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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Copart, Inc.    CPRT

COPART, INC.

(CPRT)
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COPART : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

09/28/2020 | 04:52pm EST

CAUTION REGARDING FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K for the fiscal year ended July 31, 2020, or this
Form 10-K, including the information incorporated by reference herein, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act), including forward-looking
statements concerning the potential impact of the COVID-19 pandemic on our
business, operations, and operating results. All statements other than
statements of historical facts are statements that could be deemed
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan," "intend,"
"forecast," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or the negative of these terms or other comparable terminology. The
forward-looking statements contained in this Form 10-K involve known and unknown
risks, uncertainties and situations that may cause our or our industry's actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These forward-looking
statements are made in reliance upon the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. These factors include those listed in
Part I, Item 1A under the caption entitled "Risk Factors" in this Form 10-K and
those discussed elsewhere in this Form 10-K. Unless the context otherwise
requires, references in this Form 10-K to "Copart," the "Company," "we," "us,"
or "our" refer to Copart, Inc. We encourage investors to review these factors
carefully together with the other matters referred to herein, as well as in the
other documents we file with the Securities and Exchange Commission ("the SEC").
We may from time to time make additional written and oral forward-looking
statements, including statements contained in our filings with the SEC. We do
not undertake to update any forward-looking statement that may be made from time
to time by or on behalf of us.

All references to numbered Notes are to specific Notes to our Consolidated
Financial Statements included in this Annual Report on Form 10-K and which
descriptions are incorporated into the applicable response by reference.
Capitalized terms used, but not defined, in this Management's Discussion and
Analysis of Financial Condition and Results of Operation ("MD&A") have the same
meanings as in such Notes.

Overview

We are a leading provider of online auctions and vehicle remarketing services
with operations in the United States ("U.S."), Canada, the United Kingdom
("U.K."), Brazil, the Republic of Ireland, Germany, Finland, the United Arab
Emirates ("U.A.E."), Oman, Bahrain, and Spain.

Our goals are to generate sustainable profits for our stockholders, while also
providing environmental and social benefits for the world around us. With
respect to our environmental stewardship, we believe our business is a critical
enabler for the global re-use and recycling of vehicles, parts, and raw
materials. We are not responsible for the carbon emissions resulting from new
vehicle manufacturing, governmental fuel emissions standards or vehicle use by
consumers. Each vehicle that enters our business operations is an existing fact,
with whatever fuel technology and efficiency it was designed and built to have,
and the substantial carbon emissions associated with the vehicle's manufacture
are already sunk costs. However, upon our receipt of an existing vehicle, we
help decrease its total environmental impact by extending its useful life and
thereby avoiding the carbon emissions associated with the alternative of new
vehicle and auto parts manufacturing. For example, many of the cars we process
and remarket are subsequently restored to drivable condition, reducing the new
vehicle manufacturing burden the world would otherwise face. Many of our cars
are purchased by dismantlers, who recycle and refurbish parts for vehicle
repairs, again reducing new and aftermarket parts manufacturing. And finally,
some of our vehicles are returned to their raw material inputs through
scrapping, reducing the need for further new resource extraction. In each of
these cases, our business reduces the carbon and other environmental footprint
of the global transportation industry.

Beyond our environmental stewardship, we also support the world's communities in
two important ways. First, we believe that we contribute to economic development
and well-being by enabling more affordable access to mobility around the world.
For example, many of the automobiles sold through our auction platform are
purchased for use in developing countries where affordable transportation is a
critical enabler of education, health care, and well-being more generally.
Secondly, because of the special role we play in responding to catastrophic
weather events, we believe we contribute to disaster recovery and resilience in
the communities we serve. For example, we mobilized our people, entered into
emergency leases, and engaged with a multitude of service providers to timely
retrieve, store, and remarket tens of thousands of flood-damaged vehicles in the
Houston, Texas metropolitan area in the wake of Hurricane Harvey in the summer
of 2017.

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We provide vehicle sellers with a full range of services to process and sell
vehicles primarily over the internet through our Virtual Bidding Third
Generation internet auction-style sales technology, which we refer to as VB3.
Vehicle sellers consist primarily of insurance companies, but also include
banks, finance companies, charities, fleet operators, dealers and from
individuals. We sell the vehicles principally to licensed vehicle dismantlers,
rebuilders, repair licensees, used vehicle dealers, exporters, and in some
jurisdictions, to the general public. The majority of the vehicles sold on
behalf of insurance companies are either damaged vehicles deemed a total loss;
not economically repairable by the insurance companies; or are recovered stolen
vehicles for which an insurance settlement with the vehicle owner has already
been made. We offer vehicle sellers a full range of services that help expedite
each stage of the vehicle sales process, minimize administrative and processing
costs, and maximize the ultimate sales price through the online auction process.

In the U.S., Canada, Brazil, the Republic of Ireland, Finland, the U.A.E., Oman,
and Bahrain, we sell vehicles primarily as an agent and derive revenue primarily
from auction and auction related sales transaction fees charged for vehicle
remarketing services as well as fees for services subsequent to the auction,
such as delivery and storage. In the U.K., Germany, and Spain we operate both as
an agent and on a principal basis, in some cases purchasing salvage vehicles
outright and reselling the vehicles for our own account. In Germany and Spain,
we also derive revenue from listing vehicles on behalf of insurance companies
and insurance experts to determine the vehicle's residual value and/or to
facilitate a sale for the insured.

We monitor and analyze a number of key financial performance indicators in order
to manage our business and evaluate our financial and operating performance.
Such indicators include:

Service and Vehicle Sales Revenue: Our service revenue consists of auction and
auction related sales transaction fees charged for vehicle remarketing services.
These auction and auction related services may include a combination of vehicle
purchasing fees, vehicle listing fees, and vehicle selling fees that can be
based on a predetermined percentage of the vehicle sales price, tiered vehicle
sales price driven fees, or at a fixed fee based on the sale of each vehicle
regardless of the selling price of the vehicle; transportation fees for the cost
of transporting the vehicle to or from our facility; title processing and
preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees.
These fees are recognized as net revenue (not gross vehicle selling price) at
the time of auction in the amount of such fees charged. Purchased vehicle
revenue includes the gross sales price of the vehicles which we have purchased
or are otherwise considered to own. We have certain contracts with insurance
companies, primarily in the U.K., in which we act as a principal, purchasing
vehicles and reselling them for our own account. We also purchase vehicles in
the open market, primarily from individuals, and resell them for our own
account.

Our revenue is impacted by several factors, including total loss frequency and
the average vehicle auction selling price, as a significant amount of our
service revenue is associated in some manner with the ultimate selling price of
the vehicle. Vehicle auction selling prices are driven primarily by: (i) market
demand for rebuildable, drivable vehicles; (ii) used car pricing, which we also
believe has an impact on total loss frequency; (iii) end market demand for
recycled and refurbished parts as reflected in demand from dismantlers; (iv) the
mix of cars sold; (v) changes in the U.S. dollar exchange rate to foreign
currencies, which we believe has an impact on auction participation by
international buyers, and; (vi) changes in commodity prices, particularly the
per ton price for crushed car bodies, as we believe this has an impact on the
ultimate selling price of vehicles sold for scrap and vehicles sold for
dismantling. We cannot specifically quantify the financial impact that commodity
pricing, used car pricing, and product sales mix has on the selling price of
vehicles, our service revenues, or financial results. Total loss frequency is
the percentage of cars involved in accidents that insurance companies salvage
rather than repair and is driven by the relationship between repair costs, used
car values, and auction returns. Over the last several years, we believe there
has been an increase in overall growth in the salvage market driven by an
increase in total loss frequency. The increase in total loss frequency may have
been driven by the change in used car values and repair costs, which we believe
are generally trending upward. Changes in used car prices and repair costs, may
impact total loss frequency and affect our growth rate. Used car values are
determined by many factors, including used car supply, which is tied directly to
new car sales, and the average age of cars on the road. The average age of cars
on the road continued to increase, growing from 9.6 years in 2002 to 11.9 years
in 2020. Repair costs are generally based on damage severity, vehicle
complexity, repair parts availability, repair parts costs, labor costs, and
repair shop lead times. The factors that can influence repair costs, used car
pricing, and auction returns are many and varied and we cannot predict their
movements. Accordingly, we cannot predict future trends in total loss frequency.

Beginning in March 2020, our business and operations began to experience the
impact of the worldwide COVID-19 pandemic, first within our European operations
and as the month progressed throughout the balance of our global operations. In
materially all of our jurisdictions, we have been deemed by local authorities an
essential business because our operations ensure the removal of vehicles from
repair shops, impound yards, and streets and highways, enabling the critical
function of road infrastructure. As a result, we have continued to operate our
facilities as well as our online-only auctions, while following appropriate
health and safety protocols to ensure safe working conditions for our employees
as well as for our sellers, buyers, and other business partners with whom we
come in contact.

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From a financial perspective, our operating results were adversely affected by
lower processed vehicle volume during the last five months of the year ended
July 31, 2020. We saw substantial declines in vehicle assignments, which we
attribute principally to reduced accident volume as miles driven dramatically
declined in response to shelter-in-place orders across the globe. As we do not
recognize the majority of our transactional revenues until the completion of our
auctions, a substantial portion of the declines in assignments we experienced in
the most recent quarter will be reflected in future quarters. We cannot predict
how the pandemic will continue to develop, whether and to what extent new
shelter-in-place orders will be issued, or to what extent the pandemic may have
longer term unanticipated impacts on our markets, including, for example, the
risk of long-term reductions in miles driven. To the extent that the pandemic
results in temporary or longer-term declines in the number of vehicles we
process, our business and operating results could be adversely affected.

Although we have been deemed an "essential business" in the jurisdictions in
which we operate and have largely been able to continue our yard operations, we
have been required to make adjustments in our business processes that may reduce
efficiency or increase operating expenses, particularly if the pandemic
continues over a long period of time. We adjusted, but did not make material
modifications to, our operating expenses to be able to continue providing
employment for our employees, service to our sellers, and process incoming
vehicles for sale in future quarters. We expect the pandemic to have an adverse
effect on our quarterly revenues in future quarters, with the magnitude and
timing of these effects dependent upon the extent and duration of suspended
economic activity across our markets. The longer-term impact on our business
will depend on potential adverse operational impacts from outbreaks of COVID-19
at any of our locations; "second wave" outbreaks of COVID-19 in one or more of
our geographic markets; a reduction in miles driven due to one or more factors
relating to the COVID-19 pandemic; any further government actions in response to
COVID-19 outbreaks that restrict business activity or travel; disruptions of
governmental administrative operations due to COVID-19 outbreaks that adversely
impact our core business activities, such as vehicle title processing; and
deteriorating economic conditions generally, and the potential availability,
among other things, of vaccines or treatments, none of which we can predict. For
a further discussion of risks to our business and operating results arising from
the pandemic, please see the section of this Annual Report on Form 10-K
captioned "Risk Factors."

On March 20, 2020, we filed a Current Report on Form 8-K to announce our draw
down of funds under our available credit facilities in order to ensure financial
flexibility given current uncertainties; we subsequently repaid all outstanding
borrowings under these facilities. As of July 31, 2020, we had cash, cash
equivalents, and restricted cash of $477.7 million, an increase of $384.2
million over January 31, 2020, and had $1.5 billion of liquidity. These
incremental available cash equivalents may be used for investments in land,
technology, acquisitions, working capital, share repurchases, or general
corporate purposes as permitted by the applicable credit agreements.

Operating Costs and Expenses: Yard operations expenses consist primarily of
operating personnel (which includes yard management, clerical, and yard
employees); rent; vehicle transportation; insurance; property related taxes;
fuel; equipment maintenance and repair; marketing costs directly related to the
auction process; and costs of vehicles sold under the purchase contracts.
General and administrative expenses consist primarily of executive management;
accounting; data processing; sales personnel; professional services; marketing
expenses; and system maintenance and enhancements.

Other Income and Expense: Other income primarily includes foreign exchange rate
gains and losses, and gains and losses from the disposal of assets, which will
fluctuate based on the nature of these activities each period. Other expense
consists primarily of interest expense on long-term debt. See Notes to
Consolidated Financial Statements, Note 8 - Long-Term Debt.

Liquidity and Cash Flows: Our primary source of working capital is cash
operating results and debt financing. The primary source of our liquidity is our
cash and cash equivalents and Revolving Loan Facility. The primary factors
affecting cash operating results are: (i) seasonality; (ii) market wins and
losses; (iii) supplier mix; (iv) accident frequency; (v) total loss frequency;
(vi) volume from our existing suppliers; (vii) commodity pricing; (viii) used
car pricing; (ix) foreign currency exchange rates; (x) product mix; (xi)
contract mix to the extent applicable; (xii) our capital expenditures; and other
macroeconomic factors such as COVID-19. These factors are further discussed in
the Results of Operations and Risk Factors sections of this Annual Report on
Form 10-K.

Potential internal sources of additional working capital and liquidity are the
sale of assets or the issuance of shares through option exercises and shares
issued under our Employee Stock Purchase Plan. A potential external source of
additional working capital and liquidity is the issuance of additional debt with
new lenders and equity. However, we cannot predict if these sources will be
available in the future or on commercially acceptable terms.

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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 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 began operations from August 1, 2017 through July 31, 2020:

   United States Locations             Date
Andrews, Texas (Midland)         August 2017
Exeter, Rhode Island             October 2017
Lumberton, North Carolina        June 2018
Spartanburg, 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
Fort Wayne, Indiana              February 2020
Concord, North Carolina          March 2020
Salt Lake City, Utah             May 2020



          International Locations              Geographic Service Area            Date
 Nobitz, Thuringia (Leipzig)                  Germany                       April 2018
 Belfast, Northern Ireland                    United Kingdom                April 2018
 Curitiba, Paraná                             Brazil                        September 2018
 Mannheim, Rhineland-Palatinate               Germany                       

October 2018

 Stuttgart, Baden-Württemberg                 Germany

November 2018

 Frankfurt, Hessen                            Germany

November 2018

 Itzehoe, Schleswig-Holstein (Hamburg)        Germany                       November 2018
 Furth, Bavaria (Nuremberg)                   Germany                       November 2018
 Massen, Brandenburg (Berlin)                 Germany                       November 2018
 Friesack, Brandenburg (Berlin)               Germany                       

December 2018

 Niederlehme, Brandenburg (Berlin)            Germany                       November 2019
 Pilsting, Bavaria (Munich)                   Germany                       December 2019
 São Paulo, São Paulo                         Brazil                        May 2020



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The following table sets forth operational facilities obtained through business
acquisitions from August 1, 2017 through July 31, 2020:
                   Locations            Geographic Service Area          Date
            Greenville, Kentucky       United States                 March 2019
            Espoo, Finland             Finland                       March 2018
            Pirkkala, Finland          Finland                       March 2018
            Oulu, Finland              Finland                       March 2018
            Turku, Finland             Finland                       March 2018



The period-to-period comparability of our consolidated operating results and
financial position is affected by business acquisitions, new openings, weather
and product introductions during such periods.

In addition to growth through business acquisitions, we seek to increase
revenues and profitability by, among other things, (i) acquiring and developing
additional vehicle storage facilities in key markets, including foreign markets;
(ii) pursuing global, national and regional vehicle seller agreements; (iii)
increasing our service offerings; and (iv) expanding the application of VB3 into
new markets. In addition, we implement our pricing structure and auction
procedures, and attempt to introduce cost efficiencies at each of our acquired
facilities by implementing our operational procedures, integrating our
management information systems, and redeploying personnel, when necessary.

Results of Operations


The following table shows certain data from our consolidated statements of
income expressed as a percentage of total service revenues and vehicle sales for
fiscal 2020, 2019 and 2018:
                                                         Year Ended July 31,
(In percentages)                                     2020             2019       2018
Service revenues and vehicle sales:
Service revenues                                            88  %      86  %      87  %
Vehicle sales                                               12  %      14  %      13  %
Total service revenues and vehicle sales                   100  %     100  %     100  %
Operating expenses:
Yard operations                                             44  %      43  %      47  %
Cost of vehicle sales                                       10  %      13  %      11  %
General and administrative                                   9  %       9  %      10  %
Impairment of long-lived assets                              -  %       -  %       -  %
Total operating expenses                                    63  %      65  %      68  %
Operating income                                            37  %      35  %      32  %
Total other expense                                         (1) %      (1) %      (1) %
Income before income taxes                                  36  %      34  %      31  %
Income tax expense                                           4  %       5  %       8  %
Net income                                                  32  %      29  %      23  %


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Comparison of Fiscal Years ended July 31, 2020 and 2019 and 2018


The following table presents a comparison of service revenues for fiscal 2020,
2019 and 2018:
                                                                                               Year Ended July 31,                                                                                                                   2020 vs. 2019                                      2019 vs. 2018
(In thousands)                                                                          2020                          2019                          2018                        Change                     % Change                     Change                      % Change
Service revenues
             United States$ 1,714,724$ 1,537,431$ 1,385,238$   177,293                         11.5  %             $   152,193                          11.0  %
             International                                              232,416                       218,263                       193,264                        14,153                          6.5  %                  24,999                          12.9  %
Total service revenues                                                             $ 1,947,140$ 1,755,694$ 1,578,502$ 191,446                        10.9  %                $ 177,192                        11.2  %



Service Revenues. The increase in service revenues for fiscal 2020 of $191.4
million, or 10.9% as compared to fiscal 2019 came from (i) an increase in the
U.S. of $177.3 million and (ii) an increase in International of $14.2 million.
The increase in the U.S. was driven primarily by (i) increased volume and (ii)
an increase in revenue per car due to higher average auction selling prices. The
increase in volume in the U.S. was derived from (i) growth in the number of
units sold from new and expanded contracts with insurance companies and (ii)
growth from existing suppliers, driven by what we believe was an increase in
total loss frequency. Excluding the detrimental impact of $6.9 million due to
changes in foreign currency exchange rates, primarily from the change in the
British pound and Brazilian real to U.S. dollar exchange rates, the increase in
International of $21.1 million was driven primarily by increased revenue per
car.

The following table presents a comparison of vehicle sales for fiscal 2020, 2019 and 2018:

                                                                                     Year Ended July 31,                                                                                                         2020 vs. 2019                                    2019 vs. 2018
(In thousands)                                                                 2020                       2019                       2018                      Change                    % Change                   Change                    % Change
Vehicle sales
            United States$  145,962$  119,138$  105,784$   26,824                        22.5  %             $   13,354                       12.6  %
            International                                       112,481                    167,125                    121,409                    (54,644)                      (32.7) %                 45,716                       37.7  %
Total vehicle sales                                                        $ 258,443$ 286,263$ 227,193$ (27,820)                      (9.7) %               $ 59,070                      26.0  %



Vehicle Sales. The decrease in vehicle sales for fiscal 2020 of $27.8 million,
or 9.7% as compared to fiscal 2019 came from (i) a decrease in International of
$54.6 million partially offset by (ii) an increase in the U.S. of $26.8 million.
Excluding a detrimental impact of $2.4 million due to changes in foreign
currency exchange rates, primarily from the change in the British pound and
European Union euro to U.S. dollar exchange rates, the decline in International
of $52.2 million was primarily the result of decreased volume driven by
contractual shift from purchase contracts to fee based service contracts and a
change in mix of vehicles sold. The increase in the U.S. was primarily the
result of increased volume and higher average auction selling prices, which we
believe was due to a change in the mix of vehicles sold and increased demand.

The following table presents a comparison of yard operations expense for fiscal
2020, 2019 and 2018:
                                                                                   Year Ended July 31,                                                                                                       2020 vs. 2019                                   2019 vs. 2018
(In thousands)                                                                2020                       2019                      2018                    Change                    % Change                  Change                    % Change
Yard operations expenses
         United States$  827,802$  751,653$ 730,865$  76,149                       10.1  %             $  20,788                        2.8  %
         International                                         144,685                    136,458                   116,003                     8,227                        6.0  %                20,455                       17.6  %
Total yard operations expenses                                            $ 972,487$ 888,111$ 846,868$ 84,376                        9.5  %              $ 41,243

4.9 %


Yard operations expenses, excluding depreciation and
amortization
         United States$  759,779$  697,115$ 683,079$  62,664                        9.0  %             $  14,036                        2.1  %
         International                                         135,709                    127,829                   106,559                     7,880                        6.2  %                21,270                       20.0  %

Yard depreciation and amortization

         United States$   68,023$   54,538$  47,786$  13,485                       24.7  %             $   6,752                       14.1  %
         International                                           8,976                      8,629                     9,444                       347                        4.0  %                  (815)                      (8.6) %


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Yard Operations Expenses. The increase in yard operations expenses for fiscal
2020 of $84.4 million, or 9.5% as compared to fiscal 2019 resulted from (i) an
increase in the U.S. of $76.1 million, primarily from growth in volume, an
increase in the cost to process each car, and a $13.5 million increase in
depreciation; and (ii) an increase in International of $8.2 million related
primarily from an increase in the cost to process each car partially offset by
the beneficial impact of $4.1 million due to changes in foreign currency
exchange rates, primarily from changes in the British pound, Brazilian real and
European Union euro to U.S. dollar exchange rate. The increase in yard
operations depreciation and amortization expenses resulted primarily from
depreciating new and expanded facilities placed into service in the U.S.

The following table presents a comparison of cost of vehicle sales for fiscal 2020, 2019 and 2018:

                                                                                            Year Ended July 31,                                                                                                         2020 vs. 2019                                    2019 vs. 2018
(In thousands)                                                                        2020                       2019                       2018                      Change                    % Change                   Change                    % Change
Cost of vehicle sales
                  United States$  135,095$  112,268$  101,130$   22,827                        20.3  %             $   11,138                       11.0  %
                  International                                         90,199                    143,236                     95,331                    (53,037)                      (37.0) %                 47,905                       50.3  %
Total cost of vehicle sales                                                       $ 225,294$ 255,504$ 196,461$ (30,210)                     (11.8) %               $ 59,043                      30.1  %



Cost of Vehicle Sales. The decrease in cost of vehicle sales for fiscal 2020 of
$30.2 million, or 11.8% as compared to fiscal 2019 was the result of (i) a
decrease in International of $53.0 million and (ii) an increase in the U.S. of
$22.8 million. Excluding the beneficial impact of $1.9 million due to changes in
foreign currency exchange rates, primarily from changes in the British pound and
European euro to U.S. dollar exchange rate, the decrease in International of
$54.9 million was primarily the result of decreased volume driven by contractual
shifts from purchase contracts to fee based service contracts and a change in
the mix of vehicles sold. The increase in the U.S. was primarily the result of
increased volume and higher average purchase prices, which we believe is due to
a change in the mix of vehicles sold and increased demand.

The following table presents a comparison of general and administrative expenses for fiscal 2020, 2019 and 2018:

                                                                                            Year Ended July 31,                                                                                                      2020 vs. 2019                                   2019 vs. 2018
(In thousands)                                                                        2020                       2019                       2018                     Change                  % Change                   Change                   % Change

General and administrative expenses

            United States$  149,012$  151,854$  144,140$   (2,842)                    (1.9) %             $    7,714

5.4 %

            International                                               42,691                     30,013                     32,750                     12,678                     42.2  %                 (2,737)                     (8.4) %
Total general and administrative expenses                                         $ 191,703$ 181,867$ 176,890$ 9,836                       5.4  %               $ 4,977                       2.8  %

General and administrative expenses, excluding depreciation and amortization

            United States$  126,400$  131,257$  124,147$   (4,857)                    (3.7) %             $    7,110

5.7 %

            International                                               40,912                     28,882                     31,375                     12,030                     41.7  %                 (2,493)            

(7.9) %

General and administrative depreciation and amortization

            United States$   22,612$   20,597$   19,993$    2,015                      9.8  %             $      604

3.0 %

            International                                                1,779                      1,131                      1,375                        648                     57.3  %                   (244)                    (17.7) %



General and Administrative Expenses. The increase in general and administrative
expenses for fiscal 2020 of $9.8 million, or 5.4% as compared to fiscal 2019
came primarily from an increase in International of $12.7 million, partially
offset by a decrease in the U.S. of $2.8 million. Excluding depreciation and
amortization, the increase in International of $12.0 million resulted primarily
from our international growth strategy through the expansion of our European
businesses partially offset by the beneficial impact of $1.7 million due to
changes in foreign currency exchange rates, primarily from the change in the
British pound, Brazilian real and European Union euro to U.S. dollar exchange
rate. Excluding depreciation and amortization, the decrease in the U.S. of $4.9
million resulted primarily from decreases in legal and travel costs and higher
capitalizable software development, partially offset by increases in payroll
taxes from the exercise of employee stock options and by supporting our
continued growth initiatives.

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The following table summarizes impairment, total other expenses and income taxes
for fiscal 2020, 2019 and 2018:
                                                         Year Ended July 31,                                                                              2020 vs. 2019                           2019 vs. 2018
(In thousands)                                2020                  2019              2018              Change             % Change                Change               % Change
Impairment                              $       -               $       -          $  1,131          $       -                     -  %       $      (1,131)               (100.0) %
Total other expenses                      (15,260)                (11,524)          (21,834)            (3,736)                (32.4) %              10,310                  47.2  %
Income taxes                              100,932                 113,258           144,504            (12,326)                (10.9) %             (31,246)                (21.6) %


Other Expenses. The increase in total other expenses for fiscal 2020 of $3.7
million, or 32.4% as compared to fiscal 2019 was primarily due to lower gains on
the disposal of certain non-operating assets in the current year and losses of
unconsolidated affiliates, partially offset by an increase in currency gains,
primarily due to the change in the British pound to U.S. dollar exchange rate.

Income Taxes. Our effective income tax rates were 12.6%, 16.1%, and 25.7% for
fiscal 2020, 2019 and 2018, respectively. The current year's effective tax rate
was computed based on the U.S. federal statutory tax rate of 21.0% for the
fiscal year ending July 31, 2020 and was negatively impacted by $1.7 million of
discrete tax items related to amending previously filed income tax returns. The
prior year's effective tax rate was computed based on the U.S. federal statutory
tax rate of 21.0% for the fiscal year ending July 31, 2019 and was favorably
impacted by $10.2 million of discrete tax items related to amending previously
filed income tax returns. The effective tax rates in the current and prior years
were also impacted from the result of recognizing excess tax benefits from the
exercise of employee stock options of $92.5 million, $46.1 million, and $21.3
million for fiscal years 2020, 2019 and 2018, respectively.

Discussion of Fiscal Year ended July 31, 2019 compared to Fiscal Year ended July 31, 2018


For a discussion of fiscal 2019 as compared to fiscal 2018, please refer to Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations in our   Form 10-K   for the fiscal year ended July 31,
2019, filed with the SEC on   September 30, 2019  .

Liquidity and Capital Resources


The following table presents a comparison of key components of our liquidity and
capital resources for fiscal 2020, 2019 and 2018, excluding additional funds
available to us through our Revolving Loan Facility:
                                                      July 31,                                                                                 2020 vs. 2019                           2019 vs. 2018
(In thousands)                       2020               2019               2018              Change             % Change                Change               % Change
Cash, cash equivalents,
and restricted cash              $ 477,718$ 186,319$ 274,520$ 291,399                 156.4  %       $     (88,201)                (32.1) %
Working capital                    607,715            405,163            431,860            202,552                  50.0  %             (26,697)                 (6.2) %



                                                     Year Ended July 31,                                                                                2020 vs. 2019                           2019 vs. 2018
(In thousands)                          2020                2019                2018               Change               % Change                 Change               % Change
Operating cash flows                $  917,885$  646,646$  535,069$  271,239                    41.9  %       $     111,577                  20.9  %
Investing cash flows                  (601,208)           (356,267)           (288,476)           (244,941)                  (68.8) %             (67,791)                (23.5) %
Financing cash flows                   (27,414)           (370,304)           (182,038)            342,890                    92.6  %            (188,266)               (103.4) %

Capital expenditures,
excluding acquisitions              $ (591,972)$ (373,883)$ (287,910)$ (218,089)                  (58.3) %       $     (85,973)                (29.9) %
Acquisitions, net of cash
acquired                               (11,702)               (745)             (8,787)            (10,957)               (1,470.7) %               8,042                  91.5  %
Net repayments on revolving
loan facility                                -                   -            (231,000)                  -                       -  %             231,000                 100.0  %


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Cash, cash equivalents, and restricted cash and working capital increased $291.4
million and $202.6 million at July 31, 2020, respectively, as compared July 31,
2019. Cash and cash equivalents increased primarily due to cash generated from
operations and proceeds from stock option exercises, partially offset by
payments for employee stock-based tax withholdings and capital expenditures.
Working capital increased primarily from cash generated from operations and
timing of cash receipts and payments partially offset by capital expenditures,
our operating lease liabilities, certain income tax benefits related to stock
option exercises and timing of cash payments. Cash equivalents consisted of bank
deposits, domestic certificates of deposit, and funds invested in money market
accounts, which bear interest at variable rates.

Historically, we have financed our growth through cash generated from
operations, public offerings of common stock, equity issued in conjunction with
certain acquisitions and debt financing. Our primary source of cash generated by
operations is from the collection of service fees and reimbursable advances from
the proceeds of vehicle sales. We expect to continue to use cash flows from
operations to finance our working capital needs and to develop and grow our
business. In addition to our stock repurchase program, we are considering a
variety of alternative potential uses for our remaining cash balances and our
cash flows from operations. These alternative potential uses include additional
stock repurchases, repayments of long-term debt, the payment of dividends, and
acquisitions. For further detail, see Notes to Consolidated Financial
Statements, Note 8 - Long-Term Debt and Note 11 - Stockholders' Equity and under
the subheadings "Credit Agreement" and "Note Purchase Agreement" below.

Our business is seasonal as inclement weather during the winter months increases
the frequency of accidents and consequently, the number of cars involved in
accidents which the insurance companies salvage rather than repair. During the
winter months, most of our facilities process 5% to 20% more vehicles than at
other times of the year. This increased volume requires the increased use of our
cash to pay out advances and handling costs of the additional business.

We believe that our currently available cash and cash equivalents and cash
generated from operations will be sufficient to satisfy our operating and
working capital requirements for at least the next 12 months. We expect to
acquire or develop additional locations and expand some of our current
facilities in the foreseeable future. We may be required to raise additional
cash through drawdowns on our Revolving Loan Facility or issuance of additional
equity to fund this expansion. Although the timing and magnitude of growth
through expansion and acquisitions are not predictable, the opening of new
greenfield yards is contingent upon our ability to locate property that (i) is
in an area in which we have a need for more capacity; (ii) has adequate size
given the capacity needs; (iii) has the appropriate shape and topography for our
operations; (iv) is reasonably close to a major road or highway; and (v) most
importantly, has the appropriate zoning for our business. Costs to develop a new
yard can range from $3.0 to $50.0 million, depending on size, location and
developmental infrastructure requirements.

As of July 31, 2020, $124.8 million of the $477.7 million of cash and cash
equivalents was held by our foreign subsidiaries. If these funds are needed for
our operations in the U.S., the repatriation of these funds could still be
subject to the foreign withholding tax following the U.S. Tax Reform. However,
our intent is to permanently reinvest these funds outside of the U.S. and our
current plans do not require repatriation to fund our U.S. operations.

Net cash used in operating activities increased for fiscal 2020 as compared to
fiscal 2019 due to improved cash operating results from an increase in service
revenues, partially offset by an increase in yard operations and general and
administrative expenses, and changes in operating assets and liabilities. The
change in operating assets and liabilities was primarily the result of an
increase of funds received on accounts receivables of $76.8 million, decreases
in funds used to pay accounts payable of $30.5 million, cash generated from the
sale of inventory of $25.1 million, decreases in funds primarily used to pay
land acquisition deposits of of $12.4 million, and partially offset by net
income taxes receivable of $3.6 million primarily related to excess tax benefits
from stock option exercises.

Net cash used in investing activities increased for fiscal 2020 as compared to
fiscal 2019 due primarily to increases in capital expenditures and acquisitions,
partially offset by proceeds from the sale of assets. Our capital expenditures
are primarily related to lease buyouts of certain facilities, acquiring land,
opening and improving facilities, capitalized software development costs for new
software for internal use and major software enhancements, and acquiring yard
equipment. We continue to develop, expand, and invest in new and existing
facilities and standardize the appearance of existing locations. As of July 31,
2020, we have no material non-cancelable commitments for future capital
expenditures. Capitalized software development costs were $13.2 million, $8.4
million and $7.4 million for fiscal 2020, 2019 and 2018, respectively. If, at
any 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.

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Net cash used in financing activities decreased in fiscal 2020 as compared to
fiscal 2019 due primarily to lower repurchases of our common stock as part of
our stock repurchase program as discussed in further detail under the subheading
"Stock Repurchases", and an increase in proceeds from the exercise of stock
options, partially offset by payments for employee stock-based tax withholdings
as discussed in further detail under the subheading "Stock Repurchases"and the
Notes to Consolidated Financial Statements, Note 11 - Stockholders' Equity, debt
issuance costs for the restructuring of our revolving loan facility as discussed
in further detail under the subheading Credit Agreement, and payments on .

For a discussion of fiscal 2019 as compared to fiscal 2018, please refer to Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations in our   Form 10-K   for the fiscal year ended July 31,
2019, filed with the SEC on   September 30, 2019  .

Contractual Obligations


We lease certain domestic and foreign facilities, and certain equipment under
non-cancelable operating leases. In addition to the minimum future lease
commitments presented, the leases generally require us to pay property taxes,
insurance, maintenance and repair costs which are not included in the table
because we have determined these items are not material. The following table
summarizes our significant contractual obligations and commercial commitments as
of July 31, 2020:
                                                                            

Payments Due by Fiscal Year

                                         Less than                                                More than
(In thousands)                             1 year           1-3 Years          3-5 Years           5 Years             Other             Total
Contractual Obligations
Long-term debt, revolving loan
facility, including current
portion (1)                             $       -          $       -          $ 100,000$ 300,000          $      -          $ 400,000
Interest payments on long-term
debt, revolving loan facility,
including current portion (1)              19,426             38,788             31,007             34,354                 -            123,575
Operating leases (2)                       27,718             41,974             25,136             45,807                 -            140,635
Finance leases (2)                            768                558                 13                  -                 -              1,339
Tax liabilities (3)                             -                  -                  -                  -            44,965             44,965
Total contractual obligations           $  47,912$  81,320$ 156,156$ 380,161$ 44,965$ 710,514



                                                                                   Amount of Commitment Expiration Per Period
                                                     Less than                                                  More than
Commercial Commitments (4)                             1 year             1-3 Years          3-5 Years           5 Years            Other             Total
Letters of Credit                                 $      24,590          $       -          $       -          $       -          $     -          $ 24,590


(1)Revolving loan facility payments of zero and related interest payments
reflect management's intent for the use of the Revolving Loan Facility, which
may change on a quarter by quarter basis.
(2)Contractual obligations consist of future non-cancelable minimum lease
payments under finance and operating leases, used in the normal course of
business.
(3)Tax liabilities include the long-term liabilities in the consolidated balance
sheet for unrecognized tax positions. At this time, we are unable to make a
reasonably reliable estimate of the timing of payments in individual years
beyond 12 months due to uncertainties in the timing of tax audit outcomes.
(4)Commercial commitments consist primarily of letters of credit provided for
insurance programs and certain business transactions including cash
collateralized bank guarantees.

Stock Repurchases


On September 22, 2011, our Board of Directors approved an 80 million share
increase in the stock repurchase program, bringing the total current
authorization to 196 million shares. The repurchases may be effected through
solicited or unsolicited transactions in the open market or in privately
negotiated transactions. No time limit has been placed on the duration of the
stock repurchase program. Subject to applicable securities laws, such
repurchases will be made at such times and in such amounts as we deem
appropriate and may be discontinued at any time. For fiscal 2020 and 2018, we
did not repurchase any shares of our common stock under the program. For fiscal
2019, we repurchased 7,635,596 shares of our common stock under the program at a
weighted average price of $47.81 per share totaling $365.0 million. As of
July 31, 2020, the total number of shares repurchased under the program was
114,549,198 and 81,450,802 shares were available for repurchase under our
program.

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In fiscal 2018, certain members of our Board of Directors exercised stock
options through cashless exercises. During fiscal 2019, our former President
exercised all of his vested stock options through a cashless exercise. In fiscal
2020, our Chief Executive Officer exercised all of his vested stock options
through a cashless exercise. A portion of the options exercised were net settled
in satisfaction of the exercise price. We remitted $101.3 million, $45.6 million
and no amounts for the years ended July 31, 2020, 2019 and 2018, respectively,
to the proper taxing authorities in satisfaction of the employees' statutory
withholding requirements.

The exercised stock options, utilizing a cashless exercise, are summarized in
the following table:
                                                                                                                                                                                                      Employee Stock
                                                                                                                                                                           Weighted Average             Based Tax
                                                     Weighted Average        Shares Net Settled         Shares Withheld for Taxes                                          Share Price for           Withholding (in
Period                     Options Exercised          Exercise Price            for Exercise                       (1)                   Net Shares to Employees             Withholding                  000s)
FY 2018-Q2                      80,000               $        6.54                    11,996                               -                      68,004                 $           43.60          $             -
FY 2019-Q3                   3,000,000                       17.81                   945,162                         806,039                   1,248,799                             56.53                   45,565
FY 2020-Q1                   4,000,000                       17.81                   865,719                       1,231,595                   1,902,686                             82.29                  101,348

(1)Shares withheld for taxes are treated as a repurchase of shares for accounting purposes but do not count against our stock repurchase program.

Credit Agreement


On December 3, 2014, we entered into a Credit Agreement (as amended from time to
time, the "Credit Amendment") with Wells Fargo Bank, National Association, as
administrative agent, and Bank of America, N.A., as syndication agent. The
Credit Agreement provided for (a) a secured revolving loan facility in an
aggregate principal amount of up to $300.0 million (the "Revolving Loan
Facility"), and (b) a secured term loan facility in an aggregate principal
amount of $300.0 million (the "Term Loan"), which was fully drawn at closing.
The Term Loan amortized $18.8 million per quarter.

On March 15, 2016, we entered into a First Amendment to Credit Agreement (the
"Amendment to Credit Agreement") with Wells Fargo Bank, National Association, as
administrative agent and Bank of America, N.A. The Amendment to Credit Agreement
amended certain terms of the Credit Agreement, dated as of December 3, 2014. The
Amendment to Credit Agreement provided for (a) an increase in the secured
revolving credit commitments by $50.0 million, bringing the aggregate principal
amount of the revolving credit commitments under the Credit Agreement to $350.0
million, (b) a new secured term loan (the "Incremental Term Loan") in the
aggregate principal amount of $93.8 million having a maturity date of March 15,
2021, and (c) an extension of the termination date of the Revolving Loan
Facility and the maturity date of the Term Loan from December 3, 2019 to
March 15, 2021. The Amendment to Credit Agreement extended the amortization
period for the Term Loan and decreased the quarterly amortization payments for
that loan to $7.5 million per quarter. The Amendment to Credit Agreement
additionally reduced the pricing levels under the Credit Agreement to a range of
0.15% to 0.30% in the case of the commitment fee, 1.125% to 2.0% in the case of
the applicable margin for LIBOR loans, and 0.125% to 1.0% in the case of the
applicable margin for base rate loans, based on our consolidated total net
leverage ratio during the preceding fiscal quarter. We borrowed the entire $93.8
million principal amount of the Incremental Term Loan concurrent with the
closing of the Amendment to Credit Agreement.

On July 21, 2016, we entered into a Second Amendment to Credit Agreement (the
"Second Amendment to Credit Agreement") with Wells Fargo Bank, National
Association, SunTrust Bank, and Bank of America, N.A., as administrative agent
(as successor in interest to Wells Fargo Bank). The Second Amendment to Credit
Agreement amends certain terms of the Credit Agreement, dated as of December 3,
2014 as amended by the Amendment to Credit Agreement, dated as of March 15,
2016. The Second Amendment to Credit Agreement provides for, among other things,
(a) an increase in the secured revolving credit commitments by $500.0 million,
bringing the aggregate principal amount of the revolving credit commitments
under the Credit Agreement to $850.0 million, (b) the repayment of existing term
loans outstanding under the Credit Agreement, (c) an extension of the
termination date of the revolving credit facility under the Credit Agreement
from March 15, 2021 to July 21, 2021, and (d) increased covenant flexibility.

Concurrent with the closing of the Second Amendment to Credit Agreement, we
prepaid in full the outstanding $242.5 million principal amount of the Term Loan
and Incremental Term Loan under the Credit Agreement without premium or penalty.
The Second Amendment to Credit Agreement reduced the pricing levels under the
Credit Agreement to a range of 0.125% to 0.20% in the case of the commitment
fee, 1.00% to 1.75% in the case of the applicable margin for LIBOR loans, and
0.0% to 0.75% in the case of the applicable margin for base rate loans, in each
case depending on our consolidated total net leverage ratio during the preceding
fiscal quarter.

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On July 21, 2020, we entered into a First Amended and Restated Credit Agreement
with Wells Fargo Bank, National Association, Truist Bank (as successor by merger
to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of
America, N.A., as administrative agent. The First Amended and Restated Credit
Agreement amends certain terms of the Credit Agreement, dated as of December 3,
2014 as amended by the Amendment to Credit Agreement, dated as of March 15,
2016, as amended by the Second Amendment to Credit Agreement, dated as July 21,
2016. The First Amended and Restated Credit Agreement provides for, among other
things, (a) an increase in the secured revolving credit commitments by $200.0
million, bringing the aggregate principal amount of the revolving credit
commitments under the Credit Agreement to $1,050.0 million, and (b) an extension
of the termination date of the revolving credit facility under the Credit
Agreement from July 21, 2021 to July 21, 2023. The First Amended and Restated
Credit Agreement additionally increased the pricing levels under the Credit
Agreement to a range of 0.25% to 0.35% in the case of the commitment fee, 1.50%
to 2.25% in the case of the applicable margin for Eurodollar Rate Loans, and
0.50% to 1.25% in the case of the applicable margin for base rate loans, in each
case depending on our consolidated total net leverage ratio during the preceding
fiscal quarter. The principal purposes of these financing transactions were to
increase the size and availability under our Revolving Loan Facility and to
provide additional long-term financing. The proceeds may be used for general
corporate purposes, including working capital and capital expenditures,
potential share repurchases, acquisitions, or other investments relating to our
expansion strategies in domestic and international markets.

The Revolving Loan Facility under the Credit Agreement bears interest, at our
election, at either (a) the Base Rate, which is defined as a fluctuating rate
per annum equal to the greatest of (i) the Prime Rate in effect on such day;
(ii) the Federal Funds Rate in effect on such date plus 0.50%; or (iii) the
Eurodollar Rate plus 1.0%, subject to an interest rate floor of 0.75%, in each
case plus an applicable margin ranging from 0.50% to 1.25% based on our
consolidated total net leverage ratio during the preceding fiscal quarter; or
(b) the Eurodollar Rate plus an applicable margin ranging from 1.50% to 2.25%
depending on our consolidated total net leverage ratio during the preceding
fiscal quarter. Interest is due and payable in arrears, at the end of each
calendar quarter for loans bearing interest at the Base Rate, and at the end of
an interest period (or at each three month interval in the case of loans with
interest periods greater than three months) in the case of Eurodollar Rate
Loans. The interest rate as of July 31, 2020 on our Revolving Loan Facility was
the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. The carrying
amount of the Credit Agreement is comprised of borrowings under which interest
accrues under a fluctuating interest rate structure. Accordingly, the carrying
value approximated fair value at July 31, 2020, and was classified within Level
II of the fair value hierarchy.

Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed
until the maturity date of July 21, 2023. We are obligated to pay a commitment
fee on the unused portion of the Revolving Loan Facility. The commitment fee
rate ranges from 0.25% to 0.35%, depending on our consolidated total net
leverage ratio during the preceding fiscal quarter, on the average daily unused
portion of the revolving credit commitment under the Credit Agreement. We had no
outstanding borrowings under the Revolving Loan Facility as of July 31, 2020 and
2019.

Our obligations under the Credit Agreement are guaranteed by certain of our
domestic subsidiaries meeting materiality thresholds set forth in the Credit
Agreement. Such obligations, including the guaranties, are secured by
substantially all of our assets and the assets of the subsidiary guarantors
pursuant to a Security Agreement as part of the First Amended and Restated
Credit Agreement, dated July 21, 2020, among us, the subsidiary guarantors from
time to time party thereto, and Bank of America, N.A., as collateral agent.

The Credit Agreement contains customary affirmative and negative covenants,
including covenants that limit or restrict us and our subsidiaries' ability to,
among other things, incur indebtedness, grant liens, merge or consolidate,
dispose of assets, make investments, make acquisitions, enter into transactions
with affiliates, pay dividends, or make distributions on and repurchase stock,
in each case subject to certain exceptions. We are also required to maintain
compliance, measured at the end of each fiscal quarter, with a consolidated
total net leverage ratio and a consolidated interest coverage ratio. The Credit
Agreement contains no restrictions on the payment of dividends and other
restricted payments, as defined, as long as (1) the consolidated total net
leverage ratio, as defined, both before and after giving effect to any such
dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an
unlimited amount, (2) if clause (1) is not available, so long as the
consolidated total net leverage ratio both before and after giving effect to any
such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount
not to exceed the available amount, as defined, and (3) if clauses (1) and (2)
are not available, in an aggregate amount not to exceed $50.0 million; provided,
that, minimum liquidity, as defined, shall be not less than $75.0 million both
before and after giving effect to any such dividend or restricted payment. As of
July 31, 2020, the consolidated total net leverage ratio was (0.03):1. Minimum
liquidity as of July 31, 2020 was $1.5 billion. Accordingly, we do not believe
that the provisions of the Credit Agreement represent a significant restriction
to our ability to pay dividends or to the successful future operations of the
business. We have not paid a cash dividend since becoming a public company in
1994. We were in compliance with all covenants related to the Credit Agreement
as of July 31, 2020.

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

Note Purchase Agreement


On December 3, 2014, we entered into a Note Purchase Agreement and sold to
certain purchasers (collectively, the "Purchasers") $400.0 million in aggregate
principal amount of senior secured notes (the "Senior Notes") consisting of (i)
$100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due
December 3, 2024; (ii) $100.0 million aggregate principal amount of 4.19% Senior
Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal
amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0
million aggregate principal amount of 4.35% Senior Notes, Series D, due
December 3, 2029. Interest is due and payable quarterly, in arrears, on each of
the Senior Notes. Proceeds from the Note Purchase Agreement are being used for
general corporate purposes.

On July 21, 2016, we entered into Amendment No. 1 to Note Purchase Agreement
(the "First Amendment to Note Purchase Agreement") which amended certain terms
of the Note Purchase Agreement, including providing for increased flexibility
substantially consistent with the changes included in the Second Amendment to
Credit Agreement, including among other things increased covenant flexibility.

We may prepay the Senior Notes, in whole or in part, at any time, subject to
certain conditions, including minimum amounts and payment of a make-whole amount
equal to the discounted value of the remaining scheduled interest payments under
the Senior Notes.

Our obligations under the Note Purchase Agreement are guaranteed by certain of
our domestic subsidiaries meeting materiality thresholds set forth in the Note
Purchase Agreement. Such obligations, including the guaranties, are secured by
substantially all of our assets and the assets of the subsidiary guarantors. Our
obligations and our subsidiary guarantors under the Note Purchase Agreement will
be treated on a pari passu basis with the obligations of those entities under
the Credit Agreement as well as any additional debt that we may obtain.

The Note Purchase Agreement contains customary affirmative and negative
covenants, including covenants that limit or restrict us and our subsidiaries'
ability to, among other things, incur indebtedness, grant liens, merge or
consolidate, dispose of assets, make investments, make acquisitions, enter into
transactions with affiliates, pay dividends, or make distributions and
repurchase stock, in each case subject to certain exceptions. We are also
required to maintain compliance, measured at the end of each fiscal quarter,
with a consolidated total net leverage ratio and a consolidated interest
coverage ratio. The Note Purchase Agreement contains no restrictions on the
payment of dividends and other restricted payments, as defined, as long as (1)
the consolidated total net leverage ratio, as defined, both before and after
giving effect to any such dividend or restricted payment on a pro forma basis,
is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available,
so long as the consolidated total net leverage ratio both before and after
giving effect to any such dividend on a pro forma basis is less than 3.50:1, in
an aggregate amount not to exceed the available amount, as defined, and (3) if
clauses (1) and (2) are not available, in an aggregate amount not to exceed
$50.0 million; provided, that, minimum liquidity, as defined, shall be not less
than $75.0 million both before and after giving effect to any such dividend or
restricted payment on a pro forma basis. As of July 31, 2020, the consolidated
total net leverage ratio was (0.03):1. Minimum liquidity as of July 31, 2020 was
$1.5 billion. Accordingly, we do not believe that the provisions of the Note
Purchase Agreement represent a significant restriction to our ability to pay
dividends or to the successful future operations of the business. We have not
paid a cash dividend since becoming a public company in 1994. We are in
compliance with all covenants related to the Note Purchase Agreement as of
July 31, 2020.

Off-Balance Sheet Arrangements


As of July 31, 2020, we had no off-balance sheet arrangements pursuant to Item
303(a)(4) of Regulation S-K promulgated under the Securities Exchange Act of
1934, as amended.

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Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Estimates include, but are not limited to, vehicle pooling
costs; income taxes; stock-based compensation; purchase price allocations; and
contingencies. We base our estimates on historical experience and on various
other judgments that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.

Management has discussed the selection of critical accounting policies and
estimates with the Audit Committee of the Board of Directors and the Audit
Committee has reviewed our disclosure relating to critical accounting policies
and estimates in this Annual Report on Form 10-K. Our significant accounting
policies are described in the Notes to Consolidated Financial Statements, Note 1
- Summary of Significant Accounting Policies. The following is a summary of the
more significant judgments and estimates included in our critical accounting
policies used in the preparation of our consolidated financial statements. We
discuss, where appropriate, sensitivity to change based on other outcomes
reasonably likely to occur.

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes in Part I., Item I., "Financial Statements."

Revenue Recognition


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

There were no contract liabilities on the consolidated balance sheets at
July 31, 2020. Our disaggregation between service revenues and vehicle sales at
the segment level reflects how the nature, timing, amount and uncertainty of our
revenues and cash flows are impacted by economic factors. We report sales taxes
on relevant transactions on a net basis in our consolidated results of
operations, and therefore do not include sales taxes in revenues or costs.

Service revenues


Our service revenue consists of auction and auction related sales transaction
fees charged for vehicle remarketing services. Within this revenue category, our
primary performance obligation is the auctioning of consigned vehicles through
an online auction process. These auction and auction related services may
include a combination of vehicle purchasing fees, vehicle listing fees, and
vehicle selling fees that can be based on a predetermined percentage of the
vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee
based on the sale of each vehicle regardless of the selling price of the
vehicle; transportation fees for the cost of transporting the vehicle to or from
our facility; title processing and preparation fees; vehicle storage fees;
bidding fees; and vehicle loading fees. These services are not distinct within
the context of the contract. Accordingly, revenue for these services is
recognized when the single performance obligation is satisfied at the completion
of the auction process. We do not take ownership of these consigned vehicles,
which are stored at our facilities located throughout the U.S. and at its
international locations. These fees are recognized as net revenue (not gross
vehicle selling price) at the time of auction in the amount of such fees
charged.

We have a separate performance obligation related to providing access to our
online auction platform. We charge members an annual registration fee for the
right to participate in our online auctions and access our bidding platform.
This fee is recognized ratably over the term of the arrangement, generally one
year, as each day of access to the online auction platform represents the best
depiction of the transfer of the service.

No provision for returns has been established, as all sales are final with no
right of return or warranty, although we provide for bad debt expense in the
case of non-performance by our buyers or sellers.
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                                                                                                      Year Ended July 31,
(In thousands)                                                                                 2020                          2019                         2018
Service revenues
             United States                                                 $ 1,714,724$ 1,537,431$ 1,385,238
             International                                                     232,416                       218,263                       193,264
Total service revenues                                                                    $ 1,947,140$ 1,755,694$ 1,578,502


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.

                                                    Year Ended July 31,
(In thousands)                                 2020                    2019                    2018
Vehicle sales
            United States       $ 145,962$ 119,138$ 105,784
            International         112,481                 167,125                 121,409
Total vehicle sales                         $ 258,443               $
286,263               $ 227,193



Contract assets

We capitalize certain contract assets related to obtaining a contract, where the
amortization period for the related asset is greater than one year. These assets
are amortized over the expected life of the customer relationship. Contract
assets are classified as current or long-term other assets, based on the timing
of when we expect to recognize the related revenues and are amortized as an
offset to the associated revenues on a straight-line basis. We assess these
costs for impairment at least quarterly and as "triggering" events occur that
indicate it is more likely than not that an impairment exists. The contract
asset costs where the amortization period for the related asset is one year or
less are expensed as incurred and recorded within general and administrative
expenses in the accompanying statements of income.

Vehicle Pooling Costs


We defer costs that relate directly to the fulfillment of our contracts
associated with vehicles consigned to and received by us, but not sold as of the
end of the period. We quantify the deferred costs using a calculation that
includes the number of vehicles at our facilities at the beginning and end of
the period, the number of vehicles sold during the period and an allocation of
certain yard operation costs of the period. The primary expenses allocated and
deferred are inbound transportation costs, titling fees, certain facility costs,
labor, and vehicle processing. If the allocation factors change, then yard
operation expenses could increase or decrease correspondingly in the future.
These costs are expensed into yard operations expenses as vehicles are sold in
subsequent periods on an average cost basis.

Fair Value of Financial Instruments


We record our financial assets and liabilities at fair value in accordance with
the framework for measuring fair value in U.S. GAAP. In accordance with
Accounting Standards Codification ("ASC") 820, Fair Value Measurements and
Disclosures, as amended by Accounting Standards Update ("ASU") 2011-04, we
consider fair value as an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants under current market conditions. This
framework establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value:
Level I  Observable inputs that reflect unadjusted quoted prices for identical
assets or liabilities traded in active markets.
Level II  Inputs other than quoted prices included within Level I that are
observable for the asset or liability, either directly or indirectly.
Level III  Inputs that are generally unobservable. These inputs may be used with
internally developed methodologies that result in management's best estimate.

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The amounts recorded for financial instruments in our consolidated financial
statements, which included cash, accounts receivable, accounts payable, accrued
liabilities and Revolving Loan Facility approximated their fair values for
fiscal 2020 and 2019 due to the short-term nature of those instruments and are
classified within Level II of the fair value hierarchy. Cash equivalents are
classified within Level II of the fair value hierarchy because they are valued
using quoted market prices of the underlying investments. See Notes to
Consolidated Financial Statements, Note 8 - Long-Term Debt and Note 9 - Fair
Value Measures.

Capitalized Software Costs

We capitalize system development costs and website development costs related to
our enterprise computing services during the application development stage.
Costs related to preliminary project activities and post implementation
activities are expensed as incurred. Internal-use software is amortized on a
straight-line basis over its estimated useful life, generally three to seven
years. Management evaluates the useful lives of these assets on an annual basis
and tests for impairment whenever events or changes in circumstances occur that
impact the recoverability of these assets. Total gross capitalized software as
of July 31, 2020 and 2019 was $52.6 million and $39.4 million, respectively.
Accumulated amortization expense related to software as of July 31, 2020 and
2019 totaled $33.5 million and $23.6 million, respectively. During the year
ended July 31, 2018, we retired fully amortized capitalized software of $15.5
million, which were no longer being utilized.

Valuation of Goodwill


We evaluate the impairment of goodwill for our reporting units annually or on an
interim basis if certain indicators are present, either through a quantitative
or qualitative analysis. The annual goodwill impairment analysis, which was
performed qualitatively during the fourth quarter of fiscal 2020, considered all
relevant factors specific to our reporting units, including macroeconomic
conditions; industry and market considerations; overall financial performance;
the impact of the COVID-19 pandemic; and relevant entity-specific events.
Management considered the above factors noting none involved significant
uncertainty. In addition, the industry in which we operate improved over the
observable period, and our calculated fair value exceeded carrying value for
each reporting unit by a substantial amount in our prior year quantitative
analysis, indicating no material risk as of July 31, 2020, with respect to
potential goodwill impairments.

Income Taxes and Deferred Tax Assets


We account for income tax exposures as required under ASC 740, Income Taxes
("ASC 740"). We are subject to income taxes in the U.S., Canada, the U.K.,
Brazil, Spain, Finland, Germany, and other emerging markets around the world. In
arriving at a provision of income taxes, we first calculate taxes payable in
accordance with the prevailing tax laws in the jurisdictions in which we
operate. Then we analyze the timing differences between the financial reporting
and tax basis of our assets and liabilities, such as various accruals,
depreciation and amortization. The tax effects of the timing difference are
presented as deferred tax assets and liabilities in the consolidated balance
sheets. We consider the need to maintain a valuation allowance on deferred tax
assets based on management's assessment of whether it is more likely than not
that we would realize those deferred tax assets based on future reversals of
existing taxable temporary differences and the ability to generate sufficient
taxable income within the carryforward period available under the applicable tax
law. As of July 31, 2020, we have $15.4 million of valuation allowance arising
from both our U.S. and International operations. To the extent we establish a
valuation allowance or change the amount of valuation allowance in a period, we
reflect the change with a corresponding increase or decrease in our income tax
provision in the consolidated statements of income.

Historically, our income tax provision has been sufficient to cover our actual
income tax liabilities among the jurisdictions in which we operate. Nonetheless,
our future effective tax rate could still be adversely affected by several
factors, including (i) the geographical allocation of our future earnings; (ii)
the change in tax laws or our interpretation of tax laws; (iii) the changes in
governing regulations and accounting principles; (iv) the changes in the
valuation of our deferred tax assets and liabilities; and (v) the outcome of the
income tax examinations. We routinely assess the possibilities of material
changes resulting from the aforementioned factors to determine the adequacy of
our income tax provision. The repatriation of our accumulated foreign earnings
could also affect our effective tax rate, nevertheless, we intend to
indefinitely reinvest these earnings in our foreign operations and do not
anticipate the need for any of our foreign subsidiaries' cash in the U.S.
operations. Accordingly, we do not provide for U.S. federal income and foreign
withholding tax on these earnings.

We file annual income tax returns in multiple taxing jurisdictions. A number of
years may elapse before an uncertain tax position is audited by the relevant tax
authorities and finally resolved. We recognize and measure uncertain tax
positions in accordance with ASC 740, pursuant to which we only recognize the
tax benefit from an uncertain tax position if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in
the financial statements from such positions are then measured based on the
largest
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benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. We report a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax return. ASC 740
further requires that a change in judgment related to the expected ultimate
resolution of uncertain tax positions be recognized in earnings in the quarter
in which such change occurs. We recognize interest and penalties, if any,
related to unrecognized tax benefits in income tax expense.

We believe that our reserves for income taxes reflect the most likely outcome.
We adjust these reserves, as well as the related interest, where appropriate in
light of changing facts and circumstances. Settlement of any particular position
could require the use of cash.

Stock-based Compensation


We account for stock-based awards to employees and non-employees using the fair
value method as required by ASC 718, Compensation-Stock Compensation ("ASC
718"), which requires the measurement and recognition of compensation expense
for all stock-based awards made to employees, consultants and directors based on
estimated fair value. ASC 718 requires companies to estimate the fair value of
stock-based awards on the measurement date using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is
recognized in expense over the requisite service periods. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.

The fair value of each option, without a market-based condition, was estimated
on the measurement date using the Black-Scholes Merton ("BSM") option-pricing
model. For options that included a market-based condition, the Monte Carlo
simulation model was used. The BSM option pricing model utilizes assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated fair value on the measurement date. If actual
results are not consistent with our assumptions and judgments used in estimating
the key assumptions, we may be required to record additional compensation or
income tax expense, which could have a material impact on our consolidated
results of operations and financial position.

Foreign Currency Translation


We record foreign currency translation adjustments from the process of
translating the functional currency of the financial statements of our foreign
subsidiaries into the U.S. dollar reporting currency. The British pound,
Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial,
and Bahraini dinar are the functional currencies of our foreign subsidiaries, as
they are the primary currencies within the economic environment in which each
subsidiary operates. The original equity investment in the respective
subsidiaries is translated at historical rates. Assets and liabilities of the
respective subsidiary's operations are translated into U.S. dollars at
period-end exchange rates, and revenues and expenses are translated into U.S.
dollars at average exchange rates in effect during each reporting period.
Adjustments resulting from the translation of each subsidiary's financial
statements are reported in other comprehensive income.

Accounting for Acquisitions


We recognize and measure identifiable assets acquired and liabilities assumed in
acquired entities in accordance with ASC 805, Business Combinations. The
allocation of the purchase consideration for acquisitions can require extensive
use of accounting estimates and judgments to allocate the purchase consideration
to the identifiable tangible and intangible assets acquired and liabilities
assumed based on their respective fair values. The excess of the fair value of
purchase consideration over the values of the identifiable assets and
liabilities is recorded as goodwill. Critical estimates in valuing certain
identifiable assets include but are not limited to expected long-term revenues;
future expected operating expenses; cost of capital; appropriate attrition; and
discount rates.

Segment Reporting

Our U.S. and International regions are considered two separate operating
segments and are disclosed as two reportable segments. The segments represent
geographic areas and reflect how the chief operating decision maker allocates
resources and measures results, including total revenues and operating income.
Our revenues for the year ended July 31, 2020 were distributed as follows: U.S.
84.4% and International 15.6%. Geographic information as well as comparative
segment revenues and related financial information pertaining to the U.S. and
International segments for the years ended July 31, 2020, 2019 and 2018 are
presented in the tables in Note 13 - Segments and Other Geographic Reporting, to
the Notes to Consolidated Financial Statements, which are included in Part II,
Item 8 of this Form 10-K.

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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.

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