Income Taxes

12 Months Ended

Jul. 31, 2011

Income Tax Disclosure [Abstract]

Income Taxes

(12) Income Taxes

Income from continuing operations before taxes consists of the following (in thousands):

	Years Ended July 31,
	2011		2010		2009
US	$	234,035	$	217,947	$	220,005
Non US		29,842		21,548		7,727
Total income before taxes	$	263,877	$	239,495	$	227,732

 

79

COPART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JULY 31, 2011, 2010 AND 2009

The Company’s income tax expense (benefit) from continuing operations consists of (in thousands):

	Years Ended July 31,
	2011			2010			2009
Federal:
Current	$	84,119		$	83,791		$	78,817
Deferred		278			(3,714	)		168
		84,397			80,077			78,985
State:
Current		7,186			6,664			8,151
Deferred		(128	)		473			(2	)
		7,058			7,137			8,149
Foreign:
Current		5,818			1,916			1,651
Deferred		229			(1,262	)		(599	)
		6,047			654			1,052
	$	97,502		$	87,868		$	88,186

 

A reconciliation by year of the expected US statutory tax rate (35% of income before income taxes) to the actual effective income tax rate is as follows:

	Years Ended July 31,
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		1.7			2.0			3.5
Foreign		(0.4	)		(1.7	)		(0.8	)
Compensation and fringe benefits		0.2			0.2			0.3
Other differences		0.4			1.2			0.7
Effective tax rate		36.9	%		36.7	%		38.7	%

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below, (in thousands):

	July 31,
	2011			2010
Deferred tax assets:
Allowance for doubtful accounts	$	1,063		$	982
Accrued compensation and benefits		18,249			13,898
State taxes		1,488			1,358
Accrued other		3,006			1,884
Deferred revenue		—			1,910
Property and equipment		3,378			8,693
State net operating losses		398			327
Long-term note write off		—			423
Federal tax benefit		5,758			4,348
Total gross deferred tax assets		33,340			33,823
Less valuation allowance		(948	)		(787	)
Net deferred tax assets		32,392			33,036

80

COPART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JULY 31, 2011, 2010 AND 2009

	July 31,
	2011			2010
Deferred tax liabilities:
Vehicle pooling costs		(4,956	)		(9,414	)
Prepaid insurance		(1,397	)		(671	)
Deferred revenue		(1,721	)		—
Intangibles and goodwill		(25,031	)		(23,640	)
Workers compensation		(359	)		—
Total gross deferred tax liabilities		(33,464	)		(33,725	)
Net deferred tax liability	$	(1,072	)	$	(689	)

 

The above net deferred tax liability has been reflected in the accompanying consolidated balance sheets as follows (in thousands):

	July 31,
	2010			2010
North America current liabilities	$	440		$	1,154
North America non-current assets		(9,425	)		(10,213	)
UK non-current liabilities		10,057			9,748
Net deferred tax liability	$	1,072		$	689

 

The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax assets is uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing additional valuation allowances against certain deferred tax assets. The valuation allowance for the years ended July 31, 2011 and 2010 was $0.9 million and $0.8 million, respectively.

At July 31, 2011 and 2010, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company’s effective tax rate is $13.2 million and $9.9 million, respectively. It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes; however an estimate of the range of the possible change cannot be made at this time.

The following table summarizes the activities related to the Company’s unrecognized tax benefits (in thousands):

	Years Ended July 31,
	2011			2010
Balance as of August 1	$	18,144		$	15,965
Increases related to current year tax positions		1,592			4,514
Prior year tax positions:
Prior year increase		519			74
Prior year decrease		(531	)		(532	)
Cash settlement		—			(302	)
Lapse of statute of limitations		(930	)		(1,575	)
Balance at July 31	$	18,794		$	18,144

 

It is the Company’s continuing practice to recognize interest and penalties related to income tax matters in income tax expense. As of July 31, 2011 and 2010, the Company had accrued interest and penalties related to the unrecognized tax benefits of $6.0 million and $5.2 million, respectively.

81

COPART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JULY 31, 2011, 2010 AND 2009

The Company is currently under audit by the states of Florida and Connecticut for fiscal years 2007, 2008 and 2009. The Company is no longer subject to US federal and state income tax examination for fiscal years prior to 2008, with the exception of Florida and Connecticut.

In fiscal years 2011, 2010 and 2009, the Company recognized a tax benefit of $3.6 million, $6.2 million and $4.6 million, respectively, upon the exercise of certain stock options which is reflected in shareholders’ equity.

The Company has not provided for US federal income and foreign withholding taxes on its $42 million foreign subsidiaries’ undistributed earnings as of July 31, 2011, because the Company intends to reinvest such earnings indefinitely in the operations and potential acquisitions related to its foreign operations. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to US income taxes (subject to an adjustment for foreign tax credits). It is not practical to determine the income tax liability that might be incurred if these earnings were to be distributed.