insurance cars more and more in the direction of drivable, whole cars, we have substantially grown Long before the pandemic forced other businesses to adopt virtual the volume of cars we sell on behalf of other types of sellers, including work practices, we established an exclusively digital auction dealers, financial institutions, fleet operators, and cars we buy from marketplace in 2003, with the launch of VB2, creating an environment the general public. More than 20% of the vehicles we sell originate in which sellers and buyers from around the world can transact on a from non-insurance channels. We earn the right to sell these cars by reliable, trustworthy platform. Our insurance business has grown with achieving superior auction returns for our sellers, and with every strong more sellers, more driving activity, and higher total loss frequency, auction outcome and each additional consignment we earn, we spin more than offsetting a long-term trend of declining accident frequency. our flywheel a little faster. Importantly, total loss frequency continues its decades-long march upwards, as vehicle complexity and repair costs make totaling a car In conclusion, Jeff and I thank you for your continued trust in us and a superior economic choice for insurance companies for an ever- the Copart team in serving our critical role in pursuit of environmental increasing share of vehicles. Furthermore, the conventional wisdom sustainability while building the best auction marketplace in the world. that policyholders prefer to keep their damaged vehicles instead of totaling them also continues to erode, making the total loss decision a superior customer service choice for carriers as well. Jay Adair CEO Jeff Liaw President and CEO North America 396733_Copart-2021-AnnualReport_NAR_R2.indd 5 10/23/21 2:00 AM OUR GLOBAL FOOTPRINT Location Legend Copart Lounges 396733_Copart-2021-AnnualReport_NAR_R2.indd 6 10/23/21 2:01 AM LITH. Copart Buyers 396733_Copart-2021-AnnualReport_NAR_R2.indd 7 10/23/21 2:01 AM CHAMPIONS OF SUSTAINABILITY Copart Celebrates Substantial Sustainability Success Copart’s business model from our inception has actively enabled the recycling of vehicles and their parts. Sustainability is in the very DNA of our company, and last year we continued to grow in ecologically friendly ways. FROM THE BEGINNING When Copart first started in 1982 in California, we promoted recycling long before it was the norm. We give new purpose to vehicles that would otherwise be disposed of in landfills and other environmentally unfriendly ways. CARBON EMISSION PREVENTION The very nature of our business is aligned with the reduction of carbon emissions. The process of manufacturing a new vehicle generates approximately 2 metric tons of carbon dioxide equivalents, according to the US Department of Energy. By matching millions of vehicles each year with buyers who will repurpose them, Copart helps the world avoid many millions of tons of carbon dioxide equivalents. 396733_Copart-2021-AnnualReport_NAR_R2.indd 8 10/23/21 2:01 AM NEW & EXPANDED LOCATIONS IN 2021 = NEW LOCATIONS = NEW EXPANSIONS ADELANTO California JACKSONVILLE NORTH Florida FAIRBURN Georgia DYER Indiana EARLINGTON Kentucky GASTONIA North Carolina RALEIGH NORTH North Carolina BISMARCK North Dakota HOUSTON EAST Texas MILWAUKEE NORTH Wisconsin MANNHEIM Germany MALLORCA Spain VALLEJO California CICERO Indiana WICHITA Kansas BALTIMORE EAST Maryland MINNEAPOLIS NORTH Minnesota ST. CLOUD Minnesota ST. LOUIS Missouri TRENTON New Jersey ALBANY New York LUMBERTON North Carolina ALTOONA Pennsylvania NORTH CHARLESTON South Carolina FREDERICKSBURG Virginia GRAHAM Washington 396733_Copart-2021-AnnualReport_NAR_R2.indd 9 10/23/21 2:01 AM 396733_Copart-2021-AnnualReport_NAR_R2.indd 10 10/23/21 2:01 AM JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. i 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, 2021 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, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $22,942,885,751 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 23, 2021, 237,100,519 shares of the registrant’s common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of our definitive Proxy Statement for the 2021 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, 2021, 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. JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. ii Copart, Inc. Index to the Annual Report on Form 10-K For the Fiscal Year Ended July 31, 2021 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 and Human Capital ........................................................................................................... Environmental Matters ........................................................................................................................ Governmental Regulations .................................................................................................................. Intellectual Property and Proprietary Rights ...................................................................................... Seasonality ........................................................................................................................................... Risk Factors ......................................................................................................................................... Item 1A. Unresolved Staff Comments................................................................................................................ Item 1B. Properties ............................................................................................................................................. Item 2. Legal Proceedings ............................................................................................................................... Item 3. Item 4. Mine Safety Disclosure ....................................................................................................................... PART II ................................................................................................................................................................................. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ............................................................................................................ Reserved .............................................................................................................................................. Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............. Item 7. Quantitative and Qualitative Disclosures About Market Risk ............................................................ Item 7A. Financial Statements and Supplementary Data ................................................................................... Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............ Item 9. 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 Related Stockholder Item 12. 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 ............................................................................................ Form 10-K Summary ........................................................................................................................... Item 16. Signatures ............................................................................................................................................................................. ii Page Number 1 1 4 5 6 8 8 12 12 13 13 13 15 15 15 15 16 32 32 32 32 33 33 35 36 50 51 51 51 54 55 55 55 55 55 55 56 56 56 60 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 1 PART I CAUTION REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended July 31, 2021, 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 in Delaware in January 2012. Our principal executive offices are located at 14185 Dallas Parkway, Suite 300, Dallas, Texas 75254 and our telephone number 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®, BID4U®, CI & Design®, DRIVE Auto Auctions™, 1-800 CAR BUYER®, CA$HFORCARS.COM®, COPART & DESIGN®, VB3 & DESIGN®, VB3®, NPA, 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 our business operations already exists, with whatever fuel technology and efficiency it was designed and built to have, and 1 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 2 the substantial carbon emissions associated with the vehicle’s manufacture have already occurred. 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 driveable 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, vehicle rental companies, and individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and 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 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. 2 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 3 For fiscal 2021, sales of U.S. vehicles, on a unit basis, to members registered outside the state where the vehicle was located accounted for 64.1% of total vehicles sold; of which 29.7% of vehicles were sold to out of state members within the U.S. and 34.4% 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: • • • • • • 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 2021, our revenues were $2.7 billion and our operating income was $1.1 billion. In fiscal 2019, we opened one new operational facility in Brazil, seven new operational facilities in Germany, 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. In fiscal 2021, we opened one new operational facility in Germany, one new operational facility in Spain, ten new operational facilities in the U.S., and acquired an operational facility in Des Moines, Iowa. 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. 3 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 4 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. 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, vehicle rental companies, and 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 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. 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 and navigation systems; advanced cameras, including backup camera systems; collision warning systems; dynamic cruise control; lane departure warning systems; automatic braking; and blind spot detection 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: • • 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; 4 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 5 • • • • • 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. 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, or 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, although we may offer transportation services to obtain the vehicle. 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. 5 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 6 Pursue Global, National, and Regional Vehicle Supply Agreements Our broad global presence enhances our ability to enter into global, national, or regional supply agreements with vehicle sellers. We actively seek to establish 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. 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: • • • • • • • 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: • 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; 6 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 7 • 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; • • • • • online payment capabilities via our ePay product, credit cards, and third-party financing programs; email and text 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: • • • • 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. 7 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 8 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, 2021 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, 2021, 2020 and 2019 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. 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. 8 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 9 Transportation Services In the U.S. and Canada, we perform transportation services through a combination of third-party vehicle transport companies and our fleet of over 140 vehicles. 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 offer timely 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 240 vehicles and third-party vehicle transport companies. In Germany, we perform transportation services through our fleet of over 45 vehicles and third-party vehicle transport companies. 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 obtain up-to-date loan payoff information electronically 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 (“PIP”), Consignment Program, or Purchase Program. Under each program we may 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 driveable vehicles, and identifying driveable vehicles. We believe our merchandising efforts increase the sales prices of the vehicles, thereby increasing the return on vehicles to both vehicle sellers and us. Percentage Incentive Program. 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. 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. 9 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 10 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, and sell the vehicles for our own account. Currently, the purchase program is offered primarily in the U.K. 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 the general public 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; CashForCars.de, CashForCars.co.uk, or Cash-for-cars.ie 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. 10 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 11 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. This capability was expanded out to the U.K. in fiscal 2021. 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 computer or mobile device via our mobile application. 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. 11 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 12 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 application, 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 2021, 2020, or 2019 and our business does not depend on any particular customer to remain profitable. We obtained 77%, 81%, and 80% of the total number of vehicles processed during fiscal 2021, 2020 and 2019, 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 personal sales calls, internet search engines, employee referrals, tow shop referrals, and participation in trade shows and vehicle and insurance industry conventions, targeted mailing of our sales literature, and telemarketing. 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 our last three fiscal 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 application. 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. 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. 12 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 13 Competition We face significant competition from other remarketers of both salvage and non-salvage vehicles. Against these other vehicle remarketers, we face competition for long-term contractual commitments and various supply agreements with sellers, in addition to competition for the acquisition of vehicle storage facilities. 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.); Manheim, Inc., and ACV Auctions 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 and Human Capital Our ability to build long-term value depends on our ability to attract, retain, develop, and motivate talented personnel at all levels within our global enterprise. Our employees are our greatest asset. Our goal is to create a strong culture built upon our foundational core values: act with integrity; be an owner; challenge the norm; get results; and celebrate our people. We have a diverse, multi-cultural workforce and we celebrate our diversity by promoting inclusion across our global organization. As of July 31, 2021, we had approximately 8,600 full and part-time employees, of which approximately 71% were located in the U.S. and 29% located within our International segment. Of the approximately 6,100 full and part-time employees based in the U.S, approximately 49% of them identify as female. We also believe our workforce is ethnically diverse. As of July 31, 2021, our U.S. workforce consisted of approximately 49% individuals identifying as White, 20% as Hispanic or Latino, 15% as Black or African American, 5% as Asian, 3% as two or more races, Native American or Alaska Native, Native Hawaiian or Pacific Islander, and 8% as Not Disclosed. Additionally, of the approximately 870 employees serving in the U.S. in management roles and above, up to and including executives, 64% identify as male and 36% identify as female. 13 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 14 Of the approximately 2,500 employees based within the International segment, approximately 33% of them identify as female. We also believe our workforce is ethnically diverse. As of July 31, 2021, our International workforce consisted of approximately 59% individuals identifying as White, 28% as Asian, 3% as Black or African, 2% as Hispanic or Latino, 2% as Other, and 5% as Not Disclosed. Additionally, of the approximately 277 employees serving Internationally in management roles and above, up to and including executives, 69% identify as male and 31% identify as female. Our human capital objective is to attract, retain, develop, and motivate talented employees. We use online search tools, specialized recruiting firms, employee referral programs, job postings in various media platforms, and university recruiting to cast a wide and varied net for talented candidates. In order to promote the success of our company and increase stockholder value, among other elements in the total of mix of employee compensation, we offer a combination of competitive base salary, equity incentives, and bonus plans that are designed to motivate and reward personnel. Our executive compensation structure aligns incentives with our strategic growth objectives, including long-term share price appreciation. In that regard, our executive compensation programs place greater weighting on equity compensation than other forms of compensation offered to all employees. For more details regarding our executive compensation, refer to information incorporated by reference from the information set forth under the captions “Executive Compensation” and “Compensation Discussion and Analysis” in our 2021 Proxy Statement. We value the health and well-being of our employees, and provide generous benefit options to best suit our employees and their families. Within our U.S. segment, we pay a significant portion of the benefit premiums related to our health benefits. In many cases, employees are offered certain benefits at no charge to them or their families. Our U.S. benefit platform is built from a whole person model, meaning we offer options that assist in keeping the whole person healthy. Employees and their families can select from a wide range of benefits from traditional health and dental insurance to financial wellness and estate planning. We have designed our plans around the following four pillars: Health, Financial Security, Life, and Education. Our Health benefits include: multiple medical plans, dental and vision coverage, and wellness programs combined with external support networks. The Financial Security benefits program includes: 401K plan with employer match options; an Employee Stock Purchase Program (“ESPP”) that offers employees the option to purchase Copart shares at a discounted price and become stockholders of the company; access to both health and dependent care flexible spending accounts; and an overall financial wellness platform. Our Life program provides a range of insurance products, employee assistance programs as well as identity protection and legal services. Finally, our Education program includes tuition support for employees and scholarship opportunities for employees’ children. This is combined with our global training and development program that focuses on leadership development, as well as training in various topics including diversity, anti-harassment, ethics, and regulatory compliance. Within our International segment, we also offer a variety of benefit plans similar to the U.S. segment, albeit adjusted to reflect local market conditions. In fiscal 2021, our ongoing focus on workplace safety and regulatory compliance has enabled us to maintain business continuity while promoting a safe work environment during the COVID-19 pandemic. Specifically, we introduced work-from- home arrangements for a substantial portion of our workforce and social distancing for those that have returned to the office, in accordance with local health authority guidelines. 14 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 15 Environmental Matters Our operations are subject to international, federal, provincial, state, 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 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 appropriate actions as may be necessary 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 international, federal, provincial, state, and local statutes, ordinances and regulations that may impact our capital expenditures, earnings, and competitive position. The acquisition and sale of vehicles is regulated by various state, provincial and foreign motor vehicle departments, and the steps required to process vehicle titles is a significant cost of our business. At the same time, our know-how in the area of title processing is a competitive advantage. 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, which generally make it more challenging and expensive to identify, acquire and develop new facilities. These zoning requirements vary from location to location. At various times, we may be involved in disputes with 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 international, federal, 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. Severe weather events, including but not limited to tornadoes, floods, hurricanes, and hailstorms, can also impact our volumes. 15 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 16 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. Risks Related to Our Business and Industry The worldwide COVID-19 pandemic may 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 it has the potential to adversely affect our business and operating results. After the initial onset of the COVID-19 pandemic in March 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. 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. 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. Certain of the jurisdictions in which we operate, such as the U.K., have had more restrictive governmental actions than others, and subsequent shelter-in-place orders have occasionally stalled or regressed our assignment volumes commensurate with the severity and duration of such orders. 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; additional 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; the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used and salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sale prices obtained at auction for the vehicles assigned to us for remarketing; 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 2021, 2020, or 2019, 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. 16 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 17 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 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, until the Indian market develops in a manner better suited to our business model, which did not have a material effect on our consolidated results of operations and financial position. 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; 17 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 18 • military actions; • • • • public health issues, including but not limited to the COVID-19 pandemic; 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. 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. 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 between fiscal 2004 and fiscal 2008, 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. 18 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 19 Failure to maintain sufficient capacity to accept additional vehicles 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 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 2019, we opened one new operational facility in Brazil, seven new operational facilities in Germany, 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. In fiscal 2021, we opened one new operational facility in Germany, one new operational facility in Spain, ten new operational facilities in the U.S., and acquired an operational facility in Des Moines, Iowa. 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. 19 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 20 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; identify productive uses for available capital reserves; 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. 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. New member programs could impact our operating results. We have initiated and intend to continue to 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 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 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. 20 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 21 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 this Annual Report on Form 10-K. 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. 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, 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. 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 we do currently or will have in the future. 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. 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 21 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 22 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. Risks Related to Regulatory Compliance and Legal Matters 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 the U.S. and 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 previously 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. 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. Although we have not experienced any material disruptions in our business as a result of Brexit to date, the ultimate effects of Brexit on us are still difficult to predict, and 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. 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, 22 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 23 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. We face risks associated with the implementation of our 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. 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 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. 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, the LGPD, 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 results of operations and financial position. 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 23 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 24 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 results of operations, financial position, or cash flows. Our operations are subject to international, federal, provincial, state, 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 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 appropriate actions as may be necessary 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. 24 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 25 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 results of operations and financial condition. 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, or IRS, 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 the 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. Risks Related to Our Intellectual Property and Technology 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, results of operations, or financial position. 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. 25 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 26 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 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. We have developed a 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 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 results of operations, and financial position. 26 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 27 Decreased utility of internally developed capitalized software could adversely affect our consolidated results of operations and financial condition. 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. As of July 31, 2021, the net amount of capitalized software development costs shown on our consolidated balance sheet is $22.8 million. If, at any time, it is determined that capitalized software provides a reduced economic benefit, the unamortized portion of the capitalized development costs could be expensed, in part or in full. 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, ransomware 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, ransomware 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 27 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 28 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 the event of a ransomware attack, we could suffer significant financial and reputational harm, regardless of whether we choose to pay the ransom amount. 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 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. Risks Related to Ownership of Our Common Stock 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; the impact of potential negative interest rates on our cash reserves; our ability to successfully integrate our newly acquired operations in international markets and any additional markets we may enter; forthcoming cessation of the LIBOR interest rate standard; the availability of salvage vehicles or other vehicles we sell, including the supply of used and salvage vehicles in relation to the supply of new vehicle alternatives; variations in vehicle accident rates; supply chain disruptions; • member participation in the internet bidding process; 28 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 29 • • • • • • • • • • • • • • • • 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; 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; goodwill impairment; • military actions; • • • bank failures; natural and man-made disasters; public health issues, including COVID-19 and other pandemics; • monetary policy and potential inflation impacts, including any adverse effects of inflation on our cash reserves; 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. 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 29 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 30 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 11% of our issued and outstanding common stock as of July 31, 2021. 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 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. Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees. Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (iv) any action or proceeding asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware. This provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, for which the U.S. federal courts have exclusive jurisdiction, or the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be deemed to have notice of and consented to the foregoing provisions. Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, other employees, stockholders, or others which may discourage lawsuits with respect to such claims. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provision. Further, 30 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 31 in the event a court finds the exclusive forum provision contained in our amended and restated certificate of incorporation to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our results of operations. General Risk Factors 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. 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. 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. 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. 31 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 32 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 the costs of the hedges will not 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. Although we have not experienced any material disruptions in our business as a result of Brexit to date, the ultimate effects of Brexit on us are still difficult to predict, and 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. 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 fourteen 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 eleven operating facilities. In Spain, we operate an online platform, own one operating facility and lease six 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 For a discussion of Legal Proceedings that affect us, refer to the Notes to Consolidated Financial Statements, Note 14 — Commitments and Contingencies included in Part IV, Item 16 of this report. Item 4. Mine Safety Disclosure Not applicable. 32 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 33 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, 2021, there were 237,014,273 shares of our common stock issued and outstanding. Our common stock has been quoted on the NASDAQ Global Select Market under the symbol “CPRT” since March 17, 1994. As of September 23, 2021, we had 806 holders of record of our common stock. On July 31, 2021, the last reported sale price of our common stock on the NASDAQ Global Select Market was $147.00 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 2021 and 2020, 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, 2021, 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 2019 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,635,596 $ 47.81 7,635,596 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2020 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2021 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 1, 2021 through May 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . June 1, 2021 through June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . July 1, 2021 through July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — — — — — — — — — — — — — — — — — — — — — — — — 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 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. 33 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 34 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. In fiscal 2021, certain employees exercised stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. We remitted $3.8 million, $101.3 million, and $45.6 million during the years ended July 31, 2021, 2020 and 2019, respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements. The exercised stock options, utilizing a cashless exercise, are summarized in the following table: Period Options Exercised Weighted Average Exercise Price Shares Net Settled for Exercise Shares Withheld for Taxes (1) Net Shares to Employees Weighted Average Share Price for Withholding Employee Stock- Based Tax Withholding (in 000s) FY 2019—Q3 . . . . . . 3,000,000 $ FY 2020—Q1 . . . . . . 4,000,000 FY 2021—Q4 . . . . . . 90,000 17.81 17.81 17.73 945,162 865,719 12,366 806,039 1,248,799 $ 56.53 $ 1,231,595 1,902,686 29,349 48,285 82.29 129.01 45,565 101,348 3,786 (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, 2021. 34 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 35 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, 2021 since July 31, 2016, to the cumulative total return over such period of (i) the NASDAQ Composite Index, (ii) the NASDAQ Industrial Index, and (iii) the S&P 500 Index. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Copart, Inc., the NASDAQ Composite Index, the NASDAQ Industrial Index, and the S&P 500 Index $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 7/16 7/17 7/18 7/19 7/20 7/21 Copart, Inc. NASDAQ Composite NASDAQ Industrial S&P 500 Index 2016 2017 2018 2019 2020 2021 Fiscal Year Ended July 31, Copart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NASDAQ Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 100.00 100.00 100.00 100.00 $ $ $ $ 124.86 124.41 118.86 116.04 $ $ $ $ 227.56 151.94 145.63 134.89 $ $ $ $ 307.41 163.71 154.22 145.66 $ $ $ $ 369.75 217.38 199.55 163.08 $ $ $ $ 582.87 298.96 258.21 222.51 * Assumes that $100.00 was invested on July 31, 2016 in our common stock, in the NASDAQ Composite Index, the NASDAQ Industrial Index, 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. Item 6. Reserved 35 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 36 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, 2021, 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. 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 already exists, with whatever fuel technology and efficiency it was designed and built to have, and the substantial carbon emissions associated with the vehicle’s manufacture have already occurred. 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 driveable 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 36 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 37 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, vehicle rental companies, and individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and 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. 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, driveable 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 12.1 years 37 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 38 in 2021. 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. 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, but these adverse effects were more than offset by corresponding increases in vehicle average sales prices. Although we initially saw substantial declines in vehicle assignments following the onset of the COVID-19 pandemic, which we attribute principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the globe, we have generally seen vehicle assignment volumes steadily recovering; however additional subsequent shelter-in-place orders have occasionally stalled or regressed the assignment volume commensurate with the severity and duration of such orders. 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. 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. The pandemic may have an adverse effect on our future revenues, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets. We believe that the longer-term impact on our business will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; additional 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; the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used and salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sale prices obtained at auction for the vehicles assigned to us for remarketing; 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.” 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 (Expense) Income: Other (expense) income consists primarily of interest expense on long-term debt, see Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt; foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; and earnings from unconsolidated affiliates. 38 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 39 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 (xiii) 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 or 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. The following tables set forth operational facilities that we have opened and are now operational from August 1, 2018 through July 31, 2021: United States Locations Date September 2018 January 2019 January 2019 January 2019 January 2019 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2020 Fort Wayne, Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concord, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2020 Salt Lake City, Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 2020 Redding, California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 2020 Dothan, Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 2020 Jacksonville, Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 2020 Milwaukee, Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 2020 Houston, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2020 Knightdale, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2021 Gastonia, North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 2021 June 2021 Bismarck, North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 2021 Fairburn, Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 2021 Dyer, Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 40 International Locations Geographic Service Area 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 Bruchmühlbach-Miesau, Rhineland-Palatinate (Mannheim) . . . . . . . . . . . . . . . . . . . . . . . . . . Germany Mallorca, Balearic Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spain Date September 2018 October 2018 November 2018 November 2018 November 2018 November 2018 November 2018 December 2018 November 2019 December 2019 May 2020 February 2021 April 2021 The following table sets forth the operational facilities obtained through business acquisitions from August 1, 2018 through July 31, 2021: Greenville, Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States Des Moines, Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States Locations Geographic Service Area Date March 2019 July 2021 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. 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. 40 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 41 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 2021, 2020 and 2019: (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison of Fiscal Years ended July 31, 2021, 2020 and 2019 Year Ended July 31, 2021 2020 2019 85% 15% 100% 37% 13% 8% 58% 42% (1)% 41% 6% 35% 88% 12% 100% 44% 10% 9% 63% 37% (1)% 36% 4% 32% 86% 14% 100% 43% 13% 9% 65% 35% (1)% 34% 5% 29% The following table presents a comparison of service revenues for fiscal 2021, 2020 and 2019: (In thousands) 2021 2020 2019 Change % Change Change % Change Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 Service revenues . . . . . . . . . . . . . . . . . . . United States . . . . . . . . . . . . . . . . . . . . . $ 2,017,504 $ 1,714,724 $ 1,537,431 $ 302,780 17.7% $ 177,293 International . . . . . . . . . . . . . . . . . . . . . 274,363 232,416 218,263 41,947 18.0% 14,153 Total service revenues. . . . . . . . . . . . . . $ 2,291,867 $ 1,947,140 $ 1,755,694 $ 344,727 17.7% $ 191,446 11.5% 6.5% 10.9% Service Revenues. The increase in service revenues for fiscal 2021 of $344.7 million, or 17.7% as compared to fiscal 2020 came from (i) an increase in the U.S. of $302.8 million, and (ii) an increase in International of $41.9 million. The growth in the U.S. was driven primarily by an increase in revenue per car, partially offset by a decrease in volume. The decrease in volume in the U.S. was driven by the COVID-19 pandemic, which reduced accident volume as miles driven declined. Excluding the beneficial impact of $12.0 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 growth in International of $29.9 million was driven primarily by increased revenue per car, partially offset by decreased volume driven by the COVID-19 pandemic, which reduced accident volume as miles driven decreased. 41 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 42 The following table presents a comparison of vehicle sales for fiscal 2021, 2020 and 2019: (In thousands) Vehicle sales Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 2021 2020 2019 Change % Change Change % Change United States . . . . . . . . . . . . . . . . . . . . . . $ 254,568 $ 145,962 $ 119,138 $ 108,606 74.4 % $ 26,824 22.5 % International . . . . . . . . . . . . . . . . . . . . . . 146,076 112,481 167,125 33,595 29.9 % (54,644) (32.7)% Total vehicle sales . . . . . . . . . . . . . . . . . . $ 400,644 $ 258,443 $ 286,263 $ 142,201 55.0 % $ (27,820) (9.7)% Vehicle Sales. The increase in vehicle sales for fiscal 2021 of $142.2 million, or 55.0% as compared to fiscal 2020 came from (i) an increase in the U.S. of $108.6 million and (ii) an increase in International of $33.6 million. The growth in the U.S. was primarily the result of (i) increased volume and (ii) higher average auction selling prices, which we believe was due to a change in the mix of vehicles sold; increased demand; and reduced supply. Excluding a beneficial impact of $10.2 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 increase in International of $23.4 million was primarily the result of higher average auction selling prices partially offset by decreased volume driven by contractual shifts from purchase contracts to fee based service contracts and COVID-19’s impact on volume, which reduced accident volume as miles driven declined. The following table presents a comparison of yard operations expense for fiscal 2021, 2020 and 2019: (In thousands) Yard operations expenses Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 2021 2020 2019 Change % Change Change % Change United States . . . . . . . . . . . . . . . . . . . . . . . . . $ 849,037 $ 828,066 $ 751,653 $ 20,971 2.5 % $ 76,413 10.2 % International . . . . . . . . . . . . . . . . . . . . . . . . . 154,255 144,421 136,458 9,834 6.8 % 7,963 Total yard operations expenses. . . . . . . . . . . $ 1,003,292 $ 972,487 $ 888,111 $ 30,805 3.2 % $ 84,376 Yard operations expenses, excluding depreciation and amortization United States . . . . . . . . . . . . . . . . . . . . . . . . . $ 761,021 $ 760,043 $ 697,115 $ 978 0.1 % $ 62,928 International . . . . . . . . . . . . . . . . . . . . . . . . . 141,354 135,445 127,829 5,909 4.4 % 7,616 5.8 % 9.5 % 9.0 % 6.0 % Yard depreciation and amortization United States . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,016 $ 68,023 $ 54,538 $ 19,993 29.4 % $ 13,485 24.7 % International . . . . . . . . . . . . . . . . . . . . . . . . . 12,901 8,976 8,629 3,925 43.7 % 347 4.0 % Yard Operations Expenses. The increase in yard operations expenses for fiscal 2021 of $30.8 million, or 3.2% as compared to fiscal 2020 resulted from (i) an increase in the U.S. of $21.0 million, primarily from a $20.0 million increase in depreciation and an increase in the cost to process each car partially offset by a decline in volume driven by the COVID-19 pandemic, which reduced accident volume as miles driven declined; and (ii) an increase in International of $9.8 million related primarily from the detrimental impact of $7.6 million due to changes in foreign currency exchange rates, driven by changes in the British pound, Brazilian real, and European Union euro to U.S. dollar exchange rate; and an increase in the cost to process each car, partially offset by a decrease in volume driven by the COVID-19 pandemic. The increase in yard operations depreciation and amortization expenses resulted primarily from depreciating new and expanded facilities placed into service in the U.S. and International locations. 42 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 43 The following table presents a comparison of cost of vehicle sales for fiscal 2021, 2020 and 2019: (In thousands) Cost of vehicle sales Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 2021 2020 2019 Change % Change Change % Change United States . . . . . . . . . . . . . . . . . . . . . . . . $ 227,365 $ 135,095 $ 112,268 $ 92,270 68.3 % $ 22,827 20.3 % International . . . . . . . . . . . . . . . . . . . . . . . . 118,763 90,199 143,236 28,564 31.7 % (53,037) (37.0)% Total cost of vehicle sales . . . . . . . . . . . . . . $ 346,128 $ 225,294 $ 255,504 $ 120,834 53.6 % $ (30,210) (11.8)% Cost of Vehicle Sales. The increase in cost of vehicle sales for fiscal 2021 of $120.8 million, or 53.6% as compared to fiscal 2020 was the result of (i) an increase in the U.S. of $92.3 million and (ii) an increase in International of $28.6 million. The increase in the U.S. was primarily the result of (i) increased volume and (ii) higher average purchase prices, which we believe was due to a change in the mix of vehicles sold; increased demand; and reduced supply. Excluding the detrimental impact of $8.3 million due to changes in foreign currency exchange rates, driven by changes in the British pound and European euro to U.S. dollar exchange rate, the increase in International of $20.3 million was primarily the result of higher average purchase prices partially offset by decreased volume driven by contractual shifts from purchase contracts to fee based service contracts and COVID-19’s impact on volume, which reduced accident volume as miles driven declined. The following table presents a comparison of general and administrative expenses for fiscal 2021, 2020 and 2019: (In thousands) 2021 2020 2019 Change % Change Change % Change Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 General and administrative expenses United States . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,115 $ 154,346 $ 155,180 $ 17,769 11.5 % $ (834) (0.5)% International . . . . . . . . . . . . . . . . . . . . . . . . . . 34,550 37,357 26,687 (2,807) (7.5)% 10,670 Total general and administrative expenses . . . $ 206,665 $ 191,703 $ 181,867 $ 14,962 7.8 % $ 9,836 40.0 % 5.4 % General and administrative expenses, excluding depreciation and amortization United States . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152,366 $ 131,551 $ 134,452 $ 20,815 15.8 % $ (2,901) (2.2)% International . . . . . . . . . . . . . . . . . . . . . . . . . . 33,245 35,761 25,687 (2,516) (7.0)% 10,074 39.2 % General and administrative depreciation and amortization United States . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,749 $ 22,795 $ 20,727 $ (3,046) (13.4)% $ 2,068 International . . . . . . . . . . . . . . . . . . . . . . . . . . 1,305 1,596 1,001 (291) (18.2)% 595 10.0 % 59.4 % General and Administrative Expenses. The increase in general and administrative expenses for fiscal 2021 of $15.0 million, or 7.8% as compared to fiscal 2020 came primarily from (i) an increase in the U.S. of $17.8 million, partially offset by (ii) a decrease in International of $2.8 million. Excluding depreciation and amortization, the decrease in International of $2.5 million resulted primarily from the detrimental impact of $1.4 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 and lower current period costs including decreased travel costs and the nonrecurrence of certain legal costs incurred in fiscal 2020. Excluding depreciation and amortization, the increase in the U.S. of $20.8 million resulted primarily from increases in stock compensation and increased legal costs, partially offset by decreased payroll taxes from the exercise of employee stock options and travel costs. The decrease in depreciation and amortization expenses resulted primarily from fully depreciating certain intangible and technology assets in the U.S. and International locations. 43 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 44 The following table summarizes total other expenses and income taxes for fiscal 2021, 2020 and 2019: (In thousands) 2021 2020 2019 Change % Change Change % Change Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (14,580) (15,260) (11,524) 680 4.5 % (3,736) (32.4)% Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,351 100,932 113,258 84,419 83.6 % (12,326) (10.9)% Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 Other Expenses. The decrease in total other expenses for fiscal 2021 of $0.7 million, or 4.5% as compared to fiscal 2020 was primarily due to a decrease in currency losses, primarily due to the change in the British pound and Brazilian real to U.S. dollar exchange rate, lower gains on the disposal of certain non-operating assets in the current year, and lower interest income earned in the current year, partially offset by higher earnings of unconsolidated affiliates. Income Taxes. Our effective income tax rates were 16.5% and 12.6%, for fiscal 2021 and 2020, respectively. The current and prior year’s effective tax rate was computed based on the U.S. federal statutory tax rate of 21.0%. The effective tax rate for fiscal year ending July 31, 2021 was favorably impacted by $19.8 million of discrete tax adjustments made in connection with finalizing our fiscal year 2020 tax return. The effective tax rate for fiscal year ending July 31, 2020 was negatively impacted by $1.7 million of discrete tax items related to amending previously filed income tax returns. The effective tax rates in the current and prior year were also impacted by the recognition of excess tax benefits from the exercise of employee stock options of $29.8 million and $92.5 million for fiscal years 2021 and 2020, respectively. Discussion of Fiscal Year ended July 31, 2020 compared to Fiscal Year ended July 31, 2019 For a discussion of fiscal 2020 as compared to fiscal 2019, 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, 2020, filed with the SEC on September 28, 2020. Liquidity and Capital Resources The following table presents a comparison of key components of our liquidity and capital resources for fiscal 2021, 2020 and 2019, excluding additional funds available to us through our Revolving Loan Facility: (In thousands) 2021 Cash, cash equivalents, and July 31, 2020 2021 vs. 2020 2020 vs. 2019 2019 Change % Change Change % Change restricted cash . . . . . . . . . . . . . . $ 1,048,260 $ 477,718 $ 186,319 $ 570,542 119.4 % $ 291,399 Working capital . . . . . . . . . . . . . . . 1,281,580 607,715 405,163 673,865 110.9 % 202,552 156.4 % 50.0 % Year Ended July 31, 2021 vs. 2020 2020 vs. 2019 (In thousands) 2021 2020 2019 Change % Change Change % Change Operating cash flows . . . . . . . . . . . $ 990,891 $ 917,885 $ 646,646 $ 73,006 8.0 % $ 271,239 41.9 % Investing cash flows . . . . . . . . . . . . (465,466) (601,208) (356,267) 135,742 22.6 % (244,941) (68.8)% Financing cash flows . . . . . . . . . . . 40,922 (27,414) (370,304) 68,336 249.3 % 342,890 92.6 % Capital expenditures, excluding acquisitions . . . . . . . . $ (462,996) $ (591,972) $ (373,883) $ 128,976 21.8 % $ (218,089) (58.3)% Acquisitions, net of cash acquired . . . (5,000) (11,702) (745) 6,702 57.3 % (10,957) (1,470.7)% 44 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 45 Cash, cash equivalents, and restricted cash and working capital increased $570.5 million and $673.9 million at July 31, 2021, respectively, as compared to July 31, 2020. Cash, cash equivalents, and restricted cash increased primarily due to cash generated from operations and proceeds from stock option exercises, partially offset by capital expenditures and payments for employee stock-based tax withholdings. Working capital increased primarily from cash generated from operations and timing of cash receipts and payments, partially offset by capital expenditures and certain income tax benefits related to stock option exercises. Cash equivalents consisted of bank deposits, certificates of deposit, U.S. Treasury Bills, 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. Severe weather events, including but not limited to tornadoes, floods, hurricanes, and hailstorms, can also impact our volumes. These increased volumes require the increased use of our cash to pay out advances and handling costs of the additional business. The COVID-19 pandemic may also impact our liquidity, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets. The COVID-19 pandemic may impact our processed vehicle volume and corresponding vehicle average selling prices. 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 the next 12 months and for the foreseeable future. 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, 2021, $159.5 million of the $1.0 billion of cash, cash equivalents, and restricted cash 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 provided by operating activities increased for fiscal 2021 as compared to fiscal 2020 due to improved cash operating results primarily from an increase in service and vehicle sales 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 a decrease in funds received in accounts receivable of $143.5 million and a decrease in cash generated from the sale of inventory of $49.0 million, partially offset by net income taxes receivable of $12.9 million primarily related to excess tax benefits from stock option exercises, decreases in funds primarily used to pay land acquisition deposits of $6.9 million, and decreases in funds used to pay accounts payable of $2.9 million. 45 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 46 Net cash used in investing activities decreased for fiscal 2021 as compared to fiscal 2020 due primarily to decreases in capital expenditures and acquisitions and proceeds from the sale of assets. Our capital expenditures are primarily related to acquiring land, opening and improving facilities, capitalized software development costs for new software for internal use and major software enhancements, acquiring yard equipment, and lease buyouts of certain facilities. We continue to develop, expand, and invest in new and existing facilities and standardize the appearance of existing locations. As of July 31, 2021, we have no material non-cancelable commitments for future capital expenditures. Capitalized software development costs were $13.6 million, $13.2 million, and $8.4 million for fiscal 2021, 2020 and 2019, respectively. 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 impaired. See Notes to Consolidated Financial Statements, Capitalized Software Costs in Note 1 — Summary of Significant Accounting Policies. Net cash provided by (used in) financing activities changed from a use of cash to providing cash in fiscal 2021 as compared to fiscal 2020 due primarily to lower 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 and lower debt issuance costs for the restructuring of our revolving loan facility as discussed in further detail in Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt, partially offset by a decrease in proceeds from the exercise of stock options. For a discussion of fiscal 2020 as compared to fiscal 2019, 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, 2020, filed with the SEC on September 28, 2020. 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 2021 and 2020, 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, 2021, 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 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. In fiscal 2021, certain employees exercised stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. We remitted $3.8 million, $101.3 million, and $45.6 million during the years ended July 31, 2021, 2020 and 2019, respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements. The exercised stock options, utilizing a cashless exercise, are summarized in the following table: Period 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 2019—Q3 . . . . . . . . . . . . . . 3,000,000 $ FY 2020—Q1 . . . . . . . . . . . . . . 4,000,000 FY 2021—Q4 . . . . . . . . . . . . . . 90,000 17.81 17.81 17.73 945,162 865,719 12,366 806,039 1,248,799 $ 56.53 $ 45,565 1,231,595 1,902,686 29,349 48,285 82.29 129.01 101,348 3,786 (1) Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against our stock repurchase program. 46 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 47 Credit Agreement 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 (as amended from time to time, the “Credit Amendment”), bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement ( the “Revolving Loan Facility”) to $1,050.0 million. The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximated fair value at July 31, 2021, and was classified within Level II of the fair value hierarchy. The interest rate as of July 31, 2021 on our Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21, 2023. We had no outstanding borrowings under the Revolving Loan Facility as of July 31, 2021 or 2020. The Credit Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Credit Agreement as of July 31, 2021. 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. 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. The Note Purchase Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Note Purchase Agreement as of July 31, 2021. For further detail on both the Credit Agreement and Note Purchase Agreement, see Notes to Consolidated Financial Statements, Note 8 — Long-Term Debt. Off-Balance Sheet Arrangements As of July 31, 2021, 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 Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition, and cash flows. For additional information, see Note 1 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. 47 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 48 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.” 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. 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 credit loss expense in the case of non-performance by our buyers or sellers. (In thousands) Service revenues Year Ended July 31, 2021 2020 2019 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,017,504 $ 1,714,724 $ 1,537,431 International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,363 232,416 218,263 Total service revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,291,867 $ 1,947,140 $ 1,755,694 48 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 49 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, 2021 2020 2019 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 254,568 146,076 400,644 $ $ 145,962 112,481 258,443 $ $ 119,138 167,125 286,263 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 consolidated statements of income. Uncertain Tax Positions In determining net income for financial statement purposes, we must make certain estimates and judgments in the calculation of tax provisions and the resultant tax liabilities. In the ordinary course of global business, there may be transactions and calculations where the ultimate tax outcome is uncertain. In addition, our actual and forecasted earnings are subject to change due to economic, political and other conditions, such as new COVID-19 variants. Our effective tax rates could be affected by numerous factors such as changes in our business operations; acquisitions; investments; entry into new businesses and geographies; intercompany transactions; the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates; losses incurred in jurisdictions for which we are not able to realize related tax benefits; the applicability of special tax regimes; changes in foreign currency exchange rates; changes in our stock price; changes to our forecasts of income and loss and the mix of jurisdictions to which they relate; changes in our deferred tax assets and liabilities and their valuation; changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework; competition; and other laws and accounting rules in various jurisdictions. In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals. The calculation of tax liabilities involves dealing with uncertainties in the interpretation and application of complex tax laws, and significant judgment is necessary to (i) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (ii) measure the amount of tax benefit that qualifies for recognition. Development in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due. Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. 49 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 50 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, 2021. 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, 2021, 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 2021, 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, 2021. 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% it would not materially affect our operating results. 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 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 $11.0 million for fiscal 2021. 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. Although we have not experienced any material disruptions in our business as a result of Brexit to date, the ultimate effects of Brexit on us are still difficult to predict, and 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. 50 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 51 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, 2021, the cumulative effect of foreign exchange rate fluctuations on our consolidated financial position was a net translation loss of $100.9 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. 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. 51 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 52 Management assessed our internal control over financial reporting for the fiscal year ended July 31, 2021. 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, 2021. Ernst & Young LLP has issued an attestation report which appears on the following page of this Annual Report on Form 10-K. 52 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 53 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, 2021, 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, 2021, 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 2021 consolidated financial statements of the Company, and our report dated September 27, 2021 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 27, 2021 53 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 54 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. 54 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 55 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 2021 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 2021. 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, 2021 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, 2021 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, 2021 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, 2021 fiscal year end). 55 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 56 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, 2021 and 2020 and for each of the three years in the period ended July 31, 2021 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. 56 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 57 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 * Form of Indemnification Agreement signed by executive officers and directors Incorporated by reference herein Form Date February 25, 2016 December 22, 2016 September 16, 2021 September 30, 2019 December 22, 2016 December 12, 2007 December 12, 2007 December 12, 2007 December 12, 2007 March 5, 2021 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. 3.1 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. 10.1 Annual Report on Form 10-K (File No. 000-23255), Exhibit No. 10.17 57 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 58 Exhibit Number 10.08 Description Note Purchase Agreement among the Registrant and each of the purchasers listed on Schedule B dated as of December 3, 2014 10.09 * Copart, Inc. 2014 Employee Stock Purchase Plan 10.10 * Executive Officer Employment Agreement, effective January 4, 2016, between the Registrant and Jeffrey Liaw. Incorporated by reference herein Form Date 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 10.11 10.12 10.13 10.14 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. 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. 10.15 * Executive Officer Employment Agreement, effective October 5, 2020, between the Registrant and John North 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. 10.1 Quarterly Report on Form 10-Q (File No. 000-23255), Exhibit No. 10.1 21.1 23.1 24.1 31.1 31.2 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 — — — — — — — 101.INS 101.SCH 101.CAL 101.DEF 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 58 December 4, 2014 December 5, 2014 November 23, 2015 March 17, 2016 July 27, 2016 July 27, 2016 July 27, 2020 November 20, 2020 Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 59 Incorporated by reference herein Form Date Exhibit Number 101.LAB 101.PRE 104 (1) Description 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 59 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 60 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/ John North John North, Chief Financial Officer (Principal Financial and Accounting Officer and duly Authorized Officer) Date: September 27, 2021 Date: September 27, 2021 60 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 61 POWER OF ATTORNEY KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Jayson Adair and John North, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity in Which Signed Date /s/ A. Jayson Adair A. Jayson Adair /s/ John North John North /s/ Willis J. Johnson Willis J. Johnson /s/ Matt Blunt Matt Blunt Chief Executive Officer (Principal Executive Officer and Director) September 27, 2021 Chief Financial Officer (Principal Financial and Accounting Officer) September 27, 2021 Chairman of the Board September 27, 2021 Director September 27, 2021 /s/ Steven D. Cohan Director September 27, 2021 Steven D. Cohan /s/ Daniel Englander Director September 27, 2021 Daniel Englander /s/ Stephen Fisher Stephen Fisher Director September 27, 2021 /s/ Cherylyn Harley LeBon Director September 27, 2021 Cherylyn Harley LeBon /s/ James E. Meeks James E. Meeks Director September 27, 2021 /s/ Diane M. Morefield Director September 27, 2021 Diane M. Morefield /s/ Carl Sparks Carl Sparks Director September 27, 2021 /s/ Thomas N. Tryforos Director September 27, 2021 Thomas N. Tryforos 61 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 62 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, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the years ended July 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income for the years ended July 31, 2021, 2020 and 2019 . . . . . . . . . Consolidated Statements of Stockholder’s Equity for the years ended July 31, 2021, 2020 and 2019 . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended July 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page Number 63 65 66 67 68 69 70 62 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 63 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Copart, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Copart, Inc. (the Company) as of July 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended July 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at July 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated September 27, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 63 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 64 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 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 $54.3 million as of July 31, 2021. The Company’s uncertain tax positions are subject to audit by federal, state and local taxing authorities, and the resolution of such audits may span multiple years. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. Tax law is complex and often subject to varied interpretations. Accordingly, the ultimate outcome with respect to taxes the Company may owe may differ from the amounts recognized. Auditing management’s analysis and accounting for the Company’s uncertain tax positions involved significant auditor judgment and use of tax professionals with specialized skills and knowledge to evaluate the Company’s interpretation of, and compliance with, tax laws across its multiple subsidiaries located in multiple taxing jurisdictions. Each tax position involves unique facts and circumstances that must be evaluated, and there may be many uncertainties around initial recognition and de-recognition of tax positions, including regulatory changes, litigation and examination activity. In addition, a higher degree of auditor judgment was required in evaluating the Company’s measurement of the largest amount of benefit, considered on a cumulative probability basis, which is more likely than not to be realized upon settlement. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls that address the risks of material misstatement relating to uncertain tax positions. For example, we tested controls over management’s identification of uncertain tax positions and its application of the recognition and measurement principles, including management’s review of the inputs and calculations of unrecognized tax benefits resulting from uncertain tax positions. We involved our tax professionals to assess the technical merits of the Company’s tax positions. Our substantive audit procedures included, among others, evaluating changes in tax law that occurred during the year and assessing the Company’s interpretation of those changes under the relevant jurisdiction’s tax law. In addition, we inspected correspondence, assessments, and settlements from taxing authorities to assess the Company’s determination of the likelihood of its tax positions to be sustained upon examination and the Company’s measurement of the largest amount of benefit, considered on a cumulative probability basis, which is more likely than not to be realized upon settlement. We also evaluated the Company’s income tax disclosures included in Note 12 in relation to these matters. /s/ Ernst & Young LLP We have served as the Company’s auditor since fiscal year 2006. Dallas, Texas September 27, 2021 64 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 65 COPART, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) July 31, 2021 2020 Current assets: ASSETS Cash, cash equivalents, and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,048,260 $ 477,718 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,628 350,207 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,449 44,968 20,012 14,294 1,702,611 2,296,624 119,487 45,873 355,717 41,831 73,684 20,080 26,740 15,330 963,759 1,941,719 118,455 47,772 343,622 39,934 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,562,143 $ 3,455,261 Current liabilities: LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 369,826 $ 318,530 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of operating and finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating and finance lease liabilities, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt and other liabilities, net of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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; 237,014,273 and 235,315,337 shares issued and outstanding, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,973 7,760 22,472 421,031 63,969 52,345 97,961 397,636 1,032,942 — 24 761,834 (100,860) 2,868,203 3,529,201 8,233 3,709 25,572 356,044 71,686 44,965 96,150 369,900 965,745 — 24 672,727 (121,088) 1,937,853 2,489,516 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,562,143 $ 3,455,261 The accompanying notes are an integral part of these consolidated financial statements. 65 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 66 COPART, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Year Ended July 31, 2021 2020 2019 Service revenues and vehicle sales: Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,291,867 $ 1,947,140 $ 1,755,694 Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,644 258,443 286,263 Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,692,511 2,205,583 2,041,957 Operating expenses: Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,292 Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense: Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,128 206,665 1,556,085 1,136,426 (20,247) 5,667 (14,580) Income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,846 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic net income per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 185,351 936,495 3.96 236,252 $ $ 972,487 225,294 191,703 1,389,484 816,099 (18,871) 3,611 (15,260) 800,839 100,932 699,907 3.00 233,202 888,111 255,504 181,867 1,325,482 716,475 (17,585) 6,061 (11,524) 704,951 113,258 591,693 2.57 230,489 $ $ Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.90 $ 2.93 $ 2.46 Diluted weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . 240,290 238,656 240,453 The accompanying notes are an integral part of these consolidated financial statements. 66 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 67 COPART, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Comprehensive income, net of tax: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 936,495 Other comprehensive income: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,228 Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 956,723 $ $ 699,907 $ 591,693 11,441 (24,601) 711,348 $ 567,092 Year Ended July 31, 2021 2020 2019 The accompanying notes are an integral part of these consolidated financial statements. 67 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 68 . C N I , T R A P O C Y T I U Q E ’ S R E D L O H K C O T S F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s t p e c x e , s d n a s u o h t n i ( ’ s r e d l o h k c o t S y t i u q E d e n i a t e R s g n i n r a E e v i s n e h e r p m o C ) s s o L ( e m o c n I n i - d i a P l a t i p a C t n u o m A s e r a h S g n i d n a t s t u O d e t a l u m u c c A r e h t O l a n o i t i d d A k c o t S n o m m o C 9 9 0 , 1 8 5 , 1 $ 6 4 1 , 2 6 1 , 1 $ ) 8 2 9 , 7 0 1 ( $ 8 5 8 , 6 2 5 $ ) 1 0 6 , 4 2 ( ) 4 5 9 , 2 2 ( ) 7 8 4 , 2 1 ( 3 9 6 , 1 9 5 3 8 1 , 7 5 4 4 , 3 2 ) 7 9 9 , 4 6 3 ( 1 8 3 , 8 7 7 , 1 1 4 4 , 1 1 7 0 9 , 9 9 6 ) 1 1 8 , 1 3 ( 6 7 2 , 8 2 2 3 , 3 2 5 9 4 , 6 3 9 6 1 5 , 9 8 4 , 2 8 2 2 , 0 2 4 0 9 , 2 3 2 2 9 , 0 4 6 3 1 , 9 3 9 6 , 1 9 5 — — — — ) 4 5 9 , 2 2 ( ) 7 8 9 , 4 4 ( ) 0 7 5 , 7 4 3 ( 8 2 3 , 8 3 3 , 1 7 0 9 , 9 9 6 — ) 2 8 3 , 0 0 1 ( — — — — — — — ) 1 0 6 , 4 2 ( — — — — 1 4 4 , 1 1 ) 9 2 5 , 2 3 1 ( — — — ) 5 4 1 , 6 ( 5 9 4 , 6 3 9 — — — — 8 2 2 , 0 2 3 5 8 , 7 3 9 , 1 ) 8 8 0 , 1 2 1 ( — — — 0 0 5 , 2 3 5 4 4 , 3 2 3 8 1 , 7 ) 7 2 4 , 7 1 ( 9 5 5 , 2 7 5 — — 0 7 5 , 8 6 2 2 3 , 3 2 6 7 2 , 8 7 2 7 , 2 7 6 — — 9 4 0 , 9 3 2 2 9 , 0 4 6 3 1 , 9 1 0 2 , 9 2 5 , 3 $ 3 0 2 , 8 6 8 , 2 $ ) 0 6 8 , 0 0 1 ( $ 4 3 8 , 1 6 7 $ 3 2 — — — — — — — 3 2 — — 1 — — 4 2 — — — — — 4 2 $ 1 4 8 , 8 9 8 , 3 3 2 — — — — 3 4 0 , 7 7 1 0 8 9 , 9 4 3 , 3 ) 6 9 5 , 5 3 6 , 7 ( 8 6 2 , 0 9 7 , 9 2 2 — — — 6 0 1 , 3 2 1 3 6 9 , 1 0 4 , 5 7 3 3 , 5 1 3 , 5 3 2 — — — 9 7 3 , 9 0 1 7 5 5 , 9 8 5 , 1 $ 3 7 2 , 4 1 0 , 7 3 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1 0 2 , 1 3 y l u J t a s e c n a l a B . . . . . . . . . . . . e m o c n i t e N t n e m t s u j d a n o i t a l s n a r t y c n e r r u C d r a d n a t s g n i t n u o c c a n i e g n a h c f o t c e f f e e v i t a l u m u C . s e r a h s d e s a h c r u p e r f o t e n , s n o i t p o k c o t s f o e s i c r e x E . . . . . . . . . . . . . . . . . . . . . . . n o i t a s n e p m o c d e s a b - k c o t s e e y o l p m E . n a l P e s a h c r u P k c o t S e e y o l p m E r o f d e u s s i s e r a h S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d e s a h c r u p e r s e r a h S 9 1 0 2 , 1 3 y l u J t a s e c n a l a B . . . . . . . . . . . . e m o c n i t e N t n e m t s u j d a n o i t a l s n a r t y c n e r r u C . s e r a h s d e s a h c r u p e r f o t e n , s n o i t p o k c o t s f o e s i c r e x E . . . . . . . . . . . . . . . . . . . . . n o i t a s n e p m o c d e s a b - k c o t s e e y o l p m E . n a l P e s a h c r u P k c o t S e e y o l p m E r o f d e u s s i s e r a h S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2 0 2 , 1 3 y l u J t a s e c n a l a B . . . . . . . . . . . . . e m o c n i t e N t n e m t s u j d a n o i t a l s n a r t y c n e r r u C . s e r a h s d e s a h c r u p e r f o t e n , s n o i t p o k c o t s f o e s i c r e x E . . . . . . . . . . . . . . . . . n o i t a s n e p m o c d e s a b - k c o t s e e y o l p m E . n a l P e s a h c r u P k c o t S e e y o l p m E r o f d e u s s i s e r a h S . . . . . . . . . . . . . . . . . . . 1 2 0 2 , 1 3 y l u J t a s e c n a l a B 68 68 . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 69 COPART, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 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 credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in (earnings) losses of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain 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: 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Year Ended July 31, 2020 2021 2019 $ 936,495 $ 699,907 $ 591,693 123,084 (1,121) (3,240) 40,922 (1,480) (7,951) (127,513) (20,476) (24,602) 7,025 570 44,613 8,781 6,739 9,045 — 990,891 (462,996) (5,000) 2,530 (465,466) 104,257 1,670 1,401 23,322 (1,913) 23,082 15,993 2,590 1,348 141 (572) 41,648 1,615 (7,216) 10,114 498 917,885 85,334 (429) 419 23,445 (3,073) 23,167 (60,808) (16,418) (4,719) (12,265) — 11,126 2,056 (4,215) 10,669 664 646,646 (591,972) (11,702) 2,466 (601,208) (373,883) (745) 18,361 (356,267) 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,049 9,136 — (6,145) — (1,118) 40,922 4,195 570,542 477,718 $1,048,260 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 $ 19,723 $ 178,241 $ 19,728 $ 83,770 $ 19,289 $ 82,448 The accompanying notes are an integral part of these consolidated financial statements. 69 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 70 COPART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 NOTE 1 — Summary of Significant Accounting Policies Basis of Presentation and Description of Business Copart, Inc. was incorporated under the laws of the State of California in 1982. In January 2012, the Company changed the state in which it is incorporated (the “Reincorporation”) and is now incorporated under the laws of the State of Delaware. All references to “we,” “us,” “our,” or “the Company” herein refer to the California corporation prior to the date of the Reincorporation, and to the Delaware corporation on and after the date of the Reincorporation. The Company provides vehicle sellers with a full range of services to process and sell vehicles over the internet through the Company’s Virtual Bidding Third Generation (“VB3”) internet auction-style sales technology. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and directly to the general public. The majority of vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. The Company offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price through the online auction process. In the United States (“U.S.”), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (“U.A.E.”), Oman, and Bahrain, the Company sells vehicles primarily as an agent and derives revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage. In the United Kingdom (“U.K.”), Germany, and Spain, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account. In Germany and Spain, the Company also derives revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle’s residual value and/or to facilitate a sale for the insured. The consolidated financial statements of the Company include the accounts of the parent company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, vehicle pooling costs; income taxes; stock-based compensation; and contingencies. Actual results may differ from these estimates. Revenue Recognition The Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. Service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction, excluding annual registration fees. Costs to prepare the vehicles for auction, including inbound transportation costs and titling fees, are deferred and recognized at the time of revenue recognition at auction. The Company’s disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of its revenues and cash flows are impacted by economic factors. The Company reports sales taxes on relevant transactions on a net basis in the Company’s consolidated results of operations, and therefore does not include sales taxes in revenues or costs. 70 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 71 Service revenues The Company’s service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. Within this revenue category, the Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from the Company’s facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These services are not distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance obligation is satisfied at the completion of the auction process. The Company does not take ownership of these consigned vehicles, which are stored at the Company’s facilities located throughout the U.S. and at its international locations. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged. The Company has a separate performance obligation related to providing access to its online auction platform as the Company charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform. This fee is recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service. No provision for returns has been established, as all sales are final with no right of return or warranty, although the Company provides for credit loss expense in the case of non-performance by its buyers or sellers. (In thousands) Service revenues Year Ended July 31, 2021 2020 2019 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,017,504 $ 1,714,724 $ 1,537,431 International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,363 232,416 218,263 Total service revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,291,867 $ 1,947,140 $ 1,755,694 Vehicle sales Certain vehicles are purchased and remarketed on the Company’s own behalf. The Company has a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process. Vehicle sales revenue is recognized on the auction date. As the Company acts as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue. (In thousands) Vehicle sales Year Ended July 31, 2021 2020 2019 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 254,568 $ 145,962 $ 119,138 International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,076 112,481 167,125 Total vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400,644 $ 258,443 $ 286,263 Contract assets The Company capitalizes certain contract assets related to obtaining a contract, where the amortization period for the related asset is greater than one year. These assets are amortized over the expected life of the customer relationship. Contract assets are classified as current or long-term other assets, based on the timing of when the Company expects to recognize the related revenues and are amortized as an offset to the associated revenues on a straight-line basis. The Company assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The contract asset costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within general and administrative expenses in the accompanying consolidated statements of income. 71 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 72 The change in the carrying amount of contract assets was as follows (In thousands): Balance as of July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,574 Capitalized contract assets during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs amortized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,875 (3,541) 172 Balance as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,080 Capitalized contract assets during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 Costs amortized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,188) Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 Balance as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,485 Vehicle Pooling Costs The Company defers costs that relate directly to the fulfillment of its contracts associated with vehicles consigned to and received by the Company, but not sold as of the end of the period. The Company quantifies the deferred costs using a calculation that includes the number of vehicles at its facilities at the beginning and end of the period, the number of vehicles sold during the period, and an allocation of certain yard operation costs of the period. The primary expenses allocated and deferred are inbound transportation costs, titling fees, certain facility costs, labor, and vehicle processing. If the allocation factors change, then yard operation expenses could increase or decrease correspondingly in the future. These costs are expensed into yard operations expenses as vehicles are sold in subsequent periods on an average cost basis. Foreign Currency Translation The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiaries into the U.S. dollar reporting currency. The British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar are the functional currencies of the Company’s foreign subsidiaries as they are the primary currencies within the economic environment in which each subsidiary operates. The original equity investment in the respective subsidiaries is translated at historical rates. Assets and liabilities of the respective subsidiary’s operations are translated into U.S. dollars at period-end exchange rates, and revenues and expenses are translated into U.S. dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary’s financial statements are reported in other comprehensive income. The cumulative effects of foreign currency exchange rate fluctuations were as follows (In thousands): Cumulative loss on foreign currency translation as of July 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (132,529) 11,441 Cumulative loss on foreign currency translation as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (121,088) Gain on foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,228 Cumulative loss on foreign currency translation as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (100,860) 72 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 73 Fair Value of Financial Instruments The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in U.S. GAAP. In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value: Level I Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. Level II Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level III Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate. The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, and amounts outstanding under the Revolving Loan Facility approximated their fair values as of July 31, 2021 and 2020, due to the short-term nature of those instruments and are classified within Level II of the fair value hierarchy. Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using quoted market prices of the underlying investments. See Note 8 — Long-Term Debt and Note 9 – Fair Value Measures. Cost of Vehicle Sales Cost of vehicle sales includes the purchase price of vehicles sold for the Company’s own account. Yard Operations Yard operations expenses consist primarily of operating personnel (which includes yard management, clerical and yard employees); rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and repair; and marketing costs directly related to the auction process. General and Administrative Expenses General and administrative expenses consist primarily of executive management; accounting; data processing; sales personnel; professional services; marketing expenses; and system maintenance and enhancements. Advertising All advertising costs are expensed as incurred and are included in yard operations expenses for costs directly related to the auction process and the remainder in general and administrative expenses on the consolidated statements of income. Advertising expenses were $13.7 million, $7.7 million, and $7.5 million for the years ended July 31, 2021, 2020 and 2019, respectively. Other (Expense) Income Other (expense) income consists primarily of interest expense on long-term debt; foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; and earnings from unconsolidated affiliates. 73 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 74 Income Taxes and Deferred Tax Assets Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company considers the need to maintain a valuation allowance on deferred tax assets based on an assessment of whether it is more likely than not that the Company would realize those deferred tax assets based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable income within the carryforward period available under the applicable tax law. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Excess tax benefits and deficiencies related to exercises of stock options are recognized as expense or benefit in the consolidated statements of income as discrete items in the reporting period in which they occur. The Company applies the provisions of the accounting standard for uncertain tax positions to its income taxes. In determining net income for financial statement purposes, the Company makes certain estimates and judgments in the calculation of tax provisions and the resultant tax liabilities. In the ordinary course of global business, there may be transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the interpretation and application of complex tax laws, and significant judgment is necessary to (i) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (ii) measure the amount of tax benefit that qualifies for recognition. The Company recognizes potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Net Income Per Share Basic net income per share amounts were computed by dividing consolidated net income by the weighted average number of common shares outstanding during the period. Diluted net income per share amounts were computed by dividing consolidated net income by the weighted average number of common shares outstanding plus dilutive potential common shares calculated for stock options outstanding during the period using the treasury stock method. Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments purchased with original maturities of three months or less at the time of purchase to be cash equivalents. Cash, cash equivalents, and restricted cash include cash held in checking, certificates of deposit, U.S. Treasury Bills, and money market accounts. The Company periodically invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash, cash equivalents, and restricted cash are placed with high credit quality financial institutions. Inventory Inventories of purchased vehicles are stated at the lower of cost or estimated realizable value. Cost includes the Company’s cost of acquiring ownership of the vehicle. The cost of vehicles sold is charged to cost of vehicle sales as sold on a specific identification basis. Accounts Receivable Accounts receivable, which consist primarily of advance charges receivable from the Company’s sellers and the gross sales price of the vehicle due from buyers, are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash. Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the Company will be reimbursed when the vehicle is sold. 74 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 75 Concentration of Credit Risk Financial instruments, which subject the Company to potential credit risk, consist of its cash, cash equivalents, and restricted cash, short-term investments and accounts receivable. The Company adheres to its investment policy when placing investments. The investment policy has established guidelines to limit the Company’s exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio, limiting investments in any one issuer or pooled fund and placing investments with maturities that maintain safety and liquidity. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand and, therefore, the Company believes that the financial risks associated with these financial instruments are minimal. The Company generally does not require collateral on its accounts receivable. The Company estimates its allowances for credit loss based on historical collection trends, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due account balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due. The Company does not have off-balance sheet credit exposure related to its customers and to date. The Company has not experienced significant credit- related losses. No single customer accounted for more than 10% of the Company’s consolidated revenues for the years ended July 31, 2021, 2020 and 2019. As of July 31, 2021 and 2020, no customer accounted for more than 10% of the Company’s consolidated accounts receivable. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation and amortization. Property and leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the respective improvements, which is between seven and ten years. Significant improvements which substantially extend the useful lives of assets are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives: three to seven years for internally developed or purchased software; three to twenty years for transportation and other equipment; three to five years for office furniture and equipment; and seven to forty years or the lease term, whichever is shorter, for buildings and improvements. Amortization of equipment under finance leases is included in depreciation expense. Goodwill In accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill is not amortized but is tested for potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. The Company has identified two reporting units, which are consistent with its two operating and reportable segments, U.S. and International. The Company evaluates goodwill for impairment annually as of the beginning of the fourth quarter, or when an indicator of impairment exists. The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of fiscal 2021 and 2020, did not result in an impairment charge. This qualitative analysis, which is referred to as step zero under ASC 350, considered all relevant factors specific to the reporting units, including macroeconomic conditions; industry and market considerations; overall financial performance; the impact of the COVID-19 pandemic; and relevant entity- specific events. 75 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 76 Capitalized Software Costs The Company capitalizes system development costs and website development costs related to the enterprise computing services during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three to seven years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that impact the recoverability of these assets. Total gross capitalized software as of July 31, 2021 and 2020 was $66.2 million and $52.6 million, respectively. Accumulated amortization expense related to software as of July 31, 2021 and 2020 totaled $43.4 million and $33.5 million, respectively. Stock-Based Compensation The Company accounts for stock-based awards to employees and non-employees using the fair value method as required by ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, consultants and directors based on estimated fair value. ASC 718 requires companies to estimate the fair value of stock-based awards on the measurement date using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized in expense over the requisite service periods. The fair value of each option, without a market-based condition was estimated on the measurement date using the Black-Scholes Merton (“BSM”) option-pricing model. For options that included a market-based condition either the Monte Carlo simulation model or a lattice model was used. The Black-Scholes Merton option-pricing model utilized the following assumptions: 2021 July 31, 2020 2019 Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 — 6.3 5.4 — 5.7 5.3 — 6.6 Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.42% — 1.23% 0.29% — 1.67% 1.80% — 2.69% Estimated volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.3% — 28.7% 21.7% — 27.6% 21.6% — 22.1% Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —% —% Weighted average fair value at measurement date . . . . . . . . . . . . . . . . . . . . . . . $ 30.43 $ 21.54 $ 15.47 Expected life—The Company’s expected life represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards. Risk-free interest rate—The Company bases the risk-free interest rate used in the BSM option-pricing model on the implied yield currently available on U.S. Treasury zero-coupon issues with the same or substantially equivalent expected life. Estimated volatility—The Company uses the trading history of its common stock in determining an estimated volatility factor when using the BSM option-pricing model to determine the fair value of options granted. Expected dividend—The Company has not declared dividends. Therefore, the Company uses a zero value for the expected dividend value factor when using the BSM option-pricing model to determine the fair value of options granted. Net cash proceeds from the exercise of stock options were $39.0 million, $71.6 million and $34.4 million for the years ended July 31, 2021, 2020 and 2019, respectively. 76 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 77 Comprehensive Income Comprehensive income includes all changes in stockholders’ equity during a period from non-stockholder sources. For the years ended July 31, 2021, 2020 and 2019, accumulated other comprehensive income (loss) was the effect of foreign currency translation adjustments. Deferred taxes are not provided on cumulative translation adjustments where the Company expects earnings of a foreign subsidiary to be indefinitely reinvested. Recently Issued Accounting Pronouncements Adopted In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU 2017-04 amends the requirement that entities compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, entities should perform their annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment if the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 was effective for fiscal years beginning after December 15, 2019. The Company’s adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated results of operations and financial position. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than the previous incurred loss approach, which required waiting to recognize a loss until it was probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This pronouncement was effective for fiscal years beginning after December 15, 2019, and was required to be applied on a modified retrospective basis. The Company’s adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated results of operations, financial position, and related disclosures. Pending In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of ASU 2019-12 is not expected to have a material impact on the Company’s consolidated results of operations and financial position. NOTE 2 — Accounts Receivable, Net Accounts receivable, net consisted of: (In thousands) July 31, 2021 2020 Advance charges receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 385,002 $ 260,196 Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,249 4,013 486,264 (5,636) 94,281 2,120 356,597 (6,390) Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480,628 $ 350,207 Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the Company will be reimbursed when the vehicle is sold. As advance charges are recovered within one year, the Company has not adjusted the amount of consideration received from the customer for a significant financing component. Trade accounts receivable includes fees and gross auction proceeds to be collected from insurance companies and buyers. 77 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 78 The movements in the allowance for credit loss was as follows: (In thousands) 2020 July 31, 2020 Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,390 $ 4,942 $ Charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,454 (4,208) 5,591 (4,143) 2019 5,444 2,409 (2,911) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,636 $ 6,390 $ 4,942 NOTE 3 — Property and Equipment, Net Property and equipment, net consisted of the following: (In thousands) July 31, 2021 2020 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,428,262 $ 1,235,315 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,126,414 Transportation and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,622 79,928 66,170 932,976 274,422 70,926 52,621 3,027,396 2,566,260 Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (730,772) (624,541) Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,296,624 $ 1,941,719 Depreciation expense on property and equipment was $105.5 million, $82.1 million and $66.8 million for the years ended July 31, 2021, 2020 and 2019, respectively. Amortization expense of software was $9.5 million, $10.4 million and $7.6 million for the years ended July 31, 2021, 2020 and 2019, respectively. NOTE 4 — Leases The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion. Leases - Lessee The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which are recorded as right-of-use assets and lease liabilities. Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred. The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, 78 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 79 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, 2021 2020 Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,302 $ 31,268 Finance lease expense: Amortization of right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 65 4,472 1,586 882 189 8,555 1,635 Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,037 $ 42,889 Facilities rental expense for the year ended July 31, 2019 was $30.6 million under ASC 840, Operating Leases. The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (In thousands): Lease Asset and Liabilities Balance Sheet Classification (In thousands) July 31, 2021 July 31, 2020 Operating lease right-of-use assets . . . . . . . Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . $ 119,487 $ 118,455 Finance lease right-of-use assets . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563 1,409 Total lease assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities - current . . . . . . . Current portion of operating and finance lease liabilities . . . . . . Finance lease liabilities - current . . . . . . . . . Current portion of operating and finance lease liabilities . . . . . . Operating lease liabilities - non-current . . . Operating and finance lease liabilities, net of current portion . . . Finance lease liabilities - non-current . . . . . Operating and finance lease liabilities, net of current portion . . . $ $ 120,050 $ 119,864 21,942 $ 24,821 530 97,925 36 751 95,584 566 Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,433 $ 121,722 The weighted-average remaining lease terms and discount rates as of July 31, 2021 were as follows: Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.41 1.01 2.84% 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. Weighted-Average Remaining Lease Term (In years) Weighted-Average Discount Rate(1) 79 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 80 Supplemental cash flow information related to leases as of July 31, 2021 were as follows (In thousands): (In thousands) Cash paid for amounts included in the measurement of lease liabilities Year Ended July 31, 2021 2020 Operating cash flows related to operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,576 $ 29,799 Operating cash flows related to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Financing cash flows related to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,118 Right-of-use assets obtained in exchange for new operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,770 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, 2021 were as follows: Fiscal year (In thousands) Finance leases Operating leases 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 535 $ 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 13 — — — Total future lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572 $ Less: imputed interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) 24,626 20,818 16,005 13,833 10,870 53,632 139,784 (19,917) Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 566 $ 119,867 Leases - Lessor The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the straight-line rental income. The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as earned. Future lease payments receivable under operating leases with terms greater than one year as of July 31, 2021 were as follows: Fiscal year (In thousands) Operating leases 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total future lease payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,537 5,423 5,499 5,468 5,172 14,556 42,655 The cost of the leased space was $55.5 million and $64.8 million as of July 31, 2021 and 2020, respectively. The accumulated depreciation associated with the leased assets was $1.9 million and $0.9 million as of July 31, 2021 and 2020, respectively. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet. Rental income from these operating leases was $14.8 million and $6.2 million for the years ended July 31, 2021 and 2020, respectively, and is included within Service revenues on the consolidated statements of income. 80 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 81 NOTE 5 — Goodwill The change in the carrying amount of goodwill was as follows: (In thousands) July 31, 2021 2020 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 343,622 $ 333,321 Acquisitions during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign currency exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,882 4,213 5,713 4,588 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 355,717 $ 343,622 In accordance with the guidance in ASC 350, goodwill is tested for impairment on an annual basis or upon the occurrence of circumstances that indicate that goodwill may be impaired. The Company’s annual impairment tests were performed during the fourth quarter of each period presented and goodwill was not impaired. NOTE 6 — Intangibles, Net The following table sets forth amortizable intangible assets by major asset class: Gross Carrying Amount 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) 2021 2020 2021 2020 2021 2020 2021 2020 Amortized intangibles: Supply contracts and customer relationships . . . . . . . . . . . $ 55,598 $ 50,600 $ (21,739) $ (16,780) $ 33,859 $ 33,820 Trade names . . . . . . . . . . . . . . . . . . . . . . 18,944 23,635 (7,163) (10,075) 11,781 13,560 Licenses and databases . . . . . . . . . . . . . . 736 7,630 (503) (7,238) 233 392 7 6 2 8 6 3 Total Intangibles . . . . . . . . . . . . . . . . . . . . . $ 75,278 $ 81,865 $ (29,405) $ (34,093) $ 45,873 $ 47,772 Aggregate amortization expense on intangible assets was $6.9 million, $8.9 million and $10.5 million for the years ended July 31, 2021, 2020 and 2019, respectively. Intangible amortization expense for the next five fiscal years based upon July 31, 2021 intangible assets is expected to be as follows (In thousands): 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,806 7,696 7,504 5,944 5,843 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,080 Total future intangible amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,873 81 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 82 NOTE 7 — Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: (In thousands) July 31, 2021 2020 Accounts payable to sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,642 $ Buyer deposits and prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,369 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,595 50,688 10,953 8,328 31,251 92,013 89,020 40,906 42,053 17,036 9,315 28,187 Total accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 369,826 $ 318,530 The Company is required to charge for and to collect value added taxes (“VAT”) on its sales on behalf of the various international taxing authorities. The Company records VAT that the Company has billed to the buyers as VAT payable. In addition, the Company is required to pay VAT on our purchases. The Company records VAT that is charged by its vendors as VAT receivable. The Company is required to file VAT returns on at least a quarterly basis with the various international taxing authorities and are entitled to claim the VAT charged by the Company’s vendors as VAT credit and these credits can be applied to the Company’s VAT payables billed to the buyers. Accordingly, these VAT payables and receivables are presented as net amounts for financial statement purposes. The Company is partially self-insured for certain losses related to general liability, workers’ compensation and auto liability. Accrued insurance liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date, including an estimate for reported and unreported claims. The estimated liability is not discounted and is established based upon analysis of historical data, including the severity of the Company’s frequency of claims, actuarial estimates and is reviewed periodically by management to ensure that the liability is appropriate. NOTE 8 — Long-Term Debt Credit Agreement On December 3, 2014, the Company entered into a Credit Agreement (as amended from time to time, the “Credit Amendment”) with Wells Fargo Bank, National Association, as administrative agent, and Bank of America, N.A., as syndication agent. The Credit Agreement provided for (a) a secured revolving loan facility in an aggregate principal amount of up to $300.0 million (the “Revolving Loan Facility”), and (b) a secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Loan”). On March 15, 2016, the Company entered into a First Amendment to Credit Agreement (the “Amendment to Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent and Bank of America, N.A. The Amendment to Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014. The Amendment to Credit Agreement provided for (a) an increase in the secured revolving credit commitments by $50.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $350.0 million, (b) a new secured term loan (the “Incremental Term Loan”) in the aggregate principal amount of $93.8 million having a maturity date of March 15, 2021, and (c) an extension of the termination date of the Revolving Loan Facility and the maturity date of the Term Loan from December 3, 2019 to March 15, 2021. 82 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 83 On July 21, 2016, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment to Credit Agreement”) with Wells Fargo Bank, National Association, SunTrust Bank, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank). The Second Amendment to Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15, 2016. The Second Amendment to Credit Agreement provided for, among other things, (a) an increase in the secured revolving credit commitments by $500.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $850.0 million, (b) the repayment of existing term loans outstanding under the Credit Agreement, (c) an extension of the termination date of the revolving credit facility under the Credit Agreement from March 15, 2021 to July 21, 2021, and (d) increased covenant flexibility. On July 21, 2020, the Company entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of America, N.A., as administrative agent. The First Amended and Restated Credit Agreement amended certain terms of the Credit Agreement, dated as of December 3, 2014 as amended by the Amendment to Credit Agreement, dated as of March 15, 2016, as amended by the Second Amendment to Credit Agreement, dated as July 21, 2016. The First Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to $1,050.0 million, and (b) an extension of the termination date of the revolving credit facility under the Credit Agreement from July 21, 2021 to July 21, 2023. The First Amended and Restated Credit Agreement additionally increased the pricing levels under the Credit Agreement to a range of 0.25% to 0.35% in the case of the commitment fee, 1.50% to 2.25% in the case of the applicable margin for Eurodollar Rate Loans, and 0.50% to 1.25% in the case of the applicable margin for base rate loans, in each case depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. The principal purposes of these financing transactions were to increase the size and availability under the Company’s Revolving Loan Facility and to provide additional long-term financing. The proceeds may be used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company’s expansion strategies in domestic and international markets. The Revolving Loan Facility under the Credit Agreement bears interest, at the election of the Company, at either (a) the Base Rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii) the Federal Funds Rate in effect on such date plus 0.50%; or (iii) the Eurodollar Rate plus 1.0%, subject to an interest rate floor of 0.75%, in each case plus an applicable margin ranging from 0.50% to 1.25% based on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter; or (b) the Eurodollar Rate plus an applicable margin ranging from 1.50% to 2.25% depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable in arrears, at the end of each calendar quarter for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of Eurodollar Rate Loans. The interest rate as of July 31, 2021 on the Company’s Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximated fair value at July 31, 2021, and was classified within Level II of the fair value hierarchy. Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21, 2023. The Company is obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The commitment fee rate ranges from 0.25% to 0.35%, depending on the Company’s consolidated total net leverage ratio during the preceding fiscal quarter, on the average daily unused portion of the revolving credit commitment under the Credit Agreement. The Company had no outstanding borrowings under the Revolving Loan Facility as of July 31, 2021 or 2020. The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the First Amended and Restated Credit Agreement, dated July 21, 2020, among the Company, the subsidiary guarantors from time to time party thereto, and Bank of America, N.A., as collateral agent. 83 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 84 The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment. As of July 31, 2021, the consolidated total net leverage ratio was (0.45):1. Minimum liquidity as of July 31, 2021 was $2.1 billion. Accordingly, the Company does not believe that the provisions of the Credit Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Credit Agreement as of July 31, 2021. Related to the execution of the First Amended and Restated Credit Agreement, the Company incurred $2.8 million in costs, which was capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability. Note Purchase Agreement On December 3, 2014, the Company entered into a Note Purchase Agreement and sold to certain purchasers (collectively, the “Purchasers”) $400.0 million in aggregate principal amount of senior secured notes (the “Senior Notes”) consisting of (i) $100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due December 3, 2024; (ii) $100.0 million aggregate principal amount of 4.19% Senior Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0 million aggregate principal amount of 4.35% Senior Notes, Series D, due December 3, 2029. Interest is due and payable quarterly, in arrears, on each of the Senior Notes. Proceeds from the Note Purchase Agreement are being used for general corporate purposes. On July 21, 2016, the Company entered into Amendment No. 1 to Note Purchase Agreement (the “First Amendment to Note Purchase Agreement”) which amended certain terms of the Note Purchase Agreement, including providing for increased flexibility substantially consistent with the changes included in the Second Amendment to Credit Agreement, including among other things increased covenant flexibility. The Company may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes. The Company’s obligations under the Note Purchase Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Note Purchase Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and assets of the subsidiary guarantors. The obligations of the Company and its subsidiary guarantors under the Note Purchase Agreement will be treated on a pari passu basis with the obligations of those entities under the Credit Agreement as well as any additional debt the Company may obtain. The Note Purchase Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain 84 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 85 compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Note Purchase Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment on a pro forma basis. As of July 31, 2021, the consolidated total net leverage ratio was (0.45):1. Minimum liquidity as of July 31, 2021 was $2.1 billion. Accordingly, the Company does not believe that the provisions of the Note Purchase Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Note Purchase Agreement as of July 31, 2021. As of July 31, 2021, future payments on the Revolving Loan Facility and Note Purchase Agreement were as follows for the fiscal years ending: (In thousands) 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 31,(1) — — — 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 Total future payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400,000 (1) Currently there are no outstanding balances on the Revolving Loan Facility. NOTE 9 – Fair Value Measures The following table summarizes the carrying values and fair values of the Company’s financial instruments that were not carried at fair value in the consolidated balance sheets: (In thousands) Assets July 31, 2021 July 31, 2020 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 754,300 $ 754,304 $ 11,483 $ 754,300 $ 754,304 $ 11,483 $ 11,483 11,483 399,733 $ 432,027 $ 399,698 $ 449,731 399,733 $ 432,027 $ 399,698 $ 449,731 During the year ended July 31, 2021, no transfers were made between any levels within the fair value hierarchy. The fair value of the Senior Notes is based on the discounted value of each interest and principal payment calculated utilizing market interest rates of similar types of borrowing arrangements and was classified within Level II of the fair value hierarchy. See Note 1 — Summary of Significant Accounting Policies and Note 8 — Long-Term Debt. 85 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 86 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, 2021 2020 2019 Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,252 233,202 230,489 Effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,038 5,454 9,964 Weighted average common and dilutive potential common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 240,290 238,656 240,453 There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 4,090,250; 1,575,167; and 3,045,000 options to purchase the Company’s common stock for the years ended July 31, 2021, 2020 and 2019, respectively, because their inclusion would have been anti-dilutive. NOTE 11 — Stockholders’ Equity General The Company has authorized the issuance of 400 million shares of common stock, with a par value of $0.0001, of which 237,014,273 shares were issued and outstanding at July 31, 2021. As of July 31, 2021 and 2020, the Company had reserved 15,326,030 and 12,977,173 shares of common stock, respectively, for the issuance of options, restricted stock or restricted stock units granted under the Company’s stock option plans and 1,194,213 and 1,303,592 shares of common stock, respectively, for the issuance of shares under the Copart, Inc. Employee Stock Purchase Plan (“ESPP”). The Company has authorized the issuance of five million shares of preferred stock, with a par value of $0.0001, none of which were issued or outstanding at July 31, 2021 or 2020, which have the rights and preferences as the Company’s Board of Directors shall determine, from time to time. Stock Repurchases On September 22, 2011, the Company’s Board of Directors approved an 80 million share increase in the stock repurchase program, bringing the total current authorization to 196 million shares. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the stock repurchase program. Subject to applicable securities laws, such repurchases will be made at such times and in such amounts as the Company deems appropriate and may be discontinued at any time. For fiscal 2021 and 2020, the Company did not repurchase any shares of its common stock under the program. For fiscal 2019, the Company repurchased 7,635,596 shares of its common stock under the program at a weighted average price of $47.81 per share totaling $365.0 million. As of July 31, 2021, the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program. In fiscal 2019, certain members of the Company’s Board of Directors exercised stock options through cashless exercises. In fiscal 2020, the Company’s former President exercised all of his vested stock options through a cashless exercise. In fiscal 2021, certain employees exercised stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. The Company remitted $3.8 million, $101.3 million, and $45.6 million during the years ended July 31, 2021, 2020 and 2019, respectively, to the proper taxing authorities in satisfaction of the employees’ statutory withholding requirements. 86 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 87 The exercised stock options, utilizing a cashless exercise, are summarized in the following table: Period Options Exercised Weighted Average Exercise Price Shares Net Settled for Exercise Shares Withheld for Taxes(1) Net Shares to Employees Weighted Average Share Price for Withholding Employee Stock-Based Tax Withholding (in 000s) FY 2019—Q3 . . . . 3,000,000 $ FY 2020—Q1 . . . . 4,000,000 FY 2021—Q4 . . . . 90,000 17.81 17.81 17.73 945,162 806,039 1,248,799 $ 56.53 $ 865,719 1,231,595 1,902,686 12,366 29,349 48,285 82.29 129.01 45,565 101,348 3,786 (1) Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against the Company’s stock repurchase program. Employee Stock Purchase Plan The ESPP provides for the purchase of up to an aggregate of 10 million shares of common stock of the Company by employees pursuant to the terms of the ESPP. The Company’s ESPP was adopted by the Board of Directors and approved by the stockholders in 1994. The ESPP was amended and restated in 2003 and again approved by the stockholders. In 2014, a new ESPP was approved by the Board of Directors and approved by the stockholders. Under the ESPP, employees of the Company who elect to participate have the right to purchase common stock at a 15% discount from the lower of the market value of the common stock at the beginning or the end of each six month offering period. The ESPP permits an enrolled employee to make contributions to purchase shares of common stock by having withheld from their salary an amount up to 10% of their compensation (which amount may be increased from time to time by the Company but may not exceed 15% of compensation). No employee may purchase more than $25,000 worth of common stock (calculated at the time the purchase right is granted) in any calendar year. The Compensation Committee of the Board of Directors administers the ESPP. The number of shares of common stock issued pursuant to the ESPP during the years ended July 31, 2021, 2020 and 2019 was 109,379; 123,106; and 177,043; respectively. As of July 31, 2021, there were 8,885,861 shares of common stock issued pursuant to the ESPP and 1,194,213 shares remain available for purchase under the ESPP. Stock Options In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (Plan), presently covering an aggregate of 36 million shares of the Company’s common stock. The Plan provides for the grant of incentive stock options, restricted stock, restricted stock units and other equity-based awards to employees and non-qualified stock options, restricted stock, restricted stock units and other equity-based awards to employees, officers, directors and consultants at prices not less than 100% of the fair market value for incentive and non-qualified stock options, as determined by the Board of Directors at the grant date. Incentive and non-qualified stock options may have terms of up to ten years and vest over periods determined by the Board of Directors. Options generally vest ratably over a five year period. The Plan replaced the Company’s 2001 Stock Option Plan. As of July 31, 2021, 7,137,850 shares were available for grant under the Plan and the number of options that were in-the-money was 7,557,157 at July 31, 2021. In October 2013, the Compensation Committee of the Company’s Board of Directors, subject to stockholder approval (which was subsequently obtained at the December 16, 2013 annual meeting of stockholders), approved the grant to each of the Company’s former President, and A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 3,000,000 and 4,000,000 shares of the Company’s common stock, respectively, at an exercise price of $17.81 per share, which equaled the closing price of the Company’s common stock on December 16, 2013, the effective date of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for a five year period. Each option became exercisable over five years, subject to continued service by Mr. Adair and the Company’s former President, with 20% vesting on April 15, 2015 and December 16, 2014, respectively, and the balance vested monthly over the subsequent four years. On December 16, 2018, the option held by the Company’s former President became fully vested and on April 15, 2019, the option held by Mr. Adair became fully vested. The fair value of each option at the date of grant using the Black-Scholes Merton option-pricing model was $5.72. The total compensation expense recognized by the Company over the five year service period for these options was $38.8 million. The Company recognized no compensation expenses for these grants in the years ended July 31, 2021 and 2020, respectively, and $4.3 million in compensation expenses for these grants in the year ended July 31, 2019. 87 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 88 In June 2020, the Compensation Committee of the Company’s Board of Directors approved the grant to A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $85.04 per share, which equaled the closing price of the Company’s common stock on June 12, 2020, the effective date of grant. The option will become exercisable over five years, subject to continued service by Mr. Adair, with 20% vested on June 12, 2021, and the balance vesting monthly over the subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to market based vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent to 125% of the exercise price of the options) for a period of 20 consecutive trading days. The market based vesting condition was satisfied in the first quarter of fiscal 2021. The option held by Mr. Adair will become fully vested, assuming continued service by Mr. Adair on June 12, 2025. The fair value of each option at the date of grant using the Monte Carlo simulation model was $25.47, with an expected life of 7.64 years, a risk-free interest rate of 0.71%, estimated volatility of 25.2%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five year estimated service period for these options is $25.5 million and is recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $13.5 million in compensation expense for this grant in year ended July 31, 2021. The table below sets forth the stock-based compensation recognized by the Company for stock options, restricted stock, and restricted unit awards: (In thousands) General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended July 31, 2021 2020 2019 35,633 $ 5,289 17,567 $ 5,755 18,254 5,191 Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,922 $ 23,322 $ 23,445 There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2021 and 2020. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. A summary of the status of the Company’s non-vested shares from stock option awards and its activity during the year ended July 31, 2021 was as follows: (In thousands, except per share amounts) Weighted Average Grant- date Fair Value Shares Non-vested shares at July 31, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,303 $ Grants of non-vested shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeitures or expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested shares at July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,310 (1,139) (213) 3,261 $ 17.58 31.17 16.65 12.84 22.80 88 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 89 The following is a summary of activity for the Company’s stock options for the year ended July 31, 2021: (In thousands, except per share and term data) Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (In years) Aggregate Intrinsic Value Outstanding as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 8,059 $ Grants of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeitures or expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . Exercisable as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested and expected to vest as of July 31, 2021 . . . . . . . . . . . . . . 1,310 (1,599) (213) 7,557 4,295 7,557 $ $ $ 41.44 107.95 25.47 47.11 56.19 38.16 56.19 6.72 $ 417,529 6.53 5.17 6.52 $ $ $ 686,269 467,433 686,269 The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the year ended July 31, 2021 and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options on July 31, 2021. The aggregate intrinsic value of options exercised was $143.3 million, $476.3 million and $215.4 million in the years ended July 31, 2021, 2020 and 2019, respectively, and represents the difference between the exercise price of the option and the estimated fair value of the Company’s common stock on the dates exercised. As of July 31, 2021, the total compensation cost related to non-vested stock-based awards granted to employees under the Company’s stock option plans but not yet recognized was $60.6 million. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.28 years. The fair value of options vested for the years ended July 31, 2021, 2020 and 2019 was $19.0 million, $19.2 million and $21.3 million, respectively. The following table summarizes stock options outstanding and exercisable as of July 31, 2021: (In thousands, except per share amounts) Options Outstanding Options Exercisable Range of Exercise Prices Number $12.48—$17.73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17.81—$36.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43.96—$58.27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77.51—$134.42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890 2,393 1,740 2,534 7,557 Weighted Average Remaining Contractual Life Weighted Average Exercise Price Weighted Average Exercise Price Number 3.25 $ 5.06 7.17 8.62 6.53 $ 16.72 28.16 55.59 96.93 56.19 890 $ 1,988 876 541 4,295 $ 16.72 26.68 53.05 91.47 38.16 The Company’s restricted stock awards (“RSA”) and restricted stock unit awards (“RSU”) have generally been issued with vesting periods ranging from two years to five years and vest solely on service conditions. Accordingly, the Company recognizes compensation expense for RSA and RSU awards on a straight-line basis over the requisite service period of the award. The following is a summary of activity for the Company’s RSA’s and RSU’s for the for the year ended July 31, 2021: (In thousands, except per share data) Restricted Shares Weighted Average Grant Date Fair Value Outstanding as of July 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 $ Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeitures or expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding as of July 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 (58) (6) 102 $ 69.86 116.86 83.26 67.55 90.46 89 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 90 NOTE 12 — Income Taxes Income before taxes consisted of the following: (In thousands) Year Ended July 31, 2021 2020 2019 U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,022,134 $ 740,171 $ International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,712 60,668 Total income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,121,846 $ 800,839 $ 634,874 70,077 704,951 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, 2021 2020 2019 $ 135,216 (4,259) 130,957 $ 53,942 21,019 74,961 34,302 (3,489) 30,813 23,575 6 23,581 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 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,351 $ 100,932 $ 113,258 A reconciliation of the expected U.S. statutory tax rate to the actual effective income tax rate is as follows: (In thousands) Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation and fringe benefits(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FDII, GILTI, and transition tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal return to provision adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended July 31, 2021 21.0 % 1.5 % (0.5)% (1.9)% (3.1)% (1.8)% 1.3 % 2020 21.0 % 1.6 % 0.1 % (11.2)% (0.3)% — % 1.4 % 2019 21.0 % 1.4 % 0.3 % (6.4)% (0.7)% — % 0.5 % Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 % 12.6 % 16.1 % (1) Included in the compensation and fringe benefits rate reconciliation is the impact of the Company’s adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this standard, all excess tax benefits and tax deficiencies related to exercises of stock options are recognized as income tax expense or benefit in the income statement as discrete items in the reporting period in which they occur. 90 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 91 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, 2021 2020 Allowance for credit loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 942 $ 1,141 Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,541 13,217 State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Vehicle pooling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangibles and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 25,176 4,551 4,239 24,384 12,242 87,075 (24,987) 62,088 (20,241) (55,047) (25,253) (461) (24,602) 460 — 4,763 1,950 15,092 9,872 46,495 (15,429) 31,066 (15,291) (62,123) — (1,411) (23,714) Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (125,604) (102,539) Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (63,516) $ (71,473) On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act included a one-time tax on accumulated unremitted earnings of the Company’s foreign subsidiaries (“Transition Tax”). The Act contains Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impacted the Company in fiscal year 2019. The GILTI provisions effectively subject income earned by the Company’s foreign subsidiaries to current U.S. tax at a rate of 10.5%, less foreign tax credits. Under U.S. GAAP, the Company can make an accounting policy election to either recognize deferred taxes for temporary differences expected to impact GILTI in future years or provide for tax expense related to GILTI in the year the tax is incurred as a period expense. The Company has elected to treat tax generated by GILTI provisions as a period expense. The Act also includes a favorable tax treatment for certain Foreign Derived Intangible Income (“FDII”), effective for the Company starting August 1, 2018. The Company’s estimate for FDII did have a material impact to the effective income tax rate and income tax expense for the fiscal year ended July 31, 2021. As of July 31, 2021 and 2020, the Company had foreign operating losses and a U.S. federal tax credit carryforward of $24.4 million and $15.1 million, respectively. The foreign operating losses, subject to certain limitations, usually can be carried forward indefinitely. The U.S. federal related tax credit, if not used, would start to expire after 2026. The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax assets is uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing additional valuation allowances against certain deferred tax assets. The valuation allowance for the years ended July 31, 2021 and 2020 was $25.0 million and $15.4 million, respectively. The valuation allowance for deferred tax assets primarily related to operating losses in certain international jurisdictions and certain tax credits that are unlikely to be realized. 91 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 92 The following table summarizes the activities related to the Company’s unrecognized tax benefits resulting from uncertain tax positions: (In thousands) 2021 July 31, 2020 2019 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,123 $ 27,537 $ 21,322 Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,122 8,196 6,588 Prior year tax positions: Increases recognized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decreases recognized during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash settlements during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,782 (5,749) (3,261) (1,956) 6,390 (1,603) (1,182) (3,215) 800 (305) (534) (334) Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,061 $ 36,123 $ 27,537 As of July 31, 2021 and 2020, if recognized, the portion of liabilities for unrecognized tax benefits resulting from uncertain tax positions that would favorably affect the Company’s effective tax rate was $37.8 million and $29.0 million, respectively. It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes; however, an estimate of the range of the possible change cannot be made at this time. The Company recognizes interest and penalties related to income tax matters in income tax expense. As of July 31, 2021, 2020 and 2019, the Company had accrued interest and penalties related to unrecognized tax benefits of $7.2 million, $8.9 million and $7.6 million, respectively. The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by certain taxing authorities in the U.S. for fiscal years between 2014 and 2018. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position. The Act significantly lowered the additional federal income tax upon the repatriation of undistributed earnings generated by our foreign subsidiaries. As the Company determined these undistributed foreign earnings along with any additional outside basis differences were indefinitely reinvested as of July 31, 2021, no deferred tax was therefore provided. Although the Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings, which were $234.7 million as of July 31, 2021, nevertheless, it is not practical to estimate the amount of deferred tax liability related to the entire outside basis differences due to the complexity of the calculation and the uncertainty regarding assumptions necessary to compute the tax. The Company’s effective income tax rates were 16.5%, 12.6%, and 16.1% for fiscal 2021, 2020 and 2019, respectively. The Company’s U.S. federal statutory tax rate for fiscal years 2021, 2020 and 2019 was 21.0%. The effective tax rate for fiscal year ending July 31, 2021 was favorably impacted by $19.8 million of discrete tax adjustments made in connection with finalizing the Company’s fiscal year 2020 tax return. The effective tax rate for fiscal year ending July 31, 2020 was negatively impacted by $1.7 million of discrete tax items related to amending previously filed income tax returns. The effective tax rate for the fiscal year ending July 31, 2019, was favorably impacted by $10.2 million of discrete tax items related to amending previously filed income tax returns. The effective tax rates were also impacted by the recognition of excess tax benefits from the exercise of employee stock-based compensation of $29.8 million, $92.5 million, and $46.1 million, for fiscal years ended July 31, 2021, 2020 and 2019, respectively. 92 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 93 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, 2021 United States International Total Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,017,504 254,568 $ Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,272,072 Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849,037 227,365 172,115 $ 274,363 146,076 420,439 154,255 118,763 34,550 2,291,867 400,644 2,692,511 1,003,292 346,128 206,665 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 107,765 $ 14,206 $ 1,023,555 $ 112,871 $ 1,136,426 Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,706 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900,712 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,305 77,290 661,431 85,412 121,971 467,996 4,562,143 355,717 (In thousands) Year Ended July 31, 2020 United States International Total Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,714,724 $ 145,962 232,416 $ 112,481 1,947,140 258,443 Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,860,686 Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828,066 135,095 154,346 344,897 144,421 90,199 37,357 2,205,583 972,487 225,294 191,703 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 743,179 $ 72,920 $ 816,099 90,818 $ 10,572 $ 101,390 Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568,773 34,901 603,674 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,904,216 551,045 3,455,261 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,423 81,199 343,622 93 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 94 (In thousands) Year Ended July 31, 2019 United States International Total Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537,431 $ 119,138 218,263 $ 167,125 1,755,694 286,263 Total service revenues and vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,656,569 Yard operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751,653 112,268 155,180 385,388 136,458 143,236 26,687 2,041,957 888,111 255,504 181,867 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization, excluding debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 637,468 $ 79,007 $ 716,475 75,265 $ 9,630 $ 84,895 Capital expenditures, including acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,827 62,801 374,628 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,096,549 451,068 2,547,617 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,998 76,323 333,321 NOTE 14 — Commitments and Contingencies Commitments Letters of Credit Under a letter of credit facility separate from our Revolving Loan Facility, the Company had outstanding letters of credit of $24.1 million at July 31, 2021, which are primarily used to secure certain insurance obligations. Contingencies Legal Proceedings The Company is subject to threats of litigation and is involved in actual litigation and damage claims arising in the ordinary course of business, such as actions related to injuries, property damage, contract disputes, and handling or disposal of vehicles. There are no material pending legal proceedings to which the Company is a party, or with respect to which any of the Company’s property is subject. The Company provides for costs relating to matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of any such matters on the Company’s future consolidated results of operations and cash flows cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of any such matters. The Company believes that any ultimate liability regarding existing litigation and claims would not have a material effect on its consolidated results of operations, financial position, or cash flows. However, the amount of the liabilities associated with claims, if any, cannot be determined with certainty. The Company maintains insurance which may or may not provide coverage for claims made against the Company. There is no assurance that there will be insurance coverage available when and if needed. Additionally, the insurance that the Company carries requires that the Company pay for costs and/or claims exposure up to the amount of the insurance deductibles. 94 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 95 NOTE 15 — Guarantees — Indemnifications to Officers and Directors The Company typically enters into indemnification agreements with its directors and certain of its officers to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors and officers are sued as a result of their service to the Company. NOTE 16 — Related Party Transactions There were no amounts due to or from related parties as of July 31, 2021 and 2020. NOTE 17 — Employee Benefit Plan The Company sponsors a 401(k) defined contribution plan covering its eligible employees. The plan is available to all U.S. employees who meet minimum age and service requirements and provides employees with tax deferred salary deductions and alternative investment options. The Company matches 20% of employee contributions up to 15% of employee salary deferral. The Company recognized expenses of $1.9 million, for the years ended July 31, 2021, and 2020 and $1.7 million, for the year ended July 31, 2019, related to this plan. The Company also sponsors an additional defined contribution plan for its U.K. employees, which is available to all U.K. employees who meet minimum service requirements. The Company matches up to 5% of employee contributions. The Company recognized expenses of $1.4 million, $1.2 million, and $0.9 million for the years ended July 31, 2021, 2020 and 2019, respectively, related to this plan. 95 JOB TITLE COPART AR REVISION 1 SERIAL <12345678> <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 96 This page intentionally left blank. JOB TITLE COPART AR REVISION 1 SERIAL <12345678> <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 97 This page intentionally left blank. JOB TITLE COPART AR REVISION 1 SERIAL <12345678> DATE Wednesday October 20, 2021 JOB NUMBER 396733-1 TYPE PAGE NO. 98 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. CHERYLYN HARLEY LEBON PARTNER DUNLAP, BENNETT & LUDWIG JAMES E. MEEKS FORMER EXECUTIVE VICE PRESIDENT & CHIEF OPERATING OFFICER COPART, INC. DIANE M. MOREFIELD EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER CYRUSONE, INC. CARL SPARKS MANAGING PARTNER INTERLOCK PARTNERS THOMAS N. TRYFOROS PRIVATE INVESTOR EXECUTIVE OFFICERS WILLIS J. JOHNSON CHAIRMAN OF THE BOARD A. JAYSON ADAIR CHIEF EXECUTIVE OFFICER JEFFREY LIAW PRESIDENT JOHN NORTH 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 3, 2021. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young, LLP Dallas, Texas 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 2021 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, 2021, there were 237,014,273 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 23, 2021, we had 806 stockholders of record. 2021 High Low FOURTH QUARTER . . . 147.95 117.60 THIRD QUARTER . . . . . 126.18 101.92 SECOND QUARTER . . . . 130.96 106.68 FIRST QUARTER . . . . . . 118.56 93.12 2020 High Low FOURTH QUARTER . . . 93.35 76.28 THIRD QUARTER . . . . . . 104.88 55.69 SECOND QUARTER . . . . . 104.00 80.71 FIRST QUARTER . . . . . . . 85.31 72.90 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 27, 2021 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. Copart-2021-AnnualReport.indd 11 10/23/21 1:38 AM Copart, Inc. 14185 Dallas Pkwy., Suite #300 | Dallas, TX 75254 | Ph: 972-391-5000 Copart-2021-AnnualReport.indd 12 10/23/21 1:38 AM