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), 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-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. We are not responsible for the carbon emissions resulting from new vehicle manufacturing, governmental fuel emissions standards or vehicle use by consumers. Each vehicle that enters our business operations already exists, with whatever fuel technology and efficiency it was designed and built to have, and the substantial carbon emissions associated with the vehicle's manufacture have already occurred. However, upon our receipt of an existing vehicle, we help decrease its total environmental impact by extending its useful life and thereby avoiding the carbon emissions associated with the alternative of new vehicle and auto parts manufacturing. For example, many of the cars we process and remarket are subsequently restored to 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 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, vehicle rental companies, and individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and to the general public. The majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss; not economically repairable by the insurance companies; or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. We offer vehicle sellers a full range of services that help expedite each stage of the vehicle sales process, minimize administrative and processing costs, and maximize the ultimate sales price through the online auction process. 18 -------------------------------------------------------------------------------- Table of Contents 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. 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) market demand for rebuildable, driveable vehicles; (ii) used car pricing, which we also believe has an impact on total loss frequency; (iii) end market demand for recycled and refurbished parts as reflected in demand from dismantlers; (iv) the mix of cars sold; (v) changes in 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 change in used car values and repair costs, which we believe are generally trending upward. Changes in used car prices and repair costs, may impact total loss frequency and affect our growth rate. Used car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average age of cars on the road. The average age of cars on the road continued to increase, growing from 9.6 years in 2002 to 12.1 years in 2021. Repair costs are generally based on damage severity, vehicle complexity, repair parts availability, repair parts costs, labor costs, and repair shop lead times. The factors that can influence repair costs, used car pricing, and auction returns are many and varied and we cannot predict their movements. Accordingly, we cannot predict future trends in total loss frequency. Beginning inMarch 2020 , our business and operations began to experience the impact of the worldwide COVID-19 pandemic. In materially all of our jurisdictions, we have been deemed by local authorities an essential business because our operations ensure the removal of vehicles from repair shops, impound yards, and streets and highways, enabling the critical function of road infrastructure. As a result, we have continued to operate our facilities as well as our online-only auctions, while following appropriate health and safety protocols to ensure safe working conditions for our employees as well as for our sellers, buyers, and other business partners with whom we come in contact. From a financial perspective, our operating results were adversely affected by lower processed vehicle volume, but these adverse effects were more than offset by corresponding increases in vehicle average sales prices. Although we initially saw substantial declines in vehicle assignments following the onset of the COVID-19 pandemic, which we attribute principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the globe, we have generally seen vehicle assignment volumes steadily recovering; however additional subsequent shelter-in-place orders have occasionally stalled or regressed the assignment volume commensurate with the severity and duration of such orders. We cannot predict how the pandemic will continue to develop, whether and to what extent new shelter-in-place orders will be issued, or to what extent the pandemic may have longer term unanticipated impacts on our markets, including, for example, the risk of long-term reductions in miles driven. 19 -------------------------------------------------------------------------------- Table of Contents Although we have been deemed an "essential business" in the jurisdictions in which we operate and have largely been able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time. We adjusted, but did not make material modifications to, our operating expenses to be able to continue providing employment for our employees, service to our sellers, and process incoming vehicles for sale in future quarters. The pandemic may have an adverse effect on our future revenues, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets. We believe that the longer-term impact on our business will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; additional outbreaks of COVID-19 in one or more of our geographic markets; a reduction in miles driven due to one or more factors relating to the COVID-19 pandemic; the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sales prices obtained at auction for the vehicles assigned to us for remarketing; 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 Quarterly Report on Form 10-Q captioned "Risk Factors." Operating Costs and Expenses: Yard operations expenses consist primarily of operating personnel (which includes yard management, clerical, and yard employees); rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and repair; marketing costs directly related to the auction process; and costs of vehicles sold under the purchase contracts. General and administrative expenses consist primarily of executive management; accounting; data processing; sales personnel; professional services; marketing expenses; and system maintenance and enhancements. Other (Expense) Income: Other (expense) income consists primarily of interest expense on long-term debt, see Notes to Unaudited Consolidated Financial Statements, Note 6 - Long-Term Debt; foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; and earnings from unconsolidated affiliates. Liquidity and Cash Flows: Our primary source of working capital is cash operating results and debt financing. The primary source of our liquidity is our cash and cash equivalents and Revolving Loan Facility. The primary factors affecting cash operating results are: (i) seasonality; (ii) market wins and losses; (iii) supplier mix; (iv) accident frequency; (v) total loss frequency; (vi) volume from our existing suppliers; (vii) commodity pricing; (viii) used car pricing; (ix) foreign currency exchange rates; (x) product mix; (xi) contract mix to the extent applicable; (xii) our capital expenditures; and (xiii) other macroeconomic factors such as COVID-19. These factors are further discussed in the Results of Operations and Risk Factors sections of this Quarterly Report on Form 10-Q. Potential internal sources of additional working capital and liquidity are the sale of assets or the issuance of shares through option exercises and shares issued under our Employee Stock Purchase Plan. A potential external source of additional working capital and liquidity is the issuance of additional debt or equity. However, we cannot predict if these sources will be available in the future or on commercially acceptable terms. Acquisitions and New Operations As part of our overall expansion strategy of offering integrated services to vehicle sellers, we anticipate acquiring and developing facilities in new regions, as well as the regions currently served by our facilities. We believe that these acquisitions and openings will strengthen our coverage, as we have facilities located in theU.S. ,Canada , theU.K. ,Brazil , theRepublic of Ireland ,Germany ,Finland , theU.A.E. ,Oman ,Bahrain , andSpain with the intention of providing global coverage for our sellers. 20 -------------------------------------------------------------------------------- Table of Contents The following tables set forth operational facilities that we have opened and are now operational fromAugust 1, 2020 throughOctober 31, 2021 : United States Locations Date Redding, California August 2020 Dothan, Alabama August 2020 Jacksonville, Florida August 2020 Milwaukee, Wisconsin September 2020 Houston, Texas December 2020 Knightdale, North Carolina March 2021 Gastonia, North Carolina May 2021 Bismarck, North Dakota June 2021 Fairburn, Georgia July 2021 Dyer, Indiana July 2021 Mobile South, Alabama August 2021 International Locations Geographic Service Area Date Bruchmühlbach-Miesau, Rhineland-Palatinate (Mannheim) Germany February 2021 Mallorca, Balearic Islands Spain April 2021 Halifax, Novia Scotia Canada September 2021 The period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions, new openings, weather and product introductions during such periods. In addition to growth through business acquisitions, we seek to increase revenues and profitability by, among other things, (i) acquiring and developing additional vehicle storage facilities in key markets, including foreign markets; (ii) pursuing global, national, and regional vehicle seller agreements; (iii) increasing our service offerings; and (iv) expanding the application of VB3 into new markets. In addition, we implement our pricing structure and auction procedures, and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures, integrating our management information systems, and redeploying personnel, when necessary. 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, 2021 and 2020: Three Months Ended October 31, (In percentages) 2021 2020 Service revenues and vehicle sales: Service revenues 82 % 87 % Vehicle sales 18 % 13 % Total service revenues and vehicle sales 100 % 100 % Operating expenses: Yard operations 37 % 39 % Cost of vehicle sales 16 % 11 % General and administrative 7 % 8 % Total operating expenses 60 % 58 % Operating income 40 % 42 % Other expense (1) % - % Income before income taxes 39 % 42 % Income taxes 8 % 8 % Net income 31 % 34 % 21
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Comparison of the Three Months Ended
Three Months Ended October 31,
(In thousands) 2021 2020 Change % Change
Service revenues
United States $ 590,758 $ 450,235 $ 140,523 31.2 %
International 77,060 65,137 11,923 18.3 %
Total service revenues $ 667,818 $ 515,372 $ 152,446 29.6 %
Service Revenues. The increase in service revenues during the three months ended
October 31, 2021 of $152.4 million , or 29.6%, as compared to the same period
last year resulted from (i) an increase in the U.S. of $140.5 million and (ii)
an increase in International of $11.9 million . The growth in the U.S. was driven
primarily by (i) an increase in revenue per car, (ii) an increase in volume
resulting from higher miles driven due to the reopening of the United States
economy and restriction within the global supply chain for automobiles.
Excluding the beneficial impact of $3.2 million due to changes in foreign
currency exchange rates, primarily from the change in the British pound,
Brazilian real and Canadian dollar to U.S. dollar exchange rates, the growth in
International was driven primarily by an increase in volume from higher miles
driven due to the reopening of the International economies and restrictions
within the global supply chain for automobiles.
The following table presents a comparison of vehicle sales for the three months
ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands) 2021 2020 Change % Change
Vehicle sales
United States $ 87,703 $ 47,020 $ 40,683 86.5 %
International 54,611 30,548 24,063 78.8 %
Total vehicle sales $ 142,314 $ 77,568 $ 64,746 83.5 %
Vehicle Sales. The increase in vehicle sales for the three months ended October
31, 2021 of $64.7 million , or 83.5%, as compared to the same period last year,
resulted from (i) an increase in the U.S. of $40.7 million and (ii) an increase
in International of $24.1 million . The increase in the U.S. was primarily the
result of higher average auction selling prices, which we believe was due to a
change in the mix of vehicles sold; increased demand; and reduced supply.
Excluding a beneficial impact of $0.7 million due to changes in foreign currency
exchange rates, primarily from the change in the British pound, Brazilian real
and Canadian dollar to U.S. dollar exchange rates, the increase in International
was primarily the result of higher average auction selling prices, an increase
in volume resulting from higher miles driven due to the reopening of the
International economies and restrictions within the global supply chain for
automobiles.
The following table presents a comparison of yard operations expenses for the
three months ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands) 2021 2020 Change % Change
Yard operations expenses
United States $ 256,621 $ 194,419 $ 62,202 32.0 %
International 42,073 37,392 4,681 12.5 %
Total yard operations expenses $ 298,694 $ 231,811 $ 66,883 28.9 %
Yard operations expenses, excluding depreciation and
amortization
United States $ 234,019 $ 173,711 $ 60,308 34.7 %
International 38,233 34,806 3,427 9.8 %
Yard depreciation and amortization
United States $ 22,602 $ 20,708 $ 1,894 9.1 %
International 3,840 2,586 1,254 48.5 %
22-------------------------------------------------------------------------------- Table of Contents Yard Operations Expenses. The increase in yard operations expense for the three months endedOctober 31, 2021 of$66.9 million , or 28.9%, as compared to the same period last year resulted from (i) an increase in theU.S. of$62.2 million , and (ii) an increase in International of$4.7 million . Excluding depreciation and amortization, the increase in theU.S. compared to the same period last year relates to an increase in volume as a result of the reopening ofthe United States economy combined with an increase in the cost to process each car. The increase in cost to process each car was driven by increased non-CAT related subhaul costs combined with an increase in premiums for CAT related subhaul, labor costs incurred from overtime, and increased travel, lodging, and equipment lease cost associated with Hurricane Ida. The increase in International was primarily driven by the increase in volume following the reopening of International economies, combined with a detrimental increase in foreign currency exchange rates of$1.3 million primarily from the British pound and Brazilian Real toU.S. Dollar exchange rate partially offset by a decrease in the cost to process each car Included in yard operations expenses were depreciation and amortization expenses. The increase in yard operations depreciation and amortization expenses during the three months endedOctober 31, 2021 as compared to the same period last year resulted primarily from depreciating new and expanded facilities placed into service in theU.S. and International locations. The following table presents a comparison of cost of vehicle sales for the three months endedOctober 31, 2021 and 2020: Three Months Ended October 31, (In thousands) 2021 2020 Change % Change Cost of vehicle sales United States$ 80,342 $ 41,506 $ 38,836 93.6 % International 46,066 22,854 23,212 101.6 % Total cost of vehicle sales$ 126,408 $ 64,360 $ 62,048 96.4 % Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months endedOctober 31, 2021 of$62.0 million , or 96.4%, as compared to the same period last year resulted from (i) an increase in theU.S. of$38.8 million and (ii) an increase in International of$23.2 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, increased demand; and reduced supply. Excluding the detrimental impact of$0.4 million due to changes in foreign currency exchange rates, primarily from the change in the British pound toU.S. dollar exchange rates, the increase in International was primarily the result of higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand; and reduced supply. The following table presents a comparison of general and administrative expenses for the three months endedOctober 31, 2021 and 2020: Three Months Ended October 31, (In thousands) 2021 2020 Change % Change General and administrative expenses United States$ 46,548 $ 39,738 $ 6,810 17.1 % International 8,361 8,437 (76) (0.9) % Total general and administrative expenses$ 54,909 $ 48,175 $ 6,734 14.0 % General and administrative expenses, excluding depreciation and amortization United States$ 41,423 $ 34,284 $ 7,139 20.8 % International 8,163 8,236 (73) (0.9) %
General and administrative depreciation and amortization
United States $ 5,125 $ 5,454 $ (329) (6.0) %
International 198 201 (3) (1.5) %
General and Administrative Expenses. The increase in general and administrative
expenses for the three months ended October 31, 2021 of $6.7 million , or 14.0%,
as compared to the same period last year resulted from (i) a decrease in
International of $0.1 million and (ii) an increase in the U.S. of $6.8 million .
Excluding depreciation and amortization, the decrease in International of $0.1
million resulted primarily from lower current period costs including decreased
travel costs. The increase in the U.S. of $7.1 million resulted primarily from
increases in stock compensation and increased legal costs. Depreciation and
amortization expenses for the three months ended October 31, 2021 as compared to
the same period last year were relatively flat in both the U.S. and
International locations.
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The following table summarizes total other expense and income taxes for the
three months ended
Three Months Ended October 31,
(In thousands) 2021 2020 Change % Change
Total other expense $ (4,295) $ (1,779) $ (2,516) (141.4) %
Income taxes 65,463 46,530 18,933 40.7 %
Other Expense. The increase in total other expense for the three months ended
October 31, 2021 of $2.5 million as compared to the same period last year was
primarily due to lower earnings of unconsolidated affiliates, and losses on
disposal of certain non-operating assets in the current year, partially offset
by higher currency gains in the current year.
Income Taxes. Our effective income tax rates were 20.1%, and 18.9% for the three
months ended October 31, 2021 and 2020, respectively. The effective tax rate for
the three months ended October 31, 2021 was impacted by the recognition of
excess tax benefits from stock-based compensation. The recognition of excess tax
benefits from stock-based compensation was $3.0 million and $11.8 million for
the three months ended October 31, 2021 and 2020, respectively.
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Liquidity and Capital Resources
The following table presents a comparison of key components of our liquidity and
capital resources at October 31, 2021 and July 31, 2021 and for the three months
ended October 31, 2021 and 2020, respectively, excluding additional funds
available to us through our Revolving Loan Facility:
(In thousands) October 31, 2021 July 31, 2021 Change % Change
Cash, cash equivalents, and restricted cash $ 1,298,373 $ 1,048,260 $ 250,113 23.9 %
Working capital 1,547,869 1,281,580 266,289 20.8 %
Three Months Ended October 31,
(In thousands) 2021 2020 Change % Change
Operating cash flows $ 312,540 $ 258,533 $ 54,007 20.9 %
Investing cash flows (63,883) (146,822) 82,939 56.5 %
Financing cash flows 5,166 19,198 (14,032) (73.1) %
Capital expenditures and acquisitions
Cash, cash equivalents, and restricted cash and working capital increased$250.1 million and$266.3 million atOctober 31, 2021 , respectively, as compared toJuly 31, 2021 . Cash, cash equivalents, and restricted cash increased primarily due to cash generated from operations and proceeds from stock option exercises not fully offset by capital expenditures. Working capital increased primarily from cash generated from operations and timing of cash receipts and payments, partially offset by capital expenditures, certain income tax benefits related to stock option exercises, and timing of cash payments. Cash equivalents consisted of bank deposits, domestic certificates of deposit,U.S. Treasury Bills, and funds invested in money market accounts, which bear interest at variable rates. Historically, we have financed our growth through cash generated from operations, public offerings of common stock, equity issued in conjunction with certain acquisitions and debt financing. Our primary source of cash generated by operations is from the collection of service fees and reimbursable advances from the proceeds of vehicle sales. We expect to continue to use cash flows from operations to finance our working capital needs and to develop and grow our business. In addition to our stock repurchase program, we are considering a variety of alternative potential uses for our remaining cash balances and our cash flows from operations. These alternative potential uses include additional stock repurchases, repayments of long-term debt, the payment of dividends, and acquisitions. For further detail, see Notes to Unaudited Consolidated Financial Statements, Note 6 - Long-Term Debt and Note 10 - 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 5% to 20% more vehicles than at other times of the year. Severe weather events, including but not limited to tornadoes, hurricanes, and hailstorms, can also impact our volumes. These increased volumes require the increased use of our cash to pay out advances and handling costs of the additional business. We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements for the foreseeable future. We expect to acquire or develop additional locations and expand some of our current facilities in the foreseeable future. We may be required to raise additional cash through drawdowns on our Revolving Loan Facility or issuance of additional equity to fund this expansion. Although the timing and magnitude of growth through expansion and acquisitions are not predictable, the opening of new greenfield yards is contingent upon our ability to locate property that (i) is in an area in which we have a need for more capacity; (ii) has adequate size given the capacity needs; (iii) has the appropriate shape and topography for our operations; (iv) is reasonably close to a major road or highway; and (v) most importantly, has the appropriate zoning for our business. Costs to develop a new yard can range from$3.0 to$50.0 million , depending on size, location and developmental infrastructure requirements. As ofOctober 31, 2021 ,$191.2 million of the$1.3 billion of cash, cash equivalents, and restricted cash 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, 2021 as compared to the same period in 2020 due to improved cash operating results primarily from an increase in service revenues and vehicle sales, and changes in operating assets and liabilities. The change in operating assets and liabilities was primarily the result of a decrease in funds received in accounts receivable of$24.8 . million; partially offset by decreases in funds used to pay accounts payable of$18.0 million and increase in funds to pay for vehicle pooling costs of$11 million . 25 -------------------------------------------------------------------------------- Table of Contents Net cash used in investing activities decreased for the three months endedOctober 31, 2021 as compared to the same period in 2020 due primarily to decreased 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. Net cash provided by (used in) financing activities increased for the three months endedOctober 31, 2021 as compared to the same period in 2020 due primarily to lower payments for employee stock based tax withholdings, as discussed in further detail under the subheading "Stock Repurchases", and a decrease in proceeds from the exercise of stock options. Credit Agreement OnJuly 21, 2020 , we entered into a First Amended and Restated Credit Agreement withWells Fargo Bank, National Association ,Truist Bank (as successor by merger toSuntrust Bank ),BMO Harris Bank N.A .,Santander Bank, N.A ., andBank of America, N.A ., as administrative agent (as amended from time to time, the "Credit Amendment"), bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement (the "Revolving Loan Facility") to$1,050.0 million . The carrying amount of the Credit Agreement is comprised of borrowings under which interest accrues under a fluctuating interest rate structure. Accordingly, the carrying value approximated fair value atOctober 31, 2021 , and was classified within Level II of the fair value hierarchy. The interest rate as ofOctober 31, 2021 on our Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date ofJuly 21, 2023 . We had no outstanding borrowings under the Revolving Loan Facility as ofOctober 31, 2021 orJuly 31, 2021 . The Credit Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Credit Agreement as ofOctober 31, 2021 . 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. We may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes. The Note Purchase Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Note Purchase Agreement as ofOctober 31, 2021 . 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, 2021 or 2020. As ofOctober 31, 2021 , the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program. 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; 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. 26
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Table of Contents 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 material 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, 2021 filed with theSEC onSeptember 27, 2021 . 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. 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, 2021 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 ended July 31, 2021, filed with theSEC onSeptember 27, 2021 . Off-Balance Sheet Arrangements As ofOctober 31, 2021 , we had no off-balance sheet arrangements other than a letter of credit and our funding commitments pursuant to surety bonds, none of which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. .
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