Stockholders' Equity

12 Months Ended

Jul. 31, 2020

NOTE 11 — Stockholders’ Equity

General

The Company has authorized the issuance of 400 million shares of common stock, with a par value of $0.0001, of which 235,315,337 shares were issued and outstanding at July 31, 2020. As of July 31, 2020 and 2019, the Company had reserved 12,977,173 and 20,502,335 shares of common stock, respectively, for the issuance of options, restricted stock or restricted stock units granted under the Company’s stock option plans and 1,303,592 and 1,426,698 shares of common stock, respectively, for the issuance of shares under the Copart, Inc. Employee Stock Purchase Plan (“ESPP”). The Company has authorized the issuance of five million shares of preferred stock, with a par value of $0.0001, none of which were issued or outstanding at July 31, 2020 or 2019, which have the rights and preferences as the Company’s Board of Directors shall determine, from time to time.

Stock Repurchases

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

In fiscal 2018, certain members of the Company’s Board of Directors exercised stock options through cashless exercises. In fiscal 2019, the Company’s former President exercised all of his vested stock options through a cashless exercise. In fiscal 2020, the Company's Chief Executive Officer exercised all of his vested stock options through a cashless exercise. A portion of the options exercised were net settled in satisfaction of the exercise price. The Company 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:


Period	Options Exercised	Weighted Average Exercise Price		Shares Net Settled for Exercise	Shares Withheld for Taxes ⁽¹⁾	Net Shares to Employees	Weighted Average Share Price for Withholding		Employee Stock Based Tax Withholding (in 000s)
FY 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 the Company’s stock repurchase program.

Employee Stock Purchase Plan

The ESPP provides for the purchase of up to an aggregate of 10 million shares of common stock of the Company by employees pursuant to the terms of the ESPP. The Company’s ESPP was adopted by the Board of Directors and approved by the stockholders in 1994. The ESPP was amended and restated in 2003 and again approved by the stockholders. In 2014, a new ESPP was approved by the Board of Directors and approved by the stockholders. Under the ESPP, employees of the Company who elect to participate have the right to purchase common stock at a 15% discount from the lower of the market value of the common stock at the beginning or the end of each six month offering period. The ESPP permits an enrolled employee to make contributions to purchase shares of common stock by having withheld from their salary an amount up to 10% of their compensation (which amount may be increased from time to time by the Company but may not exceed 15% of compensation). No employee may purchase more than $25,000 worth of common stock (calculated at the time the purchase right is granted) in any calendar year. The Compensation Committee of the Board of Directors administers the ESPP. The number of shares of common stock issued pursuant to the ESPP during the years ended July 31, 2020, 2019 and 2018 was 123,106; 177,043; and 185,168; respectively. As of July 31, 2020, there were 8,776,482 shares of common stock issued pursuant to the ESPP and 1,303,592 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 32 million shares of the Company’s common stock. The Plan provides for the grant of incentive stock options, restricted stock, restricted stock units and other equity-based awards to employees and non-qualified stock options, restricted stock, restricted stock units and other equity-based awards to employees, officers, directors and consultants at prices not less than 100% of the fair market value for incentive and non-qualified stock options, as determined by the Board of Directors at the grant date. Incentive and non-qualified stock options may have terms of up to ten years and vest over periods determined by the Board of Directors. Options generally vest ratably over a five year period. The Plan replaced the Company’s 2001 Stock Option Plan. As of July 31, 2020, 4,833,806 shares were available for grant under the Plan and the number of options that were in-the-money was 8,058,644 at July 31, 2020.

In October 2013, the Compensation Committee of the Company’s Board of Directors, subject to stockholder approval (which was subsequently obtained at the December 16, 2013 annual meeting of stockholders), approved the grant to each of the Company’s former President, and A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 3,000,000 and 4,000,000 shares of the Company’s common stock, respectively, at an exercise price of $17.81 per share, which equaled the closing price of the Company’s common stock on December 16, 2013, the effective date of grant. Such grants were made in lieu of any cash salary or bonus compensation in excess of $1.00 per year or the grant of any additional equity incentives for a five year period. Each option became exercisable over five years, subject to continued service by Mr. Adair and the Company’s former President, with 20% vesting on April 15, 2015 and December 16, 2014, respectively, and the balance vesting monthly over the subsequent four years. On December 16, 2018, the option held by the Company’s former President became fully vested and on April 15, 2019, the option held by Mr. Adair became fully vested. The fair value of each option at the date of grant using the Black-Scholes Merton option-pricing model was $5.72. The total compensation expense recognized by the Company over the five year service period for these options was $38.8 million. The Company recognized no expense, $4.3 million, and $7.2 million in compensation expenses for these grants in the years ended July 31, 2020, 2019 and 2018, respectively.

In June 2020, the Compensation Committee of the Company’s Board of Directors, approved the grant to A. Jayson Adair, the Company’s Chief Executive Officer of nonqualified stock options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $85.04 per share, which equaled the closing price of the Company’s common stock on June 12, 2020, the effective date of grant. The grant was 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 five years. The option will become exercisable over five years, subject to continued service by Mr. Adair, with 20% vesting on June 12, 2021, and the balance vesting monthly over the subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to market based vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent to 125% of the exercise price of the options) for a period of 20 consecutive trading days. The option held by Mr. Adair will become fully vested, assuming continued service by Mr. Adair on June 12, 2025. The fair value of each option at the date of grant using the Monte Carlo simulation model was $25.47, with an expected life of 7.64 years, a risk-free interest rate of 0.71%, estimated volatility of 25.2%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five year estimated service period for these options is $25.5 million.

The following table details stock-based compensation recognized by the Company for stock options and restricted stock awards:


	Year Ended July 31,
(In thousands)	2020		2019		2018
General and administrative	$	17,567	$	18,254	$	19,351
Yard operations	5,755		5,191		3,870
Total stock-based compensation	$	23,322	$	23,445	$	23,221

There were no material compensation costs capitalized as part of the cost of an asset as of July 31, 2020 and 2019. The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. In accordance with ASC 718, Compensation - Stock Compensation, the Company made an estimate of expected forfeitures and recognized compensation cost only for those equity awards expected to vest.

A summary of the status of the Company’s non-vested shares from stock option awards and its activity during the year ended July 31, 2020 was as follows:


(In thousands, except per share amounts)	Shares	Weighted Average Grant- date Fair Value
Non-vested shares at July 31, 2019	4,209	$	11.05
Grants of non-vested shares	1,175	24.89
Vested	(1,874)	9.98
Forfeitures or expirations	(207)	7.82
Non-vested shares at July 31, 2020	3,303	$	17.58

The following is a summary of activity for the Company’s stock options for the year ended July 31, 2020:


(In thousands, except per share and term data)	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value
Outstanding as of July 31, 2019	14,552	$	26.29	6.04	$	745,592
Grants of options	1,175	85.45
Exercises	(7,461)	19.15
Forfeitures or expirations	(207)	29.95
Outstanding as of July 31, 2020	8,059	$	41.44	6.72	$	417,529

Exercisable as of July 31, 2020	4,756	$	28.17	5.46	$	309,493

Vested and expected to vest as of July 31, 2020	7,758	$	41.14	6.77	$	404,240

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, 2020 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, 2020. The aggregate intrinsic value of options exercised was $476.3 million, $215.4 million and $111.5 million in the years ended July 31, 2020, 2019 and 2018, 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, 2020, the total compensation cost related to non-vested stock-based awards granted to employees under the Company’s stock option plans but not yet recognized was $49.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining term of 3.49 years and will be adjusted for subsequent changes in estimated forfeitures. The fair value of options vested for the years ended July 31, 2020, 2019 and 2018 was $19.2 million, $21.3 million and $19.1 million, respectively.

The following table summarizes stock options outstanding and exercisable as of July 31, 2020:


(In thousands, except per share amounts)				Options Outstanding									Options Exercisable
Range of Exercise Prices				Number	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$12.48	—	$17.64	259	2.53	$	14.26	258		$	14.25
$17.73	—	$27.93	3,138	4.90	19.81		3,045		19.64
$30.97	—	$36.32	1,393	7.12	35.69		573		35.73
$43.96	—	$88.58	3,269	8.62	66.81		880		56.87
Outstanding as of July 31, 2020				8,059	6.72		$	41.44	4,756		$	28.17

The Company recognizes compensation expense for restricted stock awards on a straight-line basis over the requisite service period of the award. The following is a summary of activity for the Company’s restricted stock for the for the year ended July 31, 2020:


(In thousands, except per share data)	Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of July 31, 2019	134	$	56.62
Grants of restricted stock	68	82.33
Vested restricted stock	(74)	60.74
Forfeited restricted stock	(23)	59.03
Outstanding as of July 31, 2020	105	$	69.86