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Shareholders' Equity

12 Months Ended

Jul. 31, 2011

(11)

Shareholders’ Equity

General

The Company has authorized the issuance of 180 million shares of common stock, no par value, of which 66,005,517 shares were issued and outstanding at July 31, 2011. As of July 31, 2011 and 2010, the Company has reserved 9,825,924 and 10,630,904 shares of common stock, respectively, for the issuance of options granted under the Company’s stock option plans and 711,710 and 775,306 shares of common stock, respectively, for the issuance of shares under the Copart, Inc. Employee Stock Purchase Plan (ESPP). The Company has authorized the issuance of 5 million shares of preferred stock, no par value, none of which were issued or outstanding at July 31, 2011.

Stock Repurchase

The Company’s Board of Directors has authorized a 29 million share repurchase program. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the stock repurchase program. Subject to applicable securities laws, such repurchases will be made at such times and in such amounts as the Company deems appropriate and may be discontinued at any time. For the year ended July 31, 2011, the Company repurchased 6,682,317 shares of our common stock at an average price of $40.83. For the year ended July 31, 2010, the Company repurchased 121,251 shares of our common stock at a price of $36.76. For the year ended July 31, 2009 the Company did not repurchase any shares under our stock repurchase program. As of July 31, 2011, the total number of shares repurchased under the program was 20,453,037 and 8,546,963 shares were available for repurchase under the program.

Additionally, on January 14, 2011, the Company completed a tender offer to purchase up to 10,526,315 shares of its common stock at a price of $38.00 per share. Directors and executive officers of Copart were expressly prohibited from participating in the tender offer by our board of directors under the Company’s Securities Trading Policy. In connection with the tender offer, the Company accepted for purchase 12,172,088 shares of its common stock. The shares accepted for purchase are comprised of the 10,526,315 shares the Company offered to purchase and an additional 1,645,773 shares purchased pursuant to the Company’s right to purchase additional shares up to 2% of its outstanding shares. The shares purchased as a result of the tender offer are not part of the Company’s repurchase program. The purchase of the shares of common stock was funded by the proceeds relating to the issuance of $400.0 million of long term debt. The dilutive earnings per share impact of all repurchased shares on the weighted average number of common shares outstanding for the year ended July 31, 2011 is $0.23.

In the second and fourth quarters of fiscal year 2009 and the first quarter of fiscal year 2010, Mr. Adair, Chief Executive Officer (and then President), exercised stock options through cashless exercises. In the fourth quarter of fiscal year 2010, Mr. Johnson, Chairman of the Board, exercised stock options through a cashless exercise. In the second, third and fourth quarters of fiscal year 2011 certain executive officers exercised stock

options through cashless exercises. A portion of the options exercised were net settled in satisfaction of the exercise price and federal and state minimum statutory tax withholding requirements. The Company remitted $4.2 million, $7.4 million and $9.8 million, in fiscal 2011, 2010 and 2009, respectively, to the proper taxing authorities in satisfaction of the employees’ minimum statutory withholding requirements. The exercises are summarized in the following table:

Period
    Options
Exercised
    Exercise
Price
    Shares Net
Settled for
Exercise
    Shares
Withheld
for Taxes⁽¹⁾
    Net
Shares to
Employee
    Share Price
for
Withholding
    Tax
Withholding
(in 000’s)

FY 2009—Q2
                 600,000          $ 4.47             96,929             222,817             280,254          $ 26.93          $ 6,000

FY 2009—Q4
                 361,035          $ 11.12             116,741             109,595             134,699          $ 34.39          $ 3,769

FY 2010—Q1
                 323,631          $ 13.03             114,354             95,746             113,531          $ 36.89          $ 3,532

FY 2010—Q4
                 350,000          $ 12.91             122,922             105,827             121,251          $ 36.76          $ 3,890

FY 2011—Q2
                 88,750          $ 16.93             38,025             18,917             31,808          $ 39.51          $ 748

FY 2011—Q3
                 274,167          $ 22.03             147,748             59,016             67,403          $ 40.80          $ 2,408

FY 2011—Q4
                 90,000          $ 18.95             38,198             24,183             27,619          $ 44.65          $ 1,080

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

Employee Stock Purchase Plan

The ESPP provides for the purchase of up to an aggregate of 2.5 million shares of common stock of the Company by employees pursuant to the terms of the ESPP. The Company’s ESPP was adopted by the Board of Directors and approved by the shareholders in 1994. The ESPP was amended and restated in 2003 and again approved by the shareholders. Under the ESPP, employees of the Company who elect to participate have the right to purchase common stock at a 15 percent discount from the lower of the market value of the common stock at the beginning or the end of each six month offering period. The ESPP permits an enrolled employee to make contributions to purchase shares of common stock by having withheld from their salary an amount up to 10 percent of their compensation (which amount may be increased from time to time by the Company but may not exceed 15% of compensation). No employee may purchase more than $25,000 worth of common stock (calculated at the time the purchase right is granted) in any calendar year. The Compensation Committee of the Board of Directors administers the ESPP. The number of shares of common stock issued pursuant to the ESPP during each of fiscal 2011, 2010 and 2009 was 63,596, 68,035 and 82,834, respectively. As of July 31, 2011, 1,788,290 shares of common stock have been issued pursuant to the ESPP and 711,710 shares remain available for purchase under the ESPP.

Stock Options

In December 2007, the Company adopted the Copart, Inc. 2007 Equity Incentive Plan (Plan), presently covering an aggregate of 4.0 million shares of the Company’s common stock. The Plan provides for the grant of incentive stock options, restricted stock, restricted stock units and other equity-based awards to employees and non-qualified stock options, restricted stock, restricted stock units and other equity-based awards to employees, officers, directors and consultants at prices not less than 100% of the fair market value for incentive and non-qualified stock options, as determined by the Board of Directors at the grant date. Incentive and non-qualified stock options may have terms of up to ten years and vest over periods determined by the Board of Directors. Options generally vest ratably over a five-year period. The Plan replaced the Company’s 2001 Stock Option Plan. At July 31, 2011, 1,473,327 shares were available for future grant under the Plan.

In April 2009, the Compensation Committee of the Company’s Board of Directors, following shareholder approval of proposed grants at a special meeting of shareholders, approved the grant to each of Willis J. Johnson, the Company’s Chairman (and then Chief Executive Officer), and A. Jayson Adair, the Company’s Chief Executive Office (and then President), of nonqualified stock options to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $30.21 per share, which equaled the closing price of the

Company’s common stock on April 14, 2009, the effective date of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for a five-year period. Each option will become exercisable over five years, subject to continued service by the executive, with twenty percent (20%) vesting on April 14, 2010, and the balance vesting ratably over the subsequent four years. Each option will become fully vested, assuming continued service, on April 14, 2014, the fifth anniversary of the date of grant. If, prior to a change in control, either executive’s employment is terminated without cause, then one hundred percent (100%) of the shares subject to that executive’s stock option will immediately vest. If, upon or following a change in control, either the Company or a successor entity terminates the executive’s service without cause, or the executive resigns for good reason, then one hundred percent (100%) of the shares subject to his stock option will immediately vest. The total compensation expense to be recognized by the Company over the five year service period is $26.1 million dollars per grant. The Company recognized $10.2 million, $10.1 million, and $3.0 million in compensation expense in fiscal 2011, 2010 and 2009, respectively relating to these grants.

The following table sets forth share-based compensation expense included in the company’s consolidated statements of income (in thousands):

    Years Ended July 31,


    2011
    2010
    2009

Yard operations
              $ 1,031          $ 1,109          $ 1,220

General and administrative
                 17,976             16,846             8,193

Total
              $ 19,007          $ 17,955          $ 9,413

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2011 and 2010.

A summary of the status of the Company’s non-vested shares as of July 31, 2011 and changes during fiscal 2011 is as follows:

    Number of
Shares
(in 000’s)
    Weighted
Average Grant-
date Fair Value

Non-vested shares at July 31, 2010
                 4,633          $ 13.23

Grants of options
                 1,117             13.40

Vested
                 (1,496 )            13.10

Forfeitures or expirations
                 (90 )            12.50

Non-vested shares at July 31, 2011
                 4,164          $ 13.32

Option activity for the year ended July 31, 2011 is summarized as follows:

    Shares
(in 000’s)
    Weighted-
Average
Exercise Price
    Weighted-Average
Remaining
Contractual Term
    Aggregate
Intrinsic
Value
(in 000’s)

Outstanding at July 31, 2010
                 8,052          $ 29.07             7.49          $ 60,151

Grants of options
                 1,117             38.46             —              —

Exercises
                 (726 )            21.11             —              —

Forfeitures or expirations
                 (90 )            33.71             —              —

Outstanding at July 31, 2011
                 8,353          $ 31.00             7.18          $ 103,979

Exercisable at July 31, 2011
                 4,189          $ 28.67             6.21          $ 61,935

Vested and expected to vest at July 31, 2011
                 8,031          $ 31.01             7.19          $ 99,933

As required by ASC 718, the Company made an estimate of expected forfeitures and is recognizing compensation cost only for those equity awards expected to vest.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the year ended July 31, 2011 and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options on July 31, 2011. The aggregate intrinsic value of options exercised was $16.2 million, $19.0 million and $29.8 million in the fiscal years ended July 31, 2011, 2010 and 2009, respectively, and represents the difference between the exercise price of the option and the estimated fair value of the Company’s common stock on the dates exercised. As of July 31, 2011, the total compensation cost related to non-vested share-based payment awards granted to employees under the Company’s stock option plans but not yet recognized was $50.6 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.06 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested in fiscal 2011, 2010 and 2009 is $19.6 million, $19.6 million and $7.8 million, respectively.

A summary of stock options outstanding and exercisable at July 31, 2011 follows:

    Options Outstanding
    Options Exercisable


Range of Exercise Prices
    Number
Outstanding at
July 31, 2011
(in 000’s)
    Weighted-
Average
Remaining
Contractual
Life
    Weighted-
Average
Exercise
Price
    Number
Exercisable
at July 31,
2011
(in 000’s)
    Weighted-
Average
Exercise
Price

$7.75–$23.73
                 517              2.17          $ 15.43             517           $ 15.43

$24.03–$29.89
                 803              4.60          $ 25.22             795           $ 25.18

$30.21–$30.21
                 4,000             7.71          $ 30.21             1,800          $ 30.21

$32.76–$44.12
                 3,033             8.01          $ 36.20             1,077          $ 34.95

                 8,353             7.18          $ 31.00             4,189          $ 28.67

On March 6, 2003, the Company’s Board of Directors declared a dividend of one right (Right) to purchase one-thousandth share of the Company’s Series A Participating Preferred Stock for each outstanding share of Common Stock of the Company. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock at an exercise price of $120.48.

In general, subject to certain limited exceptions, the Rights become exercisable when a person or group acquires 15% or more of the Company’s common stock or a tender offer or exchange offer for 15% or more of the Company’s common stock is announced or commenced. After any such event, the Company’s other shareholders may purchase an additional $120.48 worth of additional shares of the Company’s common stock at 50% of the then-current market price. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Company’s Board of Directors. The Rights may be redeemed by the Company at $0.001 per Right at any time before any person or group acquires 15% or more of our outstanding common stock.