COPART, INC. This Quarterly Report on Form 10-Q, 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). 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-Q 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 II, Item 1A. under the caption entitled "Risk Factors" in this Form 10-Q and those discussed elsewhere in this Form 10-Q. Unless the context otherwise requires, references in this Form 10-Q to "Copart," the "Company," "we," "us," or "our" refer toCopart, 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 theSecurities and Exchange Commission (theSEC ). We may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with theSEC . 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. Overview We are a leading provider of online auctions and vehicle remarketing services with operations inthe United States ("U.S."),Canada , theUnited Kingdom ("U.K."),Brazil , theRepublic of Ireland ,Germany ,Finland , theUnited Arab Emirates ("U.A.E."),Oman ,Bahrain , andSpain . 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. Many of the cars we process and remarket are subsequently restored to drivable condition, reducing the new vehicle manufacturing burden the world would otherwise face. Many of our cars are purchased by dismantlers, who recycle and refurbish parts for vehicle repairs, again reducing new and aftermarket parts manufacturing. And finally, some of our vehicles are returned to their raw material inputs through scrapping, reducing the need for further de novo resource extraction. In each case, our business has reduced 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. In addition, 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 theHouston, Texas metropolitan area in the wake of Hurricane Harvey in the summer of 2017. We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers and vehicles sourced directly from individual owners. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, 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 theU.S. ,Canada ,Brazil , theRepublic of Ireland ,Finland , theU.A.E. ,Oman , andBahrain , 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 theU.K. ,Germany , andSpain , 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. InGermany andSpain , 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. 21
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We monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate our financial and operating performance. Such indicators include: Service and Vehicle Sales Revenue: Our service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from our facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged. Purchased vehicle revenue includes the gross sales price of the vehicles which we have purchased or are otherwise considered to own. We have certain contracts with insurance companies, primarily in theU.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) domestic and market demand for rebuildable, drivable vehicles; (ii) used car pricing, which we also believe has an impact on total loss frequency; (iii) end market demand for recycled and refurbished parts as reflected in demand from dismantlers; (iv) the mix of cars sold; (v) changes in theU.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 decline in used car values relative to repair costs, which we believe are generally trending upward. Conversely, increases in used car prices, such as occurred during the most recent recession, may decrease total loss frequency and adversely affect our growth rate. Used car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average age of cars on the road. The average age of cars on the road continued to increase, growing from 9.6 years in 2002 to 11.8 years in 2019. 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. Operating Costs and Expenses: Yard operations expenses consist primarily of operating personnel (which includes yard management, clerical and yard employees), rent, contract vehicle transportation, insurance, fuel, equipment maintenance and repair, and costs of vehicles sold under the purchase contracts. General and administrative expenses consist primarily of executive management, accounting, data processing, sales personnel, human resources, professional fees, information technology, and marketing expenses. Other Income and Expense: Other income primarily includes income from the rental of certain real property, foreign exchange rate gains and losses, and gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period. Other expense consists primarily of interest expense on long-term debt. See Notes to Unaudited Consolidated Financial Statements, Note 3 - Long-Term Debt. Liquidity and Cash Flows: Our primary source of working capital is cash operating results and debt financing. The primary source of our liquidity is our cash and cash equivalents and Revolving Loan Facility. The primary factors affecting cash operating results are: (i) seasonality; (ii) market wins and losses; (iii) supplier mix; (iv) accident frequency; (v) total loss frequency; (vi) increased 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; and (xii) our capital expenditures. These factors are further discussed in the Results of Operations and Risk Factors sections of this Quarterly Report on Form 10-Q. Potential internal sources of additional working capital 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 is the issuance of additional debt with new lenders and equity. However, we cannot predict if these sources will be available in the future or on commercially acceptable terms. 22
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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 theU.S. ,Canada , theU.K. ,Brazil , theRepublic of Ireland ,Germany ,Finland , theU.A.E. ,Oman ,Bahrain , andSpain with the intention of providing national 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 began operations fromAugust 1, 2018 throughOctober 31, 2019 : United States Locations DateSpartanburg, South Carolina August 2018 Madison, Wisconsin September 2018 Harleyville, South Carolina January 2019 Macon, Georgia January 2019 Mocksville, North Carolina January 2019 Antelope, California January 2019 Sacramento, California March 2019 Fredericksburg, Virginia April 2019 West Mifflin, Pennsylvania May 2019 Hartford, Connecticut July 2019 Buffalo, New York July 2019
International Locations Geographic Service Area Date
Curitiba,
Brazil September 2018
Mannheim, Rhineland-Palatinate Germany October 2018
Stuttgart, Baden-Württemberg Germany November 2018
Hessen, Frankfurt Germany November 2018
Schleswig-Holstein (Hamburg) Germany November 2018
Furth, Bavaria (Nuremberg) Germany November 2018
Massen, Brandenburg (Berlin) Germany November 2018
Friesack, Brandenburg (Berlin) Germany December 2018
The following table sets forth operational facilities obtained through business
acquisitions from
Locations Geographic Service Area Date
March 2019 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; (ii) pursuing 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. 23
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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 the three months endedOctober 31, 2019 and 2018: Three Months Ended October
31,
2019 2018
Service revenues and vehicle sales:
Service revenues 88 % 86 %
Vehicle sales 12 % 14 %
Total service revenues and vehicle sales 100 % 100 %
Operating expenses:
Yard operations 43 % 45 %
Cost of vehicle sales 11 % 12 %
General and administrative 9 % 10 %
Total operating expenses 63 % 67 %
Operating income 37 % 33 %
Other expense (1 )% (1 )%
Income before income taxes 36 % 32 %
Income taxes (3 )% 7 %
Net income 39 % 25 %
Comparison of the Three Months Ended
Three Months Ended October 31,
(In thousands) 2019 2018 Change % Change
Service revenues
United States $ 430,803 $ 343,573 $ 87,230 25.4 %
International 57,053 51,233 5,820 11.4 %
Total service revenues $ 487,856 $ 394,806 $ 93,050 23.6 %
Service Revenues. The increase in service revenues during the three months ended
October 31, 2019 of $93.1 million , or 23.6%, as compared to the same period last
year resulted from (i) an increase in the U.S. of $87.2 million and (ii) an
increase in International of $5.8 million . The growth in the U.S. was driven
primarily by (i) increased volume and (ii) an increase in revenue per car due to
higher average auction selling prices, which we believe is due to a change in
the mix of vehicles sold. The increase in volume in the U.S. was derived from
(i) growth in the number of units sold from new and expanded contracts with
insurance companies, and (ii) growth from existing suppliers, driven by what we
believe was an increase in total loss frequency. Excluding the detrimental
impact of $2.3 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 $8.1 million was driven primarily
by increased volume and higher average auction selling prices.
The following table presents a comparison of vehicle sales for the three months
ended October 31, 2019 and 2018:
Three Months Ended October 31,
(In thousands) 2019 2018 Change % Change
Vehicle sales
United States $ 33,361 $ 27,636 $ 5,725 20.7 %
International 33,207 38,926 (5,719 ) (14.7 )%
Total vehicle sales $ 66,568 $ 66,562 $ 6 - %
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Vehicle Sales. Vehicle sales for the three months endedOctober 31, 2019 remained unchanged, as compared to the same period last year and resulted from (i) an increase in theU.S. of$5.7 million , and offset by (ii) a decrease in International of$5.7 million . The increase in theU.S. was primarily the result of increased volume and higher average auction selling prices, which we believe was due to a change in the mix of vehicles sold and higher commodity prices. Excluding a detrimental impact of$1.5 million due to changes in foreign currency exchange rates, primarily from the change in the British pound andEuropean Union euro toU.S. dollar exchange rates, the decline in International of$4.2 million was primarily the result of decreased volume driven by contractual shift from purchase contracts to fee based service contracts and a change in mix of vehicles sold. The following table presents a comparison of yard operations expenses for the three months endedOctober 31, 2019 and 2018: Three Months Ended October 31, (In thousands) 2019 2018 Change % Change Yard operations expenses United States$ 204,830 $
177,642
International 35,961 30,052 5,909 19.7 %
Total yard operations expenses $ 240,791 $
207,694
Yard operations expenses, excluding depreciation and
amortization
United States $ 189,933 $ 162,678 $ 27,255 16.8 %
International 34,038 27,831 6,207 22.3 %
Yard depreciation and amortization
United States $ 14,897 $ 14,964 $ (67 ) (0.4 )%
International 1,923 2,221 (298 ) (13.4 )%
Yard Operations Expenses. The increase in yard operations expense for the three
months ended October 31, 2019 of $33.1 million , or 15.9%, as compared to the
same period last year resulted from (i) an increase in the U.S. of $27.2 million
and (ii) an increase in International of $5.9 million . The increase in the cost
to process each car in the same period last year in the U.S. relates primarily
from growth in volume and an increase in the cost to process each car. The
increase in International was primarily from an increase in the cost to process
each car, growth in volume, and partially offset by the beneficial impact of
$1.3 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
rate. Included in yard operations expenses were depreciation and amortization
expenses. The decrease in yard operations depreciation and amortization expenses
resulted primarily from intangible assets becoming fully amortized.
The following table presents a comparison of cost of vehicle sales for the three
months ended October 31, 2019 and 2018:
Three Months Ended October 31,
(In thousands) 2019 2018 Change % Change
Cost of vehicle sales
United States $ 31,072 $ 25,943 $ 5,129 19.8 %
International 27,692 31,813 (4,121 ) (13.0 )%
Total cost of vehicle sales
Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months endedOctober 31, 2019 of$1.0 million , or 1.7%, as compared to the same period last year resulted from (i) an increase in theU.S. of$5.1 million , and partially offset by (ii) a decrease in International of$4.1 million . The increase in theU.S. was primarily the result of increased volume and higher average purchase prices, which we believe was due to a change in the mix of vehicles sold and higher commodity prices. Excluding the beneficial impact of$1.3 million due to changes in foreign currency exchange rates, primarily from the change in the British pound andEuropean Union euro toU.S. dollar exchange rates, the decrease in International of$2.8 million was primarily the result of decreased volume driven by contractual shifts from purchase contracts to fee based service contracts and a change in the mix of vehicles sold. 25
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The following table presents a comparison of general and administrative expenses
for the three months ended
Three Months Ended October 31,
(In thousands) 2019 2018 Change % Change
General and administrative expenses
United States $ 39,212 $
37,332
International 10,266
7,146 3,120 43.7 %
Total general and administrative expenses$ 49,478 $
44,478
General and administrative expenses, excluding depreciation and amortization United States$ 33,542 $ 32,904 $ 638 1.9 % International 9,742 6,890 2,852 41.4 % General and administrative depreciation and amortization United States$ 5,670 $ 4,428 $ 1,242 28.0 % International 524 256 268 104.7 % General and Administrative Expenses. The increase in general and administrative expenses for the three months endedOctober 31, 2019 of$5.0 million , or 11.2%, as compared to the same period last year resulted from (i) an increase in International of$3.1 million and (ii) an increase in theU.S. of$1.9 million . Excluding depreciation and amortization, the increase in International of$2.9 million resulted primarily from the expansion of our European businesses and the increase in theU.S. of$0.6 million resulted primarily from supporting our continued growth initiatives, as well as an increase in payroll taxes from the exercise of employee stock options, partially offset by higher capitalizable software development, decreases in stock compensation, and decreases in legal costs. The increase in depreciation and amortization expenses for the three months endedOctober 31, 2019 as compared to the same period last year resulted primarily from depreciating certain corporate and technology assets in theU.S. The following table summarizes total other expense and income taxes for the three months endedOctober 31, 2019 and 2018: Three Months Ended October 31, (In thousands) 2019 2018 Change % Change Total other expense$ (3,309 ) $ (2,654 ) $ (655 ) 24.7 % Income taxes (16,098 ) 34,703 (50,801 ) (146.4 )% Other Expense. The increase in total other expense for the three months endedOctober 31, 2019 of$0.7 million as compared to the same period last year was primarily due to losses of unconsolidated affiliates and partially offset by lower gains on the disposal of certain non-operating assets in the prior year. Income Taxes. Our effective income tax rates were (8.0)%, and 23.3% for the three months endedOctober 31, 2019 and 2018, respectively. The effective tax rates in the current and prior year were impacted from the result of recognizing excess tax benefits from the exercise of employee stock options of$62.4 million and$0.2 million for the three months endedOctober 31, 2019 and 2018, respectively. See Note 10 - Income Taxes. 26
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Liquidity and Capital Resources The following table presents a comparison of key components of our liquidity and capital resources atOctober 31, 2019 andJuly 31, 2019 and for the three months endedOctober 31, 2019 and 2018, respectively, excluding additional funds available to us through our Revolving Loan Facility: (In thousands) October 31, 2019 July 31, 2019 Change % Change Cash and cash equivalents $ 181,102$ 186,319 $ (5,217 ) (2.8 )% Working capital 420,758 405,163 15,595 3.8 % Three Months Ended October 31, (In thousands) 2019 2018 Change % Change Operating cash flows$ 212,458 $ 107,683 $ 104,775 97.3 % Investing cash flows (131,510 ) (61,526 ) (69,984 ) (113.7 )% Financing cash flows (88,734 ) 1,227 (89,961 ) (7,331.8 )% Capital expenditures$ (131,793 ) $ (62,336 ) $ (69,457 ) (111.4 )% Cash and cash equivalents decreased and working capital increased atOctober 31, 2019 as compared toJuly 31, 2019 . Cash and cash equivalents decreased primarily due to payments for employee stock-based tax withholdings and capital expenditures not fully offset by cash generated from operations. Working capital increased primarily from certain income tax benefits related to stock option exercises and timing of cash receipts partially offset by our operating lease liabilities and timing of cash payments. Cash equivalents consisted of bank deposits, domestic certificates of deposit, and funds invested in money market accounts, which bear interest at variable rates. Historically, we have financed our growth through cash generated from operations, public offerings of common stock, equity issued in conjunction with certain acquisitions and debt financing. Our primary source of cash generated by operations is from the collection of service fees and reimbursable advances from the proceeds of vehicle sales. We expect to continue to use cash flows from operations to finance our working capital needs and to develop and grow our business. In addition to our stock repurchase program, we are considering a variety of alternative potential uses for our remaining cash balances and our cash flows from operations. These alternative potential uses include additional stock repurchases, repayments of long-term debt, the payment of dividends, and acquisitions. For further detail, see Notes to Unaudited Consolidated Financial Statements, Note 3 - Long-Term Debt and Note 9 - Stock Repurchases 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 10% to 30% more vehicles than at other times of the year. This increased volume requires the increased use of our cash to pay out advances and handling costs of the additional business. We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements for at least the next 12 months. We expect to acquire or develop additional locations and expand some of our current facilities in the foreseeable future. We may be required to raise additional cash through drawdowns on our Revolving Loan Facility or issuance of additional equity to fund this expansion. Although the timing and magnitude of growth through expansion and acquisitions are not predictable, the opening of new greenfield yards is contingent upon our ability to locate property that (i) is in an area in which we have a need for more capacity; (ii) has adequate size given the capacity needs; (iii) has the appropriate shape and topography for our operations; (iv) is reasonably close to a major road or highway; and (v) most importantly, has the appropriate zoning for our business. Costs to develop a new yard can range from$3.0 to$50.0 million , depending on size, location and developmental infrastructure requirements. As ofOctober 31, 2019 ,$93.3 million of the$181.1 million of cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in theU.S. , the repatriation of these funds could still be subject to the foreign withholding tax following theU.S. Tax Reform. However, our intent is to permanently reinvest these funds outside of theU.S. and our current plans do not require repatriation to fund ourU.S. operations. Net cash provided by operating activities increased for the three months endedOctober 31, 2019 as compared to the same period in 2018 due to improved cash operating results from an increase in service revenues, partially offset by an increase in yard operations and general and administrative expenses, and changes in operating assets and liabilities. The change in operating assets and liabilities was primarily the result of a an increase of income taxes receivable of$44.0 million primarily related to excess tax benefits from stock option exercises partially offset by an increase in funds used to pay accounts payable of$37.2 million . 27
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Net cash used in investing activities increased for the three months endedOctober 31, 2019 as compared to the same period in 2018 due primarily to increased capital expenditures. Our capital expenditures are primarily related to lease buyouts of certain facilities, acquiring land, opening and improving facilities, capitalized software development costs for new software for internal use and major software enhancements, and acquiring yard equipment. We continue to develop, expand and invest in new and existing facilities and standardize the appearance of existing locations. Net cash used in financing activities increased for the three months endedOctober 31, 2019 as compared to the same period in 2018 due primarily to payments for employee stock based tax withholdings, as discussed in further detail under the subheading "Stock Repurchases" partially offset by an increase in proceeds from the exercise of stock options. Credit Agreement OnDecember 3, 2014 , we entered into a Credit Agreement (as amended from time to time, the "Credit Amendment") withWells Fargo Bank, National Association , as administrative agent, andBank of America, N.A ., as syndication agent. The Credit Agreement provided for (a) a secured revolving loan facility in an aggregate principal amount of up to$300.0 million (the "Revolving Loan Facility"), and (b) a secured term loan facility in an aggregate principal amount of$300.0 million (the "Term Loan"), which was fully drawn at closing. The Term Loan amortized$18.8 million per quarter. OnMarch 15, 2016 , we entered into a First Amendment to Credit Agreement (the "Amendment to Credit Agreement") withWells Fargo Bank, National Association , as administrative agent andBank of America, N.A . The Amendment to Credit Agreement amended certain terms of the Credit Agreement, dated as ofDecember 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 ofMarch 15, 2021 , and (c) an extension of the termination date of the Revolving Loan Facility and the maturity date of the Term Loan fromDecember 3, 2019 toMarch 15, 2021 . The Amendment to Credit Agreement extended the amortization period for the Term Loan and decreased the quarterly amortization payments for that loan to$7.5 million per quarter. The Amendment to Credit Agreement additionally reduced the pricing levels under the Credit Agreement to a range of 0.15% to 0.30% in the case of the commitment fee, 1.125% to 2.0% in the case of the applicable margin for LIBOR loans, and 0.125% to 1.0% in the case of the applicable margin for base rate loans, based on our consolidated total net leverage ratio during the preceding fiscal quarter. We borrowed the entire$93.8 million principal amount of the Incremental Term Loan concurrent with the closing of the Amendment to Credit Agreement. OnJuly 21, 2016 , we entered into a Second Amendment to Credit Agreement (the "Second Amendment to Credit Agreement") withWells Fargo Bank, National Association ,SunTrust Bank , andBank of America, N.A ., as administrative agent (as successor in interest toWells Fargo Bank ). The Second Amendment to Credit Agreement amends certain terms of the Credit Agreement, dated as ofDecember 3, 2014 as amended by the Amendment to Credit Agreement, dated as ofMarch 15, 2016 . The Second Amendment to Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by$500.0 million , bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement to$850.0 million , (b) the repayment of existing term loans outstanding under the Credit Agreement, (c) an extension of the termination date of the revolving credit facility under the Credit Agreement fromMarch 15, 2021 toJuly 21, 2021 , and (d) increased covenant flexibility. Concurrent with the closing of the Second Amendment to Credit Agreement, we prepaid in full the outstanding$242.5 million principal amount of the Term Loan and Incremental Term Loan under the Credit Agreement without premium or penalty. The Second Amendment to Credit Agreement reduced the pricing levels under the Credit Agreement to a range of 0.125% to 0.20% in the case of the commitment fee, 1.00% to 1.75% in the case of the applicable margin for LIBOR loans, and 0.0% to 0.75% in the case of the applicable margin for base rate loans, in each case depending on our consolidated total net leverage ratio during the preceding fiscal quarter. The principal purposes of these financing transactions were to increase the size and availability under our Revolving Loan Facility and to provide additional long-term financing. The proceeds are being used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to our expansion strategies in domestic and international markets. The Revolving Loan Facility under the Credit Agreement bears interest, at our election, at either (a) the Base Rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the Prime Rate in effect on such day; (ii) the Federal Funds Rate in effect on such date plus 0.50%; or (iii) the LIBOR rate plus 1.0%, in each case plus an applicable margin ranging from 0.0% to 0.75% based on our consolidated total net leverage ratio during the preceding fiscal quarter; or (b) the LIBOR rate plus an applicable margin ranging from 1.00% to 1.75% depending on our consolidated total net leverage ratio during the preceding fiscal quarter. Interest is due and payable quarterly, in arrears, for loans bearing interest at the Base Rate, and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the LIBOR rate. The interest rate as ofOctober 31, 2019 on our Revolving Loan Facility was the one month LIBOR rate of 1.78% plus an applicable margin of 1.00%. The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximates fair value atOctober 31, 2019 , and was classified within Level II of the fair value hierarchy. 28
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Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date ofJuly 21, 2021 . We are obligated to pay a commitment fee on the unused portion of the Revolving Loan Facility. The commitment fee rate ranges from 0.125% to 0.20%, depending on our consolidated total net leverage ratio during the preceding fiscal quarter, on the average daily unused portion of the revolving credit commitment under the Credit Agreement. We had no outstanding borrowings under the Revolving Loan Facility as ofOctober 31, 2019 andJuly 31, 2019 . Our obligations under the Credit Agreement are guaranteed by certain of our domestic subsidiaries meeting materiality thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of our assets and the assets of the subsidiary guarantors pursuant to a Security Agreement as part of the Second Amendment to Credit Agreement, datedJuly 21, 2016 , among us, the subsidiary guarantors from time to time party thereto, andBank of America, N.A ., as collateral agent. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict us and our subsidiaries' ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. We are also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed$50.0 million ; provided, that, minimum liquidity, as defined, shall be not less than$75.0 million both before and after giving effect to any such dividend or restricted payment. As ofOctober 31, 2019 , the consolidated total net leverage ratio was 0.29:1. Minimum liquidity as ofOctober 31, 2019 was$1.0 billion . Accordingly, we do not believe that the provisions of the Credit Agreement represent a significant restriction to our ability to pay dividends or to the successful future operations of the business. We have not paid a cash dividend since becoming a public company in 1994. We were in compliance with all covenants related to the Credit Agreement as ofOctober 31, 2019 . Note Purchase Agreement OnDecember 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, dueDecember 3, 2024 ; (ii)$100.0 million aggregate principal amount of 4.19% Senior Notes, Series B, dueDecember 3, 2026 ; (iii)$100.0 million aggregate principal amount of 4.25% Senior Notes, Series C, dueDecember 3, 2027 ; and (iv)$100.0 million aggregate principal amount of 4.35% Senior Notes, Series D, dueDecember 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. OnJuly 21, 2016 , we entered into Amendment No. 1 to Note Purchase Agreement (the "First Amendment to Note Purchase Agreement") which amended certain terms of the Note Purchase Agreement, including providing for increased flexibility substantially consistent with the changes included in the Second Amendment to Credit Agreement, including among other things increased covenant flexibility. We may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes. Our obligations under the Note Purchase Agreement are guaranteed by certain of our domestic subsidiaries meeting materiality thresholds set forth in the Note Purchase Agreement. Such obligations, including the guaranties, are secured by substantially all of our assets and the assets of the subsidiary guarantors. Our obligations and our subsidiary guarantors under the Note Purchase Agreement will be treated on a pari passu basis with the obligations of those entities under the Credit Agreement as well as any additional debt that we may obtain. 29
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The Note Purchase Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict us and our subsidiaries' ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions and repurchase stock, in each case subject to certain exceptions. We are also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Note Purchase Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed$50.0 million ; provided, that, minimum liquidity, as defined, shall be not less than$75.0 million both before and after giving effect to any such dividend or restricted payment on a pro forma basis. As ofOctober 31, 2019 , the consolidated total net leverage ratio was 0.29:1. Minimum liquidity as ofOctober 31, 2019 was$1.0 billion . Accordingly, we do not believe that the provisions of the Note Purchase Agreement represent a significant restriction to our ability to pay dividends or to the successful future operations of the business. We have not paid a cash dividend since becoming a public company in 1994. We are in compliance with all covenants related to the Note Purchase Agreement as ofOctober 31, 2019 . Related to the execution of the Credit Agreement, First Amendment to Credit Agreement, Second Amendment to Credit Agreement, and the Note Purchase Agreement, we incurred$3.4 million in costs, of which$2.0 million was capitalized as debt issuance fees and$1.4 million was recorded as a reduction of the long-term debt proceeds as a debt discount. Both the debt issuance fees and debt discount are amortized to interest expense over the term of the respective debt instruments and are classified as reductions of the outstanding liability. Stock Repurchases OnSeptember 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. We did not repurchase any shares of our common stock under the program during the three months endedOctober 31, 2019 . During 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 ofOctober 31, 2019 , the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program. In fiscal 2020, the Company's Chief Executive Officer exercised all of his vested stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. We remitted$101.3 million for the three months endedOctober 31, 2019 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: Shares Net Shares Weighted Employee Settled Withheld
Options Weighted Average for for to Price for Withholding (in
Period Exercised Exercise Price Exercise Taxes(1) Employees Withholding 000s)
FY 2020-Q1 4,000,000
1,902,686
(1) Shares withheld for taxes are treated as a repurchase of shares for
accounting purposes but do not count against our stock repurchase program.
Critical Accounting Policies and Estimates The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including costs related to vehicle pooling costs; income taxes; stock-based compensation; purchase price allocations; and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the selection of critical accounting policies and estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting policies and estimates in this Quarterly Report on Form 10-Q. There have been no significant changes to the critical accounting policies and estimates from what was disclosed in our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2019 filed with theSEC onSeptember 30, 2019 . Our significant accounting policies are described in the Notes to Unaudited Consolidated Financial Statements, Note 1 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q. 30
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Recently Issued Accounting Standards For a description of the new accounting standards that affect us, refer to the Notes to Unaudited Consolidated Financial Statements, Note 11 - Recent Accounting Pronouncements. Contractual Obligations and Commitments There have been no material changes during the three months endedOctober 31, 2019 to our contractual obligations disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2019 , filed with theSEC onSeptember 30, 2019 . Off-Balance Sheet Arrangements As ofOctober 31, 2019 , there are 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. 31
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