UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20162019
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission File Number 001-35004
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FLEETCOR TECHNOLOGIES, INC.
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DELAWAREDelaware | | | 72-1074903 |
(STATE OF INCORPORATION)State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
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| 3280 Peachtree Road, Suite 2400, | Atlanta, | Georgia | 30305 |
| (Address of principal executive offices) | | | (I.R.S. ID)Zip Code) |
5445 Triangle Parkway, Suite 400, Norcross, Georgia 30092-2575Registrant’s telephone number, including area code: (770) 449-0479
(770) 449-0479
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
COMMON STOCK,Common Stock, $0.001 PAR VALUE PER SHAREpar value per share | FLT | NEW YORK STOCK EXCHANGENYSE |
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ý☒ | | Accelerated filer | | ¨☐ |
| Non-accelerated filer | | ¨☐ (Do not check if a smaller reporting company)
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| Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately 12,916,568,362$23,926,076,537 as of June 30, 2016,2019, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing sale price as reported on the New York Stock Exchange.
As of February 10, 2017,7, 2020, there were 91,892,43585,429,057 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on June 21, 201711, 2020 are incorporated by reference into Part III of this report.
FLEETCOR TECHNOLOGIES, INC.
FORM 10-K
For The Year Ended December 31, 20162019
INDEX
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| PART I | |
| Item 1. | | |
| Item X. | | |
Item 1A. | | |
Item 1B.1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| PART II | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
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| PART III | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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| PART IV | |
| Item 15. | | |
| Item 16. | | |
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Note About Forward-Looking Statements
This reportAnnual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about FleetCor’sFLEETCOR’s beliefs, expectations and future performance, are forward-looking statements. Forward-looking statements can be identified by the use of words such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project” or “expect,” “may,” “will,” “would,” “could” or “should,” the negative of these terms or other comparable terminology.
These forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements. We have based these forward-looking statements largely on our current expectations and projections about future events. Forward-looking statements are subject to many uncertainties and other variable circumstances, including those discussed in this report in Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” many of which are outside of our control, that could cause our actual results and experience to differ materially from any forward-looking statement.
These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
the impact of macroeconomic conditions and whether expected trends, including in retail fuel prices, fuel price spreads, and fuel transaction patterns, develop as anticipated;
our ability to successfully execute our strategic plan, manage our growth and achieve our performance targets;
our ability to attract new and retain existing partners, fuel merchants, and lodging providers, their promotion and support of our products, and their financial performance;
the failure of management assumptions and estimates, as well as differences in, and changes to, economic, market, interest rate, interchange fees, foreign exchange rates, and credit conditions, including changes in borrowers’ credit risks and payment behaviors;
the risk of higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings;
our ability to successfully manage our credit risks and the sufficiency of our allowance for possible loan losses;
our ability to securitize our loan receivables;
the occurrence of fraudulent activity, data breaches or failures of our information security controls or cybersecurity-related incidents that may compromise our systems or customers’ information;
any disruptions in the operations of our computer systems and data centers;
the international operational and political risks and compliance and regulatory risks and costs associated with international operations;
our ability to develop and implement new technology, products, and services;
any alleged infringement of intellectual property rights of others and our ability to protect our intellectual property;
the regulation, supervision, and examination of our business by foreign and domestic governmental authorities, as well as litigation and regulatory actions, including the lawsuit recently filed by the FTC;
the impact of regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws;
changes in our senior management team and our ability to attract, motivate and retain qualified personnel consistent with our strategic plan;
tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations;
the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; and
the other factors and information in this Annual Report on Form 10-K and other filings that we make with the SEC under the Exchange Act and Securities Act. See “Risk Factors” in this Annual Report on Form 10-K.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We do not undertake, and specifically disclaim, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.
PART I
ITEM 1. BUSINESS
General
FleetcorFLEETCOR is a leading global business payment solutions company that simplifies the global leaderway businesses manage and pay their expenses. The FLEETCOR portfolio of brands help companies automate, secure, digitize and control payments on behalf of their employees and suppliers. We serve businesses, partners, merchants and consumer and payment networks in workforceNorth America, Latin America, Europe, and Asia Pacific. FLEETCOR’s predecessor company was organized in the United States in 1986, and FLEETCOR had its initial public offering in 2010 (NYSE: FLT).
FLEETCOR has two reportable segments, North America and International. We report these two segments as they reflect how we organize and manage our employees around the world, manage operating performance, contemplate the differing regulatory environments in North America versus other geographies, and help us isolate the impact of foreign exchange fluctuations on our financial results.
Our payment products.solutions provide our customers with a payment method designed to be superior to and more robust and effective than what they use currently, whether they use a competitor’s product or another alternative method such as cash or check. Our solutions are comprised of payment products, networks and associated services. We group our payment solutions into five primary categories: Fuel, Lodging, Tolls, Corporate Payments and Gift. Additionally, we provide other complementary payment products including fleet maintenance, employee benefits and long haul transportation-related services.
Each category is unique in its focus, customer base and target markets, but they also share a number of characteristics: customers are primarily gobusinesses, have recurring revenue models, have specialized networks which create barriers to market with our fuel card payments productentry, have high EBITDA margins, and have similar selling systems. Our payment solutions corporate payments products, toll products, lodging cards and gift cards. Our products are used in 53more than 100 countries around the world, with our primary geographies inbeing the U.S., Brazil and the U.K.,United Kingdom, which combined accounted for approximately 92%87% of our revenue in 2016. Our core2019.
FLEETCOR’s payment products generally function like a charge card, prepaid card, one-time use virtual card, and electronic RFID (radio-frequency identification), etc. While the actual payment mechanisms vary from category to category, they are primarily soldstructured to businesses, retailers,afford control and reporting to the end customer.
FLEETCOR uses both proprietary and third-party networks to deliver our payment solutions. FLEETCOR owns and operates proprietary networks with well-established brands throughout the world, bringing incremental sales and loyalty to affiliated merchants. Third-party networks are used to broaden payment product acceptance and use.
FLEETCOR capitalizes on its products’ specialization with sales and marketing efforts by deploying product-dedicated sales forces to target specific customer segments. We market our products directly through multiple sales channels, including field sales, telesales and digital marketing, and indirectly through our partners, which include major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and marketers and government entities. Our payment programs enable our customers to better manage and control their commercial payments, card programs, and employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. We also provide a suite of fleet related and workforce payment products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments. In 2016, we processed approximately 2.2 billion transactions on our proprietary networks and third-party networks (which includes approximately 1.3 billion transactions related to our SVS product, acquired with Comdata, Inc. (“Comdata”). referral partners.
We believe that our size and scale, product breadth and specialization, geographic reach, proprietary networks, robust distribution capabilities and advanced technology and our expansive suite of products, services, brands and proprietary networks contribute to our industry leading industry position.
We provide our payment productsProducts and services in a variety of combinations to create customized
We offer specialized payment solutions predominately for our customers and partners. In ordercommercial businesses. Our payment solutions are intended to deliver our payment programs and services and process transactions, we own and operate proprietary “closed-loop” networks through which we electronically connect to merchants and capture, analyze and report customized information. We also use third-party networks to deliver our payment programs and services in order to broaden our card acceptance and use. To support our payment products, we also provide a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionalitya payment method superior to that which they formerly used, whether they used a competitor’s product or another alternative method such as cash or check. Our solutions are comprised of payment products, networks and data.associated services.
Our solutions tend to be specialized for specific spend categories, such as fuel or lodging, and/or specific customer segments, such as long haul transportation. This specialization is manifested in the purchase controls, merchant network, and reporting applicable to the spend category or customer segment. For example, a fuel card could provide controls on the type of fuel purchased, be accepted only at gas stations for fuel purchases, and provide fuel usage and efficiency reports for a customer’s fleet of vehicles. The combination of these specialized attributes allows our payment products to compete well against less specialized products such as cash or general purpose credit cards when it comes to controlling purchases within certain spend categories.
Fuel payment product line
Our fuel payment product line is our largest product category, representing approximately 44% of our revenue in 2019.
FLEETCOR offers fuel payment solutions to businesses and government entities who operate vehicle fleets, as well as to major oil companies, leasing companies and fuel marketers. Our fuel payment products are most often in the form of plastic cards, but also include other forms such as electronic RFID tags, mobile apps and paper vouchers. While predominately used to purchase fuel, many of our fuel payment products have additional purchasing capabilities to allow customers to purchase non-fuel items such as oil, vehicle maintenance supplies and services and building supplies.
Our fuel payment products, excluding paper vouchers, provide customers with tools and information to control their fuel and other fleet-related operating costs. Our proprietary processing and card management systems provide customers with customizable user-level controls, detailed transaction reporting, programmable alerts, configurable networks, contracted fuel price validation and audit, and vehicle efficiency analysis. Our customers can use thisthese data, controls and tools to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and potentially lower overall workforce and fleettheir vehicle fleets’ operating costs.
We market The combination of these specialized attributes allows our fleetfuel payment products directly to a broad range of commercial fleet customers,compete well against less specialized products such as cash or general purpose credit cards when it comes to controlling fuel purchases.
For major oil companies, leasing companies and petroleum marketers, we provide program management services, which allow these partners to outsource the sales, marketing, credit, service, and government entities. Among these customers,system operations of their branded fuel card portfolios. Depending on our partners’ needs and internal capabilities, we provide our products and services in a variety of combinations ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to commercial fleetslimited back office processing services. Our fuel payment product partners include British Petroleum (BP), its subsidiary Arco, Shell, Speedway, and Casey's and over 700 fuel marketers of all sizes. These fleets include small
While we refer to companies with whom we have strategic relationships as “partners,” our legal relationships with these companies are contractual, and mediumdo not constitute legal partnerships. Our contracts with our major oil company partners typically have initial terms of five to ten years with current remaining terms ranging from one to seven years.
We use both proprietary and third-party networks to deliver our fuel payment solutions, including the following examples:
North America proprietary networks for fuel payment products
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| • | Fuelman network—our primary proprietary fleet card network in the U.S. We have negotiated card acceptance and settlement terms with over 10,400 individual merchants, providing the Fuelman network with approximately 55,000 fueling sites and approximately 25,000 maintenance sites across the country. |
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| • | Comdata network—our network of truck stops and fuel merchants for the over-the-road trucking industry. We have negotiated card acceptance and settlement terms at over 8,600 truck stops and fuel merchants across the U.S. and Canada. |
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| • | Commercial Fueling Network (CFN)—our “members only” fueling network in the U.S. and Canada composed of approximately 2,600 fueling sites owned by CFN members themselves. The majority of these fueling sites are unattended cardlock facilities located in commercial and industrial areas. |
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| • | Pacific Pride Fueling network—our "franchise" fueling network in the U.S. composed of approximately 1,100 fueling sites owned by more than 220 franchisees. The majority of these fueling sites are unattended cardlock facilities located in commercial and industrial areas. |
International proprietary networks for fuel payment products
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| • | Allstar network—our proprietary fleet card network in the U.K. We have negotiated card acceptance and settlement terms with approximately 2,100 individual merchants, providing this network with approximately 7,300 fueling sites. |
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| • | Keyfuels network—our proprietary fleet card network in the U.K. We have negotiated card acceptance and settlement terms with more than 500 individual merchants, providing the Keyfuels network with approximately 3,000 fueling sites. |
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| • | CCS network—our primary proprietary fleet card network in the Czech Republic and Slovakia. We have negotiated card acceptance and settlement terms with several major oil companies on a brand-wide basis, including MOL, Benzina, OMV, Slovnaft and Shell, and with approximately 1,200 other merchants, providing the CCS network at over 2,800 fueling sites and 700 other sites accepting our cards. |
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| • | Petrol Plus Region (PPR) network—our primary proprietary fleet card network in Russia, Ukraine, Belarus and Kazakhstan. We have negotiated card acceptance and settlement terms with over 600 individual merchants, providing the PPR network with approximately 13,300 fueling sites across the region. |
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| • | Efectivale network—our proprietary fuel card and voucher network in Mexico. We have negotiated acceptance and settlement terms individual merchants, providing the network with over 8,300 fueling sites. |
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| • | CTF network—our proprietary fuel and fleet controls solutions in Brazil, composed of over 23,000 highway and urban fueling sites through our partners, BR Distribuidora (Petrobas) and Ipiranga Distribuidora. |
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| • | Travelcard network—our proprietary fuel card network in the Netherlands. We have negotiated card acceptance and settlement terms with over 1,500 individual merchants, providing this network over 7,600 fueling sites. |
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| • | Fleet Card network—our proprietary fuel card network in Australia. We have negotiated card acceptance and settlement terms with approximately 6,000 individual merchants, providing this network with over 90% of fuel sites across Australia. |
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| • | CardSmart network—our proprietary fuel card network in New Zealand. We have negotiated card acceptance and settlement terms with approximately 1,200 individual merchants, providing this network with approximately 95% of the fuel sites across New Zealand. |
Third-Party networks for fuel payments products
In addition to our proprietary “closed-loop” networks, we also utilize various third-party networks to deliver our payment programs and services. Examples of these networks include:
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| • | Mastercard network—In the U.S. and Canada, we issue co-branded Mastercard products, which are accepted at over 176,000 fuel sites and 398,000 maintenance locations. These Mastercard products have additional purchasing capabilities which, when enabled, allow the cards to be accepted at approximately 10.9 million locations throughout the U.S. and Canada. |
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| • | Visa network—In the U.K., we issue products that utilize the Visa payment network, which includes approximately 8,400 fuel sites and approximately 1,700 maintenance locations. These Visa products have additional purchasing capabilities which, when enabled, allow the cards to be accepted throughout the Visa network. |
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| • | Major oil and fuel marketer networks—The proprietary networks of branded locations owned by our major oil and fuel marketer partners in both North America and internationally are generally utilized to support the proprietary, branded card programs of these partners. |
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| • | UTA network—UNION TANK Eckstein GmbH & Co. KG (UTA) operates a network of over 61,000 points of acceptance in 40 European countries, including more than 49,000 fueling sites. The UTA network is generally utilized by European transport companies that travel between multiple countries. |
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| • | DKV network—DKV operates a network of over 100,000 fleet card-accepting locations across more than 42 countries throughout Europe. The DKV network is generally utilized by European transport companies that travel between multiple countries. |
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| • | Carnet network—A national debit network in Mexico, which includes approximately 12,700 fueling sites across the country. |
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| • | Good Card network—In Brazil, we issue co-branded Good Card products, which are accepted at over 23,000 fuel sites. |
We distribute our fuel payment solutions through direct and indirect channels to businesses of all sizes. This includes businesses with small- to medium-sized fleets, which we believe represent an attractive segment of the global commercial fleet market given their relatively high use of less efficient payment products, such as cash and general purpose credit cards. We also manage commercial fleet card programs for major oil companies,serve customers across numerous industry verticals and particularly those verticals with significant vehicle fueling needs such as British Petroleum (BP) (including its subsidiary Arco), Shelltrucking, construction, manufacturing, energy, and Speedway, and over 800 petroleum marketers.consumer products distribution.
We distribute our commercial payment solutions through direct and indirect channels to businesses of all sizes and types across a broad number of industry verticals, including retail, healthcare, construction and hospitality. Our indirect channel includes a broad range of value-added resellers (VARs) and other referral partners.
We refer to these major oil companies, leasing companies, petroleum marketers, VARs and other referral partners with whom we have strategic relationships as our “partners.” These partners collectively maintain hundreds of thousands of end-customer relationships with commercial fleets, commercial payment solutions customers and other businesses.
FleetCor’s predecessor company was organized in the United States in 1986.
Our products and services
We collectively refer to our suite of product offerings as workforce productivity enhancement products for commercial businesses. We sell a range of customized fleet and lodging payment programs directly and indirectly to our customers through partners, such as major oil companies, leasing companies and petroleumfuel marketers. We generally provide our customers with various card products that typically function likefuel payments solutions to our partners who offer our services under their own brands on a charge card“white-label” basis. In turn, we leverage our partners’ brands, retail outlets, websites, and sales forces to purchasehelp distribute our fuel lodging, food, toll, transportation and related products and services at participating locations. We support these card products with specialized issuing, processing and information services that enable us to manage card accounts, facilitate the routing, authorization, clearing and settlement of transactions, and provide value-added functionality and data, including customizable card-level controls and productivity analysis tools. Depending on our customers and partners needs, we provide these services in a variety of outsourced solutions ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to limited back office processing services.
Our broad suite of commercial payment solutions with vertical-specific applications enable our corporate customers to manage and control electronic payments across their enterprise, optimize corporate spending and offer innovative services that increaseproducts.
employee efficiency and customer loyalty. Our commercial payment solutions offer integrated components that create a powerful combination of robust payment functionality, deep business insights and comprehensive technical capabilities and support services.
In addition, we offer a telematics solution that combines global positioning, satellite tracking and other wireless technology to allow fleet operators to monitor the capacity utilization and movement of their vehicles and drivers. We also provide a vehicle maintenance service offering that helps fleet customers to better manage their vehicle maintenance, service, and repair needs in the U.K. In Mexico, we offer prepaid fuel and food vouchers and cards that may be used as a form of payment in restaurants, grocery stores and gas stations. We market these payment products to small, medium and large businesses, which provide these cards and vouchers to their employees as benefits, as well as a tool to manage fuel expenses. We offer a similar workforce payment product in Brazil related to public transportation and toll vouchers. Additionally in Brazil, we have designed proprietary equipment which, when installed at the fueling site and on the vehicle and combined with our processing system, significantly reduces the likelihood of unauthorized and fraudulent transactions. We offer this product to over-the-road trucking fleets, shipping fleets and other operators of heavily industrialized equipment, including sea-going vessels, mining equipment, agricultural equipment, and locomotives. AlsoWe generally co-brand this product with BR Distribuidora (Petrobas) or Ipiranga Distribuidora, depending on which fuel distributor provides fuel to our fleet clients via its retail and wholesale distribution operations.
With regard to our fuel payment products, we compete with independent fuel card issuers, major oil companies and petroleum marketers. Excluding major oil companies, our most significant competitors in this product category include WEX, U.S. Bank Voyager Fleet Systems, World Fuel Services, Edenred, Sodexo, Alelo, DKV, and Radius Payment Solutions.
Long haul transportation services
In addition to, and often in conjunction with our fuel payment product, we provide trucking companies in North America with various products and services specifically relevant to their industry, including road tax compliance analysis and reporting, permit procurement, and cash movement and disbursement. We compete with several companies in providing these products and services, including EFS (WEX), Keller, and RTS Financial.
Lodging payment product line
We offer lodging payment solutions to businesses in North America that have employees who travel overnight for work purposes, and to airlines globally to accommodate both their traveling crews and distressed passengers whose flights have been canceled. We offer card-based lodging payment products for individual business travelers and non-card based solutions for crews and distressed passengers. Our solutions can be customized to meet the specific needs of our customers, including access to deeply discounted hotel networks and customer-specific rate negotiation, the ability to customize the network to fit customers’ specific travel needs and policies, enhanced controls and reporting, and audit and tax management services.
Our lodging payment products operate on our proprietary CLC, CLS and Travelliance lodging networks, which include over 33,900 hotels across 88 countries. We also can secure hotel rooms outside our proprietary networks if required by our customers. The size, scale and nature of our lodging customer base enable us to negotiate lodging nightly rates lower than the rates most companies could negotiate directly and far below the rates available to the general public.
Our customers can secure room nights with our solutions through our website or mobile app, by phone or email, or by walking into participating lodging properties and presenting their FLEETCOR lodging payment product credentials.
FLEETCOR has developed data management and payment processing systems to manage client billings and reports, which combined with our discounted hotel network, provide clients with savings and increased visibility into their lodging costs. The integration of our processing systems with airline logistics and crew management systems also enables us to deliver enhanced services to that industry vertical.
We distribute our lodging payment solutions mostly through direct channels to businesses of all sizes and serve customers across a wide range of industries, including airlines, trucking, railroads, construction, telecom, energy, food service, retail distribution, and emergency response services such as FEMA and the American Red Cross. We provide our custom lodging solutions to large customers and airlines under contracts.
Our lodging payment solutions compete with similar offerings from Egencia (Expedia), hotelengine.com, and in-house travel departments of large corporations and airlines.
Toll payment product line
In Brazil, we offer an electronic toll and parking payments product to commercialbusinesses and consumer customers, as well as a cardless fuelconsumers in the form of RFID tags affixed to vehicles’ windshields. Our electronic toll payments product offering at fueling sites throughout Brazil. Other than our fuel card products and services and prepaid giftcard products, no other products or services accounted for 10% or more of consolidated revenues in any of the last three fiscal years.
Networks
In order to deliver our payment programs and services, we own and operate proprietary closed-loop networks in North America and internationally. We also utilize the networks of our major oil and petroleum marketer partners in certain markets. Our networks have well-established brands in local markets and proprietary technology that enable us to capture, transact, analyze and report value-added information pertinent to managing and controlling employee spending. Examples of our networks include:
North America proprietary closed-loop networks
Fuelman network—our primary proprietary fleet card network in the United States. We have negotiated card acceptance and settlement terms with over 11,000 individual merchants, providing the Fuelman network with over 55,000 fueling sites and over 28,000 maintenance sites across the country.
Comdata network—our network of truck stops and fuel merchants for the over-the-road trucking industry. We have negotiated card acceptance and settlement terms at over 6,800 truck stops and fuel merchants across the United States and Canada.
Corporate Lodging Consultants network (CLC)—operates on our proprietary lodgingSem Parar network, in the United States and Canada. The CLC Lodging network includes over 16,400 hotels.
Commercial Fueling Network (CFN)—our “members only” fueling network in the United States and Canada. The CFN network is composed of over 2,500 fueling sites owned by a CFN member—the majority of which are unattended cardlock facilities. CFN provides fuel card authorization, transaction processing, cardlock site branding and reciprocal site access for over 220 independent petroleum marketers. Through a CFN affiliation, petroleum marketers can offer commercial fleets an integrated fuel card solution with access to over 55,000 locations via FleetCor’s Fuelman network.
Pacific Pride Fueling network (Pacific Pride)—our "franchise" fueling network in the United States composed of approximately 1,200 fueling sites owned by more than 250 franchisees. The Pacific Pride franchise offering includes a dynamic fleet card management system and provides franchisees' fleet customers access to Pacific Pride's network of unattended fueling facilities. Franchisees also benefit when fleet customers of other franchisees purchase fuel at their locations. Additionally, the PrideAdvantage fleet card providing fleet customers of franchisees access to over 55,000 locations via FleetCor’s Fuelman network.
International proprietary closed-loop networks
Allstar network—our proprietary fleet card network in the United Kingdom. We have negotiated card acceptance and settlement terms with over 2,200 individual merchants, providing this network with over 7,400 fueling sites.
Keyfuels network—our proprietary fleet card network in the United Kingdom. We have negotiated card acceptance and settlement terms with more than 500 individual merchants, providing the Keyfuels network with over 2,600 fueling sites.
CCS network—our primary proprietary fleet card network in the Czech Republic and Slovakia. We have negotiated card acceptance and settlement terms with several major oil companies on a brand-wide basis, including MOL, Benzina, OMV, Slovnaft and Shell, and with over 1,100 other merchants, providing the CCS network at over 2,600 fueling sites and 800 other sites accepting our cards.
Petrol Plus Region (PPR) network—our primary proprietary fleet card network in Russia, Poland, Ukraine, Belarus, Kazakhstan and Moldova. We have negotiated card acceptance and settlement terms with approximately 650 individual merchants, providing the PPR network with over 13,500 fueling sites across the region.
Efectivale network—our proprietary fuel and food card and voucher networks in Mexico. We have negotiated acceptance and settlement terms with over 52,000 individual merchants, providing the Mexican network with over 6,200 fueling sites, 41,800 food locations and 4,000 restaurants.
CTF network—our proprietary fuel controls network in Brazil. We have partnerships with BR Distribuidora (Petrobas) and Ipiranga Distribuidora, retail oil distributors, as well as other fuel providers, in Brazil. CTF’s processing system works at over 1,700 highway fueling sites through these partnerships and is integrated with two main banks, Banco Bradesco and Banco Itau.
1link service network—our proprietary maintenance and repair network in the United Kingdom. The 1link network processes transactions for fleet customers through more than 9,400 service centres across the United Kingdom.
RODOCRED network—our proprietary toll network in Brazil. The RODOCRED network processes tollprocessed transactions for more than 46,900 customers on all toll roads across Brazil.
VB Distribution system—our proprietary distribution network in Brazil for transportation cards, meal/grocery cards, and fuel cards. The VB distribution network distributes cards for more than 25,000 clients and negotiates with more than 1,300 public transportation agencies across Brazil.
Sem Parar network—our proprietary toll network in Brazil. The network processes toll transactions for more than 3.25 million customers on 99% of the toll roads across Brazil.
Our electronic tags may also be used to purchase parking, fuel and meals at affiliated merchant locations.Third-Party networksElectronic tolling provides convenience and faster travel and more convenience for customers, while also reducing manual labor and cash handling at merchants’ toll booths and parking garages. At gas stations and drive through restaurants, payment via electronic tags is faster, safer and more secure for customers, which in turn increases loyalty and throughput for merchants. Beyond these benefits, our electronic toll payment product also provides commercial customers with driver routing controls and fare auditing, mostly in the form of vehicle type and axle count configuration.
In addition
For certain commercial customers, we also offer prepaid paper vouchers as a means of payment on toll roads. We provide these vouchers to companies who contract with third-party drivers who do not have an electronic tag in their vehicles and for whom the companies are legally obligated to prepay tolls. Our electronic and paper toll vale-pedagio solutions are accepted for payment within our proprietary “closed-loop” networks,toll network that covers approximately 99% of national roads in Brazil.
We distribute our toll payment products through direct and indirect channels to customers of all sizes and across a broad number of industry verticals. To reach commercial customers, we utilize the same set of direct channels as our other commercially-focused product lines including field sales, telesales and digital marketing. To reach consumers, we also utilize various third-party networksplace proprietary manned kiosks and unmanned vending machines in areas with high consumer foot traffic, such as shopping malls.
Our indirect channel includes a range of resellers and referral partners, including retail establishments with high consumer foot traffic such as grocery stores, pharmacies and gas stations. We provide our toll payment product to deliverthese partners under our brand and, in select cases, under the partner’s brand.
Our electronic toll payment programsproduct competes with similar offerings such as Move Mais, ConectCar (Banco Itaú and services. ExamplesIpiranga), Veloe (Alelo), Repom (Edenred), and Visa Vale (Banco Bradesco).
Corporate payments product line
We offer a broad suite of these networks include:
MasterCard network—Incorporate payments solutions with vertical-specific applications, which enable our customers to manage and control electronic payments across their enterprise, optimize corporate spending and offer innovative services that increase employee efficiency and customer loyalty. Our primary corporate payments products include virtual cards, purchasing cards, travel & entertainment (T&E) cards, payroll cards and cross-border payment facilitation. These products are predominately marketed in North America, with cross-border payments also offered in the United StatesKingdom and Canada, we issue corporateAustralia. This collection of comprehensive solutions positions us to enable automation and savings across a user’s entire accounts payables (A/P) process, including both domestic and international payables.
A virtual card provides a single-use card number for a specific amount within a defined timeframe and serves as a highly-effective replacement for check payments. Virtual cards that utilizeprovide enhanced security relative to checks while reducing payment costs for our customers. Full remittance data accompanies each virtual card payment, providing significant reconciliation advantages to ACH payments. We have integrated our virtual card offering into most leading ERP systems, providing a seamless experience for accounts payable personnel to select our virtual card as the payment mechanism of choice.
FLEETCOR’s virtual card product operates on the Mastercard payment network. However, merchants affiliated to the MasterCard payment network which includes over 178,000 fuel sites and 469,000 maintenance locations. Our co-branded MasterCard corporateare not obligated to accept virtual cards as a form of payment. As such, merchants must be enrolled into our proprietary vendor network to accept our virtual card corporate payment solution,product. We have built a proprietary network of approximately 800,000 merchants that accept our virtual card payments. This network is managed with proprietary technology that allows us to continuously expand virtual card acceptance and optimize the amount of virtual card spend we can capture. This network, coupled with a best-in-class, in-house vendor enrollment service, is a major competitive advantage.
Our purchasing cards,and T&E cards operate on the Mastercard payment network and multi-use cards have additional purchasing capabilities and can beare accepted at approximately 10.710.9 million locations throughout the United States and Canada. We market these cardsThese card products are generally sold in conjunction with our virtual card offering to augment our customers’ purchasing capabilities. FLEETCOR also provides full A/P outsourcing services for customers who require card acceptance beyond our proprietary merchant locations. The MasterCard network delivers the ability to capture value-added transaction data at the point-of-salesend us their entire A/P file and allowsallow us to provide customers with fleet controlsexecute payments across all modalities, including the aforementioned products as well as ACH, wires and reporting comparable to those of our proprietary fleet card networks.
Major oil and fuel marketer networks—The proprietary networks of branded locations owned by our major oil and petroleum marketer partners in both North America and internationally are generally utilized to support the proprietary, branded card programs of these partners.
UTA network—UNION TANK Eckstein GmbH & Co. KG (UTA) operates a network of over 54,000 points of acceptance in 40 European countries, including more than 39,000 fueling sites. The UTA network is generally utilized by European transport companies that travel between multiple countries.
DKV network—DKV operates a network of over 60,000 fleet card-accepting locations across more than 40 countries throughout Europe. The DKV network is generally utilized by European transport companies that travel between multiple countries.
Carnet networks—In Mexico, we issue fuel cards and food cards that utilize the Carnet payment network, which includes over 11,000 fueling sites, over 31,000 food locations and over 500,000 restaurants across the country.
Customers and distribution channels
We provide our fleet products and services primarily to trucking companies, commercial fleet customers and our major oil company and petroleum marketer partners. Our commercial fleet customers are businesses that operate fleets comprised of one or more vehicles, including small fleets (1-10 vehicles), medium fleets (11-150 vehicles), large fleets (over 150 vehicles), and government fleets (which are owned and operated by governments).checks. We also provide services through strategic relationshipsexpense management software, which combines and leverages transaction data captured from our virtual, purchasing and T&E card products to help our customers analyze and control their corporate spending.
Our virtual, purchasing and T&E card products compete with our partners, ranging in sizesimilar offerings from major oil companies,large financial institutions such as British Petroleum (BP) (including its subsidiary, Arco), ShellBank of America, Citibank, J.P. Morgan Chase, PNC Bank, U.S. Bank, Wells Fargo and Speedway,American Express.
FLEETCOR offers a payroll card product in the form of a reloadable stored value card, which operates on the Mastercard payment network and the All Point ATM network. These cards are distributed to smaller petroleum marketersour customers’ employees and are funded by our customers with as littletheir employees’ earned wages. As cardholders, the employees may present the payroll card as a single fueling location. Whileform of payment for personal purchases, transfer funds to their bank account or withdraw funds from participating ATMs.
Our payroll card product competes with similar offerings from First Data Corporation, Fidelity National Information Services, Global Cash Card, Green Dot Financial, Total System Services, Automatic Data Processing, Paychex and Heartland Payment Systems.
FLEETCOR’s cross-border payment services are offered predominantly to commercial customers, who range from small businesses to mid-cap corporate entities. Customers generally use our cross-border payment services to pay international suppliers, foreign office and personnel expenses, capital expenditures, and profit repatriation and dividends. We administer foreign exchange trades and payment settlement with recipients through a global network of banks, enabling us to send payments to recipients in over 200 countries and in over 140 currencies. We employ rigorous compliance standards in all geographies where we referare licensed. By using transaction monitoring and watch list screening systems, we ensure payments are safe, secure, and meet all applicable regulatory requirements.
Our cross-border payment services compete with similar offerings from Western Union Business Solutions, Associated Foreign Exchange (AFEX), WorldFirst, Moneycorp, HiFX, Currencies Direct, GPS Capital Markets and large financial institutions.
FLEETCOR’s corporate payment solutions are enabled by our technology and operations. Our ERP integrations, API capabilities, strategic vendor enrollment, and transaction management tools enable us to companies with whom we have strategic relationships as “partners,”optimize our legal relationships with these companies are contractual, and do not constitute legal partnerships.customers’ electronic payables programs.
We distribute our fleet products and services directly to trucking companies and commercial fleet customers as well as through our major oil company and petroleum marketer partners. We provide comprehensive “end-to-end” support for our direct card programs that include issuing, processing and network services. We manage and market the fleet card programs of our partners under our partners’ own brands. We support these programs with a variety of business models ranging from fully outsourced card programs, which include issuing, processing and network services, to card programs where we may only provide limited back office processing services. These supporting services vary based on our partners’ needs and their own card program capabilities.
We primarily provide issuing, processing and information services to our major oil company partners, as these partners utilize their proprietary networks of branded locations to support their card programs. In addition, we provide network services to those major oil company partners who choose to offer a co-branded MasterCard as part of their card program. Our agreements with our major oil company partners typically have initial terms of five to ten years with current remaining terms ranging from two to seven years. No single partner represented more than 10% of our consolidated revenue in 2016, 2015 or 2014.
We provide similar fleet products and services to government fleet customers as we provide to other commercial fleet customers. Our government fleet customers generally constitute local, state or federal government-affiliated departments and agencies with vehicle fleets, such as police vehicle fleets and school bus fleets. We provide food, fuel, toll and transportation cards and vouchers to commercial businesses, fleets and governmental agencies.
We distribute our commercialcorporate payment solutions through direct and indirect channels to businesses of all sizes and types across a broad number of industry verticals. We serve customers across numerous industry verticals, such as retail, healthcare, construction, andmanufacturing, hospitality, as well as general commercial payment services in energy, entertainment, insurance and trade finance. As FLEETCOR both issues and processes its virtual cards and commercial cards, we have the control and flexibility to meet the unique needs of customers in different verticals.
We generally provide our commercialdomestic corporate payment solutions under contracts with our customers. Terms such as exclusivity, mandatory minimum contract payments and pricingPricing terms vary based on scope of use, usage volumes, incentives and contract duration. When our commercialcorporate payment solutions include short term credit, our contracts for those solutions contain credit and collection terms. Contracts for our commercial stored value solutions include a description and pricing for our services and deliverables associated with those solutions.
For a description of our financial information by our North America and International segments and geographical areas, see “Note 15—Segments.”
Sales and marketing
We market our products and services to prospective customers in North America and internationally through multiple channels including field sales, telesales, direct marketing, point-of-sale marketing and the internet. We also leverage the sales and marketing capabilities of our strategic relationships. Worldwide, our sales and marketing employees are focused on acquiring new customers and retaining existing customers for our different products. We also utilize tradeshows, advertising and other awareness campaigns to further market our products and services.
We utilize proprietary and third-party databases to develop our prospect universe, and segment those prospects by various characteristics, including industry, geography, size, and credit score, to identify potential customers. We develop customized offers for different types of potential customers and work to deliver those offers through the most effective marketing channel. We actively manage prospects across our various marketing channels to optimize our results and avoid marketing channel conflicts.
Our primary means of acquiring new customers include:
Field sales—Our field sales organizations are comprised of remote or local office-based sales representatives who conduct face-to-face sales presentations and product demonstrations with prospects, assist with post-sale program implementation and training, and provide in-person account management. Field sales representatives also attend and manage our marketing at tradeshows. Our field sales force is generally dedicated to a specific product or service category, and tend to target larger prospects.
Telesales—We have telesales representatives handling inbound and outbound sales calls.
Our inbound call volume is primarily generated as a result of marketing activities, including direct marketing, point-of-sale marketing and the internet.
Our outbound phone calls typically target prospects that have expressed an initial interest in our services or have been identified through database analysis as prospective customers. Our telesales teams are generally dedicated to a specific product or service category, and tend to target smaller prospects. We also leverage our telesalesindirect channel to cross-sell additional products to existing customers.
Digital marketing—We manage numerous marketing websites around the world which tend to fall into two categories: product-specific websites and marketing portals.
Product-specific websites—Our product-specific websites, including fuelman.com, checkinncard.com, allstarcard.co.uk and semparar.com.br, focus on one or more specific products, provide the most in-depth information available online regarding those particular products, allow prospects to convert online (where appropriate) and allow customers to access and manage their accounts online. We manage product-specific websites for our own proprietary programs, as well as white labeled sites for our strategic relationships.
Marketing portals—Our marketing portals, including fleetcardsUSA.com and fuelcards.co.uk, serve as information sources for fleet operators interested in fleet card products. In addition to providing helpful information on fleet management, including maintenance, tax reporting and fuel efficiency, these websites allow fleet operators to research card products, compare the features and benefits of multiple products, and identify the card product which best meets the fleet manager’s needs.
As part of our digital marketing strategy, we monitor and modify our marketing websites to improve our search engine rankings and test our advertising keywords to optimize our banner advertising placement and costs and our pay-per-click advertising spend among the major internet search firms such as Google and Yahoo.
Direct marketing—We market directly to potential customers via mail and email. We test various program offers and promotions, and adopt the most successful features into subsequent direct marketing initiatives. We seek to enhance the sales conversion rates of our direct marketing efforts by coordinating timely follow-up calls by our telesales teams.
Point-of-sale marketing—We provide marketing literature at the point-of-sale within our proprietary networks and those of our strategic relationships. Literature may include “take-one” applications, pump-top advertising and in-store advertising. Our point-of-sale marketing leverages the branding and distribution reach of the physical merchant locations.
Strategic relationships—We develop and manage relationships with industry participants relevant to our various products and services. With regard to our fuel card products and services, we have developed and currently manage relationships with oil companies, independent petroleum marketers, card marketers and leasing companies. Our major oil company and petroleum marketer relationships offer our payment processing and information management services to their fleet customers in order to establish and enhance customer loyalty. Our card programs for major oil companies and petroleum marketers carry their proprietary branding and may or may not be accepted in one of our merchant networks. We benefit from the marketing efforts of major oil companies and petroleum marketers with whom we have strategic relationships to attract customers to their fueling locations. We manage the fleet card sales and marketing efforts for several major oil companies across the full spectrum of channels, including field sales, telesales, direct marketing, point-of-sale marketing and internet marketing. In these cases, we establish dedicated sales and marketing teams to focus exclusively on marketing the products of major oil companies and petroleum marketers. Our major oil company relationships include some of the world’s largest oil companies such as BP, Speedway and Shell. Through our leasing company relationships, we offer our payment processing, vehicle maintenance and information management services to their fleet customers as part of the leasing company’s broader package of fleet services. Most
of our leasing company relationships reside outside of North America, and we view these relationships as an important strategic growth area.
Our strategic relationships also includeincludes a broad range of VARs and other referral partners that expand our reach into smaller businesses,new customer segments, new industry verticals and new geographies faster and at a significantly lower cost. We provide our commercial paymentcorporate payments solutions third-party processing services and other fleet services to these partners who offer our services under our brands or their own brands on a “white-label” basis. For example, we provide healthcare payment solutions through healthcare networks, corporate payment solutions through software and services providers and payroll card solutions through payroll service providers.
Account managementGift payment product line
Customer service, account activation, account retention—We provide fully integrated gift card product management and processing services in 61 different countries around the world. These products come in the form of plastic and digital gift cards, carry our customers’ brands and are generally accepted exclusively within the retail network, websites, and mobile applications of each respective customer.
Our services include card design, production and packaging, delivery and fulfillment, card and account management, transaction processing, promotion development and customer service to our customers. Based in dedicated call centers across our key markets, these professionals handle transaction authorizations, billing questionsmanagement, website design and account changes. Customers also have the opportunity to self-service their accounts through interactive voice responsehosting, program analytics, and online tools. We monitor the quality of the service we provide to our customers by adhering to industry standard service levels with respect to abandon rates and answer times and through regular agent call monitoring. We also conduct regular customer surveys to ensure customers are satisfied with our products and services. In addition to our base customer service support, we provide the following specialized services:
Implementation and activation—We have dedicated implementation teams that are responsible for establishing the system set-up for each customer account. These teams focus on successful activation and utilization of our new customers and provide training and education on the usecard distribution channel management. The combination of our products and services. Technical support resources are providedservices provides a turnkey solution to support the accurate and timely set-up of technical integrations between our proprietary processing systems and customer systems (e.g., payroll, enterprise resource planning and point-of-sale). Larger accounts are provided dedicated program managers who are responsible for managing and coordinating customer activities for the duration of the implementation. These program managers are responsible for the successful set-up of accounts to meet stated customer objectives.
Strategic account management—We assign designated account managers who serve as the single point of contact for our large accounts. Our account managers have in-depth knowledge of our programs and our customers’ operations and objectives. Our account managers train customer administrators and support them on the operation and optimal use of our programs, oversee account setup and activation, review online billing and create customized reports. Our account managers also prepare periodic account reviews, provide specific information on trends in their accounts and work together to identify and discuss major issues and emerging needs.
Account retention—We have proprietary, proactive strategies to contact customers, who may be at riskbenefit in the form of terminating their relationship with us. Through these strategies we seek to address service concerns, enhance product structures and provide customized solutions to address customer issues.
Customer service—Day-to-day servicing representatives are designated for customer accounts. These designated representatives are responsible for the daily service items and issue resolution of customers. These servicing representatives are familiar with the nuanced requirements and specifics of a customer’s program. Service representatives are responsible for customer training, fraud disputes, card orders, card maintenance, billing, etc.
Merchant network services—Our representatives work with merchants such as fuel, toll operators and vehicle maintenance providers to enroll them in one of our proprietary networks, install and test all network and terminal software and hardware and train thembrand promotion, cardholder loyalty, increased sales, interest income on the sale and transaction authorization process. In addition, our representatives provide transaction analysis and site reporting and address settlement issues.
Call center program administrator—Off-hour call center support is provided to customers to handle time-sensitive requests and issues outside of normal business hours.
Management tools—We offer a variety of online servicing tools that enable customers to identify and provide authority to program administrators to self-service their accounts.
Additionally, we provide cardholder support for individuals utilizing our payment tools, such as fleet, T&E, gift cards, and stored value payroll cards. This support enables cardholders the ability to activate cards, checkprepaid balances, and resolve issues in a timely and effective fashion. Cardholder support is conducted 24-hours a day, seven-days per weekbreakage on abandoned card balances.
in multiple languages utilizing telephony, web and call center technologies to deliver comprehensive and cost effective servicing. We have rigorous operational metrics in place to increase cardholder responsiveness to corporate and customer objectives.
Credit underwriting and collections—We follow detailed application credit review, account management, and collections procedures for all customers ofdistribute our gift payment solutions. We use multiple levers including billing frequency, payment terms, spending limits and security to manage risk in our portfolio. For the years ended December 31, 2016 and 2015, our bad debt expense was $35.9 million and $24.6 million, respectively.
New account underwriting—We use a combination of quantitative, third-party credit scoring models and judgmental underwriting to screen potential customers and establish appropriate credit terms and spend limits. Our underwriting process provides additional scrutiny for large credit amounts and we utilize tiered credit approval authority among our management.
Prepaid and secured accounts—We also offer products and services ondirectly through a prepaid or fully-secured basis. Prepaid customer accounts are fundedspecialized, dedicated field sales force. We serve our commercial customers in numerous industry verticals, with an initial deposita focus in restaurants, supermarkets, drugstores, airlines, hotels, apparel and subsequently debited for each purchase transacted onother retail categories. We help our commercial customers manage distribution with omni-channel strategies which include card sales through the cards issued to the customer. Fully-secured customer accounts are secured with cash deposits, letters of credit and/or insurance bonds. The security is held until such timecustomers’ retail outlets, websites and mobile applications, as the customer either fails to pay the account or closes its account after paying outstanding amounts. Under either approach, our prepaid and fully-secured offerings allow us to market to a broader universe of prospects, including customers who might otherwise not meet our credit standards.
Monitoring and account management—We use fraud detection programs, including both proprietary andwell as through third party solutions,locations, such as supermarkets and drug stores. This third party distribution is generally provided by other companies, such as Blackhawk and InComm, who are reliant on access to monitorour systems to meet their distribution obligations.
We compete with a number of national companies in providing gift cards, the largest of which include First Data Corporation and Vantiv. We also compete with businesses that rely on in-house solutions.
Additional products
FLEETCOR provides several other payment products that, due to their nature or size, are not considered primary product lines.
Fleet maintenance
We provide a vehicle maintenance service offering that helps fleet customers to manage their vehicle maintenance, service, and repair needs in the U.K. This product is provided through our proprietary 1link maintenance and repair network which
processes transactions for fleet customers through approximately 8,700 service centers across the U.K. With regard to our fleet maintenance products, we compete with several companies including Ebbon-Dacs and prevent misuseFleet on Demand.
Employee benefit payments
In Mexico, we offer prepaid food vouchers and cards that may be used as a form of our products. We monitor the credit quality of our portfolio periodically utilizing external credit scorespayment in restaurants and internal behavior data to identify high risk or deteriorating credit quality accounts. We conduct targeted strategies to minimize exposure to high risk accounts, including reducing spending limits andgrocery stores. These payment terms or requiring additional security.
Collections—As accounts become delinquent, we may suspend future transactions basedproducts operate on our risk assessmentone of the account.following networks:
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| • | Efectivale network—also our proprietary food card and voucher network in Mexico. We have negotiated acceptance and settlement terms providing the network with over 49,400 food locations, 8,300 fueling sites and 5,900 restaurants. |
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| • | Carnet network—a national debit network in Mexico, which includes approximately 51,000 food locations and 12,700 fueling sites across the country. |
In Brazil, we offer prepaid transportation cards and vouchers that may be used as a form of payment on public transportation such as buses, subways and trains. Our collections strategyproprietary VB Servicos, Comercio e Administracao LTDA (“VB”) distribution network distributes cards and vouchers to employees on behalf of approximately 27,300 customers and negotiates with more than 1,500 public transportation agencies across Brazil.
We provide these various payment products to businesses of all sizes and industry verticals and the businesses in turn offer the products to their employees as a form of benefit. With regard to our employee benefit payment products, we compete with numerous companies, the largest of which includes a combination of internalEdenred, Sodexo, Chèque Déjeuner, and outsourced resources which use both manual and dialer-based calling strategies. We use a segmented collection strategy which prioritizes higher risk and higher balance accounts. For severely delinquent, high balance accounts we may pursue legal remedies.
Alelo.Competition
We face considerable competition in our business. The most significant competitive factors in our business are the breadth of product and service features, credit extension, payment terms, customer service and account management, and price. For certain payment-related products, we also compete on the respective size or nature (i.e., open versus closed loop) of each product’s acceptance network. For certain payment processing services, systems and technology are also significant competitive factors. We believe that we generally compete favorably with respect to each of these factors. However, we may experience competitive disadvantages with respect to each of these factors from time to time as potential customers prioritize or value these competitive factors differently. As a result, a specific offering of our products and service features, networks and pricing may serve as a competitive advantage with respect to one customer and a disadvantage for another based on the customers’ preferences. The companies with whom we compete often vary by product line and/or geography, and are therefore identified by name in the respective product line discussions.
With regardSales and marketing
We market our products and services to prospective customers in North America and internationally through multiple channels including field sales, telesales, digital marketing, direct marketing, and point-of-sale marketing. We also leverage the sales and marketing capabilities of our strategic relationships. Worldwide, our sales and marketing employees are focused on acquiring new customers and retaining existing customers for our different products. We also utilize tradeshows, advertising and other awareness campaigns to further market our products and services.
We utilize proprietary and third-party databases to develop our prospect universe and segment those prospects by various characteristics, including industry, geography, and size, to identify potential customers. We develop customized offers for different types of potential customers and work to deliver those offers through the most effective marketing channel. We actively manage prospects across our various marketing channels to optimize our results and avoid marketing channel conflicts.
Our primary means of acquiring new customers include:
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| • | Telesales—We have telesales representatives handling inbound and outbound sales calls. |
Our inbound call volume is primarily generated as a result of marketing activities, including direct marketing, point-of-sale marketing and the internet.
Our outbound phone calls typically target prospects that have expressed an initial interest in our services or have been identified through database analysis as prospective customers. Our telesales teams are generally dedicated to a specific product or service category and tend to target smaller prospects. We also leverage our telesales channel to cross-sell additional products to existing customers.
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| • | Digital marketing—We manage numerous marketing websites around the world which tend to fall into two categories: product-specific websites and marketing portals. |
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| • | Product-specific websites—Our product-specific websites, including fuelman.com, checkinncard.com, allstarcard.co.uk and semparar.com.br, focus on one or more specific products, provide the most in-depth information available online regarding those particular products, allow prospects to apply online (where appropriate) and allow customers to access and manage their accounts online. We manage product-specific websites for our own proprietary programs, as well as white labeled sites for our strategic relationships. |
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| • | Marketing portals—Our marketing portals, including fleetcardsUSA.com and fuelcards.co.uk, serve as information sources for fleet operators interested in fleet card products. In addition to providing helpful information on fleet management, including maintenance, tax reporting and fuel efficiency, these websites allow fleet operators to research card products, compare the features and benefits of multiple products, and identify the card product which best meets the fleet manager’s needs. |
As part of our digital marketing strategy, we monitor and modify our marketing websites to improve our search engine rankings and test our advertising keywords to optimize our banner advertising placement and costs and our pay-per-click advertising spend among the major internet search firms such as Google and Bing.
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| • | Direct marketing—We market directly to potential customers via mail and email. We test various program offers and promotions, and adopt the most successful features into subsequent direct marketing initiatives. We seek to enhance the sales conversion rates of our direct marketing efforts by coordinating timely follow-up calls by our telesales teams. |
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| • | Point-of-sale marketing—We provide marketing literature at the point-of-sale within our proprietary networks and those of our partner relationships. Literature may include “take-one” applications, pump-top advertising and in-store advertising. Our point-of-sale marketing leverages the branding and distribution reach of the physical merchant locations. |
Account management
We provide account management and customer service to our fuel cardcustomers. Based in dedicated call centers across our key markets, these professionals handle transaction authorizations, billing questions and workforce payment products,account changes. Customers also have the opportunity to self-service their accounts through interactive voice response and online tools. We monitor the quality of the service we compete with independent fleet card providers, employee benefit outsourcing services, major financial services companies, major oil companies and petroleum marketers. Excluding major oil companies, our most significant competitors in these product categories include WEX, U.S. Bank Voyager Fleet Systems, World Fuel Services, Edenred, Sodexo, Alelo, ConectCar, Radius Payment Solutions, Ebbon-Dacs, and Fleet on Demand.
Our corporate payments business competes with large financial institutions such as Bank of America, Citibank, J.P. Morgan Chase, PNC Bank, U.S. Bank, Wells Fargo Bank and American Express with regard to its virtual, purchasing and T&E card products. With regardprovide to our payroll card product, we also competecustomers by adhering to industry standard service levels with First Data Corporation, Fidelity National Information Services, Global Cash Card, Green Dot Financial, Total System Services, Automatic Data Processing, Paychexrespect to abandon rates and Heartland Payment Systems.
We compete with a number of national companies in providing closed-loop gift cards, the largest of which include First Data Corporationanswer times and Vantiv.through regular agent call monitoring. We also competeconduct regular customer surveys to ensure customers are satisfied with businesses that rely on in-house solutions.our products and services. We provide the following specialized services:
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| • | Implementation and activation—We have dedicated implementation teams that are responsible for establishing the system set-up for each customer account. These teams focus on successful activation and utilization of our new customers and provide training and education on the use of our products and services. Technical support resources are provided to support the accurate and timely set-up of technical integrations between our proprietary processing systems and customer systems (e.g., payroll, enterprise resource planning and point-of-sale). Larger accounts are provided dedicated program managers who are responsible for managing and coordinating customer activities for the duration of the implementation. These program managers are responsible for the successful set-up of accounts to meet stated customer objectives. |
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| • | Strategic account management—We assign designated account managers who serve as the single point of contact for our large accounts. Our account managers have in-depth knowledge of our programs and our customers’ operations and objectives. Our account managers train customer administrators and support them on the operation and optimal use of our programs, oversee account setup and activation, review online billing and create customized reports. Our account managers also prepare periodic account reviews, provide specific information on trends in their accounts and work together to identify and discuss major issues and emerging needs. |
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| • | Account retention—We have proprietary, proactive strategies to contact customers who may be at risk of terminating their relationship with us. Through these strategies we seek to address service concerns, enhance product structures and provide customized solutions to address customer issues. |
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| • | Customer service—Day-to-day servicing representatives are designated for customer accounts. These designated representatives are responsible for the daily service items and issue resolution of customers. These servicing representatives are familiar with the nuanced requirements and specifics of a customer’s program. Service representatives are responsible for customer training, fraud disputes, card orders, card maintenance, billing, etc. |
We also compete with a number of companies in the telematics space, the largest of which include Verizon, Omnitracs, Trimble, Danaher, Zonar Systems, TomTom Telematics, Novatel Wireless, and Transics. | |
| • | Cardholder support—We provide cardholder support for individuals utilizing our payment products. This support allows cardholders to activate cards, check balances, and resolve issues in a timely and effective fashion. Cardholder support is conducted 24 hours a day, seven days per week in multiple languages utilizing telephony, web and call center technologies to deliver comprehensive and cost effective servicing. We have rigorous operational metrics in place to increase cardholder responsiveness to corporate and customer objectives. |
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| • | Merchant network services—Our representatives work with merchants such as fuel, toll operators and vehicle maintenance providers to enroll them in one of our proprietary networks, install and test all network and terminal software and hardware and train them on the sale and transaction authorization process. In addition, our representatives provide transaction analysis and site reporting and address settlement issues. |
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| • | Call center program administration—Off-hour call center support is provided to customers to handle time-sensitive requests and issues outside of normal business hours. |
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| • | Management tools—We offer a variety of online servicing tools that enable customers to identify and provide authority to program administrators to self-service their accounts. |
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| • | Credit underwriting and collections—We follow detailed application credit review, account management, and collections procedures for all customers of our payment solutions. We use multiple levers including billing frequency, payment terms, spending limits and security to manage risk in our portfolio. For the years ended December 31, 2019 and 2018, our bad debt expense was $74.3 million and $64.4 million, or 6 bps and 6 bps of billings, respectively. |
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| • | New account underwriting—We use a combination of quantitative, third-party credit scoring models and judgmental underwriting to screen potential customers and establish appropriate credit terms and spend limits. Our underwriting process provides additional scrutiny for large credit amounts and we utilize tiered credit approval authority among our management. |
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| • | Prepaid and secured accounts—We also offer products and services on a prepaid or fully-secured basis. Prepaid customer accounts are funded with an initial deposit and subsequently debited for each purchase transacted on the cards issued to the customer. Fully-secured customer accounts are secured with cash deposits, letters of credit and/or insurance bonds. The security is held until such time as the customer either fails to pay the account or closes its account after paying outstanding amounts. Under either approach, our prepaid and fully-secured offerings allow us to market to a broader universe of prospects, including customers who might otherwise not meet our credit standards. |
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| • | Monitoring and account management—We use fraud detection programs, including both proprietary and third-party solutions, to monitor transactions and prevent misuse of our products. We monitor the credit quality of our portfolio periodically utilizing external credit scores and internal behavior data to identify high risk or deteriorating credit quality accounts. We conduct targeted strategies to minimize exposure to high risk accounts, including reducing spending limits and payment terms or requiring additional security. |
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| • | Collections—As accounts become delinquent, we may suspend future transactions based on our risk assessment of the account. Our collections strategy includes a combination of internal and outsourced resources which use both manual and dialer-based calling strategies. We use a segmented collection strategy which prioritizes higher risk and higher balance accounts. For severely delinquent, high balance accounts we may pursue legal remedies. |
Technology
Our technology provides continuous authorization of transactions, processing of critical account and client information and settlement between merchants, issuing companies and individual commercial entities. We recognize the importance of state-of-the-art, secure, efficient and reliable technology in our business and have made significant investments in our applications and infrastructure. In 2016,2019, we spent more than $150approximately $200 million in capital and operating expenses to operate, protect and enhance our technology and expect to continue the build out of our proprietary processing platform in Europe and Asia, as well as the integration of our recently acquired businesses.technology.
Our technology function is based in the United States, Europe and Brazil and has expertise in the management of applications, transaction networks and infrastructure. We operate application development centers in the United States, United Kingdom, Netherlands, Russia, Czech Republic, Brazil and New Zealand. Our distributed application architecture allows us to maintain, administer and upgrade our systems in a cost-effective and flexible manner. We integrate our systems with third-party vendor applications for certain products, sales and customer relationship management and back-office support. Our technology
organization has undertaken and successfully executed large scale projects to develop or consolidate new systems, convert oil company and petroleum marketer systems and integrate acquisitions while continuing to operate and enhance existing systems.
Our technology infrastructure is supported by best-in-class, highly-secure data centers, with redundant locations. We operate sixour primary data centers, which are located in Atlanta, Georgia; Brentwood, Tennessee; Prague; Czech Republic; Las Vegas, Nevada; Lexington and Louisville, KentuckyKentucky; Sao Paulo, Brazil; Toronto, Canada and Moscow, Russia. We use only proven technology and haveexpect no foreseeable capacity limitations. Our systems align with industry standards for security with multiple industry certifications. Our network is configured with multiple layers of security to isolate our databases from unauthorized access. We use security protocols for communication among applications, and our employees access critical components on a need-only basis. AsWe may not be able to adequately protect our systems or the data we collect from continually evolving cybersecurity risks or other technological risks, which could subject us to liability and damage our reputation. See also "We are dependent on the efficient and uninterrupted operation of December 31, 2016,interconnected computer systems, telecommunications, data centers and call centers, including technology and network systems managed by multiple third parties, which could result in our inability to prevent disruptions in our services" and "We may experience software defects, system errors, computer viruses and development delays, which could damage customer relationships, decrease our profitability and expose us to liability" under Item 1A for further discussion of the risks we have not experienced anyface in connection with our technology systems and potential data security breaches.breach and cybersecurity risks facing the Company.
We maintain disaster recovery and business continuity plans. Our telecommunications and internet systems have multiple levels of redundancy to ensure reliability of network service. In 2016,2019, we experiencedachieved 99.9% up-time for authorizations.authorizations globally.
Proprietary processing systems
We operate several proprietary processing systems that provide features and functionality to run our card programs and product offerings, including our card issuing, processing and information services. Our processing systems also integrate with our proprietary networks, which provide brand awareness and connectivity to our acceptance locations that enables the “end-to-end” card acceptance, data capture and transaction authorization capabilities of our card programs. Our proprietary processing systems and aggregation software are tailored to meet the unique needs of the individual markets they serve and enable us to create and deliver commercial payment solutions and stored value programs that serve each of our industry verticals and geographies. Our technology platforms are primarily comprised of four key components, which were primarily developed and are maintained in-house: (1) a core processing platform; (2) specialized software; (3) integrated network capabilities; and (4) a cloud based architecture with proprietary APIs.
Intellectual property
Our intellectual property is an important element of our business. We rely on trademark, copyright, trade secret, patent and other intellectual property laws, confidentiality agreements, contractual provisions and similar measures to protect our intellectual property. Our employees involved in technology development in some of the countries in which we operate, including the United States, are required to sign agreements acknowledging that all intellectual property created by them on our behalf is owned by us. We also have internal policies regarding the protection, disclosure and use of our confidential information. Confidentiality, license or similar agreements or clauses are generally used with our business partners and vendors to control access, use and distribution of our intellectual property. Unauthorized persons may attempt to obtain our intellectual property despite our efforts and others may develop similar intellectual property independently. We own trade names, service marks, trademarks and registered trademarks supporting a number of our brands, such as FleetCor,FLEETCOR, Fuelman, Comdata, and Comchek (among others) in the United States. We also own trademarks and registered trademarks in various foreign jurisdictions for a number of our brands, such as Cambridge, Keyfuels, AllStar, CTF, and Sem Parar (among others). We hold a number of patents and pending applications relating to payment card,cards and fuel tax returns and telematics inventions.
returns.
Acquisitions
Since 2002, we have completed over 7080 acquisitions of companies and commercial account portfolios, including the acquisition of STP in August 2016.portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. For a discussion of recent acquisitions, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Acquisitions”.
Regulatory
A substantial number of laws and regulations, both in the United States and in other jurisdictions, apply to businesses offering payment cards to customers or processing or servicing for payment cards and related accounts. These laws and regulations are often evolving and sometimes ambiguous or inconsistent, and the extent to which they apply to us is at times unclear. Failure to
comply with regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension, or termination of services, and/or the imposition of civil and criminal penalties, including fines. Certain of our services are also subject to rules set by various payment networks, such as MasterCard,Mastercard, as more fully described below.
The following, while not exhaustive, is a description of several federal and state laws and regulations in the United States that are applicable to our business. The laws and regulations of other jurisdictions also affect us, and they may be more or less restrictive than those in the United States and may also impact different parts of our operations. In addition, the legal and regulatory framework governing our business is subject to ongoing revision, and changes in that framework could have a significant effect on us.
Money Transmission and Payment Instrument Licensing Regulations
We are subject to various U.S. laws and regulations governing money transmission and the issuance and sale of payment instruments relating to certain aspects of our business. In the United States, most states license money transmitters and issuers of payment instruments. Through our subsidiaries, we are licensed in 45 states.all states where required for business. Many states exercise authority over the operations of our services related to money transmission and payment instruments and, as part of this authority, subject us to periodic examinations, which may include a review of our compliance practices, policies and procedures, financial position and related records, privacy and data security policies and procedures, and other matters related to our business. SomeAs a result of these periodic examinations, state agencies conduct periodic examinations andsometimes issue us findings and recommendations, as a result of which weprompting us to make changes to our operations, such as improving our reporting processes, detailing our intercompany arrangements, and implementing new or revising existing policies and procedures, such as our anti-money laundering and the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC)(“OFAC”) compliance program and complaints managementour complaints-management process, and improvements toimproving our documentation processes.
As a licensee, we are subject to certain restrictions and requirements, including net worth and surety bond requirements, record keeping and reporting requirements, requirements for regulatory approval of controlling stockholders or direct and indirect changes of control of the licensee and certain other corporate events, and requirements to maintain certain levels of permissible investments in an amount equal to our outstanding payment obligations. Many states also require money transmitters and issuers of payment instruments to comply with federal and/orand state anti-money laundering laws and regulations. Many states require prior approval for an indirect change of control of the licenseeSee “Anti-Money Laundering and certain other corporate events.Counter Terrorist Regulations.”
Government agencies may impose new or additional requirements on money transmission and sales of payment instruments, and we expect that compliance costs will increase in the future for our regulated subsidiaries.
Privacy and Information Security Regulations
We provide services that may be subject to various state, federal, and foreign privacy and information security laws and regulations, of a variety of jurisdictions. Relevant federal privacy laws includeincluding, among others, the Gramm-Leach-BlileyGramm-Leach Bliley Act, the EU’s General Data Protection Regulation (the “GDPR”) and its Network and Information Security directive, Canada’s Personal Information Protection and Electronic Documents Act, and California’s Consumer Protection Act of 1999, which applies directly to a broad range of financial institutions2018 (the “CCPA”).
These and indirectly, or in some instances directly, to companies that provide services to financial institutions. Thesesimilar laws and their implementing regulations restrict thecertain collection, processing, storage, use, and disclosure of personal information, require notice to individuals of privacy practices, and provide individuals with certain rights to prevent the use and disclosure of protected information. These lawsSome also impose requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In many cases they impose obligations to notify affected individuals, state officers or other governmental authorities, the media, and consumer reporting agencies, as well as businesses and governmental agencies, of security breaches affecting personal information. In addition, there are state laws restrictingsome restrict the ability to collect and utilize certain types of information such as Social Security and driver’s license numbers. Certain state laws impose similar privacy obligations as well as obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and consumer reporting agencies and businesses and governmental agencies that own data. To the extent that we offer our services outside the United States, we are also required to comply with various foreign laws and regulations relating to privacy and information security, some of which are more stringent than the laws in the United States.
Certain of our products that access payment networks require compliance with Payment Card Industry (“PCI”) data security standards. Our subsidiary, Comdata Inc.See “Payment Card Industry Rules.”
Email and Text Marketing Laws
We may use direct email marketing and text-messaging to reach out to current or potential customers and therefore are subject to various statutes, regulations, and rulings, including the Telephone Consumer Protection Act (“TCPA”), the Controlling the Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM Act”) and related Federal Communication Commission (“FCC”) orders. The TCPA, as interpreted and implemented by the FCC and U.S. courts imposes significant restrictions on the use of telephone calls and text messages to residential and mobile telephone numbers as a means of
communication when prior consent of the person being contacted has not been obtained. Violations of the TCPA may be enforced by the FCC or by individuals through litigation, including class actions. Statutory penalties for TCPA violations range from $500 to $1,500 per violation, which has been interpreted to mean per phone call.
FCC regulations promulgated under the CAN-SPAM Act establish requirements for “commercial messages,” give recipients the right to have companies stop emailing them, and spells out penalties for violations. Commercial messages are defined as “any electronic mail message the primary purpose of which is PCI 2.0 compliantthe commercial advertisement or promotion of a commercial product or service,” including email that promotes content on commercial websites. The law makes no exception for business-to-business email. Each separate email in violation of the CAN-SPAM Act is subject to penalties of up to $43,280.
Several states have enacted additional, more restrictive and punitive laws regulating commercial email. Foreign legislation exists as well, including Canada’s Anti-Spam Legislation and the European laws that have been enacted pursuant to European Union Directive 2002/58/EC and its Attestationamendments.
We use email as a significant means of Compliance is listed on MasterCard’s compliant service provider listing. Failure to maintain compliancecommunicating with updates to PCI data security standards including having effective technicalour existing and administrative safeguards and policies and procedures could result in fines and assessments from payment networks andpotential users. We believe that our email practices comply with the relevant regulatory authorities, as well as litigation.requirements.
Federal Trade Commission Act
All persons engaged in commerce, including, but not limited to, us and our bank sponsors and customers are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, and certain products are subject to the jurisdiction of the CFPBConsumer Financial Protection Bureau (“CFPB”) regarding the prohibition of unfair, deceptive, or abusive acts and practices (both, collectively, UDAAP). A number of state laws and regulations also prohibit unfair and deceptive business practices. Various federal and state regulatory enforcement agencies including the Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”)CFPB and the state attorneys general have authority to investigate and take action against businesses, merchants and financial institutions that are alleged to engage in UDAAP or violate other laws, rules and regulations. If we violateare accused of violating such laws, rules and regulations, we may be subject to enforcement actions and as a result, may incur losses and liabilities that may impact our business. A number of state laws and regulations also prohibit unfair and deceptive business practices.
Truth in Lending Act
The Truth in Lending Act, or TILA, was enacted as a consumer protection measure to increase consumer awareness of the cost of credit and to protect consumers from unauthorized charges or billing errors, and is implemented by the Federal Reserve’s Regulation Z. Most provisions of TILA and Regulation Z apply only to the extension of consumer credit, but a limited number of provisions apply to commercial cards as well. One example where TILA and Regulation Z are generally applicable is a limitation on liability for unauthorized use, although a business that acquires 10 or more credit cards for its personnel can agree to more expansive liability. Our cardholder agreements generally provide forthat these business customers to waive, to the fullest extent possible, all limitations on liability for unauthorized card use.
Credit Card Accountability, Responsibility, and Disclosure Act of 2009
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (“CARD Act”) is an act that, among other things, amended provisions of TILA that affect consumer credit and also directed the Federal Reserve Board to study the use of credit cards by small businesses and to make legislative recommendations. The report concluded that it is not clear whether the potential benefits outweigh the increased cost and reduced credit availability if the disclosure and substantive restrictions applicable to consumer cards were to be applied to small business cards. Legislation has been introduced, from time to time, to increase the protections afforded to small businesses that use payment cards. If legislation of this kind were enacted, our products and services for small businesses could be adversely impacted.
Equal Credit Opportunity Act
The Equal Credit Opportunity Act, or ECOA, together with Regulation B prohibit creditors from discriminating on certain prohibited bases, such as an applicant’s sex, race, nationality, age and marital status, and further requires that creditors disclose the reasons for taking any adverse action against an applicant or a customer seeking credit.
The Fair Credit Reporting Act
The Fair Credit Reporting Act, or FCRA, regulates consumer reporting agencies and the disclosure and use of consumer reports. We may obtain consumer reports with respect to an individual who guarantees or otherwise is obligated on a commercial card.
FACT Act
The Fair and Accurate Credit Transactions Act of 2003 amended FCRA and requires creditors to adopt identity theft prevention programs to detect, prevent and mitigate identity theft in connection with covered accounts, which can include business accounts for which there is a reasonably foreseeable risk of identity theft.
Anti-Money Laundering and Counter Terrorist Regulations
The Currency and Foreign Transactions Reporting Act, which is also known as the Bank Secrecy Act (the BSA)“BSA”) and which has been amended by the USA PATRIOT Act of 2001, contains a variety of provisions aimed at fighting terrorism and money
laundering. Our business in Canada is also subject to Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the PCTFA, which is a corollary to the BSA. Among other things, the Bank Secrecy ActBSA and implementing regulations issued by the U.S. Treasury Department require financial-services providers to establish anti-money laundering programs, to not engage in terrorist financing, to report suspicious activity, and to maintain a number of related records. In addition to economic sanctions programs, we are also subject to international laws and regulations focused on fighting terrorism and money laundering:
in Canada, Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the PCTFA;
in Australia, as a registered remittance dealer with AUSTRAC, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act); and
in the UK, as a registered Electronic Money Institution with the Financial Conduct Authority, the Proceeds of Crime Act, 2002 (as amended by the Serious Organised Crime and Police Act 2005), and the Terrorism Act 2000 (as amended by the Anti-Terrorism, Crime and Security Act 2001 and the Terrorism Act 2006).
Non-banks that provide certain financial services are required to register with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN) as “money services businesses” (MSBs). Through certain subsidiaries, we are registered money services businesses.as MSBs. As a result, we have established anti-money laundering compliance programs that include: (i) internal policies and controls; (ii) designation of a compliance officer; (iii) ongoing employee training; and (iv) an independent review function. We have developed and implemented compliance programs comprised of policies, procedures, systems and internal controls to monitor and address various legal requirements and developments.
In addition, provisions of the BSA known as the Prepaid Access Rule issued by the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN)FinCEN impose certain obligations, such as registration and collection of consumer information, on “providers” of certain prepaid access programs, including the stored value products issued by our sponsor banks for which we serve as program manager. FinCEN has taken the position that, where the issuing bank has principal oversight and control of such prepaid access programs, no other participant in the distribution chain would be required to register as a provider under the Prepaid Access Rule. Despite this position, we have opted to register as a provider of prepaid access through our subsidiary, Comdata Inc. We are also subject to certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control, or OFAC that prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals, narcotics traffickers, and terrorists or terrorist organizations.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, effected comprehensive revisions to a wide array of federal laws governing financial institutions, financial services, and financial markets. Among its most notable provisions is the creation of the CFPB, which is charged with regulating consumer financial products or services and which is assuming much of the rulemaking authority under TILA, ECOA, FCRA, and other federal laws affecting the extension of credit. In addition to rulemaking authority over several enumerated federal consumer financial protection laws, the CFPB is authorized to issue rules prohibiting UDAAP by persons offering consumer financial products or services and their service providers, and has authority to enforce these consumer financial protection laws and CFPB rules. The CFPB has not defined what is a consumer financial product or service but has indicated informally that, in some instances, small businesses may be covered under consumer protection.
As a service provider to certain of our bank sponsors, we aremay be subject to direct supervision and examination by the CFPB, in connection with certain of our products and services. CFPB rules, examinations and enforcement actions may require us to adjust our activities and may increase our compliance costs.
In addition, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that a card issuer or payment network receives or charges for debit transactions will now be regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the transaction. Payment network fees may not be used directly or indirectly to compensate card issuers in circumvention of the interchange transaction fee
restrictions. In July 2011, the Federal Reserve published the final rules governing debit interchange fees. Effective in October 2011, with certain exemptions debit interchange rates are capped at $0.21 per transaction with an additional component of five basis points of the transaction’s value to reflect a portion of the issuer’s fraud losses plus, for qualifying issuing financial institutions, an additional $0.01 per transaction in debit interchange for fraud prevention costs. The cap on interchange fees is not expected to have a material direct impact on our results of operations because we qualify for an exemption for the majority of our debit transactions.
The implementation of the Dodd-Frank Act is ongoing, and as a result, its overall impact remains unclear. Its provisions, however, are sufficiently far reaching that it is possible that we could be further directly or indirectly impacted.
Anti-Bribery Regulations
The FCPA prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery provisions enforced by the Department of Justice and accounting provisions enforced by the SEC.Securities and Exchange Commission (the “SEC”). The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government-run or -owned organizations. The
statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible FCPA violations.
Payment Card Industry Rules
Partner banksBanks issuing payment cards bearing the MasterCardMastercard brand, and FleetCorFLEETCOR to the extent that we provide certain services in connection with those cards and fleet customers acting as merchants accepting those cards, must comply with the bylaws, regulations and requirements that are promulgated by MasterCardMastercard and other applicable payment-card organizations, including the Payment Card IndustryPCI Data Security Standard, developed by MasterCard and VISA, the MasterCardMastercard Site Data Protection Program and other applicable data-security program requirements. A breach of such payment card network rules could subject us to a variety of fines or penalties that may be levied by the payment networks for certain acts or omissions. The payment networks routinely update and modify their requirements. Our failure to comply with the networks’ requirements or to pay the fines they impose could cause the termination of our registration and require us to stop processing transactions on their networks. Our subsidiary, Comdata Inc., is PCI 3.2 compliant.
We are also subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions processed by us using the Automated Clearing House Network.
Escheat Regulations
Certain of our subsidiaries areWe may be subject to unclaimed or abandoned property (escheat) laws in the United States that require themus to turn over to certain government authorities the property of others theythat we hold that has been unclaimed for a specified period of time such as payment instruments that have not been presented for payment and account balances that are due to a customer following discontinuation of its relationship with such subsidiaries. Certain of our subsidiaries arerelationship. We may be subject to audit by individual U.S. states with regard to theirour escheatment practices.
Prepaid Card Regulations
Prepaid card programs managed by usthat we manage are subject to various federal and state laws and regulations, in addition to those identified above, including the Credit Card Accountability Responsibility and DisclosureCARD Act of 2009 and the Federal Reserve’sReserve Board’s Regulation E, which impose requirements on general-use prepaid cards, store gift cards and electronic gift certificates. The CFPB issued a final rule on prepaid accounts that came into effect on April 1, 2019. The definition of prepaid account under this rule includes certain accounts that are capable of being loaded with funds and whose primary function is to conduct transactions with multiple, unaffiliated merchants, at ATMs or for person-to-person transfers. The requirements under this rule include, among other things, the disclosure of fees and other information to the consumer prior to the creation of a prepaid account; the extension of Regulation E liability limits and error-resolution requirements to all prepaid accounts; the application of Regulation Z credit card requirements to prepaid accounts with overdraft and credit features; and the submission of prepaid account agreements to the CFPB and the publication of such agreements to the general public.
These laws and regulations are evolving, unclear and sometimes inconsistent and subject to judicial and regulatory challenge and interpretation, and therefore the extent to which these laws and rules have applicationapply to, and their impact on, us is in flux. At this time we are unable to determine the impact that the clarification of these laws and their potential application and future interpretations, as well as new laws, may have on us in a number of jurisdictions. On October 5, 2016, the Consumer Financial Protection Bureau issued a final rule amending Regulations E and Z to create comprehensive consumer protections for prepaid financial products. The extensive nature of these regulations and the implementation dates for this additional rulemaking may result in additional compliance obligations and expense for our business.
State Usury Laws
Extensions of credit under many of our card products may be treated as commercial loans. In some states, usury laws limit the interest rates that can be charged not only on consumer loans but on commercial loans as well. To the extent that these usury
laws apply, we are limited in the amount of interest that we can charge and collect from our customers. Because we have substantial operations in multiple jurisdictions, we utilize choice of law provisions in our cardholder agreements as to the laws of which jurisdiction to apply. In addition, the interest rates on certain of our card products are set based upon the usury limit of the cardholder’s state. With respect to card products where we work with a partner or issuing bank, the partner bank may utilize the law of the jurisdiction applicable to the bank and “exports”“export” the usury limit of that state in connection with cards issued to residents of other states or we may use our choice of law provisions.
Derivatives Regulations
Rules adopted under the Dodd-Frank Act by the Commodity Futures Trading Commission (the “CFTC”), as well as the provisions of the European Market Infrastructure Regulation and its technical standards, which are directly applicable in the member states of the European Union, have subjected certain of the foreign exchange derivative contracts we offer to our customers as part of the Cambridge Global Payments (“Cambridge”) business, to reporting, recordkeeping, and other requirements. Additionally, certain foreign exchange derivatives transactions we may enter into in the future may be subject to centralized clearing requirements, or may be subject to margin requirements in the United States and European Union. Other jurisdictions outside the United States and the European Union are considering, have implemented, or are implementing regulations similar to those described above.
Other
We are subject to examination by our sponsor banks’ regulators, and must comply with certain regulations to which our sponsor banks are subject, as applicable. We are subject to audit by certain sponsor banks.
The Housing Assistance Tax Act of 2008 requires information returns to be made for each calendar year by merchants, acquiring entities, and third-party settlement organizations with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also
subject to backup withholding requirements. We are required to comply with these requirements for the merchants in our Comdata network. We could be liable for penalties if our information return is not in compliance with these regulations.
Employees and labor relations
As of December 31, 2016,2019, we employed approximately 7,1008,700 employees, approximately 2,2703,450 of whom were located in the United States. We consider our employee relations to be good and have never experienced a work stoppage.
Additional Information
OurThe Company maintains a website addressat the following address: www.fleetcor.com. The information on the Company’s website is www.fleetcor.com. You may obtain free electronic copies of our annual reportnot incorporated by reference into this Annual Report on Form 10-K, quarterly10-K. We make available on or through our website certain reports on Form 10-Q, current reports on Form 8-K and all amendments to suchthose reports requiredthat we file with or furnish the to be filed or furnished pursuant to Section 13 or 15(d) ofthe SEC in accordance with the Securities and Exchange Act of 1934, as amended at(the “Exchange Act”). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. We make this information available on our website underfree of charge as soon as reasonably practicable after we electronically file the headings “Investor Relations—information with, or furnish it to, the SEC.
In addition, the SEC Filings.”maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically at https://www.sec.gov.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding our executive officers, with their respective ages as of December 31, 2016.2019. Our officers serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers.
|
| | | | | |
| Name | | Age | | Position(s) |
| Ronald F. Clarke | | 6164 |
| | Chief Executive Officer and Chairman of the Board of Directors |
| Eric R. Dey | | 5760 |
| | Chief Financial Officer |
Kurt Adams | | 47 |
| | President—Comdata Corporate Payments |
Andrew R. Blazye | | 58 |
| | President—International Corporate Development |
| John S. Coughlin | | 4951 |
| | Executive ViceGroup President—Global Corporate Development |
Pedro L. Donda | | 63 |
| | President-—STP |
Charles Freund | | 44 |
| | Executive Vice President—Global SalesPayments |
| Alexey Gavrilenya | | 4043 |
| | President—Continental Europe |
Todd W. House | | 45 |
| | Group President—North America Direct Issuing, U.S. Telematics and EfectivaleFuel |
| Alan King | | 4043 |
| | Group President—UK,Europe, Australia and New Zealand |
David D. Maxsimic | | 57 |
| | President—North America Partners |
| Armando L. Netto | | 4851 |
| | Group President—Brazil |
John A. Reed | | 62 |
| | Global Chief Information Officer |
Gregory Secord | | 54 |
| | President—Comdata North America Trucking and CLC Lodging |
Ronald F. Clarke has been our Chief Executive Officer since August 2000 and was appointed Chairman of our board of directors in March 2003. From 1999 to 2000, Mr. Clarke served as President and Chief Operating Officer of AHL Services, Inc., a staffing firm. From 1990 to 1998, Mr. Clarke served as Chief Marketing Officer and later as a division president with Automatic Data Processing, Inc. (ADP), a computer services company. From 1987 to 1990, Mr. Clarke was a principal with Booz Allen Hamilton, a global management consulting firm. Earlier in his career, Mr. Clarke was a marketing manager for General Electric Company, a diversified technology, media, and financial services corporation.
Eric R. Dey has been our Chief Financial Officer since November 2002. From October 2000 to October 2002, Mr. Dey served as Chief Financial Officer of NCI Corporation, a call center company. From July 1999 to October 2000, Mr. Dey served as Chief Financial Officer of Leisure Time Technology, a software development/manufacturing company. From 1994 to 1999, Mr. Dey served as Corporate Controller with Excel Communications, a telecommunications service provider. From 1984 to 1994, Mr. Dey held a variety of financial and accounting positions with PepsiCo, Inc., a global beverage, snack and food company.
Kurt Adams joined usJohn S. Coughlin was named Group President—Corporate Payments in September 2015 as our President—Comdata Corporate Payments.December 2019. Prior to joining us,this role, Mr. Adams was most recently President, Corporate Payments Solutions for U.S. Bancorp. Prior to that, Mr. Adams led strategy and planning for NOVA Information Systems (now Elavon – a U.S. Bancorp subsidiary) in Europe. Prior to his career in payments, Mr. Adams enjoyed a successful investment banking career with Piper Jaffray.
Andrew R. Blazye has served as our President—International Corporate Development since 2012. From July 2007 to May 2012, Mr. Blazye served as our Chief Executive Officer—FleetCor Europe. From April 2006 to June 2007, Mr. Blazye was a Group Director for Dunnhumby Ltd., a research firm. From September 1980, to March 2006, Mr. Blazye held various positions with Shell International Ltd., a subsidiary of Royal Dutch Shell plc, a global energy company, including Global Payments General Manager.
John S. Coughlin has served as our Executive Vice President—Global Corporate Development since September 2010. From 2007 to 2010, Mr. Coughlin served as a Managing Director at PCG Capital Partners, a private equity firm. From 2005 to 2006, Mr. Coughlin served as Chief Executive Officer of NCDR LLC, a private equity owned national dental practice management company. From 1994 to 2005, Mr. Coughlin was with The Parthenon Group, a strategic advisory and principal investment firm, where he was a Senior Partner and the founder and head of the firm’s San Francisco office. From 1990 to 1992, Mr. Coughlin was an investment banker with Credit Suisse First Boston.
Pedro L. Donda hasAlexey Gavrilenya was named Group President—North America Fuel in September 2019. Prior to this role, Mr. Gavrilenya was our President of Continental Europe since 2016. From 2011 to 2015, Mr. Gavrilenya served as our President—STP since our acquisition of the business in August 2016. Mr. Donda served in this role at STP, since 2006. From 2001 to 2003, Mr. Donda served as a Chief Executive Officer at IBOPE, a market research
company in Brazil. Mr. Donda founded and led Americanas.com, a B2W Digital business in e-commerce. From 1990 to 1998, Mr. Donda founded and led Interchange, an electronic data interchange provider for banks, as well as specializing in logistics and consumer packaged goods supply-chain. From 1980 to 1989, Mr. Donda, was an executive within Citibank N.A. Prior to this, Mr. Donda served in various technology positions.
Charles Freund was named our Executive Vice President—Global Sales in January 2016 and has been with us since 2000. Prior to his current role, Mr. Freund was serving as our Executive Vice President —Corporate Strategy since December 2014. From December 2010 to December 2014, Mr. Freund served as our President—Emerging Markets. From January 2009 to December 2010, Mr. Freund served as our Senior Vice President—Corporate Strategy. From June 2006 to December 2008, Mr. Freund served as our Managing Director—The Fuelcard Company UK Limited. Prior to June 2006, Mr. Freund served as our Vice President of Business Development.
Alexey Gavrilenya was named President—Continental Europe in February 2016, adding to his responsibilities as President—Central/Eastern Europe. Mr. Gavrilenya has been President, Eastern Europe, since May 2011, where he has beenwas responsible for PPR and NKT. From March 2009 to April 2011,2010, Mr. Gavrilenya served as our Executive Vice President Strategy and Finance, Eastern Europe. Prior to joining us, Mr. Gavrilenya was Chief Financial OfficerCFO of Matarex, Ltd.
Todd W. House has been our President—North America Direct Issuing, U.S. Telematics and Efectivale since November 2015. Prior to this, Mr. House served as the president for several of our businesses throughout North America and Mexico, after joining us in April 2009 as our Chief Operating Officer. From 2007 to 2009, Mr. House held various positions, including Chief Financial Officer with Axiant, LLC, a provider of financial services and recovery management solutions. From 2005 to 2007, Mr. House was Vice President and Chief Credit Officer with Carmax, Inc., an automobile retailer. Mr. House was at Capital One from 1993-2004 in a variety of leadership roles, most recently VP Credit Risk Management.
Alan King joined us in August 2016 and serves as our Group President—UK,Europe, Australia and New Zealand. Mr. King began leading all European operations, in addition to his UK responsibilities in July 2019. Prior to joining us, MrMr. King held various positions at MasterCard from 2005 to 2016, including Managing Director of MasterCard Prepaid Management Services, Group Head of Global Prepaid Solutions, Group General Manager for Market and Business Development in the UK and Ireland and General Manager of Global Accounts. Prior to MasterCard, Mr. King held leadership positions at VISA in the CEMEA region from 2003 to 2005 and at Citibank from 1998 to 2003, largely across commercial payments in international markets. MrMr. King spent the early part of his career in the telecom and automotive industries, in various sales and marketing roles covering Europe.
David D. MaxsimicArmando L. Netto was named Group President—North America PartnersBrazil in November 2015.April 2018. Mr. Maxsimic joined us in January 2015 as our Group CEO—UK and Australasia. Prior to joining us, Mr. Maxsimic held various positions at WEX (also known as Wright Express) from 1997 to 2014, including President International, executive vice president of sales and marketing, senior vice president of sales, and vice president and general manager for Wright Express Direct Card. Prior to WEX, Mr. Maxsimic served as senior sales executive for several major fleet service companies, including U.S. Fleet Leasing, GE Capital Fleet Services, and PHH Fleet America. Mr. Maxsimic has over 25 years of experience in sales, marketing and managing customer relationships, in addition to managing and executing sales of complex financial services.
Armando Netto joined us in June 2014, serving as President of our President—Brazil.legacy Brazil businesses, prior to our acquisition of STP. Prior to joining us, Mr. Netto led IT Services for TIVIT, an IT and BPO services company, from 2006 to 2014, where he led the integration of functional areas into the business unit, focused on onboarding new clients and ensured service quality. Prior to TIVIT, Mr. Netto held various leadership roles with Unisys and McKinsey, where he gained international experience in Europe supporting clients in the UK, France, Austria, Portugal and the Netherlands.
John A. Reed has been our Global Chief Information Officer over product development and IT operations since 2013. From 2000 to 2009, Mr. Reed served various technology leadership roles at MBNA/Bank of America, Zurich Insurance and Unisys. From 1997 to 2000, Mr. Reed was the President and Managing Director for Business Innovations Inc., a financial services technology consulting company.
Gregory Secord joined us in July 2015 as our President—Comdata North America Trucking. Prior to joining us, Mr. Secord worked with ADP, where he was President—ADP Canada operations. Prior to his 20 year career with ADP, Mr. Secord held sales and marketing management roles with Canon and Xerox.
ITEM 1A. RISK FACTORS
You should carefully consider the following risks applicable to us. If any of the following risks actually occur, our business, operating results, financial condition and the trading price of our common stock could be materially adversely affected. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Note Regarding Forward-Looking Statements” in this report.
Risks related to our business
A decline in retail fuel prices could adversely affect our revenue and operating results.
Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A decline in retail fuel prices could cause a decrease in our revenue from fees paid to us by merchants based on a percentage of each transaction purchase amount. We believe that in 2016,2019, approximately 13% our consolidated revenue was directly influenced by the absolute price of fuel. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. A decline in retail fuel prices could adversely affect our revenue and operating results.
Fuel prices are dependent on several factors, all of which are beyond our control. These factors include, among others:
supply and demand for oil and gas, and market expectations regarding supply and demand;
actions by members of OPEC and other major oil-producing nations;
new oil production being developed in the U.S. and elsewhere;
political conditions in oil-producing and gas-producing nations, including insurgency, terrorism or war;
oil refinery capacity;
weather;
the prices of foreign exports;
speculative trading;
the implementation of fuel efficiency standards and the adoption by our fleet customers of vehicles with greater fuel efficiency or alternative fuel sources;
general worldwide economic conditions; and
governmental regulations, trade sanctions and embargos, taxes and tariffs.
A portion of our revenue is derived from fuel-price spreads. As a result, a contraction in fuel-price spreads could adversely affect our operating results.
Approximately 11%5% of our consolidated revenue in 20162019, was derived from transactions where our revenue is tied to fuel-price spreads. Fuel-price spreads equal the difference between the fuel price we charge to the fleet customer and the fuel price paid to the fuel merchant. In transactions where we derive revenue from fuel-price spreads, the fuel price paid to the fuel merchant is calculated as the merchant’s wholesale cost of fuel plus a commission. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our fleet customer is dependent on several factors including, among others, the fuel price paid to the fuel merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our fleet customers, or the fuel price we charge to our fleet customers decreases at a faster rate than the merchant’s wholesale cost of fuel. Accordingly, when fuel-price spreads contract, we generate less revenue, which could adversely affect our operating results.
If we fail to adequately assess and monitor credit risks of our customers, we could experience an increase in credit loss.
We are subject to the credit risk of our customers which range in size from small sole proprietorships to large publicly traded companies. We use various methods to screen potential customers and establish appropriate credit limits, but these methods cannot eliminate all potential credit risks and may not always prevent us from approving customer applications that are not credit worthycredit-worthy or are fraudulently completed. Changes in our industry, customer demand, and, in relation to our fleet customers, movement in fuel prices may result in periodic increases to customer credit limits and spending and, as a result, could lead to increased credit losses. We may also fail to detect changes to the credit risk of customers over time. Further, during a declining economic environment, we experience increased customer defaults and preference claims by bankrupt customers. If we fail to adequately manage our credit risks, our bad debt expense could be significantly higher than historic levels and adversely affect our business, operating results and financial condition. OurFor the years ended December 31, 2019 and 2018, our bad debt expense was $35.9$74.3 million in 2016 compared to $24.6and $64.4 million, in 2015.or 6 bps and 6 bps of total billings, respectively.
We derive a significant portion of our revenue from program fees and charges paid by the users of our cards. Any decrease in our receipt of suchprogram fees and charges, or limitations on our program fees and charges, could adversely affect our business, results of operations and financial condition.
Our card programs include a variety of fees and charges associated with transactions, cards, reports, optional services and late payments. We derived approximately 76% of our consolidated revenues from these fees and charges during the year ended December 31, 2016. Revenues for late fees and finance charges represent 6% of our consolidated revenue for the year ended December 31, 2016.2019. If the users of our cards decrease their transaction activity, or the extent to which they use optional services or pay invoices late, our revenue could be materially adversely affected. In addition, several market factors can affect the amount of our fees and charges, including the market for similar charges for competitive card products and the availability of alternative payment methods such as cash or house accounts. Furthermore, regulators and Congress have scrutinized the electronic payments industry’s pricing, charges and other practices related to its customers. Any legislative or regulatory restrictions on our ability to price our products and services could materially and adversely affect our revenue. Any decrease in our revenue derived from these fees and charges could materially and adversely affect our business, operating results and financial condition.
We operate in a competitive business environment, and if we are unable to compete effectively, our business, operating results and financial condition would be adversely affected.
The market for our products and services is highly competitive, and competition could intensify in the future. Our competitors vary in size and in the scope and breadth of the products and services they offer. In the fleet card business, our primary competitors in North America are small regional and large independent fleet card providers, major oil companies and petroleum marketers that issue their own fleet cards, and major financial services companies that provide card services to major oil companies and petroleum marketers. In the commercial payments business, we face a variety of competitors, some of which have greater financial resources, name recognition and scope and breadth of products and services. Competitors in the hotel card business include travel agencies, online lodging discounters, internal corporate procurement and travel resources, and independent services companies, among others. Competitors in the mobile telematics business include the major car companies, wireless phone service providers and independent services companies, among others.companies. We also compete for customers with providers of alternative payment mechanisms, such as merchants offering house cash accounts or other forms of credit. Our primary competitors in Europe, Australia and New Zealand are independent fleet card providers, major oil companies and petroleum marketers that issue branded fleet cards, and providers of card outsourcing services to major oil companies and petroleum marketers. Our primary competitors in Latin America are independent providers of food, fuel, toll, transportation and fleet cards and vouchers commercial fleet cards offered by thefor food, fuel, tolls, and transportation and major oil companies and providers of card outsourcing services to major oil companies and petroleum marketers.marketers who offer commercial fleet cards.
The most significant competitive factors in our business are the breadth of product and service features, network acceptance size, customer service, account management, and price. We may experience competitive disadvantages with respect to any of these factors from time to time as potential customers prioritize or value these competitive factors differently. As a result, a specific offering of our products and service features, networks and pricing may serve as a competitive advantage with respect to one customer and a disadvantage for another based on the customers’ preferences.
Some of our existing and potential competitors have longer operating histories, greater brand name recognition, larger customer bases, more extensive customer relationships or greater financial and technical resources.resources than we do. In addition, our larger competitors may also have greater resources than we do to devote to the promotion and sale of their products and services and to pursue acquisitions. Many of our competitors provide additional and unrelated products and services to customers, such as treasury management, commercial lending and credit card processing. By providing these other services that we do not provide, these competitors have an advantage of being able to bundle their products and services together and present them to existing customers with whom they have established relationships, sometimes at a discount. For example, in the commercial payments business, we compete with full service banks that are able to offer treasury management and commercial lending in addition to commercial payment solutions. If price competition continues to intensify, we may have to increase the incentives that we offer to our customers, decrease the prices of our products and services or lose customers, each of which could adversely affect our operating results. In the fleet card business, major oil companies and petroleum marketers and large financial institutions may choose to integrate fuel-card services as a complement to their existing card products and services, as well as offer add onadd-on complementary services. As a result, they may be able to adapt more quickly to new or emerging technologies and changing opportunities, standards or customer requirements. To the extent that our competitors are regarded as leaders in specific categories, they may have an advantage over us as we attempt to further penetrate these categories.
Future mergers or consolidations among competitors, or acquisitions of our competitors by large companies may present competitive challenges to our business. Resulting combined entities could be at a competitive advantage if their fuel-card
products and services are effectively integrated and bundled into sales packages with their widely utilized non-fuel-card-related products and services. Further, competitors may reduce the fees for their services, which could increase pricing pressure within our markets.
Overall, increased competition in our markets could result in intensified pricing pressure, reduced profit margins, increased sales and marketing expenses and a failure to increase, or a loss of, market share. We may not be able to maintain or improve our competitive position against our current or future competitors, which could adversely affect our business, operating results and financial condition.
Our fleet card business is dependent on several key strategic relationships, the loss of which could adversely affect our operating results.
We intend to seek to expand our strategic relationships with major oil companies and to establish additional relationships with other petroleum marketers. We refer to the major oil companies and petroleum marketers with whom we have strategic relationships as our “partners.” We use this term in the business sense to refer to strategic business relationships formed through contracts such as Card Program Agreements, and not in the legal sense of operating under legal partnership arrangements created pursuant to laws such as the Uniform Partnership Act. During 2016,2019, our top three strategic relationships with major oil companies accounted for less than 7%4% of our consolidated revenue. Our agreements with our major oil company partners typically have initial terms of five to ten years with current remaining terms ranging from about one to sixeight years.
The success of our business is in part dependent on our ability to maintain these strategic relationships and enter into additional strategic relationships with major oil companies. In our relationships with these major oil companies, our services are marketed under our partners’ brands. If these partners fail to maintain their brands or decrease the size of their branded networks, our ability to grow our business may be adversely affected. Also, our inability to maintain or further develop these relationships or add additional strategic relationships could materially and adversely affect our business and operating results.
To enter into a new strategic relationship or renew an existing strategic relationship with a major oil company, we often must participate in a competitive bidding process, which may focus on a limited number of factors, including pricing. The bidding and negotiating processes generally occur over a protracted time period. The use of these processes may affect our ability to effectively compete for these relationships. Our competitors may be willing to bid for these contracts on pricing or other terms that we consider uneconomical in order to win this business. The loss of our existing major oil company partners or the failure to contract or delays in contracting with additional partners could materially and adversely affect our business, operating results and financial condition.
During 2016, we received notice from an oil partner that they did not intend to renew our current contract when it expires at the end of 2017. Additionally, in 2016, we signed an agreement to manage the commercial fuel card program for a new strategic partner. We do not expect either of these contracts to have a material impact on our business and operating results.
We depend, in part, on our merchant relationships to grow our business. To grow our customer base in the closed loop fleet card and lodging card businesses, we must retain and add relationships with merchants who are located in areas where our customers purchase fuel, maintenance services and lodging. If we are unable to maintain and expand theseour merchant relationships, our closed loop fleet card and lodging card businesses may be adversely affected.
With respect to the closed-loopclosed loop networks we utilize, a portion of our growth is derived from acquiring new merchant relationships to serve our customers, as well as from our new and enhanced product and service offerings, and cross-selling our products and services through existing merchant relationships. We rely on the continuing growth of our merchant relationships and our distribution channels in order to expand our customer base. There can be no guarantee that this growth will continue. Similarly, our growth also will depend on our ability to retain and maintain existing merchant relationships that accept our proprietary closed-loop networks in areas where our customers purchase fuel, maintenance services, and lodging. Our contractual agreements with fuel merchants and service garages typically have initial terms of one or two years and automatically renew on the same basis unless either party gives notice of termination. Our agreements with lodging providers typically have initial terms of one year and automatically renew on a month-to-month basis unless either party gives notice of termination. Furthermore, merchants with which we have relationships may experience bankruptcy, financial distress, or otherwise be forced to contract their operations. The loss of existing merchant relationships, failure to continue such relationships on similarly attractive economic terms, the contraction of our existing merchants’ operations or the inability to acquire new merchant relationships could adversely affect our ability to serve our customers and our business and operating results.
We depend onIf we are unable to maintain our relationships with major truck stop merchants, to serve our over-the-road fuel card customers. We must maintain these relationships to effectively serve our customers that use these merchants. If we are unable to maintain these relationships, our over-the-road card businesses may be adversely affected.
We have long standing relationships with major truck stop merchants to accept our over-the-road fuel cards. Over-the-road customers purchase a significant proportion of their fuel at major truck stop merchants. The loss of existing major truck stop merchant relationships or failure to continue such relationships on similar terms could adversely affect our ability to serve our over-the-road fuel card customers and our business and operating results.
A decline in general economic conditions, and in particular, a decline in demand for fuel and other business related products and services would adversely affect our business, operating results and financial condition.
Our operating results are materially affected by conditions in the economy generally, both in the United StatesU.S. and internationally. We generate revenue based in part on the volume of purchase transactions we process. Our transaction volume is correlated with general economic conditions, particularly in the United States,U.S., Europe, Russia, Latin America, Australia and New Zealand, and the amount of business activity in economies in which we operate. Downturns in these economies are generally characterized by reduced commercial activity and, consequently, reduced purchasing of fuel and other business related products and services by our customers. The commercial payments industry in general, and our commercial payment solutions business specifically, depends heavily upon the overall level of spending. Unfavorable changes in economic conditions, including declining consumer confidence, inflation, recession, political climate or other changes, may lead our corporate customers to reduce their spending, resulting in reduced demand for, or use of, our products and services. In addition, unfavorable changes in economic conditions, may lead our fleet card customers to demand less fuel, or lead our partners to reduce their use of our products and services. As a result, a sustained deterioration in general economic conditions in the United StatesU.S. or abroad could have a material adverse effect on our revenue and profitability.
Further, economic conditions also may impact the ability of our customers or partners to pay for fuel or other services they have purchased and, as a result, our reserve for credit losses and write-offs of accounts receivable could increase. A weakening economy could also force some retailers and merchants to close, resulting in exposure to potential credit losses and transaction declines. In addition, demand for fuel and other business related products and services may be reduced by other factors that are beyond our control, such as the development and use of vehicles with greater fuel efficiency and alternative fuel sources.
We are unable to predict the likely duration of the ongoing sluggishcurrent economic conditions in the United States,U.S., Europe, Russia, Latin America, Australia and New Zealand. As a result, continued weaknessweaknesses in general economic conditions or increases in interest rates in key countries in which we operate could adversely affect our business and operating results.
We have expanded into new lines of business in the past and may do so in the future. If we are unable to successfully integrate these new businesses,lines of business we have acquired or may acquire in the future, our results of operations and financial condition may be adversely affected.
We have expanded our business to encompass new lines of business in the past. For example, we have entered into the corporate payments, stored value card, vehicle maintenance management and telematics business in the United StatesU.S. and Europe, and transaction processing, fuel, food, toll and transportation card and voucher businesses in Brazil and Mexico. We may continue to enter into new lines of business and offer new products and services in the future. There is no guarantee that we will be successful in integrating these new lines of business into our operations. If we are unable to do so, our operating results and financial condition may be adversely affected.
If we fail to develop and implement new technology, products and services, adapt our products and services to changes in technology, the marketplace requirements, or if our ongoing efforts to upgrade our technology, products and services are not successful, we could lose customers and partners.
The markets for our products and services are highly competitive and characterized by technological change, frequent introduction of new products and services and evolving industry standards. We must respond to the technological advances offered by our competitors and the requirements of our customers and partners, in order to maintain and improve upon our competitive position and fulfill contractual obligations. We may be unsuccessful in expanding our technological capabilities and developing, marketing or selling new products and services that meet these changing demands, which could jeopardize our competitive position. In addition, we engage in significant efforts to upgrade our products and services and the technology that supports these activities on a regular basis.
The products we deliver are designed to process complex transactions and provide reports and other information on those transactions, all at high volumes and processing speeds. Any failure to deliver an effective and secure product or service or any
performance issue that arises with a new product or service could result in significant processing or reporting errors or other losses. We may rely on third parties to develop or co-develop our solutions or to incorporate our solutions into broader platforms for the commercial payments industry. We may not be able to enter into such relationships on attractive terms, or at all, and these relationships may not be successful. In addition, partners, some of whom may be our competitors or potential competitors, may choose to develop competing solutions on their own or with third parties. Even if we are successful in developing new services and technologies, these new services and technologies may not achieve broad acceptance due to a variety of factors, including a lack of industry-wide standards, competing products and services, or resistance to these changes from our customers. In addition, we may not be able to derive revenue from these efforts.
If we are unsuccessful in completing the migration of material technology, otherwise upgrading our products and services and supporting technology or completing or gaining market acceptance of new technology, products and services, it would have a material adverse effect on our ability to retain existing customers and attract new ones in the impacted business line.
Our debt obligations, or our incurrence of additional debt obligations, could limit our flexibility in managing our business and could materially and adversely affect our financial performance.
At December 31, 2016,2019, we had approximately $3.85$4.99 billion of debt outstanding under our Credit Facility and Securitization Facility. In addition, we are permitted under our credit agreement to incur additional indebtedness, subject to specified limitations. Our substantial indebtedness currently outstanding, or as may be outstanding if we incur additional indebtedness, could have important consequences, including the following:
we may have difficulty satisfying our obligations under our debt facilities and, if we fail to satisfy these obligations, an event of default could result;
we may be required to dedicate a substantial portion of our cash flow from operations to required payments on our indebtedness, thereby reducing the availability of cash flow for acquisitions, working capital, capital expenditures and other general corporate activities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—ContractualOperations-Contractual Obligations,” which sets forth our payment obligations with respect to our existing long-term debt;
covenants relating to our debt may limit our ability to enter into certain contracts or to obtain additional financing for acquisitions, working capital, capital expenditures and other general corporate activities;
covenants relating to our debt may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, including by restricting our ability to make strategic acquisitions;
we may be more vulnerable than our competitors to the impact of economic downturns and adverse developments in the industry in which we operate;
we are exposed to the risk of increased interest rates because certain of our borrowings are subject to variable rates of interest;
although we have no current intention to pay any dividends, we may be unable to pay dividends or make other distributions with respect to your investment; and
we may be placed at a competitive disadvantage against any less leveraged competitors.
The occurrence of one or more of these potential consequences could have a material adverse effect on our business, financial condition, operating results, and ability to satisfy our obligations under our indebtedness.
In addition, we and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our credit agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of additional indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our existing debt levels, the related risks that we will face would increase.
We meet a significant portion of our working capital needs through a securitization facility, which we must renew every three years.
We meet a significant portion of our working capital needs through a securitization facility, pursuant to which we sell accounts receivable to a special-purpose entity that in turn sells undivided participation interests in the accounts receivable to certain
purchasers, who finance their purchases through the issuance of short-term commercial paper. The securitization facility has a three year term. Although we have been able to renew our securitization facility annually in the past, there can be no assurance that we will continue to be able to renew this facility in the future on terms acceptable to us. For example, the market for commercial paper experienced significant volatility during the financial crisis that began in 2008. Also, a significant rise in fuel prices could cause our accounts receivable to increase beyond the capacity of the securitization facility. There can be no assurance that the size of the facility can be expanded to meet these increased working capital needs. Further, we may not be able to fund such increases in accounts receivable with our available cash resources. Our inability to meet working capital needs could adversely affect our financial condition and business, including our relationships with merchants, customers and partners. Further, we are exposed to the risk of increased interest rates because our borrowings under the securitization facilitySecuritization Facility are subject to variable rates of interest. We renewed our securitization facility as of August 30, 2018, with an expiration date of November 14, 2020.
Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may adversely affect our results of operations.
LIBOR and certain other “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. In particular, on July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. Accordingly, there is considerable uncertainty regarding the publication of LIBOR beyond 2021. The Federal Reserve Board convened the Alternative Reference Rates Committee (“ARRC”) to identify a set of alternative reference rates for possible use as market benchmarks. Based on the ARRC’s recommendation, the Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) and two other alternative rates beginning in April 2018. Since then, certain derivative products and debt securities tied to SOFR have been introduced, and a number of industry groups are developing transition plans to SOFR as the new market benchmark.
We are not able to predict whether LIBOR will actually cease to be available after 2021 or whether SOFR will become the market benchmark in its place. Any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the performance of LIBOR relative to its historic values. If the methods of calculating LIBOR change from current methods for any reason, or if LIBOR ceases to perform as it has historically, our interest expense associated with the unhedged portion of our outstanding indebtedness or any future indebtedness we incur may increase. Further, if LIBOR ceases to exist, we may be forced to substitute an alternative reference rate, such as SOFR or a different benchmark interest rate or base rate borrowings, in lieu of LIBOR under our current and future indebtedness and cash flow hedges. Any such alternative reference rate may be calculated differently than LIBOR and may increase the interest expense associated with our existing or future indebtedness.
Finally, the replacement or disappearance of LIBOR may adversely affect the value of and return on our LIBOR-based obligations and the availability, pricing and terms of cash flow hedges we use to hedge our variable interest rate risk. Alternative reference rates or modifications to LIBOR may not align for our assets, liabilities, and hedging instruments, which could reduce the effectiveness of certain of our interest rate hedges, and could cause increased volatility in our earnings. We may also incur expenses to amend and adjust our indebtedness and swaps to eliminate any differences between any alternative reference rates used by our cash flow hedges and our outstanding indebtedness.
Any of these occurrences could materially and adversely affect our borrowing costs, business and results of operations.
We are subject to risks related to volatility in foreign currency exchange rates, and restrictions on our ability to utilize revenue generated in foreign currencies.
As a result of our foreign operations, we are subject to risks related to changes in currency rates for revenue generated in currencies other than the U.S. dollar. For the year ended December 31, 2016,2019, approximately 30%40% of our revenue was denominated in currencies other than the U.S. dollar (primarily, British pound, Brazilian real, Canadian dollar, Russian ruble, Mexican peso, Czech koruna, Euro, Australian dollar and New Zealand dollar). Revenue and profit generated by international operations may increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. Resulting exchange gains and losses are included in our net income. Volatility in foreign currency exchange rates may materially adversely affect our operating results and financial condition.
Furthermore, we are subject to exchange control regulations that restrict or prohibit the conversion of more than a specified amount of our foreign currencies into U.S. dollars, and, as we continue to expand, we may become subject to further exchange control regulations that limit our ability to freely utilize and transfer currency in and out of particular jurisdictions. These restrictions may make it more difficult to effectively utilize the cash generated by our operations and may adversely affect our financial condition.
We expect to continue ourOur expansion through acquisitions which may divert our management’s attention and result in unexpected operating difficulties, increased costs and dilution to our stockholders. We alsostockholders, and we may never realize the anticipated benefits of the acquisitions.benefits.
We have been an active business acquirer in the United StatesU.S. and internationally, and, as part of our growth strategy, we expect to seek to acquire businesses, commercial account portfolios, technologies, services and products in the future. We have substantially expanded our overall business, customer base, headcount and operations through acquisitions. The acquisition and integration of each business involves a number of risks and may result in unforeseen operating difficulties and expenditures in assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired business. Furthermore, acquisitions may:
involve our entry into geographic or business markets in which we have little or no prior experience;
involve difficulties in retaining the customers of the acquired business;
involve difficulties and expense associated with regulatory requirements, competition controls or investigations;
result in a delay or reduction of sales for both us and the business we acquire; and
disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our current business.
In addition, international acquisitions often involve additional or increased risks including, for example:
difficulty managing geographically separated organizations, systems and facilities;
difficulty integrating personnel with diverse business backgrounds, languages and organizational cultures;
difficulty and expense introducing our corporate policies or controls;
increased expense to comply with foreign regulatory requirements applicable to acquisitions;
difficulty entering new foreign markets due to, among other things, lack of customer acceptance and a lack of business knowledge of these new markets; and
political, social and economic instability.
In addition, the integration process following an acquisition requires significant management attention and resources. Integration of acquisitions could result in the distraction of our management, the disruption of our ongoing business or inconsistencies on our services, standards, controls, procedures and policies, any of which could affect our ability to achieve the anticipated benefits of an acquisition or otherwise adversely affect our business and financial results.
To complete future acquisitions, we may determine that it is necessary to use a substantial amount of our cash or engage in equity or debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters that make it more difficult for us to obtain additional capital in the future and to pursue other business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all, which could limit our ability to engage in acquisitions. Moreover, we can make no assurances that the anticipated benefits of any acquisition, such as operating improvements or anticipated cost savings, would be realized or that we would not be exposed to unexpected liabilities in connection with any acquisition.
Further, an acquisition may negatively affect our operating results because it may require us to incur charges and substantial debt or other liabilities, may cause adverse tax consequences, substantial depreciation and amortization or deferred compensation charges, may require the amortization, write-down or impairment of amounts related to deferred compensation, goodwill and other intangible assets, may include substantial contingent consideration payments or other compensation that reduce our earnings during the quarter in which incurred, or may not generate sufficient financial return to offset acquisition costs.
We conduct a significant portion of ourOur business in foreign countries and we expect to expand our operations into additional foreign countries where we may be adversely affected by operational and political risks that are greater than in the United States.U.S.
We have foreign operations in, or provide services for commercial card accounts in Australia, Austria, Azerbaijan, Belarus, Belgium, Brazil, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Ireland, Italy, Kazakhstan, Latvia, Lithuania, Luxembourg, Macau, Malaysia, Mexico, Moldova, Mongolia, Morocco, the Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovakia, Slovenia,more than 100 countries throughout North America, South America, Europe, Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, the United Kingdom,Oceania and Ukraine.Asia. We also expect to seek to expand our operations into various additional countries in Asia, Europe and Latin America as part of our growth strategy.
Some of the countries where we operate, and other countries where we will seek to operate, such as Russia, Brazil and Mexico, have undergone significant political, economic and social change in recent years, and the risk of unforeseen changes in these countries may be greater than in the United States.U.S. For example, Russia and the Ukraine are experiencing significant unrest, which could escalate into broader armed conflict and additional economic sanctions by the U.S.,U.S, the United Nations or other countries against Russia. In addition, political discourse in the United StatesU.S. may impact business practices in Mexico and other jurisdictions. In addition, changes in laws or regulations, including with respect to payment service providers, taxation, information technology, data transmission and the Internet, revenues from non-U.S. operations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our business, operating results and financial condition.
In addition, conducting and expanding our international operations subjects us to other risks that we do not generally face in the United States.U.S. These include:
difficulties in managing the staffing of our international operations, including hiring and retaining qualified employees;
difficulties and increased expense introducing corporate policies and controls in our international operations;
increased expense related to localization of our products and services, including language translation and the creation of localized agreements;
potentially adverse tax consequences, including the complexities of foreign value added tax systems, restrictions on the repatriation of earnings and changes in tax rates;
increased expense to comply with foreign laws and legal standards, including laws that regulate pricing and promotion activities and the import and export of information technology, which can be difficult to monitor and are often subject to change;
increased expense to comply with U.S. laws that apply to foreign operations, including the Foreign Corrupt Practices Act (the “FCPA”) and Office of Foreign Assets ControlOFAC regulations;
increased expense to comply with U.K. laws that apply to foreign operations, including the U.K. Bribery Act;
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
increased financial accounting and reporting burdens and complexities;
political, social and economic instability;
terrorist attacks and security concerns in general; and
reduced or varied protection for intellectual property rights and cultural norms in some geographies that are simply not respectful of intellectual property rights.
In addition,Following a referendum in June 2016, in which voters in the United KingdomU.K. approved an advisory referendumexit (often referred to withdrawas Brexit) from the European Union, commonly referredthe U.K.’s withdrawal became effective on January 31, 2020. A transition period will apply until the end of 2020 (or later, if extended) during which the pre-Brexit legal regime will continue to as "Brexit." This referendum has created politicalapply (including with respect to aviation) while the U.K. and economic uncertainty, particularly inEuropean Union negotiate rules that will apply to their future relationship. It is unknown how that future relationship will be structured, and it is uncertain what will be the United Kingdomterms of the future relationship between the U.K. and the European Union on matters such as trade, customs, financial services and this uncertainty may persist for years. A withdrawal could significantly disrupt the free movement of goods services, and people between the United Kingdom and the European Union, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe.people. The United Kingdom'sKingdom’s vote to exit the European Union could also result in similar referendums or votes in other European countries in which we do business. The uncertainty surrounding the terms of the United Kingdom'sKingdom’s withdrawal and its consequences could adversely impact consumer and investor confidence, and the level of consumer purchases of discretionary items and retail products, including our products. Any of these effects, among others, could materially adversely affect our business, results of operations, and financial condition.
The occurrence of one or more of these events could negatively affect our international operations and, consequently, our operating results. Further, operating in international markets requires significant management attention and financial resources. Due to the additional uncertainties and risks of doing business in foreign jurisdictions, international acquisitions tend to entail risks and require additional oversight and management attention that are typically not attendant to acquisitions made within the United States.U.S. We cannot be certain that the investment and additional resources required to establish, acquire or integrate operations in other countries will produce desired levels of revenue or profitability.
We are dependent on the efficient and uninterrupted operation of interconnected computer systems, telecommunications, data centers and call centers, including technology and network systems managed by multiple third parties, which could result in our inability to prevent disruptions in our services.
Our ability to provide reliable service to customers, cardholders and other network participants depends upon uninterrupted operation of our data centers and call centers as well as third partythird-party labor and services providers. Our business involves processing large numbers of transactions, the movement of large sums of money and the management of large amounts of data. We rely on the ability of our employees, contractors, suppliers, systems and processes to complete these transactions in a secure, uninterrupted and error-free manner.
Our subsidiaries operate in various countries and country specific factors, such as power availability, telecommunications carrier redundancy, embargoes and regulation can adversely impact our information processing by or for our local subsidiaries.
We engage backup facilities for each of our processing centers for key systems and data. However, there could be material delays in fully activating backup facilities depending on the nature of the breakdown, security breach or catastrophic event (such as fire, explosion, flood, pandemic, natural disaster, power loss, telecommunications failure or physical break-in). We have controls and documented measures to mitigate these risks but in any event these mitigating controls might not reduce the duration, scope or severity of an outage in time to avoid adverse effects.
We may experience software defects, system errors, computer viruses and development delays, which could damage customer relationships, decrease our profitability and expose us to liability.
Our business depends heavily on the reliability of proprietary and third-party processing systems. A system outage could adversely affect our business, financial condition or results of operations, including by damaging our reputation or exposing us
to third-party liability. To successfully operate our business, we must be able to protect our processing and other systems from interruption, including from events that may be beyond our control. Events that could cause system interruptions include fire, natural disaster, unauthorized entry, power loss, telecommunications failure, computer viruses, terrorist acts and war. Although we have taken steps to protect against data loss and system failures, there is still risk that we may lose critical data or experience system failures.
Our products and services are based on proprietarysophisticated software and third-party network technology and processingcomputing systems that mayare constantly evolving. We often encounter development delays and could be susceptiblecost overruns in developing changes implemented to our systems. In addition, the underlying software may contain undetected errors, viruses or defects. Development delays, system errors, viruses or defects that result in service interruption or data loss could have a material adverse effect on our business, damage our reputation and subject us to third-party liability. In addition, errors, viruses and defectsDefects in our network technologysoftware products and errors or delays in our processing systemsof electronic transactions could result in additional development costs, and the diversion of our technical and other resources from our other development efforts, loss of credibility with current or potential customers, harm to our reputation or exposure to liability claims. In addition, we rely on technologies supplied to us by third parties that may also contain undetected errors, viruses or defects that could adversely affect our business, financial condition or results of operations. Further, our attemptsAlthough we attempt to limit our potential liability for warranty claims through disclaimers in our software documentation and limitation-of-liabilitylimitation of liability provisions in our licenses and other agreements may notwith our customers, we cannot assure that these measures will be successful.successful in limiting our liability.
We may incur substantial losses due to fraudulent use of our payment cards or vouchers.
Under certain circumstances, when we fund customer transactions, we may bear the risk of substantial losses due to fraudulent use of our payment cards or vouchers. We do not maintain insurance to protect us against such losses. We bear similar risk relating to fraudulent acts of employees or contractors, for which we maintain insurance. However, the conditions or limits of coverage may be insufficient to protect us against such losses.
Criminals are using increasingly sophisticated methods to engage in illegal activities involving financial products, such as skimming and counterfeiting payment cards and identity theft. A single significant incident of fraud, or increases in the overall level of fraud, involving our cards and other products and services, could result in reputational damage to us, which could reduce the use and acceptance of our cards and other products and services or lead to greater regulation that would increase our compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to adequately protect our systems or the data we collect from continually evolving cybersecurity risks or other technological risks, which could subject us to liability and damage our reputation.
We electronically receive, process, store and transmit data and sensitive information about our customers and merchants, including bank account information, social security numbers, expense data, and credit card, debit card and checking account numbers. We endeavor to keep this information confidential; however, our websites, networks, information systems, services and technologies may be targeted for sabotage, disruption or misappropriation. The uninterrupted operation of our information systems and our ability to maintain the confidentiality of the customer and consumer information that resides on our systems are critical to the successful operation of our business. Unauthorized access to our networks and computer systems could result in the theft or publication of confidential information or the deletion or modification of records or could otherwise cause interruptions in our service and operations.
While we have not suffered any material losses relating to cyber-attacks or other information security breaches, we discovered unauthorized access to certain of our systems during the second quarter of 2018, which we previously disclosed. Following the discovery of suspicious activity primarily on systems involving the Company’s gift card business, the Company took prompt action to stop the activity and limit the improper use of accessed private label gift card information (these gift cards do not contain personally identifiable information such as consumer names, Social Security numbers, driver’s license numbers and other sensitive personal data) with the help of technology forensic firms. The Company also contacted federal law enforcement and merchants known to be affected. The investigation has now been concluded and, based on the findings of the investigation, the unauthorized access was limited to what was reported in the Company’s quarterly report on Form 10-Q filed May 10, 2018, and we do not expect the unauthorized access to have a material impact on the Company’s results of operations. Other than this unauthorized access incident, we are not aware of any material breach of our or our associated third parties’ computer systems, although we and others in our industry are regularly the subject of attempts by bad actors to gain unauthorized access to these computer systems and data or to obtain, change or destroy confidential data (including personal consumer information of individuals) through a variety of means, including computer viruses, malware and phishing.
Because techniques used to sabotage or obtain unauthorized access or to sabotageour systems and the data we collect change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Threats to our systems and our associated third parties’ systems can derive from human error,
fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Computer viruses can be distributed and could infiltrate our systems or those of our associated third parties. In addition, denial of service or other attacks could be launched against us for a variety of purposes, including to interfere with our services or create a diversion for other malicious activities. Although we believe we have sufficient controls in place to prevent disruption and misappropriation and to respond to such attacks, any inability to prevent security breaches could have a negative impact on our reputation, expose us to liability, decrease market acceptance of electronic transactions and cause our present and potential clients to choose another service provider. Any of these developments could have a material adverse effect on our business, operating results and financial condition.
We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes and violation of data privacy laws. For example, we are subject to statutes, regulations, and rulings relevant to the direct email marketing and text-messaging industries, including the TCPA, the CAN-SPAM Act, FCC orders, state-enacted laws regulating commercial email and foreign legislation (such as the Canadian Anti-Spam Legislation and European laws enacted pursuant to European Union Directive 2002/58/EC and its amendments). While we believe we are in compliance with the relevant laws and regulations, if we were ever found to be in violation, our business, financial condition, operating results and cash flows could be materially adversely affected. We cannot provide assurance that the contractual requirements related to security and privacy that we impose on our service providers who have access to customer and consumer data will be followed or will be adequate to prevent the unauthorized use or disclosure of data. In addition, we have agreed in certain agreements to take certain protective measures to ensure the confidentiality of customer data. The costs of systems and procedures associated with such protective measures, as well as the cost of deploying additional personnel, training our employees and hiring outside experts, may increase and could adversely affect our ability to compete effectively. Any failure to adequately enforce or provide these protective measures could result in liability, protracted and costly litigation, governmental and card network intervention and fines, remediation costs, and with respect to misuse of personal information of our customers, lost revenue and reputational harm. While we maintain insurance covering certain security and privacy damages and claim expenses we may not carry insurance or maintain coverage sufficient to compensate for all liability and such insurance may not be available for renewal on acceptable terms or at all, and in any event, insurance coverage would not address the reputational damage that could result from a security incident.
In addition, under payment network rules, regulatory requirements, and related obligations, we may be responsible for the acts or failures to act of certain third parties, such as third party service providers, vendors, partners and others, which we refer to collectively as associated participants. The failure of our associated participants to safeguard cardholder data and other information in accordance with such rules, requirements and obligations could result in significant fines and sanctions.sanctions and could harm our reputation and deter existing and prospective customers from using our services. We cannot assure you that there are written agreements in place with every associated participant or that such written agreements will ensure the adequate safeguarding of such data or information or allow us to seek reimbursement from associated participants. Any such unauthorized use or disclosure of data or information also could result in litigation that could result in a material adverse effect on our business, financial condition and results of operations.
The market for our commercial payment, fleet and stored value card services is evolving and may not continue to develop or grow.
A substantial portion of our revenue is based on the volume of payment card transactions by our customers. If businesses do not continue to use, or increase their use of, credit, debit or stored value cards as a payment mechanism for their transactions, it could have a material adverse effect on our business, financial condition and results of operations. We believe that future
growth in the use of credit, debit and stored value cards and other electronic payments will be driven by the cost, ease-of-use, and quality of services offered. In order for us to consistently increase and maintain profitability, businesses must continue to use and increase the use of electronic payment methods, including credit, debit and stored value cards. Moreover, if there is an adverse development in the payments industry in general, such as new legislation or regulation that makes it more difficult for customers to do business, or a well-publicized data security breach that undermines the confidence of the public in electronic payment systems, it could have a material adverse effect on our business, financial condition and results of operations.
Our fleet card businesses rely on the acceptance and use of payment cards by businesses to purchase fuel for their vehicle fleets. If the use of fleet cards by businesses does not continue to grow, it could have a material adverse effect on our business, operating results and financial condition. In order to consistently increase and maintain our profitability, businesses and partners must continue to adopt our services. Similarly, growth in the acceptance and use of fleet cards will be impacted by the acceptance and use of electronic payment transactions generally.
Furthermore, new technologies may displace credit, debit and/or stored value cards as payment mechanisms for purchase transactions by businesses. A decline in the acceptance and use of credit, debit and/or stored value cards, and electronic
payment transactions generally, by businesses and merchants could have a material adverse effect on our business, operating results and financial condition. The market for our lodging cards, food vouchers and cards, transportation and toll road payments, telematics solutions and fleet maintenance management services is also evolving and those portions of our business are subject to similar risks.
If we fail to retain any of our stored value gift card customers, it will be difficult to find a replacement customer on a timely basis or at all, which will reduce our revenue.
Most of our stored value gift card customers in the United StatesU.S. are national retailers. During 20162019, a majority of our gift card revenue was derived from the design and purchase of gift card inventory, with the remaining portion of our 20162019 gift card revenue derived primarily from processing fees. If we fail to retain any of these customers, it will be difficult to find a replacement customer on a timely basis or at all because there is a limited number of national retailers in the United StatesU.S. and nearly all of those other national retailers already have a gift card solution in place, either in-house or with one of our competitors. As such, any loss of a stored value gift card customer would reduce our revenue.
Legislation and regulation of greenhouse gases (“GHG”) and related divestment and other efforts could adversely affect our business.
We are aware of the increasing focus of local, state, regional, national and international regulatory bodies on GHG emissions and climate change issues. Legislation to regulate GHG emissions has periodically been introduced in the U.S. Congress, and there has been a wide-ranging policy debate, both in the U.S. and internationally, regarding the impact of these gases and possible means for their regulation. Several states and geographic regions in the U.S. have adopted legislation and regulations to reduce emissions of GHGs. Additional legislation or regulation by these states and regions, the EPA, and/or any international agreements to which the U.S. may become a party, that control or limit GHG emissions or otherwise seek to address climate change could adversely affect our partners’ and merchants’ operations, and therefore ours. See “Our fleet card business is dependent on several key strategic relationships, the loss of which could adversely affect our operating results.” and “If we are unable to maintain and expand our merchant relationships, our closed loop fleet card and lodging card businesses may be adversely affected.” Because our business depends on the level of activity in the oil industry, existing or future laws or regulations related to GHGs and climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws or regulations reduce demand for fuel.
In addition to the regulatory efforts described above, there have also been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with companies engaged in the extraction of fossil fuel reserves. If these efforts are successful, our ability to access capital markets may be limited and our stock price may be negatively impacted.
Members of the investment community have recently increased their focus on sustainability practices with regard to the oil and gas industry, including practices related to GHGs and climate change. An increasing percentage of the investment community considers sustainability factors in making investment decisions, and an increasing number of our partners and merchants consider sustainability factors in awarding work. If we are unable to successfully address sustainability enhancement, we may lose partners or merchants, our stock price may be negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to effectively compete.
Adverse weather conditions, natural catastrophes, or public health crises, across a geographic region, can cause a decline in the number and amount of payment transactions we process, which could have a material adverse effect on our business, financial condition and results of operations.
When travel is severely curtailed across a geographic region during adverse weather conditions, or as a result of a natural catastrophe or public health crises, the number and amount of transactions we process can be significantly diminished, particularly in our fleet business, and revenue can materially decline. For example, during parts of January 2014, severe winter weather shut down a large portion of the eastern United States.U.S. Natural catastrophes such as hurricanes in east Texas (Hurricane Harvey) and in Florida (Hurricane Irma), each in 2017, wildfires in California in 2017 and 2018 and in Colorado in 2012 and flooding in Arkansas in 2019, had similar effects on a more local basis. In December 2019 and January 2020, an outbreak of COVID-19, a new strain of coronavirus in Wuhan, China has resulted in travel disruption and has effected certain companies’ operations in China, although, at this point, the extent to which the coronavirus may impact our results is uncertain. Prolonged adverse weather events or travel bans due to medical quarantine or in response to natural catastrophes, especially those that impact regions in which we process a large number and amount of payment transactions, could have a material adverse effect on our business, financial condition and results of operations.
Our fuel card, workforce payment solutions and gift card businesses’ results are subject to seasonality, which could result in fluctuations in our quarterly net income.
Our fuel card and workforce payment solutions businesses have experienced in the past, and expect to continue to experience, seasonal fluctuations in revenues and profit, which are impacted during the first and fourth quarter each year by the weather, holidays in the U.S., Christmas being celebrated in Russia in January, and lower business levels in Brazil due to summer break and the Carnival celebration. Our gift card business has experienced in the past, and expects to continue to experience, seasonal fluctuations in revenues as a result of consumer spending patterns. Historically gift card business revenues have been strongest in the third and fourth quarters and weakest in the first and second quarters, as the retail industry has its highest level of activity during and leading up to the Christmas holiday season.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of these assets would negatively affect our financial results.
Our balance sheet includes goodwill and intangible assets that represent approximately 71%59% of our total assets at December 31, 2016.2019. These assets consist primarily of goodwill and identified intangible assets associated with our acquisitions. We also expect to engage in additional acquisitions, which may result in our recognition of additional goodwill and intangible assets. Under current accounting standards, we are required to amortize certain intangible assets over the useful life of the asset, while goodwill and indefinite lived intangible assets are not amortized. On at least an annual basis, we assess whether there have been
impairments in the carrying value of goodwill and indefinite lived intangible assets. If the carrying value of the asset is determined to be impaired, it is written down to fair value by a charge to operating earnings. An impairment of a significant portion of goodwill or intangible assets could materially negatively affect our operating results and financial condition.
If we are unable to protect our intellectual property rights and confidential information, our competitive position could be harmed and we could be required to incur significant expenses in order to enforce our rights.
To protect our proprietary technology, we rely on copyright, trade secret, patent and other intellectual property laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. Despite our precautions, it may be possible for third parties to obtain and use without our consent confidential information or infringe on our intellectual property rights, and our ability to police that misappropriation or infringement is uncertain, particularly in countries outside of the United States.U.S. In addition, our confidentiality agreements with employees, vendors, customers and other third parties may not effectively prevent disclosure or use of proprietary technology or confidential information and may not provide an adequate remedy in the event of such unauthorized use or disclosure.
Protecting against the unauthorized use of our intellectual property and confidential information is expensive, difficult and not always possible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our confidential information, including trade secrets, or to determine the validity and scope of the proprietary rights of others. This litigation could be costly and divert management resources, either of which could harm our business, operating results and financial condition. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property and proprietary information.
We cannot be certain that the steps we have taken will prevent the unauthorized use or the reverse engineering of our proprietary technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against these infringers being successful, and we cannot be sure these actions will be successful, even when our rights have been infringed. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which we may offer our products and services.
Claims by others that we or our customers infringe their intellectual property rights could harm our business.
Third parties have in the past, and could in the future claim that our technologies and processes underlying our products and services infringe their intellectual property. In addition, to the extent that we gain greater visibility, market exposure, and add new products and services, we may face a higher risk of being the target of intellectual property infringement claims asserted by third parties. We may, in the future, receive notices alleging that we have misappropriated or infringed a third party’s intellectual property rights. There may be third-party intellectual property rights, including patents and pending patent applications that cover significant aspects of our technologies, processes or business methods. Any claims of infringement or misappropriation by a third party, even those without merit, could cause us to incur substantial defense costs and could distract our management from our business, and there can be no assurance that we will be able to prevail against such claims. Some of our competitors may have the capability to dedicate substantially greater resources to enforcing their intellectual property rights and to defending claims that may be brought against them than we do. Furthermore, a party making such a claim, if successful,
could secure a judgment that requires us to pay substantial damages, potentially including treble damages if we are found to have willfully infringed a patent. A judgment could also include an injunction or other court order that could prevent us from offering our products and services. In addition, we might be required to seek a license for the use of a third party’s intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we might be required to develop non-infringing technology, which could require significant effort and expense and might ultimately not be successful.
Third parties may also assert infringement claims against our customers relating to their use of our technologies or processes. Any of these claims might require us to defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because under certain conditions we may agree to indemnify our customers from third-party claims of intellectual property infringement. If any of these claims succeed, we might be forced to pay damages on behalf of our customers, which could adversely affect our business, operating results and financial condition.
Finally, we use open source software in connection with our technology and services. Companies that incorporate open source software into their products, have, from time to time, facedface claims challenging the ownership of open source software. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Open source software is also provided without warranty, and may therefore include bugs, security vulnerabilities or other defects. Some open source software licenses require users of such software to publicly disclose all or part of the source code to their software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor the
use of open source software in our technology and services and try to ensure that none is used in a manner that would require us to disclose the source code to the related technology or service, such use could inadvertently occur and any requirement to disclose our proprietary source code could be harmful to our business, financial condition and results of operations.
Our success is dependent, in part, upon our executive officers and other key personnel, and the loss of key personnel could materially adversely affect our business.
Our success depends, in part, on our executive officers and other key personnel. Our senior management team has significant industry experience and would be difficult to replace. The market for qualified individuals is competitive, and we may not be able to attract and retain qualified personnel or candidates to replace or succeed members of our senior management team or other key personnel. The loss of key personnel could materially adversely affect our business.
Changes in laws, regulations and enforcement activities may adversely affect our products and services and the markets in which we operate.
The electronic payments industry is subject to increasing regulation in the United StatesU.S. and internationally. Domestic and foreign government regulations impose compliance obligations on us and restrictions on our operating activities, which can be difficult to administer because of their scope, mandates and varied requirements. We are subject to a number of government regulations, including, among others: interest rate and fee restrictions; credit access and disclosure requirements; collection and pricing regulations; compliance obligations; security and data breach requirements; identity theft avoidance programs; and anti-money laundering compliance programs. Government regulations can also include licensing or registration requirements. While a large portion of these regulations focuses on individual consumer protection, legislatures continue to consider whether to include business customers, especially smaller business customers, within the scope of these regulations. As a result, new or expanded regulation focusing on business customers or changes in interpretation or enforcement of regulations may have an adverse effect on our business and operating results, due to increased compliance costs and new restrictions affecting the terms under which we offer our products and services.
For example, certain of our subsidiaries are currently licensed as money transmitters on the state level by the banking departments or other state agencies. Continued licensing by these states is subject to periodic examinations and ongoing satisfaction of compliance requirements regarding safety and soundness, including maintenance of certain levels of net worth, surety bonding, permissible investments in amounts sufficient to cover our outstanding payment obligations with respect to certain of our products subject to licensure, and record keeping and reporting. If our subsidiaries are unable to obtain, maintain or renew necessary licenses or comply with other relevant state regulations, they will not be able to operate as a money transmitter in those states or provide certain other services and products, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, certain of our subsidiaries are subject to regulation by the Financial Crimes Enforcement Network, or FinCEN, and must comply with applicable anti-money laundering requirements, including implementation of an effective anti-money laundering program. Changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government, may significantly affect or change the manner in which we currently conduct some aspects of our business.
Regulatory changes may also restrict or eliminate present and future business opportunities available to certain of our subsidiaries. For example, the Durbin Amendment to the Dodd-Frank Act, which serves to limit interchange fees, may restrict or otherwise impact the way our subsidiaries do business or limit their ability to charge certain fees to customers. The CFPB is also engaged in rule making and regulation of the payments industry, in particular with respect to prepaid cards, and on October 5, 2016, thecards. The CFPB issued a final rule amending Regulations Eon prepaid accounts that came into effect on April 1, 2019. The rule’s definition of prepaid account includes certain accounts that are capable of being loaded with funds and Zwhose primary function is to create comprehensive consumer protectionsconduct transactions with multiple, unaffiliated merchants, at ATMs or for prepaid financial products. The extensive nature of these regulations and the implementation dates for this additional rulemaking may result in additional compliance obligations and expense for our business.person-to-person transfers. The CFPB’s focus on the protection of consumers might also extend to many of our small business customers. As a service provider to certain of our bank sponsors, we are subject to direct supervision and examination by the CFPB, in connection with certain of our products and services. CFPB rules, examinations and enforcement actions may require us to adjust our activities and may increase our compliance costs. Changing regulations or standards in the area of privacy and data protection could also adversely impact us. In addition, certain of our bank partners are subject to regulation by federal and state authority and, as a result, could pass through some of those compliance obligations to us.
Our business is subject to U.S. federal anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, which we refer to collectively as the BSA. Our business in Canada is also subject to Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the PCTFA, which is a corollary to the BSA. The
BSA, among other things, requires money services businesses (such as money transmitters, issuers of money orders and official checks and providers of prepaid access) to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity and maintain transaction records. The PCTFA imposes similar requirements.
Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. With increasing frequency, federal and state regulators are holding businesses like ours to higher standards of training, monitoring and compliance, including monitoring for possible violations of laws by our customers and people who do business with our customers while using our products. If we fail or are unable to comply with existing or changed government regulations in a timely and appropriate manner, we may be subject to injunctions, other sanctions and the payment of fines and penalties, and our reputation may be harmed, which could have a material adverse effect on our business, financial condition and results of operations.
Our partner banks also operate in a highly regulated industry, which recently has been the subject of extensive structural reforms that are expected to negatively affect the conduct and scope of their businesses, their ability to maintain or expand offerings of products and services, and the costs of their operations. These legislative and regulatory changes could prompt our partner banks to alter the extent or the terms of their dealings with us in ways that may have adverse consequences for our business.
In addition, recently implemented and pending changes in accounting standards (for example, changes relating to revenue recognition for customer contracts that will becomebecame effective for fiscal 2018) may adversely affect our results of operations.
Finally, we have endeavored to structure our businesses in accordance with existing tax laws and interpretations, including those related to state occupancy taxes, value added taxes in foreign jurisdictions, payroll taxes and restrictions on repatriation of funds or transfers of revenue between jurisdictions. Changes in tax laws, their interpretations or their enforcement could increase our tax liability, further limit our utilization of funds located in foreign jurisdictions and have a material adverse effect on our business and financial condition.
For more information about laws, regulations and enforcement activities that may adversely affect our products and services and the markets in which we operate, see “Business- Regulatory.”
Derivatives regulations have added costs to our business and any additional requirements, such as future registration requirements and increased regulation of derivative contracts, may result in additional costs or impact the way we conduct our hedging activities, as well as impact how we conduct our business within our international payments provider operations.
Rules adopted under the Dodd-Frank Act by the Commodity Futures Trading Commission (the “CFTC”), as well as the provisions of the European Market Infrastructure Regulation and its technical standards, which are directly applicable in the member states of the European Union, have subjected certain of the foreign exchange derivative contracts we offer to our customers as part of the Cambridge Global Payments (“Cambridge”) business, to reporting, record keeping, and other requirements. Additionally, certain foreign exchange derivatives transactions we may enter into in the future may be subject to centralized clearing requirements, or may be subject to margin requirements in the U.S. and European Union. Other jurisdictions outside the U.S. and the European Union are considering, have implemented, or are implementing regulations similar to those described above. Derivatives regulations have added costs to our business and any additional requirements,
such as future registration requirements and increased regulation of derivative contracts, may result in additional costs or impact the way we conduct our hedging activities, as well as impact how we conduct our business within our international payments provider operations. In particular, the CFTC has recently issued a proposed rule that, if adopted as proposed, would increase the likelihood that we will have to register one or more of our subsidiaries with the CFTC as swap dealers. Swap dealers are subject to a comprehensive regulatory framework and compliance with this framework will lead to additional costs, including costs relating to regulatory capital and margin requirements, and may impact how we conduct our hedging activities and derivatives business with customers. We are currently evaluating the impact the proposed rule, if adopted, would have on our hedging activities and operations.
Our compliance with these requirements has resulted, and may continue to result, in additional costs to our business and may impact our international payments provider business operations. Furthermore, our failure to comply with these requirements could result in fines and other sanctions, as well as necessitate a temporary or permanent cessation to some or all of our derivative related activities. Any such fines, sanctions or limitations on our business could adversely affect our operations and financial results. Additionally, the regulatory regimes for derivatives in the U.S. and European Union, such as under the Dodd-Frank Act and the European Markets in Financial Instruments Directive known as “MiFID II,” are continuing to evolve and changes to such regimes, our designation under such regimes, or the implementation of new rules under such regimes, such as future registration requirements and increased regulation of derivative contracts, may result in additional costs to our business. Other jurisdictions outside the U.S. and the European Union are considering, have implemented, or are implementing regulations similar to those described above and these may result in greater costs to us as well.
Governmental regulations designed to protect or limit access to personal information could adversely affect our ability to effectively provide our services.
Governmental bodies in the United StatesU.S. and abroad have adopted, or are considering the adoption of, laws and regulations restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the United States,U.S., all financial institutions must undertake certain steps to help protect the privacy and security of consumer financial information. In connection with providing services to our clients, we are required by regulations and arrangements with payment networks, our sponsor bank and certain clients to provide assurances regarding the confidentiality and security of non-public consumer information. These arrangements require periodic audits by independent companies regarding our compliance with industry standards such as payment card industry, or PCI standards and also allow for similar audits regarding best practices established by regulatory guidelines. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information received from our customers. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract and maintain business in the future. If we fail to comply with these regulations, we could be exposed to suits for breach of contract or to governmental proceedings. In addition, our client relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new clients. If more restrictive privacy laws or rules are adopted by authorities in the future on the federal or state level or internationally, our compliance costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational harm and our potential liability for security breaches may increase, all of which could have a material adverse effect on our business, financial condition and results of operations.
Our actual or perceived failure to comply with governmental regulation and other legal obligations, particularly related to consumer protection and e-commerce, privacy, data protection and information security, could harm our business.
In the U.S., Canada, the European Union and in other jurisdictions around the world, we are subject to numerous and disparate consumer laws (including laws on disputed transactions) as well as regulations on e-commerce or similar legislation. Because we collect personally identifiable information and other data from our customers, we are subject to laws and regulations in the U.S., Canada, the European Union and in other jurisdictions around the world restrict certain collection, processing, storage, use, disclosure and security of personal information, require notice to individuals of privacy practices, and provide individuals with certain rights to prevent use and disclosure of protected information. These laws and regulations are subject to frequent revisions and differing interpretations, and have generally become more stringent over time.
While we have implemented processes and procedures to comply with these laws, if we or the third parties on which we rely for data fail to adhere to or successfully implement appropriate processes and procedures in response to existing or future regulations, it could result in legal and monetary liability, fines, penalties, or damage to our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, any changes to these laws, their interpretation, or enforcement by the government or private parties that further restrict the way we contact and communicate with our potential customers or generate leads could adversely affect our ability to attract customers and could harm our business, financial condition, results of operations and cash flows.
Unfavorable resolution of tax contingencies or changes to enacted tax rates could adversely affect our tax expense and results of operations.
Our tax returns and positions are subject to review and audit by federal, state, local, and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations. We have established contingent liabilities for material known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the proper tax treatment of the item. These liabilities reflect what we believe to be reasonable assumptions as to the likely final resolution of each issue if raised by a taxing authority. There can be no assurance that, in all instances, an issue raised by a tax authority will be finally resolved at a financial cost less than any related liability. An unfavorable resolution, therefore, could negatively impact our financial position, operating results and cash flows in the current and/or future periods.
Our acquisition documents include warranties, covenants and conditions regarding various tax matters that occurred prior to the acquisition, supported by indemnification and, in some cases, holdbacks or escrows from the sellers. The obligations of the sellers are also generally subject to various limitations. In the event of a tax claim related to a pre-acquisition tax year, we would seek to recover costs and losses from the sellers under the acquisition agreement. However, there is no assurance that any indemnification, holdback or escrow would be sufficient or that we would recover such costs or losses, which could negatively impact our financial position, operating results and cash flows in the current and/or future periods.
We record deferred income taxes to reflect the impact of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. Deferred income taxes are determined using enacted tax rates. Changes in enacted tax rates may negatively impact our operating results.
The Tax Cuts and Jobs Act (the “Tax Act”) and similar tax reform laws in other jurisdictions could adversely affect our business and financial condition.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) could adversely affect our business and financial condition. The Tax Act significantly changed how the U.S. taxes corporations, including limitations on the deductibility of interest expense and executive compensation, and the imposition or acceleration of taxation on certain foreign income, each of which may increase our tax expense. Both the Tax Act and subsequent regulations and interpretations require complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation. As additional clarification and guidance is issued regarding the Tax Act, we may make adjustments to amounts that we have recorded, which may materially impact our provision for income taxes in the period in which the adjustments are made.
Various other jurisdictions including members of the Organization for Economic Cooperation and Development are considering changes to their tax laws including provisions intended to address base erosion and profit shifting by taxpayers. Any tax reform adopted in these or other countries may exacerbate the risks described above.
We generate a portion of our revenue from our lodging card business, which is affected by conditions in the hotel industry generally and has a concentration of customers in the railroad and trucking industries.
Our lodging card business earns revenue from customers purchasing lodging from the hotel industry and derives a significant portion of this revenue from end users in the railroad and trucking industries. Therefore, we are exposed to risks affecting each of these industries. For example, unfavorable economic conditions adversely impacting the hotel, railroad and trucking industries generally could cause a decrease in demand for our products and services in our lodging card business, resulting in decreased revenue, or increased credit risk and related losses, resulting in increased expenses. In addition, mergers or consolidations in these industries could reduce our customer and partnership base, resulting in a smaller market for our products and services.
We contract with government entities and are subject to risks related to our governmental contracts.
In the course of our business we contract with domestic and foreign government entities, including state and local government customers, as well as federal government agencies. As a result, we are subject to various laws and regulations that apply to companies doing business with federal, state and local governments. The laws relating to government contracts differ from other commercial contracting laws and our government contracts may contain pricing terms and conditions that are not common among commercial contracts. In addition, we may be subject to investigation from time to time concerning our
compliance with the laws and regulations relating to our government contracts. Our failure to comply with these laws and regulations may result in suspension of these contracts or administrative or other penalties.
Litigation and regulatory actions could subject us to significant fines, penalties or requirements resulting in significantly increased expenses.expenses, damage to our reputation and/or material adverse effects on our business.
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, intellectual property disputes, government inquiries, investigations, audits and regulatory proceedings, customer disputes and tort claims. Responding to such claimsproceedings may be difficult and expensive, and we may not prevail. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require expenditures on our part or changes in how we conduct business. There can be no certainty that we will not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage, or that we will prevail with respect to such proceedings. Regardless of whether we prevail or not, such litigationproceedings could have a material adverse effect on our business, reputation, financial condition and results of operations.
In June 2017, a shareholder filed a class action complaint in the Unites States District Court for the Northern District of Georgia against the Company and certain of its officers and directors on behalf of all persons who purchased or otherwise acquired the Company’s stock between February 5, 2016 and May 2, 2017. The complaint alleges that the defendants made false or misleading statements regarding fee charges and the reasons for its earnings and growth in certain press releases and other public statements in violation of the federal securities laws, and seeks unspecified monetary damages, costs, and attorneys’ fees. On October 3, 2019, the parties executed a term sheet to settle the case for a payment of $50 million for the benefit of the class. The full settlement amount is covered by our insurance policies. On December 12, 2019, the court granted the lead plaintiff’s motion for preliminary approval of the settlement. Additionally, in July 2017, a shareholder derivative complaint was filed against certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia seeking recovery on behalf of the Company, and on January 9, 2019, a second shareholder derivative complaint was filed in the Superior Court of Gwinnett County, Georgia. We cannot be certain that the outcome of these matters will not have a material adverse result on us, our business, our financial condition or our results of operations. In addition, in the future, we may need to record litigation reserves with respect to this and any similar matters. Further, these types of matters could divert our management’s attention and other resources away from our business.
From time to time, we have had, and expect to continue to receive, inquiries from regulatory bodies and administrative agencies relating to the operation of our business. SuchWe have received a Civil Investigative Demand from the Federal Trade Commission, along with proposals to resolve potential claims, arising from our advertising and marketing practices, which relate principally to our North American Fuel Card business. Any potential claims or any such inquiries or potential claims have resulted in, and may continue to result in, various audits, reviews and investigations, which can be time consuming and expensive. An adverse outcomeThese types of any investigation by, or other inquiries, from, such bodies or agenciesaudits, reviews, and investigations could have a material adverse effect on us and result in the institution of administrative or civil proceedings, sanctions and the payment of fines and penalties, various forms of injunctive relief and redress, changes in personnel, and increased review and scrutiny by customers, regulatory authorities, the media and others, which could be significant and could have a material adverse effect on our business, reputation, financial condition and results of operations.
For more information about our judicial and other proceedings, see “Business—Legal Proceedings.”“Part I, Item 3-Legal Proceedings”.
Our revenues from MasterCard cards are dependent upon our continued MasterCard registration and financial institution sponsorship. If we fail to comply with the applicable requirements of MasterCard,Mastercard, it could seek to fine us, suspend us or terminate our registrations through our financial institution sponsors.
A significant source of our revenue comes from processing transactions through the MasterCardMastercard networks. In order to offer MasterCardMastercard programs to our customers, one of our subsidiaries is registered as a member service provider with MasterCardMastercard through sponsorship by MasterCardMastercard member banks in both the United StatesU.S. and Canada. Registration as a service provider is dependent upon our being sponsored by member banks. If our sponsor banks should stop providing sponsorship for us or
determine to provide sponsorship on materially less favorable terms, we would need to find other financial institutions to provide those services or we would need to become a MasterCardMastercard member, either of which could prove to be difficult and expensive. Even if we pursue sponsorship by alternative member banks, similar requirements and dependencies would likely still exist. In addition, MasterCardMastercard routinely updates and modifies its requirements. Changes in the requirements may make it significantly more expensive for us to provide these services. If we do not comply with MasterCardMastercard requirements, it could seek to fine us, suspend us or terminate our registration, which allows us to process transactions on its networks. The termination of our registration, or any changes in the payment network rules that would impair our registration, could require us to stop providing MasterCardMastercard payment processing services. If we are unable to find a replacement financial institution to provide sponsorship or become a member, we may no longer be able to provide such services to the affected customers, which would have a material adverse effect our business, financial condition and results of operations.
Changes in MasterCardMastercard interchange fees could decrease our revenue.
A portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees, associated with transactions processed using our MasterCard-brandedMastercard-branded cards. Interchange fee amounts associated with our MasterCardMastercard network cards are affected by a number of factors, including regulatory limits in the United StatesU.S. and Europe and fee changes imposed by MasterCard.Mastercard. In addition, interchange fees are the subject of intense legal and regulatory scrutiny and competitive pressures in the electronic payments industry, which could result in lower interchange fees generally in the future. Temporary or permanent decreases in the interchange fees associated with our MasterCardMastercard network card transactions, could adversely affect our business and operating results.
If we are not able to maintain and enhance our brands, it could adversely affect our business, operating results and financial condition.
We believe that maintaining and enhancing our brands is critical to our customer relationships, and our ability to obtain partners and retain employees. The successful promotion of our brands will depend upon our marketing and public relations efforts, our ability to continue to offer high-quality products and services and our ability to successfully differentiate our services from those of our competitors. In addition, future extension of our brands to add new products or services different from our current offerings may dilute our brands, particularly if we fail to maintain our quality standards in these new areas. The promotion of our brands will require us to make substantial expenditures, and we anticipate that the expenditures will increase as our markets become more competitive and we expand into new markets. To the extent that these activities yield increased revenues, this revenue may not offset the expenses we incur. There can be no assurance that our brand promotion activities will be successful.
Failure to comply with the United States Foreign Corrupt Practices Act,FCPA, anti-money laundering regulations, economic and trade sanctions regulations and similar laws and regulations associated with our international activities, could subject us to penalties and other adverse consequences.
As we continue to expand our business internationally, we may continue to expand into certain foreign countries, particularly those with developing economies, where companies often engage in business practices that are prohibited by U.S., U.K. and other foreign regulations, including the United States Foreign Corrupt Practices Act, or the FCPA, and the U.K. Bribery Act. The FCPA prohibits improper paymentsAct, the 2013 Brazilian Clean Companies Act and the 2013 Russian Law on Preventing Corruption. These laws and regulations generally prohibit us, our employees, consultants and agents from bribing, being bribed or offers ofmaking other prohibited payments to foreign governments and theirgovernment officials and political parties by U.S. andor other persons to obtain or retain business or gain some other business entities for the purpose of obtaining or retaining business.advantage. We have implemented policies to discourage such practices; however, there can be no assurances that all of our employees, consultants and agents, including those that may be based in or from countries where practices that violate U.S. laws may be customary, will not take actions in violation of our policies, for which we may be ultimately responsible. Violations of the FCPA or similar laws may result in severe criminal or civil sanctions and, in the U.S., suspension or debarment from U.S. government contracting, which could negatively affect our business, operating results and financial condition.
In addition, we are subject to anti-money laundering laws and regulations, including the BSA. Among other things, the BSA requires money services businesses (such as money transmitters and providers of prepaid access) to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records.
We are also subject to certain economic and trade sanctions programs that are administered by OFAC, which prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations. Other group entities may be subject to additional foreign or local sanctions requirements in other relevant jurisdictions.
Similar anti-money laundering and counter-terrorist financing and proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with persons specified in lists maintained by the country equivalent to OFAC lists in several other countries and require specific data retention obligations to be observed by intermediaries in the payment process. Our businesses in those jurisdictions are subject to those data retention obligations.
Violations of these laws and regulations may result in severe criminal or civil sanctions and, in the U.S., suspension or debarment from U.S. government contracting, which could negatively affect our business, operating results and financial condition. Likewise, any investigation of any potential violations of these laws and regulations by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financial condition and operating results. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws and regulations might be administered or interpreted.
Global economic downturns or slower growth or declines in the money transfer, payment service, and other markets in which we operate, including downturns, declines, and difficult conditions in global financial markets andfinancial market disruptions could adversely affect our business, financialcondition, results of operations, and cash flows.
The global economy has experienced in recent years, and may experience, downturns, volatility and disruption, and we face certain risks relating to such events, including:
Our international payments provider business provides currency conversion and foreign exchange hedging services to our customers, exposing us to foreign currency exchange risk. In order to help mitigate these risks, we enter into derivative contracts. However, these contracts do not eliminate all of the risks related to fluctuating foreign currency rates.
Our international payments provider business is heavily dependent on global trade. A downturn in global trade or the failure of long-term import growth rates to return to historic levels could have an adverse effect on our business, financial condition, results of operations, cash flows, and our cash management strategies. Additionally, as customer hedging activity in our international payments provider business generally varies with currency volatility, we have experienced and may experience in the future lower foreign exchange revenues in periods of lower currency volatility.
The counterparties to the derivative financial instruments that we use in our international payments provider business to reduce our exposure to various market risks, including changes in foreign exchange rates, may fail to honor their obligations, which could expose us to risks we had sought to mitigate. This includes the exposure generated when we write derivative contracts to our customers as part of our cross-currency payments business, and we typically hedge the net exposure through offsetting contracts with established financial institution counterparties. That failure could have an adverse effect on our financial condition, results of operations, and cash flows.
Risks associated with foreign currencies could adversely affect our business, financial condition, results of operations, and cash flows.
We have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature of our international payments provider business. The majority of this business’ revenue is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. Additionally, this business also writes foreign currency forward and option contracts for our customers. The duration of these derivative contracts at inception is generally less than one year. The credit risk associated with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to deliver currency to us or to maintain appropriate collateral with us.
Our international payments provider business aggregates its foreign exchange exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. If we are unable to obtain offsetting positions, our business, financial condition, results of operations, and cash flows could be adversely affected.
We face credit, liquidity and fraud risks from our agents, consumers, businesses, and other third parties that could adversely affect our business, financial condition, results of operations, and cash flows.
We are exposed to credit risk in our international payments provider business relating to: (a) derivatives written by us to our customers and (b) the extension of trade credit when transactions are paid to recipients prior to our receiving cleared funds from the sending customers. The credit risk associated with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to deliver currency to us or
to maintain appropriate collateral with us. If a customer becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to pay us, we may be exposed to the value of an offsetting position with a financial institution counterparty for the derivatives or may bear financial risk for those receivables where we have offered trade credit.
If we are unable to maintain our relationships with banks needed to conduct our services, or fail to comply with our contract requirements, our business, financial condition, results of operations, and cash flows would be adversely affected.
In our international payments provider business, we facilitate payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations. Increased regulation and compliance requirements are impacting these businesses by making it more costly for us to provide our services or by making it more cumbersome for businesses to do business with us. Any factors that increase the cost of cross-border trade for us or our customers or that restrict, delay, or make cross-border trade more difficult or impractical, such as trade policy or higher tariffs, could negatively impact our revenues and harm our business. We may also have difficulty establishing or maintaining banking relationships needed to conduct our services due to banks’ policies. If we are unable to maintain our current business or
banking relationships or establish new relationships under terms consistent with those currently in place, our ability to continue to offer our services may be adversely impacted, which could have an adverse effect on our business, financial condition, results of operations, and cash flows.
Risks related to ownership of our common stock
Our stock price could be volatile and our stock could decline in value.
The market price of our common stock may fluctuate substantially as a result of many factors, some of which are beyond our control. Factors that could cause fluctuations in the market price of our common stock include the following:
quarterly variations in our results of operations;
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
announcements by us or our competitors of significant contracts, acquisitions, or capital commitments;
announcements by third parties of significant claims or proceedings against us;
regulatory developments in the United StatesU.S. and abroad;
future sales of our common stock, and additions or departures of key personnel; and
general domestic and international economic, market and currency factors and conditions unrelated to our performance.
In addition, the stock market in general has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance of individual companies. These broad market factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in significant liabilities and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are and will be met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Anti-takeover provisions in our charter documents could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
Our corporate documents and the Delaware General Corporation Law contain provisions that may enable our board of directors to resist a change in control of FleetCorFLEETCOR even if a change in control were to be considered favorable by you and other stockholders. These provisions:
stagger the terms of our board of directors and require supermajority stockholder voting to remove directors;
authorize our board of directors to issue preferred stock and to determine the rights and preferences of those shares, which may be senior to our common stock, without prior stockholder approval;
establish advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholder meetings; and
prohibit our stockholders from calling a special meeting and prohibit stockholders from acting by written consent; and
require supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws.consent.
In addition, Delaware law imposes some restrictions on mergers and other business combinations between any holder of 15% or more of our outstanding voting stock and us. These provisions could discourage, delay or prevent a transaction involving a change in control of FleetCor.FLEETCOR. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.
We do not expect to pay any dividends on our common stock for the foreseeable future.
We currently expect to retain all future earnings, if any, for future operation, expansion and debt repayment and have no current plans to pay any cash dividends to holders of our common stock for the foreseeable future. Any decision to declare and pay
dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our operating results, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, we must comply with the covenants in our credit agreements in order to be able to pay cash dividends, and our ability to pay dividends generally may be further limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have no unresolved written comments regarding our periodic or current reports from the staff of the SEC.
ITEM 2. PROPERTIES
We lease all of the real property used in our business, except as noted below. The following table lists each of our material facilities and its location, use and approximate square footage, at December 31, 2016.
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| Facility | Use | Approximate size |
United StatesNorth America Segment | | Square Feet |
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Norcross,Brentwood, Tennessee | Comdata sales, operations and customer support | 135,000 |
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| Louisville, Kentucky | SVS sales, operations and customer support | 66,000 |
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| Lexington, Kentucky | CLS operations | 60,100 |
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| Peachtree Corners, Georgia | Operations | 57,000 |
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| Atlanta, Georgia | Corporate headquarters and operations | 81,00046,500 |
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Covington, LouisianaNashville, Tennessee | Corporate accounting and treasuryComdata operations | 13,60038,300 |
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Houston, Texas | Credit and collections | 6,300 |
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Concord, California | Customer support | 7,100 |
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| Wichita, Kansas | CLC operations and customer support | 31,10038,000 |
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Atlanta, GeorgiaBeaverton, Oregon | NexTraqNvoicePay sales, operations and customer support | 36,80032,600 |
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Tampa, FloridaToronto, Canada | NexTraqCambridge global headquarters | 27,600 |
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| Schaumburg, Illinois | Travelliance sales, operations and customer support | 8,30017,000 |
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| Bloomington, Minnesota | Travelliance sales, operations and customer support | 13,300 |
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| Phoenix, Arizona | Sales | 13,000 |
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| Portland, Oregon | SOLE Financial sales, operations and customer support | 11,100 |
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| Covington, Louisiana | Corporate accounting and treasury | 11,000 |
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| Salem, Oregon | Pacific Pride sales, operations and customer support | 10,000 |
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Brentwood, TennesseeHouston, Texas | Comdata sales, operationsCredit and customer supportcollections | 228,0007,400 |
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Nashville, Tennessee | Comdata operations | 38,320 |
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Louisville, Kentucky | SVS sales, operations and customer support | 66,000 |
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| Austin, Texas | Comdata operations | 4,3006,700 |
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| New York, New York | Cambridge U.S. headquarters | 5,900 |
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| International Segment | | |
| Melbourne, Australia | Business Fuel Cards sales | 6,200 |
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| Sao Paulo, Brazil | STP, CTF, VB Servicios and DB headquarters, sales, operations and customer support | 100,300 |
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| Osasco, Brazil | CTF and VB Servicios operations and STP collections and operations | 21,600 |
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| Rio de Janeiro, Brazil | DB Trans and AExpresso headquarters, sales, operations and customer support | 15,300 |
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| Prague, Czech Republic | CCS headquarters and Shell Europe (Germany, Austria, Poland, Hungary, Switzerland, Czech Republic and Slovakia)Slovakia, France, Belgium, Netherlands and Luxembourg) operations, credit and collections, customer service, sales and finance | 38,400 |
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| Nuremberg, Germany | Shell Europe sales | 35,0006,900 |
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| Mexico City, Mexico(1) | FleetCor Mexico headquarters and operations | 22,50029,200 |
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| Almere, Netherlands | Travelcard headquarters, sales, customer support, operations, credit and collections | 5,600 |
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| Auckland, New Zealand | CardLink headquarters, sales, operations and customer support | 7,200 |
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| Moscow, Russia | PPR and NKT headquarters, sales, customer support, operations, credit and collections | 16,3005,700 |
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Bryansk, Russia | Sales and marketing | 19,900 |
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Ipswich, United Kingdom(1) | Operations, sales and customer support | 17,900 |
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Knaresborough, United Kingdom | Operations, sales and customer support | 5,100 |
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London, United Kingdom | Europe headquarters | 2,800 |
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| Swindon, United Kingdom | Allstar and Shell Europe (Belgium, Netherlands and France)TFC operations, sales and customer support, human resources and finance | 18,300 |
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Walsall, United Kingdom | Operations, sales and customer support | 9,500 |
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Birmingham,Meriden, United Kingdom | EPYX headquarters, sales, operations and customer support | 12,50016,500 |
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Sao Paulo, BrazilLondon, United Kingdom | CTF and VB ServiciosEurope headquarters sales, customer support and operations | 32,30015,000 |
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Osasco, BrazilWalsall, United Kingdom | CTF and VB Servicios operations, STP and SemParar Headquarters,CHJ Operations, sales operations and customer support | 59,9009,500 |
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Rio de Janeiro, BrazilIpswich, United Kingdom | DB Trans and AExpresso headquarters,Operations, sales operations and customer support | 15,3006,300 |
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Auckland, New ZealandSheffield, United Kingdom | CardLink headquarters, sales,r2c operations and customer support | 12,1005,900 |
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Nuernberg, GermanyKnaresborough, United Kingdom | Shell EuropeAllstar and TFC sales | 4,3005,100 |
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Almere, Netherlands | Travelcard headquarters, sales, customer support, operations, credit and collections | 5,600 |
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| |
| (1) | We own these facilities.this facility. |
We also own approximately 1.5 acres of land in Nashville, Tennessee, for employee parking. Additionally, we lease a number of minor additional facilities not listed above, including local sales and operations offices less than 2,4005,000 square feet, small storage facilities and a small number of service stations in the United Kingdom; which are not included in the above list.Kingdom. We believe our facilities are adequate for our needs for at least the next 12 months. We anticipate that suitable additional or alternative facilities will be available to accommodate foreseeable expansion of our operations.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this filing, we are not currently party to any legal proceedings or governmental inquiries or investigations that we consider to be material and we were not involved in any material legal proceedings that terminated during the fourth quarter. We are and may become, however, subject to lawsuits from time to time inIn the ordinary course of business, we are subject to various pending and potential legal actions, arbitration proceedings, claims, subpoenas, and matters relating to compliance with laws and regulations (collectively, legal proceedings). Based on our current knowledge, management presently does not believe that the liabilities arising from these legal proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal proceedings could have a material adverse effect on our results of operations and financial condition for any particular period.
Shareholder Class Action and Derivative Lawsuits
On June 14, 2017, a shareholder filed a class action complaint in the United States District Court for the Northern District of Georgia against the Company and certain of its officers and directors on behalf of all persons who purchased or otherwise acquired the Company’s stock between February 5, 2016 and May 2, 2017. On October 13, 2017, the shareholder filed an amended complaint asserting claims on behalf of a class of all persons who purchased or otherwise acquired the Company's common stock between February 4, 2016 and May 3, 2017. The complaint alleges that the defendants made false or misleading statements regarding fee charges and the reasons for its earnings and growth in certain press releases and other public statements in violation of the federal securities laws. On July 17, 2019, the court granted plaintiff's motion for class certification. The complaint seeks unspecified monetary damages, costs, and attorneys’ fees. On October 3, 2019, the parties executed a term sheet to settle the case for a payment of $50 million for the benefit of the class. The full settlement amount is covered by the Company’s insurance policies. On December 12, 2019, the court granted the lead plaintiff’s motion for preliminary approval of the settlement. The Company disputes the allegations in the complaint and the settlement is without any admission of the allegations in the complaint.
On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia (“Federal Derivative Action”) seeking recovery on behalf of the Company. The Federal Derivative Action alleges that the defendants issued a false and misleading proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedly false and misleading public statements concerning the Company’s fee charges, and financial and business prospects; and that certain defendants breached their fiduciary duties through allegedly improper sales of stock. The complaint seeks unspecified monetary damages on behalf of the Company, corporate governance reforms, disgorgement of profits, benefits and compensation by the defendants, restitution, costs, and attorneys’ and experts’ fees. On September 20, 2018, the court entered an order deferring the Federal Derivative Action pending a ruling on motions for summary judgment in the shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed to by the parties. After preliminary approval of the proposed settlement of the shareholder class action was granted, the stay on the Federal Derivative Action was lifted. Plaintiffs amended their complaint on February 22, 2020 and FleetCor has an April 10, 2020 date by which to move to dismiss or otherwise respond to the amended complaint in the Federal Derivative Action. On January 9, 2019, a similar shareholder derivative complaint was filed in the Superior Court of Gwinnett County, Georgia (“State Derivative Action”), which was stayed pending a ruling on motions for summary judgment in the shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed by the parties. On the parties’ joint motion, the court has continued the stay of the State Derivative Action “pending further developments in the first-filed Federal Derivative Action.” The defendants dispute the allegations in the derivative complaints and intend to vigorously defend against the claims.
FTC Investigation
In October 2017, the Federal Trade Commission (“FTC”) issued a Notice of Civil Investigative Demand to the Company for the production of documentation and a request for responses to written interrogatories. After discussions with the Company, the FTC proposed in October 2019 to resolve potential claims relating the Company’s advertising and marketing practices, principally in its U.S. direct fuel card business within its North American Fuel Card business. The parties reached impasse primarily related to what the Company believes are unreasonable demands for redress made by the FTC.
On December 20, 2019, the FTC filed a lawsuit in the Northern District of Georgia against the Company and Ron Clarke. See FTC v. FleetCor and Ronald F. Clarke, No. 19-cv-05727 (N.D. Ga.). The complaint alleges the Company and Clarke violated the FTC Act’s prohibitions on unfair and deceptive acts and practices. The complaint seeks among other things injunctive relief, consumer redress, and costs of suit. The Company continues to believe that the FTC’s claims are without merit. The Company has incurred and continues to incur legal and other fees related to this complaint. Any settlement of this matter, or defense against the lawsuit, could involve costs to the Company, including legal fees, fines, penalties, and remediation expenses. At
this time, in view of the complexity and ongoing nature of the matter, we are unable to estimate a reasonably possible loss or range of loss that we may incur to settle this matter or defend against the lawsuit brought by the FTC.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “FLT”.“FLT.” As of December 31, 2016,2019, there were 102257 holders of record of our common stock. The table set forth below provides the intraday high and low sales prices per share of our common stock for the four quarters during 2016 and 2015.
��
|
| | | | | | | | |
| | | High | | Low |
| 2016: | | | | |
| First Quarter | | $ | 150.25 |
| | $ | 107.56 |
|
| Second Quarter | | 156.58 |
| | 133.64 |
|
| Third Quarter | | 174.84 |
| | 137.26 |
|
| Fourth Quarter | | 176.42 |
| | 140.75 |
|
| 2015: | | | | |
| First Quarter | | $ | 158.45 |
| | $ | 135.73 |
|
| Second Quarter | | 165.67 |
| | 149.75 |
|
| Third Quarter | | 164.61 |
| | 135.16 |
|
| Fourth Quarter | | 157.97 |
| | 134.55 |
|
DIVIDENDS AND SHARE REPURCHASES
We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business. We have never declared or paid any dividends on our common stock and do not anticipate paying cash dividends to holders of our common stock in the foreseeable future. In addition, our credit agreements restrict our ability to pay dividends. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and covenants in our existing financing arrangements and any future financing arrangements.
On February 4, 2016, the Company’sOur Board of Directors has approved a stock repurchase program (the(as updated from time to time, the "Program") under which, authorizing the Company may begin purchasing up to $500 million ofrepurchase its common stock overfrom time to time until February 1, 2023. On October 22, 2019, our Board increased the next 18 month period. aggregate size of the Program by $1 billion, to $3.1 billion. Since the beginning of the Program, 11,119,657 shares have been repurchased for an aggregate purchase price of $2.2 billion, leaving us up to $857 million available under the Program for future repurchases of our common stock, taking into account the full $500 million committed with the 2019 ASR Agreement (defined below), which completed on February 20, 2020. There were 2,094,115 common shares totaling $603.8 million in 2019; 4,911,438 common shares totaling $958.7 million in 2018, and 2,854,959 common shares totaling $402.4 million in 2017; repurchased under the Program.
Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information the Companywe may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and working capital. There were 1,259,145debt.
On December 14, 2018, as part of the Program, we entered an accelerated share repurchase ("ASR") agreement ("2018 ASR Agreement") with a third-party financial institution to repurchase $220 million of our common stock. Pursuant to the 2018 ASR Agreement, we delivered $220 million in cash and received 1,057,035 shares based on a stock price of $176.91 on December 14, 2018. The 2018 ASR Agreement was completed on January 29, 2019, at which time we received 117,751 additional shares based on a final weighted average per share purchase price during the repurchase period of $187.27.
On December 18, 2019, we entered into another ASR agreement ("2019 ASR Agreement") with a third-party financial institution to repurchase $500 million of its common stock. Pursuant to the 2019 ASR Agreement, we delivered $500 million in cash and received 1,431,989 shares based on a stock price of $285.70 on December 18, 2019. The 2019 ASR Agreement was completed February 20, 2020, at which time we received 175,340 additional shares based on a final weighted average per share purchase price during the repurchase period of $306.81.
We accounted for the 2018 ASR Agreement and the 2019 ASR Agreement as two separate transactions: (i) as shares of reacquired common stock for the shares delivered to the Company upon effectiveness of each ASR agreement and (ii) as a forward contract indexed to the Company's common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and results in an immediate reduction of the outstanding shares used to calculate the weighted average common shares totaling $187.7 million repurchased underoutstanding for basic and diluted earnings per share. The forward contracts indexed to our own common stock met the Program during 2016. criteria for equity classification, and these amounts were initially recorded in additional paid-in capital.
The following table presents information with respect to purchasespurchase of common stock of the Company made during the three months ended December 31, 20162019 by the Company as defined in Rule 10b-18(a)(3) under the Exchange Act:
| | | Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of the Publicly Announced Plan | | Maximum Value that May Yet be Purchased Under the Publicly Announced Plan (in thousands) | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of the Publicly Announced Plan | | Maximum Value that May Yet be Purchased Under the Publicly Announced Plan (in thousands) |
| October 1, 2016 through December 31, 2016 | | 1,000,000 |
| | $ | 152.17 |
| | 1,259,145 |
| | $ | 312,348 |
| |
| October 1, 2019 through October 31, 2019 | | | 49 |
| | $ | 297.49 |
| | 9,238,809 |
| | $ | 1,489,074 |
|
| November 1, 2019 through November 30, 2019 | | | 149,848 |
| | $ | 293.43 |
| | 9,388,657 |
| | $ | 1,445,105 |
|
| December 1, 2019 through December 31, 2019 | | | 1,731,000 |
| | $ | 287.51 |
| | 11,119,657 |
| | $ | 947,420 |
|
PERFORMANCE GRAPH
The following graph assumes $100 invested on December 15, 2010 (the date our shares first commenced trading),31, 2014, at the closing price ($27.25)148.71) of our common stock on that day, and compares (a) the percentage change of our cumulative total stockholder return on the common stock (as measured by dividing (i) the difference between our share price at the end and the beginning of the period presented by (ii) the share price at the beginning of the periods presented) with (b) (i) the Russell 2000 Index, and (ii) the S&P 500® Data Processing & Outsourced Services.Services and (iii) S&P 500.
|
| | | | | | | | | | | | |
| Period Ending | | FleetCor Technologies, Inc. | | Russell 2000 | | S&P Data Processing and Outsourced Services |
| 12/15/2010 | | $ | 100.00 |
| | $ | 100.00 |
| | $ | 100.00 |
|
| 12/31/2010 | | $ | 113.03 |
| | $ | 102.78 |
| | $ | 95.88 |
|
| 3/31/2011 | | $ | 119.85 |
| | $ | 109.79 |
| | $ | 103.77 |
|
| 6/30/2011 | | $ | 108.37 |
| | $ | 106.71 |
| | $ | 110.66 |
|
| 9/30/2011 | | $ | 96.37 |
| | $ | 83.84 |
| | $ | 101.70 |
|
| 12/31/2011 | | $ | 109.61 |
| | $ | 96.43 |
| | $ | 117.85 |
|
| 3/31/2012 | | $ | 142.28 |
| | $ | 108.06 |
| | $ | 131.46 |
|
| 6/30/2012 | | $ | 128.59 |
| | $ | 103.92 |
| | $ | 134.19 |
|
| 9/30/2012 | | $ | 164.40 |
| | $ | 108.99 |
| | $ | 142.49 |
|
| 12/31/2012 | | $ | 196.88 |
| | $ | 110.54 |
| | $ | 150.85 |
|
| 3/31/2013 | | $ | 281.36 |
| | $ | 123.84 |
| | $ | 169.26 |
|
| 6/30/2013 | | $ | 298.35 |
| | $ | 127.22 |
| | $ | 179.29 |
|
| 9/30/2013 | | $ | 404.26 |
| | $ | 139.75 |
| | $ | 196.49 |
|
| 12/31/2013 | | $ | 429.98 |
| | $ | 151.44 |
| | $ | 228.94 |
|
| 3/31/2014 | | $ | 422.39 |
| | $ | 152.67 |
| | $ | 217.93 |
|
| 6/30/2014 | | $ | 483.67 |
| | $ | 155.26 |
| | $ | 218.52 |
|
| 9/30/2014 | | $ | 521.54 |
| | $ | 143.38 |
| | $ | 221.34 |
|
| 12/31/2014 | | $ | 545.72 |
| | $ | 156.79 |
| | $ | 256.74 |
|
| 3/31/2015 | | $ | 553.83 |
| | $ | 163.04 |
| | $ | 262.43 |
|
| 6/30/2015 | | $ | 572.70 |
| | $ | 163.20 |
| | $ | 265.08 |
|
| 9/30/2015 | | $ | 505.03 |
| | $ | 143.25 |
| | $ | 260.96 |
|
| 12/31/2015 | | $ | 524.51 |
| | $ | 147.83 |
| | $ | 283.80 |
|
| 3/30/2016 | | $ | 545.87 |
| | $ | 144.99 |
| | $ | 284.49 |
|
| 6/30/2016 | | $ | 525.25 |
| | $ | 149.92 |
| | $ | 279.08 |
|
| 9/30/2016 | | $ | 637.54 |
| | $ | 162.90 |
| | $ | 301.21 |
|
| 12/31/2016 | | $ | 519.34 |
| | $ | 176.63 |
| | $ | 300.42 |
|
RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
We derived the consolidated statement of income and other financial data for the years ended December 31, 2016, 20152019, 2018 and 20142017 and the selected consolidated balance sheet data as of December 31, 20162019 and 20152018 from the audited consolidated financial statements included elsewhere in this report. We derived the selected historical financial data for the years ended December 31, 20132016 and 20122015 and the selected consolidated balance sheets as of December 31, 2014, 20132017, 2016 and 20122015 from our audited consolidated financial statements that are not included in this report.
The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and notes thereto included elsewhere in this report. Our historical results are not necessarily indicative of the results to be expected in any future period.
| | | (in thousands, except per share data) | | 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 | | 20191 |
| 20182 |
| 2017 |
| 2016 |
| 2015 |
| Consolidated statement of income data: | | | | | | | | | | | | | | | | | | | | |
| Revenues, net | | $ | 1,831,546 |
| | $ | 1,702,865 |
| | $ | 1,199,390 |
| | $ | 895,171 |
| | $ | 707,534 |
| | $ | 2,648,848 |
| | $ | 2,433,492 |
| | $ | 2,249,538 |
| | $ | 1,831,546 |
| | $ | 1,702,865 |
|
| Expenses: | | | | | | | | | | | | | | | | | | | | |
| Merchant commissions | | 104,345 |
| | 108,257 |
| | 96,254 |
| | 68,143 |
| | 58,573 |
| | — |
| | — |
| | 113,133 |
| | 104,345 |
| | 108,257 |
|
| Processing | | 355,414 |
| | 331,073 |
| | 173,337 |
| | 134,030 |
| | 115,446 |
| | 530,669 |
| | 487,695 |
| | 429,613 |
| | 355,414 |
| | 331,073 |
|
| Selling | | 131,443 |
| | 109,075 |
| | 75,527 |
| | 57,346 |
| | 46,429 |
| | 204,806 |
| | 182,593 |
| | 170,717 |
| | 131,443 |
| | 109,075 |
|
| General and administrative | | 283,625 |
| | 297,715 |
| | 205,963 |
| | 142,283 |
| | 110,122 |
| | 407,210 |
| | 389,172 |
| | 387,694 |
| | 283,625 |
| | 297,715 |
|
| Depreciation and amortization | | 203,256 |
| | 193,453 |
| | 112,361 |
| | 72,737 |
| | 52,036 |
| | 274,210 |
| | 274,609 |
| | 264,560 |
| | 203,256 |
| | 193,453 |
|
| Other operating, net | | (690 | ) | | (4,242 | ) | | (29,501 | ) | | — |
| | — |
| |
| Other operating expense (income), net | | | 523 |
| | 8,725 |
| | 61 |
| | (690 | ) | | (4,242 | ) |
| Operating income | | 754,153 |
|
| 667,534 |
|
| 565,449 |
| | 420,632 |
|
| 324,928 |
| | 1,231,430 |
|
| 1,090,698 |
|
| 883,760 |
| | 754,153 |
|
| 667,534 |
|
| Equity method investment loss | | 36,356 |
| | 57,668 |
| | 8,586 |
| | — |
| | — |
| |
| Investment loss, net | | | 3,470 |
| | 7,147 |
| | 53,164 |
| | 36,356 |
| | 57,668 |
|
| Other expense (income), net | | 2,982 |
| | 2,523 |
| | (700 | ) | | 602 |
| | 1,121 |
| | 93 |
| | (152,166 | ) | | (173,436 | ) | | 2,982 |
| | 2,523 |
|
| Interest expense, net | | 71,896 |
| | 71,339 |
| | 28,856 |
| | 16,461 |
| | 13,017 |
| | 150,048 |
| | 138,494 |
| | 107,146 |
| | 71,896 |
| | 71,339 |
|
| Loss on early extinguishment of debt | | — |
| | — |
| | 15,764 |
| | — |
| | — |
| |
| Total other expense | | 111,234 |
|
| 131,530 |
|
| 52,506 |
| | 17,063 |
|
| 14,138 |
| |
| Loss on extinguishment of debt | | | — |
| | 2,098 |
| | 3,296 |
| | — |
| | — |
|
| Total other expense (income) | | | 153,611 |
|
| (4,427 | ) |
| (9,830 | ) | | 111,234 |
|
| 131,530 |
|
| Income before income taxes | | 642,919 |
| | 536,004 |
| | 512,943 |
| | 403,569 |
| | 310,790 |
| | 1,077,819 |
| | 1,095,125 |
| | 893,590 |
| | 642,919 |
| | 536,004 |
|
| Provision for income taxes | | 190,534 |
| | 173,573 |
| | 144,236 |
| | 119,068 |
| | 94,591 |
| | 182,746 |
| | 283,642 |
| | 153,390 |
| | 190,534 |
| | 173,573 |
|
| Net income | | $ | 452,385 |
|
| $ | 362,431 |
|
| $ | 368,707 |
| | $ | 284,501 |
|
| $ | 216,199 |
| | $ | 895,073 |
|
| $ | 811,483 |
|
| $ | 740,200 |
| | $ | 452,385 |
|
| $ | 362,431 |
|
| Earnings per share: | | | | | | | | | | | | | | | | | | | | |
| Earnings per share, basic | | $ | 4.89 |
| | $ | 3.94 |
| | $ | 4.37 |
| | $ | 3.48 |
| | $ | 2.59 |
| |
| Earnings per share, diluted | | $ | 4.75 |
| | $ | 3.85 |
| | $ | 4.24 |
| | $ | 3.36 |
| | $ | 2.52 |
| |
| Weighted average shares outstanding, basic | | 92,597 |
| | 92,023 |
| | 84,317 |
| | 81,793 |
| | 83,328 |
| |
| Weighted average shares outstanding, diluted | | 95,213 |
| | 94,139 |
| | 86,982 |
| | 84,655 |
| | 85,736 |
| |
| Basic earnings per share | | | $ | 10.36 |
| | $ | 9.14 |
| | $ | 8.12 |
| | $ | 4.89 |
| | $ | 3.94 |
|
| Diluted earnings per share | | | $ | 9.94 |
| | $ | 8.81 |
| | $ | 7.91 |
| | $ | 4.75 |
| | $ | 3.85 |
|
| Weighted average shares outstanding: | | | | | | | | | | | |
| Basic shares | | | 86,401 |
| | 88,750 |
| | 91,129 |
| | 92,597 |
| | 92,023 |
|
| Diluted shares | | | 90,070 |
| | 92,151 |
| | 93,594 |
| | 95,213 |
| | 94,139 |
|
| | | As of December 31, | | As of December 31, |
| (in thousands) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Consolidated balance sheet data: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 475,018 |
| | $ | 447,152 |
| | $ | 477,069 |
| | $ | 338,105 |
| | $ | 283,649 |
| | $ | 1,271,494 |
| | $ | 1,031,145 |
| | $ | 913,595 |
| | $ | 475,018 |
| | $ | 447,152 |
|
| Restricted cash(1) | | 168,752 |
| | 167,492 |
| | 135,144 |
| | 48,244 |
| | 53,674 |
| |
Restricted cash3 | | | 403,743 |
| | 333,748 |
| | 217,275 |
| | 168,752 |
| | 167,492 |
|
| Total assets | | 9,626,732 |
| | 7,889,806 |
| | 8,524,701 |
| | 3,908,717 |
| | 2,721,870 |
| | 12,248,541 |
| | 11,202,477 |
| | 11,318,359 |
| | 9,626,732 |
| | 7,889,806 |
|
| Total debt | | 3,858,233 |
| | 2,935,000 |
| | 3,593,717 |
| | 1,486,378 |
| | 925,092 |
| | 5,036,785 |
| | 4,819,047 |
| | 4,518,616 |
| | 3,858,233 |
| | 2,935,000 |
|
| Total stockholders’ equity | | 3,084,038 |
| | 2,830,047 |
| | 2,618,562 |
| | 1,223,502 |
| | 913,822 |
| | 3,711,616 |
| | 3,340,180 |
| | 3,676,522 |
| | 3,084,038 |
| | 2,830,047 |
|
(1) Restricted cash represents customer deposits repayable on demand. |
|
1Reflects the impact of the Company's adoption of ASU 2016-02 "Leases", on January 1, 2019, using a modified retrospective transition method. Under this method, financial results reported in periods prior to 2019 are unchanged. |
2 Reflects the impact of the Company's adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606") and related cost capitalization guidance, which was adopted by the Company on January 1, 2018 using the modified retrospective transition method. The adoption of ASC 606 resulted in an adjustment to retained earnings in our consolidated balance sheet for the cumulative effect of applying the standard, which included costs incurred to obtain a contract, as well as presentation changes in our statements of income, including the classification of certain amounts previously classified as merchant commissions and processing expense net with revenues. As a result of the application of the modified retrospective transition method, the Company's prior period results within its Form 10-K and quarterly reports on Form 10-Q will not be restated to reflect ASC 606. |
3 Restricted cash represents customer deposits repayable, as well as collateral received from customers for cross-currency transactions. |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described in Item 1A “Risk Factors” appearing elsewhere in this report. All foreign currency amounts that have been converted into U.S. dollars in this discussion are based on the exchange rate as reported by Oanda for the applicable periods.
The following discussion and analysis of our financial condition and results of operations generally discusses 2019 and 2018 items and year-over-year comparisons between 2019 and 2018. A detailed discussion of 2017 items and year-over-year comparisons between 2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.
General Business
FleetcorFLEETCOR is a leading global business payment solutions company that simplifies the global leaderway businesses manage and pay their expenses. The FLEETCOR portfolio of brands help companies automate, secure, digitize and control payments on behalf of their employees and suppliers. We serve businesses, partners, merchants and consumer and payment networks in workforceNorth America, Latin America, Europe, and Asia Pacific. FLEETCOR’s predecessor company was organized in the United States in 1986, and FLEETCOR had its initial public offering in 2010 (NYSE: FLT).
FLEETCOR has two reportable segments, North America and International. We report these two segments as they reflect how we organize and manage our employees around the world, manage operating performance, contemplate the differing regulatory environments in North America versus other geographies, and help us isolate the impact of foreign exchange fluctuations on our financial results.
Our payment products.solutions provide our customers with a payment method designed to be superior to and more robust and effective than what they use currently, whether they use a competitor’s product or another alternative method such as cash or check. Our solutions are comprised of payment products, networks and associated services. We group our payment solutions into five primary categories: Fuel, Lodging, Tolls, Corporate Payments and Gift. Additionally, we provide other complementary payment products including fleet maintenance, employee benefits and long haul transportation-related services.
Each category is unique in its focus, customer base and target markets, but they also share a number of characteristics: customers are primarily gobusinesses, have recurring revenue models, have specialized networks which create barriers to market with our fuel card payments product solutions, corporate payments products, toll products, lodging cardsentry, have high EBITDA margins, and gift cards.have similar selling systems. Our products are used in 53more than 100 countries around the world, with our primary geographies inbeing the U.S., Brazil and the U.K., which combined accounted for approximately 92%87% of our revenue in 2016. Our core2019.
FLEETCOR’s payment products generally function like a charge card, prepaid card, one-time use virtual card, and electronic RFID (radio-frequency identification), etc. While the actual payment mechanisms vary from category to category, they are primarily soldstructured to businesses, retailers, major oil companiesafford control and marketers and government entities. Our payment programs enable our customersreporting to better manage and control their commercial payments, card programs, and employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. We also provide a suite of fleet related and workforce payment solution products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments. In 2016, we processed approximately 2.2 billion transactions on ourthe end customer.
FLEETCOR uses both proprietary networks and third-party networks (which includes approximately 1.3 billion transactions related to our SVS product, acquired with Comdata). We believe that our sizedeliver its payment solutions. FLEETCOR owns and scale, geographic reach, advanced technology and our expansive suite of products, services, brands andoperates proprietary networks contributewith well-established brands throughout the world, bringing incremental sales and loyalty to affiliated merchants. Third-party networks are used to broaden payment product acceptance and use.
FLEETCOR capitalizes on its products’ specialization with sales and marketing efforts by deploying product-dedicated sales forces to target specific customer segments. We market our leading industry position.
We provide our payment products directly through multiple sales channels, including field sales, telesales and services in a variety of combinations to create customized payment solutions for our customers and partners. We collectively refer to our suite of product offerings as workforce productivity enhancement products for commercial businesses. We sell a range of customized fleet and lodging payment programs directlydigital marketing, and indirectly tothrough our customers through partners, such as major oil companies, leasing companies and petroleum marketers. We refer to thesewhich include major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and other referral partners with whom we have strategic relationships as our “partners.” We provide our customers with various card products that typically function like a charge card to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations.partners.
We supportbelieve that our products with specialized issuing, processingsize and information services that enable usscale, product breadth and specialization, geographic reach, proprietary networks, robust distribution capabilities and advanced technology contribute to manage card accounts, facilitate the routing, authorization, clearing and settlement of transactions, and provide value-added functionality and data, including customizable card-level controls and productivity analysis tools. In order to deliver our payment programs and services and process transactions, we own and operate proprietary “closed-loop” networks through which we electronically connect to merchants and capture, analyze and report customized information in North America and internationally. We also use third-party networks to deliver our payment programs and services in order to broaden our card acceptance and use. To support our payment products, we also provide a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionality and data. Our customers can use this data to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and lower overall workforce and fleet operating costs. Depending on our customers’ and partners’ needs, we provide these services in a variety of outsourced solutions ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to limited back office processing services.industry leading position.
FleetCor’s predecessor company was organized in the United States in 1986. In 2000, our current chief executive officer joined us and we changed our name to FleetCor Technologies, Inc. Since 2000, we have grown significantly through a combination of organic initiatives, product and service innovation and over 70 acquisitions of businesses and commercial account portfolios. Our corporate headquarters are located in Norcross, Georgia. As of December 31, 2016, we employed approximately 7,100 employees, approximately 2,270 of whom are located in the United States.
Executive Overview
We operate in two segments, which we refer to as our North America and International segments. See “Results of Operations” for additional segment information.
Our revenue is generally reported net of the wholesale cost for underlying products and services.services purchased through our payment products. In this report, we refer to this net revenue as “revenue.” “revenue". See “Results of Operations” for additional segment information.
Revenues, net, by Segment. For the years ended December 31, 2016, 20152019 and 2014,2018, our North America and International segments generated the following revenue:revenue (in millions):
| | | | | Year ended December 31, | | Year ended December 31, |
| | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | |
| (in millions) | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| | | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| North America | | $ | 1,279.1 |
| | 69.8 | % | | $ | 1,232.0 |
| | 72.3 | % | | $ | 668.3 |
| | 55.7 | % | | $ | 1,709 |
| | 64.5 | % | | $ | 1,571 |
| | 64.6 | % | |
| International | | 552.4 |
| | 30.2 | % | | 470.9 |
| | 27.7 | % | | 531.1 |
| | 44.3 | % | | 940 |
| | 35.5 | % | | 862 |
| | 35.4 | % | |
| | | $ | 1,831.5 |
| | 100.0 | % | | $ | 1,702.9 |
| | 100.0 | % | | $ | 1,199.4 |
| | 100.0 | % | | $ | 2,649 |
| | 100.0 | % | | $ | 2,433 |
| | 100.0 | % | |
Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are revenues, net, net income and net income per diluted share for the years ended December 31, 2016, 20152019 and 2014.2018 (in millions, except per share amounts). |
| | | | | | | | | |
| | | Year ended December 31, |
| | | 2019 | | 2018 | |
| Revenues, net | | $ | 2,649 |
| | $ | 2,433 |
| |
| Net income | | $ | 895 |
| | $ | 811 |
| |
| Net income per diluted share | | $ | 9.94 |
| | $ | 8.81 |
| |
Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted net income and adjusted net income per diluted share for the years ended December 31, 2019 and 2018 (in millions, except per share amounts).
|
| | | | | | | | | | | | |
| | | Year ended December 31, |
| (in thousands, except per share amounts) | | 2016 | | 2015 | | 2014 |
| Revenues, net | | $ | 1,831,546 |
| | $ | 1,702,865 |
| | $ | 1,199,390 |
|
| Net income | | $ | 452,385 |
| | $ | 362,431 |
| | $ | 368,707 |
|
| Net income per diluted share | | $ | 4.75 |
| | $ | 3.85 |
| | $ | 4.24 |
|
|
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 | |
| Adjusted net income | | $ | 1,062.1 |
| | $ | 969.8 |
| |
| Adjusted net income per diluted share | | $ | 11.79 |
| | $ | 10.53 |
| |
Adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures” for more information and a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis.
Sources of Revenue
Transactions. In bothFLEETCOR offers a variety of business payment solutions that help to simplify, automate, secure, digitize and effectively control the way businesses manage and pay their expenses. We provide our payment solutions to our business, merchant, consumer and payment network customers in more than 100 countries around the world today, although we operate primarily in 3 geographies, with approximately 87% of our segments, we derive revenue from transactions. As illustratedbusiness in the diagram below,U.S., the U.K. and Brazil. Our products help our customers pay their suppliers and manage spend related to their employees more efficiently. We have a transaction is defined as a purchase by a customer.variety of products that help our customers achieve these goals, primarily in five product categories: fuel, corporate payments, toll, lodging and gift. Our customers may include holders of our card productscommercial businesses (obtained through direct and those of ourindirect channels), partners for whom we manage cardpayment programs, members of our proprietary networks who are provided access to our products and services and commercial businesses to whom we provide workforce payment productivity solutions. Revenue from transactions is derived from our merchant and network relationships, as well as individual consumers (for tolls).
Fuel represents approximately 44% of our customers and partners. Through our merchant and network relationships we primarily offerrevenues. Our fuel cards corporate cards, virtual cards, purchasing cards, T&E cards, gift cards, stored value payroll cards, vehicle maintenance, food,and products help businesses monitor and control fuel tollspend across multiple fuel networks, providing online analytical reporting to help customers managing the efficiency of their vehicles and transportation cards and vouchers or lodging services todrivers, while offering potential discounts off of the retail price of fuel. We generate revenue in our customers.
The following diagram illustrates a typical card transaction flow, but may also be applied to our vehicle maintenance, lodging and food, fuel toll and transportation card and voucher products substituting transactions for gallons. This representative model is not applicable to all of our businesses.
Illustrative Transaction Flow
From our customers and partners, we derive revenue fromthrough a variety of program fees, including transaction fees, card fees, network fees and charges, which canas well as from interchange. These fees may be charged as fixed fees, costamounts, costs plus a mark-up, or based on a percentage discount from retail prices.of the transaction purchase
amounts, or a combination thereof. Our programs also include other fees and charges associated with late payments and based on customer credit risk.
FromCorporate payments represents approximately 19% of our merchantrevenues. Our products help streamline B2B payments for vendors and network relationships,employees, both domestically and internationally. Our corporate payments products include virtual card solutions for invoice payments, corporate card programs, a fully-outsourced accounts payable solution, a payroll card solution for employers to distribute wages, as well as a cross-border payments product to facilitate customers making payments across differing currencies. In our corporate payments products, a primarily measure of volume is spend, the dollar amount of payments processed on behalf of customers through our various networks. In corporate payments, we deriveprimarily earn revenue mostly from the difference between the priceamount charged to athe customer for a transaction and the priceamount paid to the merchant orthird party for a given transaction as interchange revenue. Our programs may also charge fixed fees for access to the network and ancillary services provided.
Tolls represents approximately 13% of our revenues. Our toll product is primarily delivered via an RFID sticker affixed to the windshield of a customer vehicle in Brazil. This RFID enables customers to utilize toll roads, toll parking lots, pay for gas at partner stations and pay for drive-through food, via automated access and payment upon scan while remaining in the samevehicle. In our toll product, the relevant measure of volume is average monthly tags active during the period. We primarily earn revenue from fixed fees for access to the network and ancillary services provided. We also earn interchange on certain services provided.
Lodging represents approximately 8% of our revenues. Our lodging products provide customers with a proprietary network of hotels with discounted room rates, centralized billing and robust reporting to help customers manage and control costs. In our lodging products, we define a transaction as a hotel room night purchased by a customer. In our lodging products, we primarily earn revenue from the difference between the amount charged to the customer and the amount paid to the hotel for a given transaction. Our products may also charge fees for access to the network and ancillary services provided.
Gift represents approximately 7% of our revenues. We provide fully integrated gift card product management and processing services via plastic and digital gift cards to our customers. We primarily earn revenue from the processing of gift card transactions sold by our customers to end users, as well as network fees and charges in certain businesses. As illustrated infrom the table below, the price paid to a merchant or network may be calculated as (i) the merchant’s wholesale costsale of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less aplastic cards. Our products may also charge fixed fee per unit.fees for ancillary services provided.
The remaining 8% of revenues represents other products, which include telematics, maintenance, food, and transportation related offerings.
The following table presents an illustrativeprovides revenue model for transactions with the merchant, which is primarily applicable to fuel basedper key performance metric by product transactions, but may also be applied to our vehicle maintenance, lodging and food, fuel, toll and transportation card and voucher products, substituting transactions for gallons. This representative model may not include all of our businesses.
Illustrative Revenue Model for Fuel Purchases
(unit of one gallon)
|
| | | | | | | | | | | | | | | | | | | | | | |
Illustrative Revenue Model | | | | Merchant Payment Methods |
| Retail Price | | $ | 3.00 |
| | i) Cost Plus Mark-up: | | ii) Percentage Discount: | | iii) Fixed Fee: |
| Wholesale Cost | | (2.86 | ) | | Wholesale Cost | | $ | 2.86 |
| | Retail Price | | $ | 3.00 |
| | Retail Price | | $ | 3.00 |
|
| | | | | Mark-up | | 0.05 |
| | Discount (3%) | | (0.09 | ) | | Fixed Fee | | (0.09 | ) |
| FleetCor Revenue | | $ | 0.14 |
| | | | | | | | | | | | |
| Merchant Commission | | $ | (0.05 | ) | | Price Paid to Merchant | | $ | 2.91 |
| | Price Paid to Merchant | | $ | 2.91 |
| | Price Paid to Merchant | | $ | 2.91 |
|
| Price Paid to Merchant | | $ | 2.91 |
| | | | | | | | | | | | |
Revenues by geography, product and source. Set forth below are further breakdowns of revenue by geography, product and sourcecategory for the years ended December 31, 20162019 and 2015 (in millions):
|
| | | | | | | | | | | | | | | |
| |
| Year Ended December 31, |
| |
| 2016 |
| 2015 | |
| Revenue by Geography* | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| United States |
| $ | 1,279 |
| | 70 | % | | $ | 1,232 |
| | 72 | % | |
| United Kingdom |
| 229 |
| | 13 |
| | 248 |
| | 15 |
| |
| Brazil |
| 168 |
| | 9 |
| | 85 |
| | 5 |
| |
| Other |
| 156 |
| | 8 |
| | 138 |
| | 8 |
| |
| Consolidated revenues, net |
| $ | 1,832 |
| | 100 | % | | $ | 1,703 |
| | 100 | % | |
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | |
| Revenue by Product Category* | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| Fuel cards | | $ | 1,124 |
| | 61 | % | | $ | 1,116 |
| | 66 | % | |
| Gift | | 185 |
| | 10 |
| | 170 |
| | 10 |
| |
| Corporate payments | | 180 |
| | 10 |
| | 162 |
| | 10 |
| |
| Tolls | | 103 |
| | 6 |
| | 9 |
| | 1 |
| |
| Lodging | | 101 |
| | 5 |
| | 92 |
| | 5 |
| |
| Other | | 140 |
| | 8 |
| | 154 |
| | 9 |
| |
| Consolidated revenues, net | | $ | 1,832 |
| | 100.0 | % | | $ | 1,703 |
| | 100.0 | % | |
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | |
| Major Sources of Revenue* | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| Customer | | | | | | | | | |
| Processing and program fees | | $ | 904 |
| | 49 | % | | $ | 776 |
| | 46 | % | |
| Late fees and finance charges | | 113 |
| | 6 |
| | 110 |
| | 6 |
| |
| Other | | 30 |
| | 2 |
| | 28 |
| | 2 |
| |
| | | $ | 1,047 |
| | 57 |
| | $ | 914 |
| | 54 |
| |
| Merchant | | | | | | | | | |
Interchange (Fuel)1 | | 278 |
| | 15 |
| | 294 |
| | 17 |
| |
Interchange (Nonfuel)2 | | 173 |
| | 9 |
| | 162 |
| | 10 |
| |
| Tied to fuel-price spreads | | 200 |
| | 11 |
| | 211 |
| | 12 |
| |
| Program fees | | 133 |
| | 7 |
| | 123 |
| | 7 |
| |
| | | 784 |
| | 43 |
| | 789 |
| | 46 |
| |
| Consolidated revenues, net | | $ | 1,832 |
| | 100 | % | | $ | 1,703 |
| | 100 | % | |
1Interchange revenue directly influenced by the absolute price of fuel and other interchange primarily related to fuel products.
2Interchange revenue primarily related to nonfuel products.
*Columns may not calculate due to impact of rounding.
Revenue per transaction. Set forth below is revenue per transaction information for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | |
| |
| Year ended December 31, |
| |
| 2016 |
| 2015 |
| 2014 |
| Transactions (in millions) |
|
|
|
|
|
|
| North America |
| 1,718.7 |
|
| 1,667.5 |
|
| 459.9 |
|
| International |
| 507.8 |
|
| 183.9 |
|
| 192.5 |
|
| Total transactions |
| 2,226.5 |
|
| 1,851.4 |
|
| 652.4 |
|
| Revenue per transaction |
|
|
|
|
|
|
| North America |
| $ | 0.74 |
|
| $ | 0.74 |
|
| $ | 1.45 |
|
| International |
| 1.09 |
|
| 2.56 |
|
| 2.76 |
|
| Consolidated revenue per transaction |
| 0.82 |
|
| 0.92 |
|
| 1.84 |
|
Consolidated adjusted revenue per transaction3 |
| 0.78 |
|
| 0.86 |
|
| 1.69 |
|
3 Adjusted revenues is a non-GAAP financial measure defined as revenues, net less merchant commissions. We believe this measure is a more effective way to evaluate our revenue performance. We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants to participate in our card programs. Adjusted revenues is a supplemental non-GAAP financial measure of operating performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."
From 2015 to 2016, total transactions increased from 1.9 billion to 2.2 billion, an increase of 375.1 million or 20.3%. North American segment transactions increased approximately 3% in 2016 as compared to 2015 due primarily to growth in our PacPride, MasterCard and corporate payments businesses. Transaction volumes in our international segment increased by approximately 176% over 2015, primarily due to the acquisition of STP and Travelcard during the third quarter of 2016, the addition of new Shell fuel card markets in 2015 and 2016 and additional transactions from a small acquisition in Brazil in the first quarter of 2016.
From 2014 to 2015, total transactions increased from 652.4 million to 1.9 billion, an increase of 1.2 billion, or 183.8%. We experienced an increase in transactions in our North America segment primarily due to our acquisition of Comdata in November 2014, of which 1.3 billion and 270 million transactions are attributable to SVS for 2015 and 2014, respectively, as well as from organic growth in our U.S. businesses. Transaction volumes in our international segment decreased slightly by 4.5% primarily due to market softness in some of our international businesses.
Set forth below is further breakdown of revenue per transaction by product information for the years ended December 31, 2016 and 20152018 (in millions except
revenues, net per
transaction data):transaction).* |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As Reported | | Pro Forma and Macro Adjusted |
| | | Year Ended December 31, | | Year Ended December 31, |
| | | 2019 | | 2018 | | Change | | % Change | | 2019 | | 2018 | | Change | | % Change |
FUEL | | | | | | | | | | | | | | | | |
'- Revenues, net1 | | $ | 1,173 |
|
| $ | 1,126 |
| | $ | 47 |
| | 4 | % | | $ | 1,180 |
|
| $ | 1,079 |
| | $ | 100 |
| | 9 | % |
'- Transactions1 | | 502 |
| | 512 |
| | (10 | ) | | (2 | )% | | 499 |
| | 494 |
| | 6 |
| | 1 | % |
'- Revenues, net per transaction | | $ | 2.33 |
| | $ | 2.19 |
| | $ | 0.14 |
| | 6 | % | | $ | 2.36 |
| | $ | 2.19 |
| | $ | 0.17 |
| | 8 | % |
| CORPORATE PAYMENTS | | | | | | | | | | | | | | | | |
'- Revenues, net | | $ | 516 |
| | $ | 416 |
| | $ | 100 |
| | 24 | % | | $ | 521 |
| | $ | 433 |
| | $ | 88 |
| | 20 | % |
'- Transactions | | 56 |
| | 49 |
| | 6 |
| | 13 | % | | 56 |
| | 50 |
| | 6 |
| | 12 | % |
'- Revenues, net per transaction | | $ | 9.25 |
| | $ | 8.42 |
| | $ | 0.83 |
| | 10 | % | | $ | 9.33 |
| | $ | 8.68 |
| | $ | 0.65 |
| | 7 | % |
'- Spend volume | | $ | 73,437 |
| | $ | 55,744 |
| | $ | 17,693 |
| | 32 | % | | $ | 74,366 |
| | $ | 56,736 |
| | $ | 17,630 |
| | 31 | % |
'- Revenues, net per spend $ | | 1 | % | | 1 | % | | — | % | | — | % | | 1 | % | | 1 | % | | (0.1 | )% | | (8 | )% |
| TOLLS | | | | | | | | | | | | | | | | |
'- Revenues, net1 | | $ | 357 |
| | $ | 333 |
| | $ | 25 |
| | 7 | % | | $ | 387 |
| | $ | 333 |
| | $ | 55 |
| | 16 | % |
| - Tags (average monthly) | | 5.1 |
| | 4.7 |
| | 0.4 |
| | 8 | % | | 5.1 |
| | 4.7 |
| | 0.4 |
| | 8 | % |
'- Revenues, net per tag** | | $ | 17.55 |
| | $ | 17.59 |
| | $ | (0.04 | ) | | — | % | | $ | 19.04 |
| | $ | 17.59 |
| | $ | 1.45 |
| | 8 | % |
| LODGING | | | | | | | | | | | | | | | | |
'- Revenues, net | | $ | 213 |
| | $ | 176 |
| | $ | 37 |
| | 21 | % | | $ | 213 |
| | $ | 189 |
| | $ | 24 |
| | 13 | % |
'- Room nights | | 19 |
| | 19 |
| | — |
| | — | % | | 19 |
| | 21 |
| | (2 | ) | | (11 | )% |
'- Revenues, net per room night | | $ | 11.15 |
| | $ | 9.14 |
| | $ | 2.01 |
| | 22 | % | | $ | 11.15 |
| | $ | 8.80 |
| | $ | 2.35 |
| | 27 | % |
| GIFT | | | | | | | | | | | | | | | | |
'- Revenues, net | | $ | 180 |
| | $ | 187 |
| | $ | (6 | ) | | (3 | )% | | $ | 180 |
| | $ | 193 |
| | $ | (13 | ) | | (7 | )% |
'- Transactions | | 1,274 |
| | 1,384 |
| | (110 | ) | | (8 | )% | | 1,274 |
| | 1,385 |
| | (111 | ) | | (8 | )% |
'- Revenues, net per transaction | | $ | 0.14 |
| | $ | 0.13 |
| | $ | 0.01 |
| | 7 | % | | $ | 0.14 |
| | $ | 0.14 |
| | $ | — |
| | — | % |
OTHER2 | | | | | | | | | | | | | | | | |
'- Revenues, net1 | | $ | 210 |
| | $ | 197 |
| | $ | 12 |
| | 6 | % | | $ | 219 |
| | $ | 201 |
| | $ | 19 |
| | 9 | % |
'- Transactions1 | | 56 |
| | 50 |
| | 6 |
| | 13 | % | | 56 |
| | 55 |
| | 1 |
| | 2 | % |
'- Revenues, net per transaction | | $ | 3.75 |
| | $ | 3.99 |
| | $ | (0.24 | ) | | (6 | )% | | $ | 3.92 |
| | $ | 3.66 |
| | $ | 0.26 |
| | 7 | % |
| FLEETCOR CONSOLIDATED REVENUES | | | | | | | | | | | | | | | | |
'- Revenues, net | | $ | 2,649 |
| | $ | 2,434 |
| | $ | 215 |
| | 9 | % | | $ | 2,700 |
| | $ | 2,428 |
| | $ | 272 |
| | 11 | % |
|
|
1 Reflects certain reclassifications of revenue in 2018 between product categories as the Company realigned its Brazil business into product lines, resulting in refinement of revenue classified as fuel versus tolls and the eCash/OnRoad product being fuel versus other. |
2 Other includes telematics, maintenance, food, and transportation related businesses. |
| * Columns may not calculate due to rounding. |
| **Represents revenues, net per quarter, per average monthly tag. |
|
| | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | |
| Fuel Cards | | | | | |
| Transactions | | 502.5 |
| | 473.0 |
| |
| Revenues, net per transaction | | $ | 2.24 |
| | $ | 2.36 |
| |
| Revenues, net | | $ | 1,124.2 |
| | $ | 1,115.6 |
| |
| | | | | | |
| Gift | | | | | |
| Transactions | | 1,327.4 |
| | 1,300.4 |
| |
| Revenues, net per transaction | | $ | 0.14 |
| | $ | 0.13 |
| |
| Revenues, net | | $ | 184.7 |
| | $ | 170.1 |
| |
| | | | | | |
| Corporate Payments | | | | | |
| Transactions | | 38.7 |
| | 31.9 |
| |
| Revenues, net per transaction | | $ | 4.64 |
| | $ | 5.09 |
| |
| Revenues, net | | $ | 179.6 |
| | $ | 162.3 |
| |
| | | | | | |
| Tolls | | | | | |
| Transactions | | 326.7 |
| | 12.4 |
| |
| Revenues, net per transaction | | $ | 0.31 |
| | $ | 0.75 |
| |
| Revenues, net | | $ | 102.7 |
| | $ | 9.3 |
| |
| | | | | | |
| Lodging | | | | | |
| Transactions | | 13.3 |
| | 13.7 |
| |
| Revenues, net per transaction | | $ | 7.58 |
| | $ | 6.70 |
| |
| Revenues, net | | $ | 100.7 |
| | $ | 91.8 |
| |
| | | | | | |
Other4 | | | | | |
| Transactions | | 18.0 |
| | 20.0 |
| |
| Revenues, net per transaction | | $ | 7.76 |
| | $ | 7.70 |
| |
| Revenues, net | | $ | 139.6 |
| | $ | 153.8 |
| |
4Other includes telematics, maintenance and transportation benefits related businesses.
Revenue per relevant key performance indicator ("KPI"), which may include transaction, spend volume, monthly tags, room nights, etc...) is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates.rates, fuel prices and fuel spread margins. Revenue per transactionKPI per customer changesmay change as the level of services we provide to a customer increases or decreases, as macroeconomic factors change and as adjustments are made to merchant and customer rates. See “Results of Operations” for further discussion of transaction volumes and revenue per transaction.
Sources of Expenses
We incur expenses in the following categories:
| |
| • | Merchant commissions—In certain of our card programs, we incur merchant commissions expense when we pay merchants with whom we have direct, contractual relationships for specific transactions where a customer purchases products or services from the merchant. In the card programs where it is paid, merchant commissions equal the |
Merchant commissions—In certain of our card programs, we incur merchant commissions expense when we reimburse merchants with whom we have direct, contractual relationships for specific transactions where a customer purchases products or services from the merchant. In the card programs where it is paid, merchant commissions equal the difference between the price paid by us to the merchant and the merchant’s wholesale cost of the underlying products or services.
Processing—Our processing expense consists The adoption of expenses related to processing transactions, servicing our customers and merchants, bad debt expense and cost of goods sold related to our hardware salesASC 606 on January 1, 2018, resulted in certain businesses.
Selling—Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities.
General and administrative—Our general and administrative expenses include compensation and related expenses (including stock-based compensation) for our executive, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses.
Depreciation and amortization—Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable.
Other operating, net—Our other operating, net includes other operating expenses and income items unusual to the period and presented separately.
Equity method investment loss—Our equity method investment loss relates to our minority interest in Masternaut Group Holdings Limited (“Masternaut”), a provider of telematics solutions to commercial fleets in Europe, which we account for using the equity method.
Other expense (income), net—Other expense (income), net includes foreign currency transaction gains or losses, proceeds/costs from the sale of assets and other miscellaneous operating costs and revenue.
Interest expense, net—Interest expense, net includes interest income on our cash balances and interest expense on our outstanding debt and on our Securitization Facility. We have historically invested our cash primarily in short-term money market funds.
Loss on early extinguishment of debt—Loss on early extinguishment of debt relates to our write-off of debt issuance costs associated with the refinancing of our Existing Credit Facility and entry into our New Credit Agreement, along with our recent acquisition of Comdata.
Provision for income taxes—The provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and serviceschange in the United States and internationally. Our worldwide effective tax rate is lower than the U.S. statutory ratepresentation of 35%, due primarily to lower ratesamounts previously classified as merchant commissions, resulting in foreign jurisdictions and foreign-sourced non-taxable income.
Adjusted Revenues, Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted revenues, adjusted net income and adjusted net income per diluted share for the years ended December 31, 2016, 2015 and 2014.
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | | 2014 |
| (in thousands except per share amounts) | | | | | | |
| Adjusted revenues | | $ | 1,727,201 |
| | $ | 1,594,608 |
| | $ | 1,103,136 |
|
| Adjusted net income | | $ | 659,176 |
| | $ | 592,625 |
| | $ | 447,670 |
|
| Adjusted net income per diluted share | | $ | 6.92 |
| | $ | 6.30 |
| | $ | 5.15 |
|
We use adjusted revenues as a basis to evaluate ourthese amounts being recorded within revenues, net of the commissions that are paid to merchants that participate in certain of our card programs. The commissions paid to merchants can vary when market spreads fluctuateperiods beginning in much the same way as revenues are impacted when market spreads fluctuate. Thus, we believe this is a more effective way to evaluate our revenue performance on a consistent basis. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. Adjusted revenues, adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”2018.
| |
| • | Processing—Our processing expense consists of expenses related to processing transactions, servicing our customers and merchants, bad debt expense and cost of goods sold related to our hardware sales in certain businesses. Effective with the adoption of ASC 606 on January 1, 2018, certain third party processing expenses are netted with consolidated revenues, where the network is considered to be our customer. |
| |
| • | Selling—Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities. |
| |
| • | General and administrative—Our general and administrative expenses include compensation and related expenses (including stock-based compensation) for our executives, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses. |
| |
| • | Depreciation and amortization—Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks, software and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable. |
| |
| • | Other operating expense, net—Our other operating, net includes other operating expenses and income items that do not relate to our core operations or that occur infrequently. |
| |
| • | Investment loss, net—Our investment results primarily relate to impairment charges related to our investments and unrealized gains and losses related to a minority investment in a marketable security. |
| |
| • | Other expense (income), net—Our other expense (income), net includes proceeds/costs from the sale of assets, foreign currency transaction gains or losses and other miscellaneous operating costs and revenue. |
| |
| • | Interest expense, net—Our interest expense, net includes interest expense on our outstanding debt, interest income on our cash balances and interest on our interest rate swaps. |
| |
| • | Provision for income taxes—Our provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services on a global basis. |
Factors and Trends Impacting our Business
We believe that the following factors and trends are important in understanding our financial performance:
| |
| • | Global economic conditions—Our results of operations are materially affected by conditions in the economy generally, both in North America and internationally. Factors affected by the economy include our transaction volumes, the credit risk of our customers and changes in tax laws across the globe. These factors affected our businesses in both our North America and International segments. |
| |
| • | Foreign currency changes—Our results of operations are significantly impacted by changes in foreign currency rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro, Mexican peso, New Zealand dollar and Russian ruble, relative to the U.S. dollar. Approximately 60%, and 61% of our revenue in 2019 and 2018, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. See “Results of Operations” for information related to foreign currency impact on our total revenue, net. |
| |
| • | Fuel prices—Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customer’s total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. We believe approximately 13% and 14% of revenues, net were directly impacted by changes in fuel price in 2019 and 2018, respectively. |
Fuel prices—Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customer’s total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. See “Sources of Revenue” above for further information related to the absolute price of fuel.
Fuel-price spread volatility—A portion of our revenue involves transactions where we derive revenue from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant’s wholesale cost of fuel. See “Sources of Revenue” above for further information related to fuel-price spreads.
Acquisitions—Since 2002, we have completed over 70 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods.
Interest rates—Our results of operations are affected by interest rates. We are exposed to market risk changes in interest rates on our cash investments and debt.
Global economic conditions—Our results of operations are materially affected by conditions in the economy generally, both in North America and internationally. Factors affected by the economy include our transaction volumes and the credit risk of our customers. These factors affected our businesses in both our North America and International segments.
Foreign currency changes—Our results of operations are significantly impacted by changes in foreign currency rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro, Mexican peso, New Zealand dollar and Russian ruble, relative to the U.S. dollar. Approximately 70%, 72% and 56% of our revenue in 2016, 2015 and 2014, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. See “Results of Operations” for information related to foreign currency impact on our total revenue, net.
Expenses— Over the long term, we expect that our general and administrative expense will decrease as a percentage of revenue as our revenue increases. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force.
| |
| • | Fuel-price spread volatility—A portion of our revenue involves transactions where we derive revenue from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant’s wholesale cost of fuel. The inverse of these situations produces fuel-price spread expansion. We believe approximately 5% of revenues, net were directly impacted by fuel-price spreads in each of 2019 and 2018, respectively. |
| |
| • | Acquisitions—Since 2002, we have completed over 80 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods. |
| |
| • | Interest rates—Our results of operations are affected by interest rates. We are exposed to market risk to changes in interest rates on our cash investments and debt. On January 22, 2019, we entered into three interest rate swap cash flow contracts (the "swap contracts"). The objective of these swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. For each of these swap contracts, we will pay a fixed monthly rate and receive one month LIBOR. |
| |
| • | Expenses— Over the long term, we expect that our general and administrative expense will decrease as a percentage of revenue as our revenue increases. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force. |
| |
| • | Taxes— We pay taxes in various taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are different than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. |
Acquisitions and Investments
During 2016, we2019, the Company completed acquisitions with an aggregate purchase price of $1.3 billion, netapproximately $416 million.
On April 1, 2019, we completed the acquisition of cash acquiredNvoicePay, a provider of $51.3 million, which includes deferred payments made duringfull accounts payable automation for business in the period related to prior acquisitions of $6.1 million.
In August 2016, we acquired all of the outstanding stock of STP for approximately $1.23 billion, net of cash acquired of $40.2 million. STP is an electronic toll payments company in Brazil and also provides cardless fuel payments at a number of Shell sites throughout Brazil.U.S. The purposeaggregate purchase price of this acquisition was to expand our presenceapproximately $208 million, net of cash acquired.
On April 1, 2019, we completed the acquisition of r2c, a fleet maintenance, compliance and workshop management software provider in the toll marketU.K.
On July 8, 2019, we completed the acquisition of SOLE Financial, a payroll card provider in the Brazil. We financedU.S.
On October 1, 2019, we completed the acquisition using a combination of existing cash and borrowings under our existing credit facility.
During 2016, we acquired additional fuel card portfoliosTravelliance, an airline lodging provider in the U.S. and the United Kingdom, additional Shell fuel card markets in Europe and Travelcard in the Netherlands totalingThe aggregate purchase price of this acquisition was approximately $76.7$110 million, net of cash acquired.
During 2018, we completed an acquisition with an aggregate purchase price of $21.2 million, net of cash acquired of $11.1 million.
During 2016, we$11.0 million and made additional investmentsdeferred payments of $7.9$3.8 million related to acquisitions occurring in prior years. During 2018, we made investments in other businesses of $17.0 million and payments on a seller note of $1.6 million.
We report our equity method investment at Masternaut. We also received a $9.2 million return ofresults from our investmentU.S. acquisitions in Masternaut.
The results of operations from the fuel card portfolio acquired2019 in the U.S. are included within our North AmericaAmerican segment from the datedates of acquisition. TheWe report our results of operations of STP, the fuel card portfoliofrom our U.K. acquisition in the United Kingdom, the additional Shell markets, the Travelcard business2019 in the Netherlands and the small business in Brazil are included within our International segment from the date of acquisition.
During 2015, we completed acquisitions of Shell portfolios related to We report our fuel card businessesresults from our Canadian acquisition in Europe, as well as a small acquisition internationally, with an aggregate purchase price of $46.3 million, each included within our International segment from the date of acquisition, and made additional investments of $8.4 million related to our equity method investment at Masternaut and deferred payments of $3.4 million related to acquisitions occurring2018 in prior years.
During 2014, we completed acquisitions with an aggregate purchase price of $3.67 billion, net of cash acquired of $165.8 million.
In April 2014, we completed an equity method investment in Masternaut, Europe’s largest provider of telematics solutions to commercial fleets. We own 44% of the outstanding equity of Masternaut. This investment is included in “Equity method investment” in our consolidated balance sheets.
In July 2014, we also acquired PacPride, a U.S. fuel card business, and in August 2014, we acquired a fuel card business from Shell in Germany (“Shell Germany”). The purpose of these acquisitions was to strengthen our presence in the U.S. marketplace and establish our presence in the German fuel card market, respectively.
In November 2014, we acquired Comdata Inc. (“Comdata”) for $3.4 billion. Comdata is a leading business-to-business provider of innovative electronic payment solutions. As an issuer and a processor, Comdata provides fleet, virtual card and gift card solutions to over 20,000 customers. Comdata has approximately 1,300 employees and enables over $54 billion in payments annually. This acquisition complemented the Company’s current fuel card business in the U.S. and added a new product with the virtual payments business. FleetCor financed the acquisition with approximately $2.4 billion of new debt and the issuance of 7.6 million shares of FleetCor common stock, including amounts applied at the closing to the repayment of Comdata’s debt.
The results of operations of the Shell Germany business are included within our International segment, from the date of acquisition. The results of operations from PacPride and Comdata are included within our North America segment from the date of acquisition.
Disposition
As part of the Company's plans to exit the telematics business, we sold our investment in Masternaut to Michelin Group during the second quarter of 2019. We impaired our investment in Masternaut by an additional $15.6 million during 2019, resulting in no gain or loss when the investment was sold. We recorded cumulative impairment losses associated with our former investment in Masternaut of $136.3 million.
Results of Operations
Year ended December 31, 20162019 compared to the year ended December 31, 20152018
The following table sets forth selected consolidated statement of income and selected operational data for the years ended December 31, 20162019 and 20152018 (in millions, except percentages)*.
| | | | | Year ended December 31, 2016 | | % of total revenue | | Year ended December 31, 2015 | | % of total revenue | | Increase (decrease) | | % Change | | Year ended December 31, 2019 | | % of total revenue | | Year ended
December 31,
20181 | | % of total revenue | | Increase (decrease) | | % Change |
| Revenues, net: | | | | | | | | | | | | |
| North America | | $ | 1,279.1 |
| | 69.8 | % | | $ | 1,232.0 |
| | 72.3 | % | | $ | 47.1 |
| | 3.8 | % | | $ | 1,708.5 |
| | 64.5 | % | | $ | 1,571.5 |
| | 64.6 | % | | $ | 137.1 |
| | 8.7 | % |
| International | | 552.4 |
| | 30.2 | % | | 470.9 |
| | 27.7 | % | | 81.5 |
| | 17.3 | % | | 940.3 |
| | 35.5 | % | | 862.0 |
| | 35.4 | % | | 78.3 |
| | 9.1 | % |
| Total revenues, net | | 1,831.5 |
| | 100.0 | % | | 1,702.9 |
| | 100.0 | % | | 128.7 |
| | 7.6 | % | | 2,648.8 |
| | 100.0 | % | | 2,433.5 |
| | 100.0 | % | | 215.4 |
| | 8.8 | % |
| Consolidated operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Merchant commissions | | 104.3 |
| | 5.7 | % | | 108.3 |
| | 6.4 | % | | (3.9 | ) | | (3.6 | )% | |
| Processing | | 355.4 |
| | 19.4 | % | | 331.1 |
| | 19.4 | % | | 24.3 |
| | 7.4 | % | | 530.7 |
| | 20.0 | % | | 487.7 |
| | 20.0 | % | | 43.0 |
| | 8.8 | % |
| Selling | | 131.4 |
| | 7.2 | % | | 109.1 |
| | 6.4 | % | | 22.4 |
| | 20.5 | % | | 204.8 |
| | 7.7 | % | | 182.6 |
| | 7.5 | % | | 22.2 |
| | 12.2 | % |
| General and administrative | | 283.6 |
| | 15.5 | % | | 297.7 |
| | 17.5 | % | | (14.1 | ) | | (4.7 | )% | | 407.2 |
| | 15.4 | % | | 389.2 |
| | 16.0 | % | | 18.0 |
| | 4.6 | % |
| Depreciation and amortization | | 203.3 |
| | 11.1 | % | | 193.5 |
| | 11.4 | % | | 9.8 |
| | 5.1 | % | | 274.2 |
| | 10.4 | % | | 274.6 |
| | 11.3 | % | | (0.4 | ) | | (0.1 | )% |
| Other operating, net | | (0.7 | ) | | — | % | | (4.2 | ) | | 0.2 | % | | (3.6 | ) | | (83.7 | )% | |
| Other operating expense, net | | | 0.5 |
| | — | % | | 8.7 |
| | (0.4 | )% | | (8.2 | ) | | (94.0 | )% |
| Operating income | | 754.2 |
| | 41.2 | % | | 667.5 |
| | 39.2 | % | | 86.6 |
| | 13.0 | % | | 1,231.4 |
| | 46.5 | % | | 1,090.7 |
| | 44.8 | % | | 140.7 |
| | 12.9 | % |
| Equity method investment loss | | 36.4 |
| | 2.0 | % | | 57.7 |
| | 3.4 | % | | (21.3 | ) | | (37.0 | )% | |
| Investment loss, net | | | 3.5 |
| | 0.1 | % | | 7.1 |
| | 0.3 | % | | (3.7 | ) | | (51.4 | )% |
| Other expense (income), net | | 3.0 |
| | 0.2 | % | | 2.5 |
| | 0.1 | % | | 0.5 |
| | 18.2 | % | | 0.1 |
| | — | % | | (152.2 | ) | | (6.3 | )% | | (152.3 | ) | | (100.1 | )% |
| Interest expense, net | | 71.9 |
| | 3.9 | % | | 71.3 |
| | 4.2 | % | | 0.6 |
| | 0.8 | % | | 150.0 |
| | 5.7 | % | | 138.5 |
| | 5.7 | % | | 11.6 |
| | 8.3 | % |
| Loss on extinguishment of debt | | | — |
| | — | % | | 2.1 |
| | 0.1 | % | | (2.1 | ) | | (100.0 | )% |
| Provision for income taxes | | 190.5 |
| | 10.4 | % | | 173.6 |
| | 10.2 | % | | 17.0 |
| | 9.8 | % | | 182.7 |
| | 6.9 | % | | 283.6 |
| | 11.7 | % | | (100.9 | ) | | (35.6 | )% |
| Net income | | $ | 452.4 |
| | 24.7 | % | | $ | 362.4 |
| | 21.3 | % | | $ | 90.0 |
| | 24.8 | % | | $ | 895.1 |
| | 33.8 | % | | $ | 811.5 |
| | 33.3 | % | | $ | 83.6 |
| | 10.3 | % |
| Operating income for segments: | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | $ | 506.4 |
| | | | $ | 442.0 |
| | | | $ | 64.4 |
| | 14.6 | % | | $ | 755.9 |
| | | | $ | 673.9 |
| | | | $ | 82.0 |
| | 12.2 | % |
| International | | 247.7 |
| | | | 225.5 |
| | | | 22.3 |
| | 9.9 | % | | 475.6 |
| | | | 416.8 |
| | | | 58.7 |
| | 14.1 | % |
| Operating income | | $ | 754.2 |
| | | | $ | 667.5 |
| | | | $ | 86.6 |
| | 13.0 | % | | $ | 1,231.4 |
| | | | $ | 1,090.7 |
| | | | $ | 140.7 |
| | 12.9 | % |
| Operating margin for segments: | |
| | | |
| | | |
| |
| |
| | | |
| | | |
| |
|
| North America | | 39.6 | % | | | | 35.9 | % | | | | 3.7 | % | |
| | 44.2 | % | | | | 42.9 | % | | | | 1.4 | % | |
|
| International | | 44.8 | % | | | | 47.9 | % | | | | (3.0 | )% | |
| | 50.6 | % | | | | 48.4 | % | | | | 2.2 | % | |
|
| Total | | 41.2 | % | | | | 39.2 | % | | | | 2.0 | % | |
| | 46.5 | % | | | | 44.8 | % | | | | 1.7 | % | |
|
*The sum of the columns and rows may not calculate due to rounding.
Revenues and revenue per transaction
Our consolidated revenuetotal revenues, net increased from $1,702.9$2,433.5 million in 20152018 to $1,831.5$2,648.8 million in 2016,2019, an increase of $128.7$215.4 million, or 7.6%8.8%. The increase in our consolidated revenue was primarily due to:
The impact of acquisitions completed in 2016, which contributed approximately $87 million in additional revenue.
Organic growth in certain of our payment programsapproximately 11% on a constant fuel price, fuel spread margin, foreign currency and pro forma basis, driven primarily by increases in both volume and revenue per transaction.transaction in certain of our payment programs.
Partially offsetting this growth was the negativeThe impact of the macroeconomic environment. acquisitions completed during 2019 contributed approximately $40 million in additional revenue.
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for 20162019 over the comparable period in 20152018 of approximately $109$59 million. We believe the impact of lower fuel prices, primarily in the U.S., and lower fuel spread margins, had an unfavorable impact on consolidated revenues of approximately $66 million. Additionally, changes in foreignForeign exchange rates had an unfavorable impact on consolidated revenues of approximately $43$61 million due to unfavorable fluctuations in foreign exchange rates primarily in most geographies in 2016 compared to 2015.
Consolidated revenue per transaction decreased from $0.92 in 2015 to $0.82 in 2016, a decreaseBrazil and the U.K. and lower fuel prices of $0.10, or 10.6%. This decrease was due primarily to the unfavorable impact of the macroeconomic environment, the mix impact of acquisitions (STP, Travelcard and a small acquisition in Brazil), which have a much lower revenue per transaction than the historical average,$4 million, partially offset by organic growth. Excluding these items, revenue per transaction increased approximately 5% to $0.97 in 2016 compared to $0.92 in 2015.
Revenue per transaction can vary based on the geography, the relevant merchant and customer relationship, the payment product utilized, and the types of products or services purchased. The revenue mix was influenced by our acquisitions, organic growth in the business, and fluctuations in the macroeconomic environment, including fuel prices,favorable fuel spread margins and foreign exchange rates.of approximately $6 million.
The increases were partially offset by a net decrease to consolidated revenues of approximately $33 million due to the disposition of the Chevron fuel portfolio during the fourth quarter of 2018.
North America segment revenues and revenue per transaction
revenues. North America revenues, net increased from $1,232.0$1,571.5 million in 20152018 to $1,279.1$1,708.5 million in 2016,2019, an increase of $47.1$137.1 million, or 3.8%8.7%. The increase in our North America segment revenue was primarily due to:
Organic growth in certain of our payment programsapproximately 9%, on a constant fuel price, fuel spread margin and pro forma basis, driven by increases in both volume and revenue per transaction.transaction in certain of our payment programs.
Partially offsetting the organic growth was the negativeThe impact of macroeconomic environment. our acquisitions during 2019 contributed approximately $37 million in additional revenue.
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our North America segment revenue in 20162019 over the comparable period in 20152018 of approximately $65$5 million, primarily due to the impact of lower fuel prices of approximately $7 million and lowerthe unfavorable impact of foreign exchange rates in Canada of $4 million, partially offset by the favorable impact of higher fuel spread margins.margins of approximately $6 million.
North America segment revenue per transaction was $0.74 in 2015 and $0.74 in 2016. Revenue per transaction in our North America segment for 2016, excludingThe increases were partially offset by a net decrease to consolidated revenues of approximately $33 million due to the negative impactdisposition of the macroeconomic environmentChevron fuel portfolio during the fourth quarter of approximately $65 million, increased approximately 6% to $0.78 in 2016 compared to $0.74 in 2015.2018.
International segment revenue
revenues. International segment revenues, net increased from $470.9$862.0 million in 20152018 to $552.4$940.3 million in 2016,2019, an increase of $81.5$78.3 million, or 17.3%9.1%. The increase in our International segment revenue was primarily due to:
The impact of acquisitions during 2016, which contributed approximately $87 million in additional revenue.
Organic growth in certain of our payment programsapproximately 15% on a constant macroeconomic and pro forma basis, driven by increases in both volume and revenue per transaction.transaction in certain of our payment programs.
Partially offsetting this growth was the negativeThe impact of the macroeconomic environment. an acquisition in 2019 contributed approximately $3 million in additional revenue.
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for 20162019 over the comparable period in 20152018 of approximately $44 million, primarily due to unfavorable fluctuations$54 million. Changes in foreign exchange rates in most geographies where we do business and slightly lower fuel prices.
International segment revenue per transaction decreased from $2.56 in 2015 to $1.09 in 2016, a decrease of $1.47 per transaction, or 57.5%. This decrease was due primarily to thehad an unfavorable impact on consolidated revenues of foreign exchange rates across most geographies and the mix impact of acquisitions (STP, Travelcard and a small acquisition in Brazil), which have a much lower revenue per transaction than the historical average,approximately $57 million, partially offset by organic growth. Excluding these items, our Internationalthe favorable impact of changes in fuel prices of approximately $3 million.
Revenues by geography and product category. Set forth below are further breakdowns of revenue per transaction increased approximately 4%by geography and product category for the years ended December 31, 2019 and 2018 (in millions).
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Unaudited) | | 2019 | | 2018 | |
| Revenue by Geography* | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| United States | | $ | 1,595 |
| | 60 | % | | $ | 1,482 |
| | 61 | % | |
| Brazil | | 428 |
| | 16 | % | | 400 |
| | 18 | % | |
| United Kingdom | | 275 |
| | 10 | % | | 258 |
| | 11 | % | |
| Other | | 350 |
| | 13 | % | | 294 |
| | 12 | % | |
| Consolidated revenues, net | | $ | 2,649 |
| | 100 | % | | $ | 2,433 |
| | 100 | % | |
*Columns may not calculate due to $2.66 in 2016 comparedrounding.
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (Unaudited) | | 2019 | | 2018 | |
Revenue, net by Product Category*1 | | Revenues, net | | % of total revenues, net | | Revenues, net | | % of total revenues, net | |
| Fuel | | $ | 1,173 |
| | 44 | % | | $ | 1,126 |
| | 46 | % | |
| Corporate Payments | | 516 |
| | 19 | % | | 416 |
| | 17 | % | |
| Tolls | | 357 |
| | 13 | % | | 333 |
| | 14 | % | |
| Lodging | | 213 |
| | 8 | % | | 176 |
| | 7 | % | |
| Gift | | 180 |
| | 7 | % | | 187 |
| | 8 | % | |
| Other | | 210 |
| | 8 | % | | 197 |
| | 8 | % | |
| Consolidated revenues, net | | $ | 2,649 |
| | 100 | % | | $ | 2,433 |
| | 100 | % | |
$2.56 in 2015.rounding. |
|
1 Reflects certain reclassifications in 2018 between product categories as the Company realigned its Brazil business into product lines, resulting in refinement of revenue classified as fuel versus tolls and the eCash/OnRoad product being fuel versus other. |
Consolidated operating expenses
Merchant commission. Merchant commissions decreased from $108.3 million in 2015 to $104.3 million in 2016, a decrease of$3.9 million, or 3.6%. This decrease was primarily due to the fluctuation of the margin between the wholesale cost and retail price of fuel, which impacted merchant commissions in certain card programs, as well as the impact of fluctuations in foreign exchange rates.
Processing. Processing expenses increased from $331.1$487.7 million in 20152018 to $355.4$530.7 million in 2016,2019, an increase of $24.3$43.0 million or 7.4%8.8%. Increases in processing expenses were primarily due to ongoing expenses related to acquisitions completed in 2016,2019 of approximately $19 million, organic growth in certain lines of business and incremental bad debt expense,of approximately $10 million, partially offset by the favorable impact of fluctuations in foreign exchange rates and lower negotiated vendor processing costs.of approximately $10 million.
Selling. Selling expenses increased from $109.1$182.6 million in 20152018 to $131.4$204.8 million in 2016,2019, an increase of $22.4$22.2 million or 20.5%12.2%. Increases in spending wereselling expenses are primarily due to ongoing expenses related to acquisitions completed in 2016 as well as
additional sales2019 of approximately $8 million and marketingadditional spending in certain markets,lines of business. These increases were partially offset by the impact of fluctuations in foreign exchange rates.
General and administrative. General and administrative expense decreased from $297.7 million in 2015 to $283.6 million in 2016, a decrease of $14.1 million, or 4.7%. The decrease was primarily due to decreased stock based compensation of approximately $26 million from the comparable period in 2015 and thefavorable impact of fluctuations in foreign exchange rates partially offset by ongoing expenses related to acquisitions completed in 2016of approximately $4 million.
General and an incremental $2administrative. General and administrative expense increased from $389.2 million in acquisition related expenses over 2015.
Depreciation and amortization. Depreciation and amortization increased from $193.52018 to $407.2 million in 2015 to $203.3 million in 2016,2019, an increase of $9.8$18.0 million or 5.1%4.6%. The increase was primarily due to ongoing expenses related to acquisitions completed in 2016,2019 of approximately $19 million and additional spending in certain lines of business. These increases were partially offset by movements in and adjustments from changesthe favorable impact of fluctuations in foreign exchange rates of approximately $2$8 million and a decrease in stock based compensation expense of approximately $3 million.
Other operating, net. Other operating, netDepreciation and amortization. Depreciation and amortization decreased from $4.2$274.6 million in 20152018 to $0.7$274.2 million in 2016. The2019, a decrease is due to favorable reversals of various contingent liabilities for tax indemnifications related to our acquisitions of DB and VB in Brazil in 2015.
Equity method investment loss
Losses at our equity method investment decreased from $57.7$0.4 million in 2015 to $36.4 million in 2016.or 0.1%. The decrease was primarily due to the favorable impact of foreign exchange rates of approximately $8 million, offset by ongoing expenses related to acquisitions completed in 2019 of approximately $10 million.
Other operating, net. Other operating, net decreased from $8.7 million in 2018 to $0.5 million in 2019, a non-recurringdecrease of $8.2 million, or 94.0% primarily as a result of a write-off of capitalized software costs in 2018.
Investment loss. Investment loss of $3.5 million in 2019 relates to an impairment charge to our telematics investment, as compared to an investment loss of $7.1 million in 2018. In 2019, we recorded an impairment of our Masternaut investment of approximately $16 million, which was then was sold in 2019 at an amount approximating carrying value. This loss was partially offset by an approximate $13 million gain related to a minority investment in a marketable security.
Other expense (income), net. Other expense, net was $0.1 million in 2019, compared to other income, net of $13.8$152.2 million during 2016,in 2018. The gain in 2018 was due to the pre-tax gain on the sale of the Chevron customer portfolio of approximately $152.8 million.
Interest expense, net. Interest expense increased from $138.5 million in 2018 to $150.0 million in 2019, an increase of $11.6 million or 8.3%. The increase in interest expense is primarily due to the impact of additional borrowings to repurchase our common stock and to finance acquisitions completed in 2019, as well as less costs incurred to restructure the operations of the business and a smaller impairment of our investment, compared to 2015.
We regularly evaluate our investments, which are not carried at fair value, for other than temporary impairmentincreases in accordance with U. S. GAAP. During the fourth quarter of 2016, we determined that the performance improvement initiatives planned at Masternaut were more challenging to implement than we originally projected. As a result, we recorded a $36.1 million non-cash impairment charge in our equity method investment in 2016, compared to a $40 million charge in 2015.
Interest expense, net
Interest expense was $71.3 million in 2015 compared to $71.9 million in 2016.LIBOR. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the relevantrelated unused credit facility fees.fees and swaps.
| | | | | 2016 | | 2015 | |
| (Unaudited) | | | 2019 | | 2018 |
| Term loan A | | 2.05 | % | | 1.94 | % | | 3.70 | % | | 3.52 | % |
| Term loan B | | 3.75 | % | | 3.75 | % | | 4.23 | % | | 3.98 | % |
| Domestic Revolver A | | 2.07 | % | | 1.95 | % | | 3.96 | % | | 3.51 | % |
| Foreign Revolver A | | 1.84 | % | | 2.36 | % | |
| Revolver B GBP Borrowings | | | 2.18 | % | | 2.61 | % |
| Revolving C | | | — | % | | 4.00 | % |
| Foreign swing line | | 1.84 | % | | 2.29 | % | | 2.13 | % |
| 2.11 | % |
The average unused credit facility fee for Domestic Revolver Athe revolving credit facilities was 0.29% and 0.31% in 2019 and 0.35%2018, respectively. On January 22, 2019, we entered into three interest rate swap contracts. The objective of these interest rate swap contracts is to reduce the variability of cash flows in 2016 and 2015, respectively.the previously unhedged interest payments associated with $2 billion of variable rate debt, tied to the one month LIBOR benchmark interest rate. During 2019, as a result of these swaps, we incurred additional interest expense of approximately $5.8 million or 0.32% over the average LIBOR rates on $2 billion of borrowings.
Loss on extinguishment of debt. Loss on extinguishment of debt of $2.1 million in 2018 relates to the write-off of debt issuance costs associated with the refinancing of our credit facility during the fourth quarter of 2018.
Provision for income taxes
taxes. The provision for income taxes increaseddecreased from $173.6$283.6 million in 20152018 to $190.5$182.7 million in 2016, an increase2019, a decrease of $17.0$100.9 million or 9.8%35.6%. The increase in income taxes from 2015 to 2016 was primarily driven by the increase in book earnings for 2016 as compared to 2015. The increase in taxes was partially offset by a decrease in ourOur effective tax rate decreased to 17.0% for 2019 from 32.4%25.9% for 2018. Included in 2015 to 29.7% in 2016. The decrease in our effectivethe 2019 tax rate was primarilythe reversal of a valuation allowance and remeasurement of the related deferred tax asset, due to the adoptioncapital loss realized upon the sale of ASU 2016-09, "Compensation-Stock Compensation: Improvementsour investment in Masternaut that was carried back to Employee Share-Based Payment Accounting", which resulted2017 when the U.S. federal tax rate was 35%. Our tax rate was also impacted by the impairment charge to our investment in excess tax benefits being recorded as a reduction of income tax expense during 2016, rather than additional paid in capital as discussedMasternaut in the summaryfirst quarter of significant accounting policies footnote. We also had a non-recurring net gain recorded by2019. Excluding these discreet items, our equity method investment, which favorably impacted pre-tax earnings but was not subject to U.S. income taxes and the impact of certain tax planning initiatives that were implemented during 2016. rate for 2019 would have been approximately 23.0%.
We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lowerdifferent than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.
Net income
income. For the reasons discussed above, our net income increased from $362.4$811.5 million in 20152018 to $452.4$895.1 million in 2016,2019, an increase of $90.0$83.6 million or 24.8%10.3%.
Operating income and operating margin
Consolidated operating income
income. Operating income increased from $667.5$1,090.7 million in 20152018 to $754.2$1,231.4 million in 2016,2019, an increase of $86.6$140.7 million or 13.0%12.9%. Consolidated operating margin was 39.2%44.8% in 20152018 and 41.2%46.5% in 2016.2019. The increase in operating income was driven primarily due to acquisitions completedby organic growth. Included in 2016, $26 million less stock based compensation expense compared to 2015 and organic growth in the business, partially offset by2019, was the negative impact of the macroeconomic environment of approximately $82$29 million, driven primarily by lower fuel prices and spreads, and unfavorable fluctuationsmovements in foreign exchange rates. Operating income in 2019 was also negatively affected by approximately $26 million due to the disposition of the Chevron portfolio.
For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Segment operating margin is calculated by dividing segment operating income by segment revenue.
North America segment operating income
income. North America operating income increased from $442.0$673.9 million in 20152018 to $506.4$755.9 million in 2016,2019, an increase of $64.4$82.0 million, or 14.6%12.2%. North America operating margin was 35.9%42.9% in 20152018 and 39.6%44.2% in 2016.2019. The increase in operating income was due primarily to less stock based compensation expense comparedorganic growth. Included in 2019, was the negative impact of the macroeconomic environment of approximately $4 million. Operating income in 2019 was also negatively affected by approximately $26 million due to 2015the disposition of the Chevron portfolio.
International segment operating income. International operating income increased from $416.8 million in 2018 to $475.6 million in 2019, an increase of $58.7 million, or 14.1%. International operating margin was 48.4% in 2018 and 50.6% in 2019. The increase in operating income was due primarily to organic growth in the business,growth. The increase was partially offset by the negative impact of the macroeconomic environment of approximately $56$25 million, driven primarily by lower fuel prices and lower fuel spread margins.
International segment operating income
International operating income increased from $225.5 million in 2015 to $247.7 million in 2016, an increase of $22.3 million, or 9.9%. International operating margin was 47.9% in 2015 and 44.8% in 2016. The increase in operating income was due primarily to acquisitions completed in 2016 and organic growth in the business, partially offset by the approximately $26 million unfavorable impact of the macroeconomic environment, specifically unfavorable changesmovements in foreign exchange rates, as well as the negative impact of fuel prices internationally. The impact of changes in fuel price spreads was negligible.
Year ended December 31, 2015 compared to the year ended December 31, 2014
The following table sets forth selected consolidated statement of income and selected operational data for the years ended December 31, 2015 and 2014 (in millions, except percentages).
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2015 | | % of total revenue | | Year ended December 31, 2014 | | % of total revenue | | Increase (decrease) | | % Change |
| | | | | | | |
| North America | | $ | 1,232.0 |
| | 72.3 | % | | $ | 668.3 |
| | 55.7 | % | | $ | 563.6 |
| | 84.3 | % |
| International | | 470.9 |
| | 27.7 | % | | 531.1 |
| | 44.3 | % | | (60.2 | ) | | (11.3 | )% |
| Total revenues, net | | 1,702.9 |
| | 100.0 | % | | 1,199.4 |
| | 100.0 | % | | 503.5 |
| | 42.0 | % |
| Consolidated operating expenses: | | | | | | | | | | | | |
| Merchant commissions | | 108.3 |
| | 6.4 | % | | 96.3 |
| | 8.0 | % | | 12.0 |
| | 12.5 | % |
| Processing | | 331.1 |
| | 19.4 | % | | 173.3 |
| | 14.5 | % | | 157.7 |
| | 91.0 | % |
| Selling | | 109.1 |
| | 6.4 | % | | 75.5 |
| | 6.3 | % | | 33.5 |
| | 44.4 | % |
| General and administrative | | 297.7 |
| | 17.5 | % | | 206.0 |
| | 17.2 | % | | 91.8 |
| | 44.5 | % |
| Depreciation and amortization | | 193.5 |
| | 11.4 | % | | 112.4 |
| | 9.4 | % | | 81.1 |
| | 72.2 | % |
| Other operating, net | | (4.2 | ) | | 0.2 | % | | (29.5 | ) | | 2.5 | % | | (25.3 | ) | | (85.6 | )% |
| Operating income | | 667.5 |
| | 39.2 | % | | 565.4 |
| | 47.1 | % | | 102.1 |
| | 18.1 | % |
| Equity method investment loss | | 57.7 |
| | 3.4 | % | | 8.6 |
| | 0.7 | % | | 49.1 |
| | 571.7 | % |
| Other expense (income), net | | 2.5 |
| | 0.1 | % | | (0.7 | ) | | NM |
| | (3.2 | ) | | NM |
|
| Interest expense, net | | 71.3 |
| | 4.2 | % | | 28.9 |
| | 2.4 | % | | 42.5 |
| | 147.2 | % |
| Loss on early extinguishment of debt | | — |
| | — | % | | 15.8 |
| | 1.3 | % | | (15.8 | ) | | (100.0 | )% |
| Provision for income taxes | | 173.6 |
| | 10.2 | % | | 144.2 |
| | 12.0 | % | | 29.3 |
| | 20.3 | % |
| Net income | | $ | 362.4 |
| | 21.3 | % | | $ | 368.7 |
| | 30.7 | % | | $ | (6.3 | ) | | (1.7 | )% |
| Operating income for segments: | | | | | | | | | | | | |
| North America | | $ | 442.0 |
| | | | $ | 287.3 |
| | | | $ | 154.7 |
| | 53.9 | % |
| International | | 225.5 |
| | | | 278.1 |
| | | | (52.7 | ) | | (18.9 | )% |
| Operating income | | $ | 667.5 |
| | | | $ | 565.4 |
| | | | $ | 102.1 |
| | 18.1 | % |
| Operating margin for segments: | | | | | | | | | | | | |
| North America | | 35.9 | % | | | | 43.0 | % | | | | (7.1 | )% | | |
| International | | 47.9 | % | | | | 52.4 | % | | | | (4.5 | )% | | |
| Total | | 39.2 | % | | | | 47.1 | % | | | | (7.9 | )% | | |
NM = Not Meaningful
Revenues and revenue per transaction
Our consolidated revenue increased from $1,199.4 million in 2014 to $1,702.9 million in 2015, an increase of $503.5 million, or 42.0%. The increase in our consolidated revenue was primarily due to the following:
The impact of acquisitions completed in 2014, which contributed approximately $528 million in additional revenue in 2015 over the comparable period in 2014.
Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.
Partially offsetting this growth was the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for 2015 over the comparable period in 2014 of approximately $167 million. We believe changes in foreign exchange rates had an unfavorable impact on consolidated revenues of approximately $92 million, due to unfavorable fluctuations in rates in all geographies, in 2015 over 2014. Additionally, the impact of lower fuel prices,
partially offset by higher fuel spread margins, had an additional unfavorable impact on consolidated revenues of approximately $75 million.
Consolidated revenue per transaction decreased from $1.84 in 2014 to $0.92 in 2015, a decrease of $0.92 per transaction or 50.0%. Excluding the impact of the SVS business, which had approximately 1.3 billion and 270 million transactions in 2015 and 2014, respectively, at a lower revenue per transaction, revenue per transaction for 2015 decreased 10.2 % to $2.78 from $3.10 over the comparable period in 2014. Revenue per transaction can vary based on the geography, the relevant merchant and customer relationship, the payment product utilized, and the types of products or services purchased. The revenue mix was influenced by our acquisitions, organic growth in the business, and fluctuations in the macroeconomic environment, primarily fuel prices and foreign exchange rates.
North America segment revenues and revenue per transaction
North America revenue increased from $668.3 million in 2014 to $1,232.0 million in 2015, an increase of $563.6 million, or 84.3%. The increase in our North America revenue was primarily due to:
The impact of acquisitions completed in 2014, which contributed approximately $528 million in additional revenue in 2015 over the comparable period in 2014.
Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.
Partially offsetting this growth was the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our North America segment revenue for 2015 over the comparable period in 2014 of approximately $72 million, primarily due to the impact of lower fuel prices in the U.S., partially offset by higher fuel spread margins.
North America segment revenue per transaction decreased from $1.45 in 2014 to $0.74 in 2015, a decrease of $0.71 or 49.2%. Excluding the impact of the SVS business, which had approximately 1.3 billion and 270 million transactions in 2015 and 2014, respectively, at a lower revenue per transaction, revenue per transaction in our North America segment in 2015 decreased 15.9% to $2.89 from $3.44 over the comparable period in 2014. Revenue per transaction can vary based on the geography, the relevant merchant and customer relationship, the payment product utilized, and the types of products and services purchased. Revenue per transaction decreased primarily due to the impact of lower fuel prices and fuel price spreads during 2015 versus the prior year.
International segment revenue
International segment revenue decreased from $531.1 million in 2014 to $470.9 million in 2015, a decrease of $60.2 million, or 11.3%. The decrease in International segment revenue was due primarily to the following:
The impact of the macroeconomic environment, which is included within organic growth. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for 2015 over the comparable period in 2014 of approximately $95 million, primarily due to changes in foreign exchange rates and lower fuel prices internationally. Unfavorable fluctuations in foreign exchange rates in all geographies had an unfavorable impact on revenues in 2015 over the comparable period in 2014 of approximately $92 million.
Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.
International segment revenue per transaction decreased from $2.76 in 2014 to $2.56 in 2015, a decrease of $0.20 per transaction or 7.2%, due primarily to the unfavorable impact of foreign exchange rates across all of our geographies. This unfavorable impact was partially offset by organic revenue growth in several products.
Consolidated operating expenses
Merchant commission. Merchant commissions increased from $96.3 million in 2014 to $108.3 million in 2015, an increase of $12.0 million, or 12.5%. This increase was due primarily to the fluctuation of the margin between the wholesale cost and retail price of fuel, which impacted merchant commissions in certain card programs, as well as the impact of higher volume in certain revenue streams where merchant commission are paid, partially offset by decreases due to changes in foreign exchange rates.
Processing. Processing expenses increased from $173.3 million in 2014 to $331.1 million in 2015, an increase of $157.7 million, or 91.0%. Our processing expenses primarily increased due to the impact of our acquisition of Comdata completed in the fourth quarter of 2014, partially offset by decreases due to changes in foreign exchange rates.
Selling. Selling expenses increased from $75.5 million in 2014 to $109.1 million in 2015, an increase of $33.5 million, or 44.4%. The increase was primarily due to our acquisition of Comdata completed in the fourth quarter of 2014, as well as additional sales and marketing spending in certain markets, partially offset by decreases due to changes in foreign exchange rates.
General and administrative. General and administrative expense increased from $206.0 million in 2014 to $297.7 million in 2015, an increase of $91.8 million, or 44.5%. The increase was primarily due to the impact of our acquisition of Comdata completed in the fourth quarter of 2014 and incremental stock based compensation of $52.5 million, partially offset by decreases due to changes in foreign exchange rates.
Depreciation and amortization. Depreciation and amortization increased from $112.4 million in 2014 to $193.5 million in 2015, an increase of $81.1 million, or 72.2%. The increase was primarily due to our acquisition of Comdata completed during the fourth quarter of 2014, which resulted in an increase of $91.3 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software, as well as depreciation of acquired fixed assets, partially offset by decreases due to changes in foreign exchange rates.
Other operating, net. Other operating, net decreased from a $29.5 million favorable impact in 2014 to a $4.2 million favorable impact in 2015, a decrease of $25.3 million, or 85.8%. In 2015, the balance relates primarily to the net favorable impact of the additional reversals of various contingent liabilities for tax indemnifications related to our acquisitions of DB and VB in Brazil. Included in other operating, net in 2014 is $28.1 million of favorable impact related to fair value adjustments recorded for contingent consideration arrangements for our acquisition of VB in Brazil and $1.4 million from the reversal of other various contingent liabilities for tax indemnifications related to our acquisitions of DB and VB in Brazil.
Equity method investment loss
On April 28, 2014, we acquired a minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for as an equity method investment. The increase in equity method investment loss from $8.6 million in 2014 to $57.7 million in 2015 was primarily due to a non-cash impairment charge of $40 million recorded in the fourth quarter of 2015.
We regularly evaluate our investments, which are not carried at fair value, for other than temporary impairment in accordance with U. S. GAAP. During the fourth quarter of 2015, we determined that the performance improvement initiatives at Masternaut will take longer to implement than we originally projected. As a result, we have recorded a $40 million non-cash impairment charge in our equity method investment.
Interest expense, net
Interest expense increased from $28.9 million in 2014 to $71.3 million in 2015, an increase of $42.5 million, or 147.2%. The increase is due to an increase in borrowings in 2015 over 2014, primarily due to funding of the purchase price for our acquisition of Comdata. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the relevant unused credit facility fees.
|
| | | | | | |
| | | 2015 | | 2014 |
| Term loan A | | 1.94 | % | | 1.92 | % |
| Term loan B | | 3.75 | % | | 3.75 | % |
| Domestic Revolver A | | 1.95 | % | | 1.92 | % |
| Foreign Revolver A | | 2.36 | % | | 2.27 | % |
| Foreign Revolver B | | — |
| | 4.43 | % |
| Foreign swing line | | 2.29 | % | | 2.24 | % |
The average unused credit facility fee for Domestic Revolver A was 0.35% and 0.31% in 2015 and 2014, respectively. The average unused credit facility fee for Foreign Revolver B was 0.30% in 2014.
Loss on early extinguishment of debt
Loss on early extinguishment of debt in 2014 relates to our write-off of $15.8 million of debt issuance costs associated with the refinancing of our Existing Credit Facility and entry into our New Credit Agreement, along with our acquisition of Comdata.
Provision for income taxes
The provision for income taxes increased from $144.2 million in 2014 to $173.6 million in 2015, an increase of $29.3 million, or 20.3%. Our effective tax rate increased from 28.1% in 2014 to 32.4% in 2015. We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. The increase in the effective tax rate was due primarily to the non-deductible impairment charge of $40 million related to our minority investment in Masternaut, as well as the inclusion of the Comdata business, which operates primarily in the U.S. with a higher overall tax rate. Partially offsetting these negative impacts was the continued decrease in the U.K. statutory tax rates. These initiatives involved amending tax returns for several prior years and produced tax savings of approximately $7.9 million recorded in 2015. We expect that the impact of these planning initiatives will have a favorable impact on tax rates in future years. Included in 2014, was one-time tax favorability due to entity reorganization in Brazil, which allowed the reversal of deferred tax liability of $9.5 million, setup at the time of acquisition in 2013.
Net income
For the reasons discussed above, our net income decreased from $368.7 million in 2014 to $362.4 million in 2015, a decrease of $6.3 million, or 1.7%.
Operating income and operating margin
Consolidated operating income
Operating income increased from $565.4 million in 2014 to $667.5 million in 2015, an increase of $102.1 million, or 18.1%. Consolidated operating margin was 47.1% in 2014 and 39.2% in 2015. The increase in operating income was due primarily to the impact of our acquisition of Comdata completed in November 2014. These increases were partially offset by the negative impact of the macroeconomic environment, primarily due to lower fuel prices in North America and unfavorable changes in foreign exchange rates, as previously discussed. Changes in foreign exchange rates had an unfavorable impact on consolidated operating income of approximately $53 million due to unfavorable fluctuations in rates in all geographies. Results were also negatively impacted by the increase in amortization and depreciation expense related to assets acquired in 2014 and increased stock based compensation expense during 2015. The decrease in operating margin was due primarily to the impact of increased operating expenses associated with Comdata, including increased depreciation and amortization expense.
For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Similarly, segment operating margin is calculated by dividing segment operating income by segment revenue.
North America segment operating income
North America operating income increased from $287.3 million in 2014 to $442.0 million in 2015, an increase of $154.7 million, or 53.9%. North America operating margin was 43.0% in 2014 and 35.9% in 2015. The increase in operating income was due primarily to the impact of our acquisition of Comdata in November 2014, as well as organic growth in the business. The decrease in operating margin was due primarily to the impact of increased operating expenses associated with Comdata, including increased depreciation and amortization. In addition, we had increased stock based compensation expense, the majority of which is recorded in our North American segment. Furthermore, operating results were also negatively impacted by the macroeconomic environment, primarily due to lower fuel prices, partially offset by higher fuel spread margins.
International segment operating income
International operating income decreased from $278.1 million in 2014 to $225.5 million in 2015, a decrease of $52.7 million, or 18.9%. International operating margin was 52.4% in 2014 and 47.9% in 2015. The decrease in operating income was due primarily to the unfavorable impact of the macroeconomic environment, specifically unfavorable changes in foreign exchange rates, which we believe negatively impacted operating income by approximately $53 million, as well as the negative impact of fuel prices internationally. The negative impact of the environment was partially offset by the impact of organic growth in the
business driven by increases in volume and revenue per transaction, in local currency. The impact of changes in fuel price spreads was negligible.
Liquidity and capital resourcesCapital Resources
Our principal liquidity requirements are to service and repay our indebtedness, completemake acquisitions of businesses and commercial account portfolios, repurchase shares of our common stock and meet working capital, tax and capital expenditure needs.
Sources of liquidity
liquidity. At December 31, 2016,2019, our cash balances totaled $643.8$1,675.2 million, with approximately $168.8$403.7 million restricted. Restricted cash represents customer deposits in the Czech Republic and in our Comdata business in the U.S., as well as collateral received from customers for cross-currency transactions in our Cambridge business, which we are restricted from usinguse other than to repay customer deposits.deposits, as well as secure and settle cross-currency transactions.
At December 31, 2016, cash and cash equivalents heldWe have immaterial outside basis differences in our investments in foreign subsidiaries where weand have determined we are permanentlynot recorded incremental income taxes for any additional outside basis differences, as these amounts continue to be indefinitely reinvested was $312.2 million. All of the cash and cash equivalents held by ourin foreign subsidiaries, excluding restricted cash, are available for general corporate purposes. Our current intent is to permanently reinvest these funds outside of the U.S. Our current expectation for funds held in our foreign subsidiaries is to use the funds to finance foreign organic growth, to pay for potential future foreign acquisitions and to repay any foreign borrowings that may arise from time to time. We currently believe that funds generated from our U.S. operations, along with available borrowing capacity in the U.S. will be sufficient to fund our U.S. operations for the foreseeable future, and therefore do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations. However, if at a future date or time these funds are needed for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto or the ultimate impact any such action may have on our results of operations or financial condition.
We utilize an accounts receivable Securitization Facility (defined below) to finance a majority of our domestic fuel card receivables, to lower our cost of borrowing and more efficiently use capital. We generate and record accounts receivable when a customer makes a purchase from a merchant using one of our card products and generally pay merchants before collecting the receivable. As a result, we utilize the Securitization Facility as a source of liquidity to provide the cash flow required to fund merchant payments while we collect customer balances. These balances are primarily composed of charge balances, which are typically billed to the customer on a weekly, semimonthly or monthly basis, and are generally required to be paid within 14 days of billing. We also consider the undrawn amounts under our Securitization Facility and Credit Facility (defined below) as funds available for working capital purposes and acquisitions. At December 31, 2016,2019, we had the ability to generate approximately $112 million ofno additional liquidity under our Securitization Facility. At December 31, 2016,2019, we had approximately $420$638 million available under our Credit Facility.
Based on our current forecasts and anticipated market conditions, we believe that our current cash balances, our available borrowing capacity and our ability to generate cash from operations, will be sufficient to fund our liquidity needs for at least the next twelve months. However, we regularly evaluate our cash requirements for current operations, commitments, capital requirements and acquisitions, and we may elect to raise additional funds for these purposes in the future, either through the issuance of debt or equity securities. We may not be able to obtain additional financing on terms favorable to us, if at all.
Cash flows
The following table summarizes our cash flows for the years ended December 31, 2016, 20152019 and 2014.2018.
| | | | | Year ended December 31, | | Year ended December 31, |
| (in millions) | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | |
| Net cash provided by operating activities | | $ | 705.9 |
| | $ | 754.6 |
| | $ | 608.3 |
| | $ | 1,162.1 |
| | $ | 903.4 |
| |
| Net cash used in investing activities | | (1,389.6 | ) | | (99.4 | ) | | (2,594.1 | ) | | (523.7 | ) | | (26.3 | ) | |
| Net cash provided by (used in) financing activities | | 754.0 |
| | (648.1 | ) | | 2,162.3 |
| |
| Net cash used in financing activities | | | (310.2 | ) | | (577.8 | ) | |
Operating activities. Net cash provided by operating activities decreased from $754.6 million in 2015 to $705.9 million in 2016. The decrease was primarily due to changes in working capital driven by fluctuations in receivables and payables, largely
due to timing of month end transactions and volume. Cash flow was favorably impacted by additional net income of $90 million during 2016 over the comparable period in 2015.
Net cash provided by operating activities increased from $608.3$903.4 million in 20142018 to $754.6$1,162.1 million in 2015, despite a slight decrease2019. The increase in net income. The increaseoperating cash flows was primarily due to changeshigher net income and movements in working capital and increases in certain non-cash expenses, including amortization of intangible assets of $73.6 million, stock-based compensation of $52.5 million and equity method investment loss of $49.1 million.capital.
Investing activities. Net cash used in investing activities increased from $99.4$26.3 million in 20152018 to $1,389.6$523.7 million in 2016.2019. This increase was primarily due to the increase in cash paid for our STP and Travel Card acquisitions completed in 2016.2019, partially offset by the proceeds received from the sale of Chevron in 2018.
Financing activities.Net cash used in investing activities decreased from $2,594.1 million in 2014 to $99.4 million in 2015. This decrease was primarily due to the reduction in cash outlay for acquisitions, over the comparable period.
Financing activities. Net cash from financing activities increased from net cash used of $648.1 million in 2015 to net cash provided of $754.0 million in 2016. The increase was primarily due to an increase in net borrowings on our revolving credit facility and term loans of $952.2 million and $585.0 million, respectively, to fund acquisitions during 2016.
Net cash from financing activities decreased from net cash provided of $2,162.3$577.8 million in 20142018 to net cash used of $648.1$310.2 million in 2015.2019. The changedecreased use of cash is primarily due to increased netincremental borrowings on Term A Loan in the amount of $700 million, as well as fewer repurchases of our Credit Facility and Securitization Facility in 2014 to fund the purchase price for Comdata. Additionally, we made payments on contingent consideration arrangementscommon stock of $42$264 million in 2015 that2019 over 2018. These reductions in cash usage were notpartially offset by net payments made in 2014.on our revolving debt of $875 million.
Capital spending summary
Our capital expenditures increaseddecreased from $41.9$81.4 million in 20152018 to $59.0$75.2 million in 2016, an increase2019, a decrease of $17$6 million or 40.9%7.6%. This increase is primarily due to increased spending on strategic projects, including continued investment in our GFN application.
Our capital expenditures increased from $27.1 million in 2014 to $41.9 million in 2015, an increase of $14.8 million, or 54.7%. The increase was primarily due to the impact of our acquisition of Comdata in November 2014.
Credit Facility
On June 22, 2011, FleetCor Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers, entered into a Credit Agreement, which was a five-year, $900 million Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and a syndicate of financial institutions.
On October 24, 2014, FleetCorFLEETCOR Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), entered intoare parties to a new $3.36$4.86 billion Credit Agreement (the New Credit Agreement)"Credit Agreement"), with Bank of America, N.A., as administrative agent, swing line lender and local currency issuer, and a syndicate of financial institutions (the “Lenders”)., which has been amended multiple times. The New Credit Agreement providedprovides for senior secured credit facilities (collectively, the "Credit Facility") consisting of a revolving credit facility in the amount of $1.285 billion, a term loan A facility in the amount of $3.225 billion and a term loan B facility in the amount of $350.0 million as of December 31, 2019. The revolving credit facility consists of (a) a revolving A credit facility in the amount of $1.0 billion,$800 million, with sublimits for letters of credit and swing line loans, and multicurrency borrowings, (b) a revolving B facility in the amount of $35$450 million for loansborrowings in AustralianU.S. Dollars, Euros. British Pounds, Japanese Yen or New Zealand Dollars, (c)other currency as agreed in advance, and a term A loan facility in the amount of $2.02 billion and (d) a term B loan facility in the amount $300 million. The revolving line of credit contains a $20 million sublimit for letters of credit, a $20 million sublimit for swing line loans, and sublimits for multicurrency(c) a revolving C facility in the amount of $35 million with borrowings in Euros, Sterling, Japanese Yen,U.S. Dollars, Australian Dollars andor New Zealand Dollars. The New Credit Agreement also containsincludes an accordion feature for borrowing an additional $500$750 million in term loan A, term loan B, revolver A or revolver AB debt and term B.an unlimited amount when the leverage ratio on a proforma basis is less than 3.00 to 1.00. Proceeds from the New Credit Facility may be used for working capital purposes, acquisitions, and other general corporate purposes. The proceeds of the New Credit Facility were used to paydown borrowings under the Credit Agreement. On November 14, 2014 in order to finance a portion of the Comdata Acquisition and to refinance our Credit Agreement, we made initial borrowings under the New Credit Agreement.
On August 22, 2016,30, 2018, the CompanyCredit Agreement was amended to change the consolidated leverage ratio definition and the negative covenant related to indebtedness. On December 19, 2018, we entered into the firstfifth amendment to the New Credit Agreement, which increasedmodified the size of our Term A loan from $2.02 billion to $2.62 billion. The proceeds from the additional $600 million in term A loan were usedand revolver pricing grid and extended the maturity date of the term loan A and revolving credit facilities to partially financeDecember 19, 2023. The maturity date for the STP acquisition.term loan B is August 2, 2024. On January 20, 2017, the CompanyAugust 2, 2019, we entered into the secondsixth amendment to the New Credit Agreement, which established a newincluded an incremental term B loan ("Term B-2 Loan")A in the amount of $245$700 million and changes to replace the existing term
B Loan. Interest onconsolidated leverage ratio definition and negative covenant related to indebtedness. On November 14, 2019, we entered into the Term B-2 loan facility accrues based onseventh amendment to the Eurocurrency Rate or the Base Rate at 2.25% for Eurocurrency Loans and at 1.25% for Base Rate Loans.
The obligations of the Borrowers under the New Credit Agreement, are secured by substantially all ofto lower the assets of FleetCor and its domestic subsidiaries, pursuantmargin for term loan B from 2.00% to a security agreement and includes a pledge of (i) 100% of the issued and outstanding equity interests owned by us of each Domestic Subsidiary and (2) 66% of the voting shares of the first-tier foreign subsidiaries, but excluding real property, personal property located outside of the United States, accounts receivables and related assets subject to the Securitization Facility and certain investments required under money transmitter laws to be held free and clear of liens. At December 31, 2016, we had $2.4 billion in borrowings outstanding on the term A loan, excluding the related debt discount, $245 million in borrowings outstanding on term B loan excluding the related debt discount, $465 million in borrowings outstanding on the domestic revolving A facility, $123.4 million in borrowings outstanding on the foreign revolving A facility and $26.6 million in borrowings outstanding on the revolving A facility swing line of credit.
1.75%.
Interest on amounts outstanding under the New Credit Agreement (other than the Term B-2 loan)term loan B) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest is payable quarterly in arrears.on the term loan facility accrues based on the Eurocurrency Rate plus 1.75% for Eurocurrency Loans and at the Base Rate plus 0.75% for Base Rate Loans. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.20%0.25% to 0.40%0.35% of the daily unused portion of the credit facility.
At December 31, 2016,2019, the interest rate on the term loan A and the domestic revolving A facility was 2.52%,3.05% and the interest rate on the foreignborrowings under revolving A facility was 2.01%3.03%, the interest rate on the revolving AB facility swing line of creditGBP Borrowings was 1.97% and1.96%, the interest rate on the term loan B facility was 3.77%3.55% and the interest rate on the foreign swing line was 1.93%. The unused credit facility fee was 0.35%0.25% for all revolving facilities at December 31, 2016.2019.
The stated maturity dates for the term A loan, revolving loans, and letters of credit under the New Credit Agreement is November 14, 2019 and November 14, 2021 for the Term B-2 loan. The term loans are payable in quarterly installments and are due on the last business day of each March, June, September, and December with the final principal payment due on the respective maturity date. Borrowings on the revolving line of credit are repayable at ourthe option of one, two, three or ninesix months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than tentwenty business days after such loan is made.
The Credit Agreement contains representations, warranties and events of default, as well as certain affirmative and negative covenants, customary for financings of this nature. These covenants include limitations on the ability to pay dividends and make other restricted payments under certain circumstances and compliance with certain financial ratios. As of December 31, 2019, we were in compliance with each of the covenants under the Credit Agreement.
Our New Credit Agreement contains a number of negative covenants restricting, among other things, limitations on liens (with exceptions for our Securitization Facility) and investments, incurrence or guarantees of indebtedness, mergers, acquisitions, dissolutions, liquidations and consolidations, dispositions, dividends and other restricted payments and prepayments of other indebtedness. In particular, we are not permitted to make any restricted payments (which includes any dividend or other distribution) except that the we may declare and make dividend payments or other distributions to our stockholders so long as (i) on a pro forma basis both before and after the distribution the consolidated leverage ratio is not greater than 3.00:3.25:1.00 and we are in compliance with the financial covenants and (ii) no default or event of default shall exist or result therefrom. The New Credit Agreement also contains customary events of default. The New Credit Agreement includes financial covenants where the Company is required to maintain a consolidated leverage ratio to consolidated EBITDA of less than (i) 4.254.00 to 1.01.00 as of the end of any fiscal quarter priorprovided that in connection with any Material Acquisition the leverage ratio may be increased to December 31, 2015; (ii) 4.004.25 to 1.0 as of any1.00 for the quarter in which the Material Acquisition is consummated and the next three fiscal quarter after December 31, 2015 but on or prior to December 31, 2016; (iii) 3.75 to 1.0 as of any fiscal quarter after December 31, 2016 but on or prior to June 30, 2018; 3.50 to 1.0 as of any fiscal quarter after June 30, 2018;quarters; and a consolidated interest coverage ratio of no morehigher than 4.00 to 1.0.
The obligations of the Borrowers under the Credit Agreement are secured by substantially all of the assets of FLEETCOR and its domestic subsidiaries, pursuant to a security agreement and includes a pledge of (i) 100% of the issued and outstanding equity interests owned by us of each Domestic Subsidiary and (2) 66% of the voting shares of the first-tier foreign subsidiaries, but excluding real property, personal property located outside of the U.S., accounts receivables and related assets subject to the Securitization Facility and certain investments required under money transmitter laws to be held free and clear of liens.
At December 31, 2019, we had $3.1 billion in borrowings outstanding on term loan A, excluding the related debt discount, $342.1 million in borrowings outstanding on term loan B, excluding the related debt discount, $325 million in borrowings outstanding on the revolving A facility, $225.5 million in borrowings outstanding on the revolving B facility and $52.0 million in borrowings outstanding on the foreign swing line. We have unamortized debt issuance costs of $6.7 million related to the revolving credit facility as of December 31, 2019. We have unamortized debt discounts of $7.4 million related to the term loan A facility and $0.5 million related to the term B facility and deferred financing costs of $1.8 million related to the term A facility and deferred financing costs of $1.2 million related to the term B facility at December 31, 2019. The effective interest rate incurred on term loans was 4.00% during 2019 related to the discount on debt.
During 2016,2019, we made principal payments of $116$138.5 million on the term A loan, $2.5loans and $2,292.3 million on the Term B-2 loan, $730revolving facilities, and $101.5 million on the domestic revolving A facility, $56.8 million on the foreign revolving A facility and $13.5 million on the foreign revolving A facility swing line revolving facility.
Cash Flow Hedges
On January 22, 2019, we entered into three interest rate swap cash flow contracts with U.S. dollar notional amounts of credit.$1 billion with a fixed rate of 2.56%, $500 million with a fixed rate of 2.56%, and $500 million with a fixed rate of 2.55%. The purpose of these contracts is to eliminate the variability of cash flows in interest payments associated with $2 billion of our variable rate debt outstanding under our Credit Agreement, the sole source of which is due to changes in the 1-month LIBOR benchmark interest rate. These derivative instruments qualify as hedging instruments and are designated as cash flow hedges of interest rate risk. The effective date of the hedges is January 31, 2019 and the maturity dates are January 31, 2022, January 31, 2023 and December 19, 2023, respectively.
Securitization Facility
We are a party to a $1.2 billion receivables purchase agreement among FleetCor Funding LLC, as seller, PNC Bank, National Association as administrator, and various purchaser agents, conduit purchasers and related committed purchasers parties thereto, which was amended and restated for the Fifthfifth time as of November 14, 2014. We refer to this arrangement as the Securitization Facility. There have been several amendments to the Securitization Facility.Facility, with the latest on April 22, 2019. The current purchase limit under the Securitization Facility is $950 million and the Securitization Facility expires on November 14, 2017. The Securitization Facility2020 and contains certain customary financial covenants.
There is a program fee equal to one month LIBOR plus 0.90% or the Commercial Paper Rate plus 0.90%. At0.80% as of December 31, 20162019 and 2015, the company used the Commercial Paper Rate2018. The program fee was 1.80% plus 0.88% as of 0.85%December 31, 2019 and 2.52% plus 0.90% and 0.43% plus 0.90%, respectively.0.89% as of December 31, 2018. The unused facility fee is payable at a rate of 0.40% as of December 31, 20162019 and 2015.2018. The Company has unamortized debt issuance costs of $0.7 million related to the Securitization Facility as of December 31, 2019 recorded within other assets in the consolidated balance sheet.
Under a related purchase and sale agreement, dated as of December 20, 2004, and most recentlylast amended on November 14, 2014 to include Comdata as an originator, between FleetCorFLEETCOR Funding LLC, as purchaser, and certain of our subsidiaries, as originators, the receivables generated by the originators are deemed to be sold to FleetCorFLEETCOR Funding LLC immediately and without further action upon creation of such receivables. At the request of FleetCorFLEETCOR Funding LLC, as seller, undivided percentage ownership interests in the receivables are ratably purchased by the purchasers in amounts not to exceed their respective commitments under the facility. Collections on receivables are required to be made pursuant to a written credit and collection policy and may be reinvested in other receivables, may be held in trust for the purchasers, or may be distributed. Fees are paid to each purchaser agent for the benefit of the purchasers and liquidity providers in the related purchaser group in accordance with the Securitization Facility and certain fee letter agreements.
The Securitization Facility provides for certain termination events, which includes nonpayment, upon the occurrence of which the administrator may declare the facility termination date to have occurred, may exercise certain enforcement rights with respect to the receivables, and may appoint a successor servicer, among other things.
We were in compliance with all financial and non-financial covenant requirements related to our Securitization Facility as of December 31, 2016.2019.
Other Liabilities
In connection with our acquisition of certain businesses, we owe final payments of $3.0$14.2 million, of which are$13.7 million is payable in the next twelve months.months and $0.5 million in periods beyond a year.
Stock Repurchase Program
On February 4, 2016, the Company’sOur Board of Directors has approved a stock repurchase program (the(as updated from time to time, the "Program") under which, authorizing the Company may begin purchasing up to $500 million ofrepurchase its common stock overfrom time to time until February 1, 2023. On October 22, 2019, our Board increased the next 18 month period. aggregate size of the Program by $1 billion, to $3.1 billion. Since the beginning of the Program, 11,119,657 shares have been repurchased for an aggregate purchase price of $2.2 billion, leaving us up to $857 million available under the Program for future repurchases of our common stock, taking into account the full $500 million committed with the 2019 ASR Agreement (defined below), which completed on February 20, 2020. There were 2,094,115 common shares totaling $603.8 million in 2019; 4,911,438 common shares totaling $958.7 million in 2018, and 2,854,959 common shares totaling $402.4 million in 2017; repurchased under the Program.
Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information the Companywe may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and working capital. There were 1,259,145debt.
On December 14, 2018, as part of the Program, we entered an accelerated share repurchase ("ASR") agreement ("2018 ASR Agreement") with a third-party financial institution to repurchase $220 million of our common stock. Pursuant to the 2018 ASR Agreement, we delivered $220 million in cash and received 1,057,035 shares based on a stock price of $176.91 on December 14, 2018. The 2018 ASR Agreement was completed on January 29, 2019, at which time we received 117,751 additional shares based on a final weighted average per share purchase price during the repurchase period of $187.27.
On December 18, 2019, we entered into another ASR Agreement ("2019 ASR Agreement") with a third-party financial institution to repurchase $500 million of our common stock. Pursuant to the 2019 ASR Agreement, the Company delivered $500 million in cash and received 1,431,989 shares based on a stock price of $285.70 on December 18, 2019. The 2019 ASR Agreement was completed February 20, 2020, at which time we received 175,340 additional shares based on a final weighted average per share purchase price during the repurchase period of $306.81.
We accounted for the 2018 ASR Agreement and the 2019 ASR Agreement as two separate transactions: (i) as shares of reacquired common stock for the shares delivered to the Company upon effectiveness of each ASR agreement and (ii) as a forward contract indexed to the Company's common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and results in an immediate reduction of the outstanding shares used to calculate the weighted average common shares totaling $187.7 million repurchased underoutstanding for basic and diluted earnings per share. The forward contracts indexed to our own common stock met the Program during 2016.criteria for equity classification, and these amounts were initially recorded in additional paid-in capital.
Critical accounting policiesAccounting Policies and estimatesEstimates
In applying the accounting policies that we use to prepare our consolidated financial statements, we necessarily make accounting estimates that affect our reported amounts of assets, liabilities, revenue and expenses. Some of these estimates require us to make assumptions about matters that are highly uncertain at the time we make the accounting estimates. We base these assumptions and the resulting estimates on historical information and other factors that we believe to be reasonable under the circumstances, and we evaluate these assumptions and estimates on an ongoing basis. In many instances, however, we reasonably could have used different accounting estimates and, in other instances, changes in our accounting estimates could occur from period to period, with the result in each case being a material change in the financial statement presentation of our financial condition or results of operations. We refer to estimates of this type as critical accounting estimates. Our significant accounting policies are summarized in the consolidated financial statements contained elsewhere in this report. The critical accounting estimates that we discuss below are those that we believe are most important to an understanding of our consolidated financial statements.
See Footnote 2 to the Consolidated Financial Statements, Summary of Significant Accounting Policies.
Revenue recognition and presentation
Revenue is derived frompresentation. We provide payment solutions to our business, merchant, consumer and payment network relationshipscustomers. Our payment solutions are primarily focused on specific commercial spend categories, including fuel, lodging, tolls, and general corporate payments, as well as from customersgift card solutions (stored value cards and partners.e-cards). We recognize revenue on fees generated throughprovide products that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. We also provide other payment solutions for fleet maintenance, employee benefits and long haul transportation-related services.
Payment Services
Our primary performance obligation for the majority of our payment solution products (fuel, lodging, corporate payments, among others) is to stand-ready to provide authorization and processing services primarily("payment services") for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related payment services. Accordingly, the total transaction price is variable. Payment services involve a series of distinct daily services that are substantially the same, with the same pattern of transfer to commercial fleets, commercial businesses, major oil companies, petroleum marketersthe customer. As a result, the Company allocates and leasing companiesrecognizes variable consideration in the period it has the contractual right to invoice the customer. For the tolls payment solution, the Company's primary performance obligation is to stand-ready each month to provide access to the toll network and process toll transactions. Each period of access is determined to be distinct and substantially the same as the customer benefits over the period of access.
We record revenue for our payment services net of (i) the wholesale cost of the underlying products and servicesservices; (ii) assessments and other fees charged by the credit and debit payment networks (along with any rebates provided by them); (iii) customer rebates and other discounts; and (iv) taxes assessed (e.g. VAT and VAT-like taxes) by a government, imposed concurrent with, a revenue producing transaction.
The majority of the transaction price we receive for fulfilling the Payment Services performance obligation are comprised of one or a combination of the following: 1) interchange fees earned from the payment networks; 2) discount fees earned from merchants; 3) fees calculated based on the following: (i) we are not the primary obligor in the arrangement and we are not responsible for fulfillment and the
acceptabilitya number of transactions processed; 4) fees calculated based upon a percentage of the product; (ii) we have no inventory risk, do not bear the risk of product loss and do not make any changes to the product or have any involvement in the product specifications; (iii) we do not have significant latitude with respect to establishing the pricetransaction value for the product (predominantly fuel) and (iv) the amount we earn for ourunderlying goods or services is fixed, within a limited range. We recognize revenue from merchant and network relationships, processing and other arrangements when persuasive evidence of an arrangement exists, the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured, as more fully described below.
Through our merchant and network relationships we provide(i.e. fuel, prepaid cards, vehicle maintenance, lodging, food, toll and transportation related services to our customers. cards and vouchers); and 5) monthly access fees.
We deriverecognize revenue from our merchant and network relationships based on the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction. Our revenue consists of margin on sales and fees for technical support, processing, communications and reporting. The price paid to a merchant or network may be calculated as (i) the merchant’s wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit. The difference between the price we pay to a merchant and the merchant’s wholesale cost forwhen the underlying productstransactions are complete and services isour performance obligations are satisfied. Transactions are considered a merchant commission and is recognized as expense whencomplete depending upon the fuel purchase transaction is executed. We have entered into agreements with major oil companies, petroleum marketers and leasing companies, among others, that specify that a transaction is deemed to be capturedrelated payment solution but generally when we have authorized the transaction, validated that the transaction has no errors and have accepted and posted the data to our records.
We also deriveOur performance obligation for our foreign exchange payment services is providing a foreign currency payment to a customer’s designated recipient and therefore, we recognize revenue on foreign exchange payment services when the underlying payment is made. Revenues from customersforeign exchange payment services are primarily comprised of the difference between the exchange rate set by us to the customer and partners from a varietythe rate available in the wholesale foreign exchange market.
Gift Card Products and Services
Our Gift product line delivers both stored value cards and card-based services primarily in the form of program fees includinggift cards to retailers. These activities each represent performance obligations that are separate and distinct. Revenue for stored valued cards are recognized (gross of the underlying cost of the related card, recorded within processing expense within the Consolidated Statements of Income) at the point in time when control passes to our customer, which is generally upon shipment.
Card-based services consist of transaction fees,processing and reporting of gift card fees, network fees, report fees and other transaction-based fees which typically are calculatedtransactions where we recognize revenue based on measures such as percentagean output measure of dollar volume processed, numberelapsed time for an unknown or unspecified quantity of transactions processed, or some combination thereof. Such services are provided through proprietary networks or throughtransactions. As a result, we allocate and recognize variable consideration over the useestimated period of third-party networks. Transaction fees and other transaction-based fees generated from our proprietary networks and third-party networks are recognized attime over which the time the transactionperformance obligation is captured. Card fees, network fees and program fees are recognized as we fulfill our contractual service obligations. In addition, we recognizesatisfied.
Other
We account for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada.Canada in accordance with ASC 310, "Receivables". Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided. The Company ceasesWe cease billing and accruing for late fees and finance charges approximately 30-4030 - 40 days after the customer’s balance becomes delinquent.
We also chargewrite foreign currency forward and option contracts for our customers transaction fees to loadfacilitate future payments in foreign currencies, and recognize revenue in accordance with authoritative fair value onto prepaid fuel, food, toll and transportation vouchers and cards. We recognize fee revenue upon providing the activated fuel, food, toll and transportation vouchers and prepaid cards to the customer. Revenue is recognized on lodging and transportation management services when the lodging stay or transportation service is completed. derivative accounting (ASC 815, "Derivatives").
Revenue is also derived from the sale of equipment in certain of our businesses, which is recognized at the time the device is sold and control has passed to the risks and rewards of ownership have passed.customer. This revenue is recognized gross of the cost of sales related to the equipment in revenues, net"revenues, net" within the consolidated statementsConsolidated Statements of income.Income. The related cost of sales for the equipment is recorded within processing expenses. "processing expenses" in the Consolidated Statements of Income.
Revenues from contracts with customers, within the scope of Topic 606, represents approximately 75% of total consolidated revenues, net, the year ended December 31, 2019.
Contract Liabilities
Deferred revenue contract liabilities for customers subject to ASC 606 were $71.8 million and $30.6 million as of December 31, 2019 and 2018, respectively. We expect to recognize substantially all of these amounts in revenues within approximately 12 months. Revenue recognized for the year ended December 31, 2019, that was included in the deferred revenue contract liability as of January 1, 2019, was approximately $27.5 million.
Costs to Obtain or Fulfill a Contract
With the adoption of ASC 606, we began capitalizing the incremental costs of obtaining a contract with a customer if we expect to recover those costs. The incremental costs of obtaining a contract are those that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained (for example, a sales commission).
Costs incurred to fulfill a contract are capitalized if those costs meet all of the following criteria:
| |
| a. | The costs relate directly to a contract or to an anticipated contract that we can specifically identify. |
| |
| b. | The costs generate or enhance resources of ours that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. |
| |
| c. | The costs are expected to be recovered. |
In order to determine the appropriate amortization period for contract costs, we considered a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology used by us to provide products and services to our customers, whether further contract renewals are expected and if there is any incremental commission to be paid on a contract renewal. Contract acquisition and fulfillment costs are amortized using the straight-line method over the expected period of benefit (ranging from five to ten years). Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred. The amortization of contract acquisition costs associated with sales commissions that qualify for capitalization will be recorded as selling expense in our Consolidated Statements of Income. The amortization of contract acquisition costs associated with cash payments for client incentives is included as a reduction of revenues in the Company’s Consolidated Statements of Income. Amortization of capitalized contract costs recorded in selling expense was $14.3 million and $12.0 million for the years ended December 31, 2019 and 2018, respectively.
Costs to obtain or fulfill a contract are classified as contract cost assets within "prepaid expenses and other current assets" and "other assets" in our Consolidated Balance Sheets. We have capitalized costs to obtain a contract of $14.8 million and $12.7 million within "prepaid expenses" and $39.7 million and $34.5 million within "other assets" in our Consolidated Balance Sheets, for the year ended December 31, 2019 and 2018, respectively.
We have recorded $91.6$76.4 million, $83.9 million and $96.9 million of expenses related to sales of equipment within the processing expenses line of the consolidated statementsConsolidated Statements of incomeIncome for the years ended December 31, 2019, 2018 and 2017, respectively.
Practical Expedients
ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as allowed by ASC 606, we elected to exclude this disclosure for any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As described above, our most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
We elected to exclude all sales taxes and other similar taxes from the transaction price. Accordingly, we present all collections from customers for these taxes on a net basis, rather than having to assess whether we are acting as an agent or a principal in 2016.each taxing jurisdiction.
Our fiscal year ends on December 31. In certain arrangements with customers, we determined that certain promised services and products are immaterial in the context of our U.K. businesses,the contract, both quantitatively and qualitatively.
As a practical expedient, we recordare not required to adjust the operating results using a 4-4-5 week accounting cycle with the fiscal year ending on the Friday on or immediately preceding December 31. Fiscal years 2015 and 2014 include 52 weekspromised amount of consideration for the businesses reporting usingeffects of a 4-4-5 accounting cycle.
We deliver both stored value cardssignificant financing component if we expect, at contract inception, that the period between when we transfer a promised service or product to a customer and card-based services primarily in the form of gift cards. For multiple-deliverable customer contracts, stored value cards and card-based services are separated into two units of accounting. Stored valued cards are generally recognized upon shipment to the customer. Card-based services are recognized when the card services are rendered.customer pays for the service or product will be one year or less. As of December 31, 2019, our contracts with customers did not contain a significant financing component.
Accounts receivable
Accounts receivable. As described above under the heading “Securitization Facility,facility,” we maintain a revolving trade accounts receivable Securitization Facility. The current purchase limit under the Securitization Facility is $950 million.$1.2 billion. Accounts receivable collateralized within our Securitization Facility relate to trade receivables resulting from charge card activity.activity in the U.S. Pursuant to the terms of the Securitization Facility, we transfer certain of our domestic receivables, on a revolving basis, to FleetCor
FLEETCOR Funding LLC (Funding), a wholly-owned bankruptcy remote subsidiary (Conduit).subsidiary. In turn, Funding sells,transfers, without recourse, on a revolving basis, up to $950 million ofan undivided ownership interestsinterest in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit.conduit (Conduit). Funding maintains a subordinated interest, in the form of over collateralization,over-collateralization, in a portion of the receivables sold to the conduit.Conduit. Purchases by the conduitConduit are financed with the sale of highly-rated commercial paper.
We utilize proceeds from the saletransfer of our accounts receivable as an alternative to other forms of financing, effectively reducingto reduce our overall borrowing costs. We have agreed to continue servicing the sold receivables for the financial institutionsinstitution at market rates, which approximates our cost of servicing. We retain a residual interest in the accounts receivable sold as a form of credit enhancement. The residual interest’s fair value approximates carrying value due to its short-term nature. Funding determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount.
OnOur Consolidated Balance Sheets and Statements of Income reflect the activity related to securitized accounts receivable and the corresponding securitized debt, including interest income, fees generated from late payments, provision for losses on accounts receivable and interest expense. The cash flows from borrowings and repayments, associated with the securitized debt, are presented as cash flows from financing activities. The maturity date for the Securitization Facility is November 14, 2014, in order to finance a portion of the Comdata acquisition, the Company and certain of its subsidiaries entered into a New Receivables Purchase Agreement. Under the terms of the New Receivables Purchase agreement, the purchase limit was increased from $500 million to $1.2 billion, and the term of the facility was extended to November 14, 2017. On November 5, 2015, the first amendment to the fifth amended and restated2020.
Foreign receivables purchase agreement was entered into which allowed the Company to enter into a new contract with BP and modified the eligible receivables definition and on December 1, 2015, the second amendment to the fifth amended and restated receivables purchase agreement was entered into which reduced the commitments from $1.2 billion to $950 million.
All foreign receivables are owned receivables and are not included in our receivable securitization program. At December 31, 20162019 and 2015,2018, there was $591$971 million and $614$886 million, respectively, of short-term debt outstanding under our accounts receivable Securitization Facility.
Credit risk and reserve for losses on receivables
receivables. We control credit risk by performing periodic credit evaluations of our customers. Payments from customers are generally due within 14 days or less of billing. We routinely review our accounts receivable balances and make provisions for probable doubtful accounts based primarily on the aging of those balances. Accounts receivable are deemed uncollectible from the customer once they age past 90 days and are deemed uncollectible from the customer.days. We also provide an allowance for receivables aged less than 90 days that we expect will be uncollectible based on historical collections experience and would includeincluding accounts that have filed for bankruptcy. At December 31, 2016,2019, approximately 95%98% of outstanding accounts receivable were current. Accounts receivable deemed uncollectible are removed from accounts receivable and the allowance for doubtful accounts when internal collection efforts have been exhausted and accounts have been turned over to a third-party collection agency. Recoveries from the third-party collection agency are not significant.
Impairment of long-lived assets, intangibles and equity method investment
investments. We test our other long-lived assets for impairment in accordance with relevant authoritative guidance. Weregularly evaluate whether impairment indicators related to ourevents and circumstances have occurred that indicate the carrying amount of property plant and equipment and otherfinite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets are present. Theseshould be evaluated for possible impairment, indicators may include a significant decrease inwe assess the market pricepotential impairment by determining whether the carrying amount of asuch long-lived asset or asset group, a significant adverse change inassets will be recovered through the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating orfuture undiscounted cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with theflows expected from use of a long-lived asset or asset group. If impairment indicators are present, we estimate the future cash flows for the asset or group of assets. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various projections of revenues and expenses, working capital and proceeds from asset disposals on a basis consistent with management’s intended actions.its eventual disposition. If the carrying amount exceeds the sum of the undiscounted future cash flows, we determine the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, we perform our testingis determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market prices or discounted cash flow analysis as applicable. We regularly evaluate whether events and circumstances have occurred that indicate the useful lives of the asset group at the business-line level, as this is the lowest level for which identifiable cash flows are available.property and equipment and finite-life intangible assets may warrant revision.
We complete an impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level, and the impairment test consists of two steps, as well as a qualitative assessment, as appropriate. As deemed appropriate, we have performedlevel. We first perform a qualitative assessment of certain of our reporting units. In thisFactors considered in the qualitative assessment we individually considered the following items for each reporting unit where we determined a qualitative analysis to be appropriate: theinclude general macroeconomic conditions, including any deterioration of general conditions, limitations on accessing capital, fluctuations in foreign exchange rates and other developments in equity and credit markets; industry and market conditions, including any deteriorationcost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the environment wherequalitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit operates, increased competition, changes inis more likely than not less than the products/services and regulator and political developments; cost of doing business; overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation; events affecting the reporting unit, including changes in the
carrying value of net assets, likelihood of disposal and whether there were any other impairment considerations within the business; the overall performance of our share price in relation to the market and our peers; andamount, a quantitative stress test of the
previously completed step 1 test from the prior year, updated with current year results, weighted-average cost of capital rates and future projections.
In step 1 ofwould be required. We then perform the goodwill impairment test for oureach reporting units,unit by comparing the reporting unit’s carrying amount, including goodwill, is compared to its fair value which is measured based upon, among other factors, a discounted cash flow analysis, as well as market multiples for comparable companies. Estimates critical to our evaluation of goodwill for impairment include the discount rate, projected revenue and earnings before interest taxes depreciation and amortization (EBITDA) growth, and projected long-term growth rates in the determination of terminal values. If the carrying amount of the reporting unit is greater than its fair value, goodwill is considered impaired and step two must be performed. Step two measures the impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets and liabilities of that unit (including unrecognized intangibles) as if the reporting unit had been acquired in a business combination. The excess of fair value over the amounts allocated to the assets and liabilities of the reporting unit is the implied fair value of goodwill. The excess of the carrying amount over the implied fair value is the impairment loss.
We estimate the fair value of our reporting units using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. We discount the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multiples in the valuation estimate. Multiples are derived by relating the value of guideline companies, based on either the market price of publicly traded shares or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of the reporting unit in developing the valuation estimate.
Preparation of forecasts and the selection of the discount rates involve significant judgments about expected future business performance and general market conditions. Significant changes in forecasts, the discount rates selected or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.impaired.
Based on the goodwill asset impairment analysis performed quantitatively onas of October 1, 2016,2019, we determined that the fair value of each of our reporting units iswas in excess of the carrying value. No events or changes in circumstances have occurred since the date of ourthis most recent annual impairment test that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
We also evaluate indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. We also test for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived
intangible asset is below its carrying amount. Estimates critical to our evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in our evaluation of trade names, projected average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
We also regularly evaluate the carrying value of our equity method investment,investments, which isare not carried at fair value, for other-than-temporary impairment. We estimatehave elected to measure certain investments in equity instruments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for similar investments of the issuer. Investments classified as trading securities are carried at fair value of our equity method investment using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. We discount the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multipleswith any unrealized gain or loss being recorded in the valuation estimate. Multiples are derived by relating the valueConsolidated Statements of guideline companies, based on either the market price of publicly traded sharesIncome.
or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of our equity method investment in developing the valuation estimate. During the fourth quarters of 2016 and 2015, we determined that the performance improvement initiatives in our equity method investment in Masternaut Group Holdings Limited ("Masternaut") will take longer and be more challenging to implement than originally projected, based on revised cash flow projections provided by the business. As a result, we have recorded a $36.1 million and $40 million non-cash impairment charge in our equity method investment for 2016 and 2015, respectively.
Income taxes
taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We have elected to treat the Global Intangible Low Taxed Income (GILTI) inclusion as a current period expense.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences becamebecome deductible. OnWe evaluate on a quarterly basis we evaluate whether it is more likely than not that our deferred tax assets will be realized in the future and conclude whether a valuation allowance must be established.
We do not provide deferred taxes for the undistributed earnings of our foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States in accordance with relevant authoritative literature. If in the future these earnings are repatriated to the United States, or if we determine that the earnings will be remitted in the foreseeable future, additional tax provisions may be required.
Current guidance clarifies the accountingaccount for uncertainty in income taxes recognized in an entity’s financial statements and prescribes thresholdprescribe thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under the relevant authoritative literature, theThe impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 percent likelihood of being sustained. We include any estimated interest and penalties on tax related matters in income tax expense. See Note 13 in the accompanying financial statements for further information regarding income taxes.
Business combinations. Business combinations
We completed by us have been accounted for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined as of the acquisition date and changes thereafter reflected in income.date. For significant acquisitions, we obtain independent third partythird-party valuation studies for certain of the assets acquired and liabilities assumed to assist us in determining fair value. Goodwill represents the excess of the purchase price over the fair valuevalues of the tangible and intangible assets acquired and liabilities assumed. The results of the acquired businesses are included in our results of operations beginning from the completion date of the applicable transaction.
Estimates of fair value are revised during an allocation period as necessary when, and if, information becomes available to further define and quantify the fair value of the assets acquired and liabilities assumed. Provisional estimates of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the final amounts recorded. The allocation period does not exceed one year from the date of the acquisition. To the extent additional information to refine the original allocation becomes available during the allocation period, the allocation of the purchase price is adjusted. Should information become available after the allocation period, those items are adjusted through operating results. The direct costs of the acquisition are recorded as operating expenses. Certain acquisitions include contingent consideration related to the performance of the acquired operations following the acquisition. Contingent consideration is recorded at estimated fair value at the date of the acquisition, and is remeasured each reporting period, with any changes in fair value recorded in the consolidated statementsConsolidated Statements of income.Income. We estimate the fair value of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities.
Stock-based compensation
compensation. We account for employee stock options and restricted stock in accordance with relevant authoritative literature. Stock options are granted with an exercise price estimated to be equal to the fair market value on the date of grant as authorized by our board of directors. Options granted have vesting provisions ranging from one to six years.five years and vesting of the options is generally based on the passage of time or performance. Stock option grants are subject to forfeiture if employment terminates prior to vesting. We have selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards granted.awards. We have considered the retirement and forfeiture provisions of the options and utilized our historical experience to estimate the expected life of the options. Option forfeitures are accounted for upon occurrence. We base the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Stock-based compensation cost is measured at the grant date based on the value of the award and is
recognized as expense over the requisite service period based on the number of years for which the requisite service is expected to be rendered.
Awards of restricted stock and restricted stock units are independent of stock option grants and are subject to forfeiture if employment terminates prior to vesting. The vesting of shares granted is generally based on the passage of time, performance or market conditions, or a combination of these. Shares vesting based on the passage of time have vesting provisions of one year.to four years. The fair value of restricted stock shares where the shares vest based on the passage of time or performance is based on the grant date fair value of our stock. The fair value of restricted stock sharesunits granted with market based on marketvesting conditions is estimated using the Monte Carlo option pricingsimulation valuation model. The risk-free interest rate and volatility assumptions used within the Monte Carlo option
pricingsimulation valuation model are calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the stock option awards.
For performance-based restricted stock awards and performance based stock option awards, we must also make assumptions regarding the likelihood of achieving performance goals. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.
AdoptionDerivatives. We use derivatives to minimize our exposures related to changes in interest rates and facilitate cross-currency corporate payments by writing derivatives to customers.
We are exposed to the risk of New Accounting Standardschanging interest rates because our borrowings are subject to variable interest rates. In order to mitigate this risk, we utilize derivative instruments. Interest rate swap contracts designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We hedge a portion of our variable rate debt utilizing derivatives designated as cash flow hedges.
Going ConcernChanges in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other assets or other noncurrent liabilities and offset against accumulated other comprehensive income/loss, net of tax. Derivative fair value changes that are recorded in accumulated other comprehensive income/loss are reclassified to earnings in the same period or periods that the hedged item affects earnings, to the extent the derivative is effective in offsetting the change in cash flows attributable to the hedged risk. The portions of the change in fair value that are either considered ineffective or are excluded from the measure of effectiveness are recognized immediately within earnings.
In August 2013,our cross-border payments business, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-15 “Disclosuremajority of Uncertainties About an Entity’s Abilityrevenue is from exchanges of currency at spot rates, which enables customers to Continuemake cross-currency payments. In addition, we write foreign currency forward and option contracts for our customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. We aggregate our foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, as a Going Concern”, which requires entitiesnecessary, and economically hedge the net currency risks by entering into offsetting derivatives with established financial institution counterparties. The changes in fair value related to perform interim and annual assessmentsthese derivatives are recorded in revenues, net in the Consolidated Statements of the entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. This ASU is effective for fiscal years ending after December 15, 2016 and interim periods thereafter, with early adoption permitted. Our adoption of this ASU did not have a material impact on the results of operations, financial condition, or cash flows, as it is disclosure based.Income.
Simplification of Guidance on Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-3, “Interest—Imputation of Interest”, which changes the presentation of debt issuance costsWe recognize all cross border payments derivatives in financial statements as a direct deduction from the related debt liability rather than as an asset. This ASU is effective for us for fiscal years ending after December 15, 2015 and interim periods. Early adoption is permitted. In August 2015, the FASB issued ASU 2015-15, “Interest-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which is effective immediately. The SEC staff clarified that entities may continue presenting unamortized debt issuance costs for line-of-credit arrangements as an asset.We adopted this new guidance on January 1, 2016. As a result of the adoption of this ASU, $0.6 million and $1.5 million of unamortized debt issuance costs were retrospectively adjusted from prepaid"prepaid expenses and other current assets to theassets" and "other current portion of notes payable and lines of credit and other assets to notes payable and other obligations, less current portion, respectively,liabilities" in the ouraccompanying Consolidated Balance Sheet as of December 31, 2015.
Accounting for Employee Stock-Based Payment
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting", which requires excess tax benefits recognized on stock-based compensation expense be reflectedSheets at their fair value. All cash flows associated with derivatives are included in cash flows from operating activities in the consolidated statements of operations as a component of the provision for income taxes on a prospective basis. ASU 2016-09 also requires excess tax benefits recognized on stock-based compensation expense be classified as an operating activity in the consolidated statements of cash flows rather than a financing activity. Companies can elect to apply this provision retrospectively or prospectively. ASU 2016-09 also requires entities to elect whether to account for forfeitures as they occur or estimate expected forfeitures over the course of a vesting period. This ASU is effective for us for annual periods beginning after December 15, 2016. Early adoption is permitted.
During the third quarter of 2016, we elected to early adopt ASU 2016-09. The adoption of this ASU resulted in excess tax benefits being recorded as a reduction of income tax expense prospectively for all periods during 2016, rather than additional paid in capital, and an increase in the number of dilutive shares outstanding at the end of each period, which resulted in an increase to diluted earnings per share during the respective period. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in our consolidated statements of cash flows on a prospective basis within changes in accounts payable, accrued expenses and customer deposits. In accordance with ASU 2016-09, prior periods related to the classification of excess tax benefits have not been adjusted. We also elected to account for forfeitures as they occur, rather than estimate expected forfeitures over the course of a vesting period. As a result of the adoption of ASU 2016-09, the net cumulative effect of this change was not material.
The following table shows the impact of retrospectively applying ASU 2016-09 to the previously issued consolidated statements of operations for the three month period ended March 31 and the three and six month periods ended June 30 (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2016 | | Three Months Ended June 30, 2016 |
| | | As Previously Reported | | Adjustments | | As Recast | | As Previously Reported | | Adjustments | | As Recast |
| Income before income taxes | | $ | 156,912 |
| | $ | — |
| | $ | 156,912 |
| | $ | 162,348 |
| | $ | — |
| | $ | 162,348 |
|
| Provision for income taxes | | 46,940 | | (1,118 | ) | | 45,822 |
| | 48,163 |
| | (2,068 | ) | | 46,095 |
|
| Net income | | $ | 109,972 |
| | $ | 1,118 |
| | $ | 111,090 |
| | $ | 114,185 |
| | $ | 2,068 |
| | $ | 116,253 |
|
| Earnings per share: | | | | | | | | | | | | |
| Basic earnings per share | | $ | 1.19 |
| | $ | 0.01 |
| | $ | 1.20 |
| | $ | 1.23 |
| | $ | 0.02 |
| | $ | 1.25 |
|
| Diluted earnings per share | | $ | 1.17 |
| | $ | — |
| | $ | 1.17 |
| | $ | 1.21 |
| | $ | 0.01 |
| | $ | 1.22 |
|
| Weighted average common shares outstanding: | | | | | | | | | | | | |
| Basic | | 92,516 |
| | — |
| | 92,516 |
| | 92,665 |
| | — |
| | 92,665 |
|
| Diluted | | 94,329 |
| | 701 |
| | 95,030 |
| | 94,549 |
| | 729 |
| | 95,279 |
|
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2016 |
| | | As Previously Reported | | Adjustments | | As Recast |
| Income before income taxes | | $ | 319,260 |
| | $ | — |
| | $ | 319,260 |
|
| Provision for income taxes | | 95,103 |
| | (3,186 | ) | | $ | 91,917 |
|
| Net income | | $ | 224,157 |
| | $ | 3,186 |
| | $ | 227,343 |
|
| Earnings per share: | | | | | | |
| Basic earnings per share | | $ | 2.42 |
| | $ | 0.04 |
| | $ | 2.46 |
|
| Diluted earnings per share | | $ | 2.37 |
| | $ | 0.02 |
| | $ | 2.39 |
|
| Weighted average common shares outstanding: | | | | | | |
| Basic | | 92,591 |
| | — |
| | 92,591 |
|
| Diluted | | 94,437 |
| | 700 |
| | 95,137 |
|
The following table shows the impact of retrospectively applying this guidance to the Consolidated StatementStatements of Cash flows for the three months ended March 31, 2016 and six months ended June 30, 2016 (in thousands):Flows.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2016 | | Six Months Ended June 30, 2016 |
| | | As Previously Reported | | Adjustments | | As Recast | | As Previously Reported | | Adjustments | | As Recast |
| Net cash provided by operating activities | | $ | 121,505 |
| | $ | 1,118 |
| | $ | 122,623 |
| | $ | 208,856 |
| | $ | 3,186 |
| | $ | 212,042 |
|
| Net cash used in investing activities | | (20,745 | ) | | — |
| | (20,745 | ) | | (37,924 | ) | | — |
| | (37,924 | ) |
| Net cash used in financing activities | | (157,389 | ) | | (1,118 | ) | | (158,507 | ) | | (118,303 | ) | | (3,186 | ) | | (121,489 | ) |
| Effect of foreign currency exchange rates on cash | | 8,795 |
| | — |
| | 8,795 |
| | (6,696 | ) | | — |
| | (6,696 | ) |
| Net (decrease) increase in cash | | $ | (47,834 | ) | | $ | — |
| | $ | (47,834 | ) | | $ | 45,933 |
| | $ | — |
| | $ | 45,933 |
|
| | | | | | | | | | | | | |
Simplification of Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. This ASU is effective for us for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. During the fourth quarter of 2016, we elected to early adopt ASU 2015-17 on a
prospective basis and prior periods were not retrospectively adjusted. Our adoption of this ASU did not have a material impact on the results of operations, financial condition, or cash flows.
Pending Adoption of Recently IssuedNew Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standardsstandard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company’s management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers”, which amends the guidance in former ASC 605, Revenue Recognition. This amended guidance requires revenue to be recognized in an amount that reflects the consideration to which the company expects to be entitled for those goods and services when the performance obligation has been satisfied. This amended guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which defers the effective date of the new revenue recognition standard by one year. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, which clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10, "Identifying Performance Obligations and Licensing", which clarifies the accounting for intellectual property licenses and identifying performance obligations. In May 2016, the FASB issued ASU 2016-11, "Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting", which rescinds certain SEC guidance in response to announcements made by the SEC staff at the EITF's March 3, 2016 meeting and ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients", which clarifies the guidance on collectibility, non-cash consideration, the presentation of sales and other similar taxes collected from customers and contract modifications and completed contracts at transition. Additionally, ASU 2016-12 clarifies that entities electing the full retrospective transition method would no longer be required to disclose the effect of the change in accounting principle on the period of adoption; however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted. These ASUs are effective for us for reporting periods beginning after December 15, 2017, but permit companies the option to adopt as of the original effective date. We are currently evaluating the impact of the provisions of ASC 606. In 2016, we continued our assessment of the new standard with a focus on identifying the performance obligations included within our revenue arrangements with customers and evaluating our methods of estimating the amount of and timing of variable consideration. The guidance permits the use of either a retrospective or cumulative effect transition method. We anticipate selecting the modified retrospective method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in process as of the adoption date. Under this method, we would not restate the prior financial statements presented, therefore the new standard requires us to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any. We are continuing our assessment to evaluate the impact of the provisions of ASC 606 on the results of operations, financial condition, and cash flows.
Accounting for Leases
Leases. In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. This ASU also requires disclosures to provide additional information about the amounts recorded in the financial statements. ThisEffective January 1, 2019, we adopted Topic 842 using a modified retrospective approach, as discussed further in Footnote 14.
Accounting for Derivative Financial Instruments. In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which amends the hedge accounting recognition and presentation requirements in ASC 815. The FASB issued accounting guidance to better align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and improve the disclosures of hedging arrangements. The guidance is effective for us for annualreporting periods beginning after December 15, 2018, and interim periods therein. Early adoptionwithin
those years. We adopted this guidance on January 1, 2019, which did not have a material impact on our results of operations, financial condition, or cash flows. The guidance did simplify the accounting for interest rate swap hedges, allowing more time for the initial hedge effectiveness documentation and a qualitative hedge effectiveness assessment at each quarter end.
In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate, Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes", which amends the hedge accounting to add overnight index swap rates based on the secured overnight financing rate as a fifth U.S. benchmark interest rate. We adopted this guidance on January 1, 2019, which did not have a material impact on our results of operations, financial condition, or cash flows.
Comprehensive Income Classification. In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", that gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the "Tax Act"). An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the Tax Act’s change in U.S. federal tax rate for all items accounted for in other comprehensive income. These entities can also elect to reclassify other stranded effects that relate to the Tax Act but do not directly relate to the change in the federal rate. We adopted this guidance on January 1, 2019 and elected to not reclassify any items to retained earnings.
Non-Employee Share-Based Payments. In June 2018, the FASB issued ASU 2018-07, "Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting", that supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. Under the new guidance, the existing employee guidance will apply to non-employee share-based transactions (as long as the transaction is permitted.not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of non-employee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for non-employee awards. We adopted this guidance on January 1, 2019, which had no impact on our results of operations, financial condition, or cash flows.
Pending Adoption of Recently Issued Accounting Standards
Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies measure and recognize credit impairment for many financial assets. The new standard mustexpected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The ASU is effective for the Company on January 1, 2020.
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. For clarifications around credit losses, the effective date will be the same as the effective date in ASU 2016-13. For entities that have adopted using a modified retrospective transitionASU 2017-12, "Derivatives and requires applicationHedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", ASU 2019-04 is effective the first annual reporting period beginning after the date of issuance of ASU 2019-04 and may be early adopted. The amendments in ASU 2019-04 related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Upon adoption of the new guidancestandard on January 1, 2020, we will recognize an allowance for leases that exist or are entered into aftercredit losses based on the beginning of the earliest comparative period presented.estimated lifetime expected credit loss related to our financial assets. We are currently evaluatinganalyzing our credit policies and updating our accounting policies and internal controls that will be impacted by the impactnew guidance. We do not anticipate that the adoption of this ASUnew standard will have a material impact on the results of operations, financial condition, or cash flows.flows due to the relatively fast turnover of our trade receivables accounts and limited other asset balances to which this standard applies.
Accounting for Breakage
In March 2016,Cloud Computing Arrangements. On August 29, 2018, the FASB issued ASU 2016-04, “Liabilities-Extinguishments2018-15, "Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", that provides guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The ASU, which was released in response to a consensus reached by the EITF at its June 2018 meeting, aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products”,a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which requires entities that sell prepaid stored value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage. This ASUimplementation costs should be capitalized in such a CCA. The guidance is effective for usthe Company for reporting periodsfiscal years beginning after December 15, 2017. Early adoption is permitted.2019, including interim periods within those fiscal years. The ASU mustguidance should be adopted usingapplied either a modified retrospective approach with a cumulative effect adjustmentretrospectively or prospectively to retained earnings asall implementation costs incurred after the date of adoption. We are updating the beginning ofaccounting policies and internal controls that will be impacted by the
period of adoption or a full retrospective approach. new guidance. Our adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Cash Flow Classification
InFair Value Measurement. On August 2016,28, 2018, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments"2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement", which amends the guidanceremoves, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 230, Statement of Cash Flows. This amended820. The guidance reduces the diversity in practice that has resulted from the lack of consistent principles related to the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for the Companyus for reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Entities must apply2019. The guidance on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other guidance should be applied retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable.upon their effective date. Our adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.
In November 2016,Income Taxes. On December 18, 2019, the FASB issued ASU 2016-18, "Statement of Cash Flows2019-12, Income Taxes (Topic 230): Restricted Cash"740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which amendsremoves certain exceptions to the guidancegeneral principles of ASC 740 and simplifies other areas in ASC 230, Statement of Cash Flows, onorder to simplify its application. For public business entities, the classification and presentation of restricted cash in the statement of cash flows. This ASU isamendments are effective for the Company for reporting periodsfiscal years beginning after December 15, 2017. Early2020, including interim periods within those fiscal years, with early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments inWe do not expect this ASU should be applied using a retrospective transition method to each period presented. Our adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Contractual obligationsObligations
The table below summarizes the estimated dollar amounts of payments under contractual obligations identified below as of December 31, 20162019 for the periods specified:
| | | | | | | Payments due by period(a) | | | | Payments due by period(a) |
| (in millions) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| Credit Facility | | $ | 3,254.3 |
| | $ | 745.5 |
| | $ | 2,271.8 |
| | $ | 237.0 |
| | $ | — |
| | $ | 4,023.8 |
| | $ | 764.4 |
| | $ | 324.2 |
| | $ | 2,935.2 |
| | $ | — |
|
| Securitization Facility | | 591.0 |
| | 591.0 |
| | — |
| | — |
| | — |
| | 971.0 |
| | 971.0 |
| | — |
| | — |
| | — |
|
| Estimated interest payments- Credit Facility(c) | | 206.6 |
| | 81.3 |
| | 125.3 |
| | — |
| | — |
| |
| Estimated interest payments - Credit Facility (b) | | | 448.0 |
| | 118.6 |
| | 221.1 |
| | 108.3 |
| | — |
|
Estimated interest payments- Securitization Facility(c)(b) | | 10.0 |
| | 10.0 |
| | — |
| | — |
| | — |
| | 22.8 |
| | 22.8 |
| | — |
| | — |
| | — |
|
| Operating leases | | 81.8 |
| | 18.2 |
| | 25.0 |
| | 15.6 |
| | 23.0 |
| | 117.3 |
| | 19.8 |
| | 32.3 |
| | 26.2 |
| | 39.0 |
|
Deferred purchase price(b) | | 3.0 |
| | 3.0 |
| | — |
| | — |
| | — |
| | 2.7 |
| | 2.2 |
| | 0.5 |
| | — |
| | — |
|
| Other(b) | | 12.9 |
| | — |
| | 11.8 |
| | 0.2 |
| | 1.0 |
| |
| Estimated interest payments - Swaps (c) | | | 42.3 |
| | 15.1 |
| | 23.3 |
| | 3.9 |
| | — |
|
| Other(d) | | | 41.5 |
| | 11.5 |
| | 30.0 |
| | — |
| | — |
|
| Total | | $ | 4,159.6 |
|
| $ | 1,449.0 |
|
| $ | 2,433.8 |
|
| $ | 252.9 |
|
| $ | 24.0 |
| | $ | 5,669.4 |
|
| $ | 1,925.4 |
|
| $ | 631.4 |
|
| $ | 3,073.6 |
|
| $ | 39.0 |
|
______________________
| |
| (a) | Deferred income tax liabilities as of December 31, 20162019 were approximately $666.1$517.3 million. Refer to Note 1113 to our auditedaccompanying consolidated financial statements. This amount is not included in the total contractual obligations table because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax bases of assets and liabilities and their respective book bases, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, as this scheduling would not relate to liquidity needs. |
would not relate to liquidity needs. At December 31, 2019, we had approximately $42.8 million of unrecognized income tax benefits related to uncertain tax positions. We cannot reasonably estimate when all of these unrecognized income tax benefits may be settled. We do not expect reductions to unrecognized income tax benefits within the next 12 months as a result of projected resolutions of income tax uncertainties.
| |
| (b) | The long-term portion of contingent consideration agreements and deferred purchase price payments are included with ‘other debt’ in the detail of our debt instruments disclosed in Note 10 to our audited consolidated financial statements. To reconcile the amount of ‘other debt’ as disclosed in the footnote to the contractual obligations table above, the long-term portion of deferred purchase price payments should be combined with ‘Other’. |
| |
(c) | We draw upon and pay down on the revolver within our New Credit Agreement and our Securitization Facility borrowings outside of a normal schedule, as excess cash is available. For our variable rate debt, we have assumed the December 31, 20162019 interest rates to calculate the estimated interest payments, for all years presented. This analysis also assumes that outstanding principal is held constant at the December 31, 20162019 balances for our New Credit Agreement and Securitization Facility, except for mandatory pay downs on the term loans in accordance with the loan documents. We typically expect to settle such interest payments with cash flows from operating activities and/or other short-term borrowings. |
| |
| (c) | For our interest rate swap cash flow contracts (the "swap contracts"), we have used the fixed interest rate on each swap less the one month LIBOR rate in effect on our term loans at December 31, 2019, to calculate the estimated interest payments, for all years presented. |
| |
| (d) | The long-term portion of contingent consideration agreements and Cambridge seller note due within the next 12 months is included with ‘other debt’ in the detail of our debt instruments disclosed in Note 11 to our accompanying consolidated financial statements. |
Management’s Use of Non-GAAP Financial Measures
We have included in the discussion above certain financial measures that were not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors.
Adjusted revenues
Pro forma and macro adjusted revenue and transactions by product. We have defineddefine the non-GAAP measurepro forma and macro adjusted revenuesrevenue as revenues,revenue, net less merchant commissions as reflected in our statement of income, statement.
adjusted to eliminate the impact of the macroeconomic environment and the impact of acquisitions, dispositions and the impact of adoption of ASC 606. The macroeconomic environment includes the impact that market fuel spread margins, fuel prices and foreign exchange rates have on our business. We use pro forma and macro adjusted revenues as a basisrevenue and transactions to evaluate our revenues, net of the commissions that are paid to merchants to participateorganic growth in our card programs. The commissions paid to merchants can vary when market spreads fluctuate in muchrevenue and the same way as revenues are impacted when market spreads fluctuate. We believe that adjusted revenue is an appropriate supplemental measure of financial performance and may be useful to investors to understanding our revenue performance on a consistent basis. Adjusted revenues are not intended to be a substitute for GAAP financial measures and should not be used as such.
associated transactions. Set forth below is a reconciliation of pro forma and macro adjusted revenuesrevenue and transactions to the most directly comparable GAAP
measure, revenues,revenue, net and transactions (in thousands)millions): |
| | | | | | | | | | | | | | |
| | | Revenue | | Key Performance Indicators |
| | | Year Ended December 31,* | | Year Ended December 31,* |
| (Unaudited) | | 2019 |
| 2018 | | 2019 | | 2018 |
| FUEL - TRANSACTIONS | | | | | | | | |
| Pro forma and macro adjusted | | $ | 1,180 |
| | $ | 1,079 |
| | 499 |
| | 494 |
|
| Impact of acquisitions/dispositions | | 11 |
| | 46 |
| | 3 |
| | 18 |
|
| Impact of fuel prices/spread | | 2 |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | (19 | ) | | — |
| | — |
| | — |
|
| As reported | | $ | 1,173 |
| | $ | 1,126 |
| | 502 |
| | 512 |
|
| | | | | | | | | |
| CORPORATE PAYMENTS - TRANSACTIONS | | | | | | | | |
| Pro forma and macro adjusted | | $ | 521 |
| | $ | 433 |
| | 56 |
| | 50 |
|
| Impact of acquisitions/dispositions | | — |
| | (17 | ) | | — |
| | — |
|
| Impact of fuel prices/spread | | — |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | (4 | ) | | — |
| | — |
| | — |
|
| As reported | | $ | 516 |
| | $ | 416 |
| | 56 |
| | 49 |
|
| | | | | | | | | |
| CORPORATE PAYMENTS - SPEND | | | | | | | | |
| Pro forma and macro adjusted | | Intentionally Left Blank | | 74,366 |
| | 56,736 |
|
| Impact of acquisitions/dispositions | | | — |
| | (993 | ) |
| Impact of fuel prices/spread | | | — |
| | — |
|
| Impact of foreign exchange rates | | | (930 | ) | | — |
|
| As reported | | | 73,437 |
| | 55,744 |
|
| TOLLS - TAGS | | | | | | |
| Pro forma and macro adjusted | | $ | 387 |
| | $ | 333 |
| | 5.1 |
| | 4.7 |
|
| Impact of acquisitions/dispositions | | — |
| | — |
| | — |
| | — |
|
| Impact of fuel prices/spread | | — |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | (30 | ) | | — |
| | — |
| | — |
|
| As reported | | $ | 357 |
| | $ | 333 |
| | 5.1 |
| | 4.7 |
|
| | | | | | | | | |
| LODGING - ROOM NIGHTS | | | | | | | | |
| Pro forma and macro adjusted | | $ | 213 |
| | $ | 189 |
| | 19 |
| | 21 |
|
| Impact of acquisitions/dispositions | | — |
| | (13 | ) | | — |
| | (2 | ) |
| Impact of fuel prices/spread | | — |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | — |
| | — |
| | — |
| | — |
|
| As reported | | $ | 213 |
| | $ | 176 |
| | 19 |
| | 19 |
|
| | | | | | | | | |
| GIFT - TRANSACTIONS | | | | | | | | |
| Pro forma and macro adjusted | | $ | 180 |
| | $ | 193 |
| | 1,274 |
| | 1,385 |
|
| Impact of acquisitions/dispositions | | — |
| | (7 | ) | | — |
| | (1 | ) |
| Impact of fuel prices/spread | | — |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | — |
| | — |
| | — |
| | — |
|
| As reported | | $ | 180 |
| | $ | 187 |
| | 1,274 |
| | 1,384 |
|
| | | | | | | | | |
OTHER1 - TRANSACTIONS | | | | | | | | |
| Pro forma and macro adjusted | | $ | 219 |
| | $ | 201 |
| | 56 |
| | 55 |
|
| Impact of acquisitions/dispositions | | — |
| | (3 | ) | | — |
| | (5 | ) |
| Impact of fuel prices/spread | | — |
| | — |
| | — |
| | — |
|
| Impact of foreign exchange rates | | (9 | ) | | — |
| | — |
| | — |
|
| As reported | | $ | 210 |
| | $ | 197 |
| | 56 |
| | 50 |
|
| | | | | | | | | |
| FLEETCOR CONSOLIDATED REVENUES | | | | | | | | |
| Pro forma and macro adjusted | | $ | 2,700 |
| | $ | 2,428 |
| | Intentionally Left Blank |
| Impact of acquisitions/dispositions | | 11 |
| | 6 |
| |
| Impact of fuel prices/spread | | 2 |
| | — |
| |
| Impact of foreign exchange rates | | (64 | ) | | — |
| |
| As reported | | $ | 2,649 |
| | $ | 2,434 |
| |
* Columns may not calculate due to rounding.
1 Other includes telematics, maintenance, food and transportation related businesses. |
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | | 2014 |
| Revenues, net | | $ | 1,831,546 |
| | $ | 1,702,865 |
| | $ | 1,199,390 |
|
| Merchant commissions | | 104,345 |
| | 108,257 |
| | 96,254 |
|
| Total adjusted revenues | | $ | 1,727,201 |
| | $ | 1,594,608 |
| | $ | 1,103,136 |
|
Adjusted net income and adjusted net income per diluted share
share. We have defined the non-GAAP measure adjusted net income as net income as reflected in our statement of income, adjusted to eliminate (a) non-cash stock-basedstock based compensation expense related to share-basedshare based compensation awards, (b) amortization of deferred financing costs, discounts and intangible assets, (c) amortization of the premium recognized on the purchase of receivables, (d) loss on the early extinguishment of debt, (e)and our proportionate share of amortization of intangible assets at our equity method investment, (f)and (c) other non-recurring items, such as the impact of the Tax Act, impairment of equity method investment, (g) non-recurring net gain at equity method investment,asset write-offs, restructuring costs, gains and (h) other non-cash adjustments.related taxes due to disposition of assets and a business, loss on extinguishment of debt, legal settlements/litigation, and the unauthorized access impact.
We have defined the non-GAAP measure adjusted net income per diluted share as the calculation previously noted divided by the weighted average diluted shares outstanding as reflected in our statement of income.
We use adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. We believe it is useful to exclude non-cash stockshare based compensation expense from adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time and stockshare based compensation expense is not a key measure of our core operating performance. We also believe that amortization expense can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired. Therefore,acquired; therefore, we have excluded amortization expense from our adjusted net income. We also believe one-time non-recurring gains, losses, and impairment charges do not necessarily reflect how our investments and business are performing. We believe that adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be usedconsidered as such.an alternative to net income or cash flow from operations, as determined by U.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies.
Set forth below is a reconciliation of adjusted net income and adjusted net income per diluted share to the most directly comparable GAAP measure, net income and net income per diluted share (in thousands, except per share amounts)*:
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 20164 | | | | 2015 | | | | 2014 | |
| Net income | | $ | 452,385 |
| | | | $ | 362,431 |
| | | | $ | 368,707 |
| |
| Net income per diluted share | | $ | 4.75 |
| | | | $ | 3.85 |
| | | | $ | 4.24 |
| |
| Stock based compensation | | 63,946 |
| | | | 90,122 |
| | | | 37,649 |
| |
| Amortization of intangible assets | | 161,635 |
| | | | 159,740 |
| | | | 86,149 |
| |
| Amortization of premium on receivables | | 5,165 |
| | | | 3,250 |
| | | | 3,259 |
| |
| Amortization of deferred financing costs and discounts | | 7,582 |
| | | | 7,049 |
| | | | 2,796 |
| |
| Amortization of intangibles at equity method investment | | 10,093 |
| | | | 10,665 |
| | | | 7,982 |
| |
| Loss on extinguishment of debt | | — |
| | | | — |
| | | | 15,764 |
| |
| Non-recurring net gain at equity method investment | | (10,845 | ) | | | | — |
| | | | — |
| |
| Impairment of equity method investment | | 36,065 |
| | | | 40,000 |
| | | | — |
| |
| Other non-cash adjustments | | — |
| | | | — |
| | | | (28,869 | ) | 2 |
| Total pre-tax adjustments | | 273,641 |
| | | | 310,826 |
| | | | 124,730 |
| |
| Income tax impact of pre-tax adjustments at the effective tax rate* | | (66,850 | ) | |
| | (80,632 | ) | | 3 | | (45,767 | ) | 1 |
| Adjusted net income | | $ | 659,176 |
| | | | $ | 592,625 |
| | | | $ | 447,670 |
| |
| Adjusted net income per diluted share | | $ | 6.92 |
| | | | $ | 6.30 |
| | | | $ | 5.15 |
| |
| Diluted shares | | 95,213 |
| | | | 94,139 |
| | | | 86,982 |
| |
|
| | | | | | | | |
| | | Year Ended December 31,* |
| (Unaudited) | | 2019 | | 2018 |
| Net income | | $ | 895,073 |
| | $ | 811,483 |
|
| Stock based compensation | | 60,953 |
| | 69,939 |
|
| Amortization of intangible assets, premium on receivables, deferred financing costs and discounts | | 216,532 |
| | 227,015 |
|
| Investment losses | | 2,705 |
| | 7,147 |
|
| Net gain on disposition of assets/business | | — |
| | (152,750 | ) |
| Loss on write-off of fixed assets | | 1,819 |
| | 8,793 |
|
| Loss on extinguishment of debt | | — |
| | 2,098 |
|
| Legal settlements/litigation | | 6,181 |
| | 5,500 |
|
| Restructuring and related costs | | 2,814 |
| | 4,969 |
|
| Unauthorized access impact | | — |
| | 2,065 |
|
| Total pre-tax adjustments | | 291,004 |
| | 174,777 |
|
Income tax impact of pre-tax adjustments at the effective tax rate1 | | (61,619 | ) | | (39,151 | ) |
Impact of investment sale, other discrete item and tax reform2 | | (62,333 | ) | | 22,731 |
|
| Adjusted net income | | $ | 1,062,125 |
| | $ | 969,840 |
|
| Adjusted net income per diluted share | | $ | 11.79 |
| | $ | 10.53 |
|
| Diluted shares | | 90,070 |
| | 92,151 |
|
1The effective tax rate used to calculate the income tax impact of pre-tax adjustments during 2014 excludes the impact of a $9.5 million discrete tax benefit, as well as other non-cash adjustments and their related income tax expense. |
|
1Includes discrete tax effect of non-cash investment gain. Also excludes impact of a Section 199 tax adjustment related to a prior tax year on the 2019 effective income tax rate. |
2Represents the impact to taxes from the reversal of a valuation allowance related to the disposition of our investment in Masternaut of $64.9 million and $0.8 million in the second and fourth quarters of 2019, respectively, and impact of tax reform adjustments included in our effective tax rate of $22.7 million in the third quarter of 2018. Also, includes the impact of a discrete tax item for a Section 199 adjustment related to a prior tax year in the third quarter of 2019 results of $1.8 million. |
* Columns may not calculate due to rounding. |
2Other non-cash adjustments are unusual items reflecting adjustments to purchase accounting entries for contingent consideration and tax indemnifications for our 2013 acquisitions of DB and VB in Brazil.
3The effective tax rate utilized excludes the impact of a one-time tax benefit recognized during 2015 of approximately $0.8 million, as well as adjustments related to our equity method investment for all periods presented.
4Reflects the impact of the Company's adoption of Accounting Standards Update 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting", to simplify several aspects of the accounting for the share-based compensation, including the income tax consequences.
*Excludes the results of our equity method investment on our effective tax rate, as results from our equity method investment are reported within the Consolidated Income Statements on a post-tax basis and no tax-over-book outside basis differences related to our equity method investment reversed during 2016.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk
Foreign Earnings
Our International segment exposes us to foreign currency exchange rate changes that can impact translations of foreign-denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. Revenue from our International segment was 30.2%35.5%, 27.7%35.4% and 44.3%36.5% of total revenue for the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, respectively. We measure foreign currency exchange risk based on changes in foreign currency exchange rates using a sensitivity analysis. The sensitivity analysis measures the potential change in earnings based on a hypothetical 10% change in currency exchange rates. Exchange rates and currency positions as of December 31, 20162019 were used to perform the sensitivity analysis. Such analysis indicated that a hypothetical 10% change in foreign currency exchange rates would have increased or decreased consolidated operating income during the year ended December 31, 20162019 by approximately $24.8$47.6 million had the U.S. dollar exchange rate increased or decreased relative to the currencies to which we had exposure. When exchange rates and currency positions as of December 31, 20152018 and 20142017 were used to perform this sensitivity analysis, the analysis indicated that a hypothetical 10% change in currency exchange rates would have increased or decreased consolidated operating income for the years ended December 31, 20152018 and 20142017 by approximately $22.5$41.7 million and $27.8$34.2 million, respectively. We have utilized International segment operating income as a proxy for foreign earnings.
Unhedged Cross-Currency Risk
With the acquisition of Cambridge in August 2017, we have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature of our international payments provider business. The majority of Cambridge's revenue is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, Cambridge also writes foreign currency forward and option contracts for customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. Cambridge aggregates its foreign exchange exposures arising from customer contracts, including the derivative contracts described above, and hedges (economic hedge) the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties.
Interest rate risk
We are exposed to changes inthe risk of changing interest rates on our cash investments and on the unhedged portion of our variable rate debt. As of December 31, 2019, we had $4.02 billion of variable rate debt outstanding under our Credit Agreement. See footnote 11 of the accompanying consolidated financial statement for information about the Credit Agreement. We investuse derivative financial instruments to reduce our excessexposure related to changes in interest rates. In January 2019, we entered into three interest rate swap cash eitherflow contracts with U.S. dollar notional amounts of $1 billion with a fixed rate of 2.56%, $500 million with a fixed rate of 2.56%, and $500 million with a fixed rate of 2.55% maturing on January 31, 2022, January 31, 2023 and December 19, 2023, respectively. For each of these swap contracts, we will receive one month LIBOR. While these agreements are intended to pay downlessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under U.S. GAAP. See footnote 17 of the accompanying consolidated financial statements for information about the swap contracts.
If market interest rates had increased or decreased an average of 100 basis points and assuming we had an outstanding balance on our Securitization Facility debt or in securities that we believe are highly liquidcredit facility and marketable in the short term. These investments are not held for trading or other speculative purposes. Under our $3.36 billion Credit Facility, we have syndicatedterm loans of $2.02 billion and $300 million term loan agreements with a syndicate of term loan A and term loan B investors in the United States, respectively, as well as a revolving A credit facility of $1.0 billion and a revolving B credit facility of $35not fixed by interest rate swap contracts at December 31, 2019, our interest expense would have changed by approximately $20.2 million. Interest on amounts outstanding under the Credit Agreement (other than the term loan B facility) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio.
Based on the amounts and mix of our fixed and floating rate debt (exclusive of our Securitization Facility) at December 31, 2016, 20152018 and 2014,2017, if market interest rates had increased or decreased an average of 100 basis points, our interest expense would have changed by $27.9 million, $26.2approximately $37.9 million and $31.6$34.7 million, respectively. We determined these amounts by considering the impact of the hypothetical interest rates on our borrowing costs. These analyses do not consider the effects of changes in the level of overall economic activity that could exist in such an environment.
Fuel price risk
Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A decline in retail fuel prices could cause a change in our revenue from several sources, including fees paid to us based on a percentage of each customer’s total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. The impact of changes in fuel price is somewhat mitigated by our agreements with certain merchants, where the price paid to the merchant is equal to the lesser of the merchant’s cost plus a markup or a percentage of the transaction purchase price. We do not enter into any fuel price derivative instruments.
Fuel-price spread risk
From our merchant and network relationships, we derive revenue from the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant or network for the same transaction. The price paid to a merchant or network is calculated as the merchant’s wholesale cost of fuel plus a markup. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the fuel merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant’s wholesale cost of fuel. Accordingly, if fuel-price spreads contract, we may generate less revenue, which could adversely affect our operating results. The impact of volatility in fuel spreads is somewhat mitigated by our agreements with certain merchants, where the price paid to the merchant is equal to the lesser of the merchant’s cost plus a markup or a percentage of the transaction purchase price.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Stockholders of FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FleetCorFLEETCOR Technologies, Inc. and subsidiaries (the Company) as of December 31, 20162019 and 2015, and2018, the related consolidated statements of income, comprehensive income, stockholders’shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. These2019, and the related notes (collectively referred to as the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FleetCor Technologies, Inc. and subsidiariesthe Company at December 31, 20162019 and 2015,2018, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2016,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), FleetCor Technologies, Inc. and subsidiaries’the Company's internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 20172, 2020 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, GeorgiaBasis for Opinion
March 1, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of FleetCor Technologies, Inc. and Subsidiaries
We have audited FleetCor Technologies, Inc. and subsidiaries’ internal control overThese financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued bystatements are the Committee of Sponsoring Organizationsresponsibility of the Treadway Commission (2013 framework) (the COSO criteria). FleetCor Technologies, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Company's management. Our responsibility is to express an opinion on the company’s internal control overCompany’s financial reportingstatements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control overthe financial reporting was maintainedstatements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in all material respects.the financial statements. Our auditaudits also included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the designaccounting principles used and operating effectivenesssignificant estimates made by management, as well as evaluating the overall presentation of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
A company’s internal control over financial reportingCritical Audit Matter
The critical audit matter communicated below is a process designed to provide reasonable assurance regardingmatter arising from the reliabilitycurrent period audit of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainwas communicated or required to be communicated to the maintenance of recordsaudit committee and that: (1) relates to accounts or disclosures that in reasonable detail, accuratelyare material to the financial statements and fairly reflect the transactions and dispositions(2) involved our especially challenging, subjective or complex judgments. The communication of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statementscritical audit matter does not alter in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effectany way our opinion on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Serviços e Tecnologia de Pagamentos S.A. and TravelCard Nederland B.V., which is included in the 2016 consolidated financial statements, of FleetCor Technologies, Inc.taken as a whole, and subsidiaries and constituted 18% of total assets as of December 31, 2016 and 5% of revenues forwe are not, by communicating the year then ended. Ourcritical audit of internal control over financial reporting of FleetCor Technologies, Inc. and subsidiaries also did not include an evaluation of the internal control over financial reporting of Serviços e Tecnologia de Pagamentos S.A. and TravelCard Nederland B.V..
In ourmatter below, providing a separate opinion FleetCor Technologies, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.critical audit matter or on the account or disclosures to which it relates.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FleetCor Technologies, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 of FleetCor Technologies, Inc. and subsidiaries and our report dated March 1, 2017 expressed an unqualified opinion thereon.
|
| | |
| | Valuation of Goodwill |
| Description of the Matter | | At December 31, 2019, the Company’s goodwill was $4.8 billion. As discussed in Note 2 to the consolidated financial statements, the Company completes an impairment test of goodwill at least annually or more frequently if facts and circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level and involves estimating the fair value of each identified reporting unit which is measured based upon, among other factors, a discounted cash flow analysis, as well as market multiples for comparable companies. Auditing the Company's estimate of reporting unit fair value involved a high degree of subjectivity as estimates underlying the determination of reporting unit fair value using the discounted cash flow model were based on significant assumptions that are sensitive to changes and are affected by expected future market and economic conditions. These assumptions included forecasts for Revenue, net, Earnings before Interest Taxes Depreciation and Amortization (EBITDA), and long-term growth rates as well as the discount rate, which reflected risk-based factors based on the reporting units’ geographical location and business risk. |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. For example, we tested controls over management’s review of the reporting units’ long-term growth rates and discount rates used in the determination of the reporting units’ estimated fair values. To test the estimated fair value of the Company’s reporting units, our audit procedures included, among others, assessing the methodologies used by the Company and testing the significant assumptions discussed above, inclusive of the underlying data used by the Company in its development of these assumptions. We involved our valuation specialists to assist us with these procedures. Our valuation specialists evaluated management’s estimation of the discount rates used in the reporting unit’s fair value calculations, performed a comparison of market multiples to observable transactions, and independently recalculated the discount rates for the respective reporting units. We also compared earnings forecasts to historical results and, for certain reporting units, to current industry and economic trends, and performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the significant assumptions. |
| | |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
Atlanta, Georgia
March 1, 20172, 2020
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts) | | | | | December 31, | | December 31, |
| | | 2016 | | 2015 | | 20191 | | 2018 |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 475,018 |
| | $ | 447,152 |
| | $ | 1,271,494 |
| | $ | 1,031,145 |
|
| Restricted cash | | 168,752 |
| | 167,492 |
| | 403,743 |
| | 333,748 |
|
| Accounts and other receivables (less allowance for doubtful accounts of $32,506 and $21,903, respectively) | | 1,202,009 |
| | 638,954 |
| |
| Accounts and other receivables (less allowance for doubtful accounts of $70,890 at December 31, 2019 and $59,963 at December 31, 2018) | | | 1,568,961 |
| | 1,425,815 |
|
| Securitized accounts receivable—restricted for securitization investors | | 591,000 |
| | 614,000 |
| | 970,973 |
| | 886,000 |
|
| Prepaid expenses and other current assets | | 90,914 |
| | 68,113 |
| | 403,400 |
| | 199,278 |
|
| Deferred income taxes | | — |
| | 8,913 |
| |
| Total current assets | | 2,527,693 |
| | 1,944,624 |
| | 4,618,571 |
| | 3,875,986 |
|
| Property and equipment | | 253,361 |
| | 163,569 |
| |
| Less accumulated depreciation and amortization | | (110,857 | ) | | (82,809 | ) | |
| Net property and equipment | | 142,504 |
| | 80,760 |
| |
| Property and equipment, net | | | 199,825 |
| | 186,201 |
|
| Goodwill | | 4,195,150 |
| | 3,546,034 |
| | 4,833,047 |
| | 4,542,074 |
|
| Other intangibles, net | | 2,653,233 |
| | 2,183,595 |
| | 2,341,882 |
| | 2,407,910 |
|
| Equity method investment | | 36,200 |
| | 76,568 |
| |
| Investments | | | 30,440 |
| | 42,674 |
|
| Other assets | | 71,952 |
| | 58,225 |
| | 224,776 |
| | 147,632 |
|
| Total assets | | $ | 9,626,732 |
|
| $ | 7,889,806 |
| | $ | 12,248,541 |
|
| $ | 11,202,477 |
|
| Liabilities and stockholders’ equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 1,151,432 |
| | $ | 669,528 |
| | $ | 1,249,586 |
| | $ | 1,117,649 |
|
| Accrued expenses | | 238,812 |
| | 150,677 |
| | 275,511 |
| | 261,594 |
|
| Customer deposits | | 530,787 |
| | 507,233 |
| | 1,007,631 |
| | 926,685 |
|
| Securitization facility | | 591,000 |
| | 614,000 |
| | 970,973 |
| | 886,000 |
|
| Current portion of notes payable and lines of credit | | 745,506 |
| | 261,100 |
| | 775,865 |
| | 1,184,616 |
|
| Other current liabilities | | 38,781 |
| | 44,936 |
| | 183,502 |
| | 118,669 |
|
| Total current liabilities | | 3,296,318 |
|
| 2,247,474 |
| | 4,463,068 |
|
| 4,495,213 |
|
| Notes payable and other obligations, less current portion | | 2,521,727 |
| | 2,059,900 |
| | 3,289,947 |
| | 2,748,431 |
|
| Deferred income taxes | | 668,580 |
| | 713,428 |
| | 519,980 |
| | 491,946 |
|
| Other noncurrent liabilities | | 56,069 |
| | 38,957 |
| | 263,930 |
| | 126,707 |
|
| Total noncurrent liabilities | | 3,246,376 |
| | 2,812,285 |
| | 4,073,857 |
| | 3,367,084 |
|
| Commitments and contingencies (Note 13) | |
| |
| |
| Commitments and contingencies (Note 15) | | |
| |
|
| Stockholders’ equity: | | | | | | | | |
| Common stock, $0.001 par value; 475,000,000 shares authorized; 121,259,960 shares issued and 91,836,938 shares outstanding at December 31, 2016; and 120,539,041 shares issued and 92,376,335 shares outstanding at December 31, 2015 | | 121 |
| | 121 |
| |
| Common stock, $0.001 par value; 475,000,000 shares authorized; 124,626,786 shares issued and 85,342,156 shares outstanding at December 31, 2019; and 123,035,859 shares issued and 85,845,344 shares outstanding at December 31, 2018 | | | 124 |
| | 123 |
|
| Additional paid-in capital | | 2,074,094 |
| | 1,988,917 |
| | 2,494,721 |
| | 2,306,843 |
|
| Retained earnings | | 2,218,721 |
| | 1,766,336 |
| | 4,712,729 |
| | 3,817,656 |
|
| Accumulated other comprehensive loss | | (666,403 | ) | | (570,811 | ) | | (972,465 | ) | | (913,858 | ) |
| Less treasury stock (29,423,022 shares at December 31, 2016; and 28,162,706 shares at December 31, 2015) | | (542,495 | ) | | (354,516 | ) | |
| Less treasury stock (39,284,630 shares and 37,190,515 shares at December 31, 2019 and 2018, respectively) | | | (2,523,493 | ) | | (1,870,584 | ) |
| Total stockholders’ equity | | 3,084,038 |
| | 2,830,047 |
| | 3,711,616 |
| | 3,340,180 |
|
| Total liabilities and stockholders’ equity | | $ | 9,626,732 |
|
| $ | 7,889,806 |
| | $ | 12,248,541 |
|
| $ | 11,202,477 |
|
|
|
1Reflects the impact of the Company's adoption of ASU 2016-02 "Leases", on January 1, 2019, using a modified retrospective transition method. Under this method, financial results reported in periods prior to 2019 are unchanged. Refer to footnote 14. |
| See accompanying notes. |
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
| | | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2016 | | 2015 | | 2014 | | 20192 | | 2018 | | 20171 |
| Revenues, net | | $ | 1,831,546 |
| | $ | 1,702,865 |
| | $ | 1,199,390 |
| | $ | 2,648,848 |
| | $ | 2,433,492 |
| | $ | 2,249,538 |
|
| Expenses: | | | | | | | | | | | | |
| Merchant commissions | | 104,345 |
| | 108,257 |
| | 96,254 |
| | — |
| | — |
| | 113,133 |
|
| Processing | | 355,414 |
| | 331,073 |
| | 173,337 |
| | 530,669 |
| | 487,695 |
| | 429,613 |
|
| Selling | | 131,443 |
| | 109,075 |
| | 75,527 |
| | 204,806 |
| | 182,593 |
| | 170,717 |
|
| General and administrative | | 283,625 |
| | 297,715 |
| | 205,963 |
| | 407,210 |
| | 389,172 |
| | 387,694 |
|
| Depreciation and amortization | | 203,256 |
| | 193,453 |
| | 112,361 |
| | 274,210 |
| | 274,609 |
| | 264,560 |
|
| Other operating, net | | (690 | ) | | (4,242 | ) | | (29,501 | ) | |
| Other operating expense, net | | | 523 |
| | 8,725 |
| | 61 |
|
| Operating income | | 754,153 |
|
| 667,534 |
|
| 565,449 |
| | 1,231,430 |
|
| 1,090,698 |
|
| 883,760 |
|
| Equity method investment loss | | 36,356 |
| | 57,668 |
| | 8,586 |
| |
| Investment loss, net | | | 3,470 |
| | 7,147 |
| | 53,164 |
|
| Other expense (income), net | | 2,982 |
| | 2,523 |
| | (700 | ) | | 93 |
| | (152,166 | ) | | (173,436 | ) |
| Interest expense, net | | 71,896 |
| | 71,339 |
| | 28,856 |
| | 150,048 |
| | 138,494 |
| | 107,146 |
|
| Loss on early extinguishment of debt | | — |
| | — |
| | 15,764 |
| |
| Total other expense | | 111,234 |
|
| 131,530 |
|
| 52,506 |
| |
| Loss on extinguishment of debt | | | — |
| | 2,098 |
| | 3,296 |
|
| Total other expense (income) | | | 153,611 |
|
| (4,427 | ) |
| (9,830 | ) |
| Income before income taxes | | 642,919 |
| | 536,004 |
| | 512,943 |
| | 1,077,819 |
| | 1,095,125 |
| | 893,590 |
|
| Provision for income taxes | | 190,534 |
| | 173,573 |
| | 144,236 |
| | 182,746 |
| | 283,642 |
| | 153,390 |
|
| Net income | | $ | 452,385 |
|
| $ | 362,431 |
|
| $ | 368,707 |
| | $ | 895,073 |
|
| $ | 811,483 |
|
| $ | 740,200 |
|
| Earnings per share: | | | | | | | |
| Basic earnings per share | | $ | 4.89 |
| | $ | 3.94 |
| | $ | 4.37 |
| | $ | 10.36 |
| | $ | 9.14 |
| | $ | 8.12 |
|
| Diluted earnings per share | | $ | 4.75 |
| | $ | 3.85 |
| | $ | 4.24 |
| | $ | 9.94 |
| | $ | 8.81 |
| | $ | 7.91 |
|
| Weighted average shares outstanding: | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | 92,597 |
| | 92,023 |
| | 84,317 |
| |
| Diluted weighted average shares outstanding | | 95,213 |
| | 94,139 |
| | 86,982 |
| |
| Basic shares | | | 86,401 |
| | 88,750 |
| | 91,129 |
|
| Diluted shares | | | 90,070 |
| | 92,151 |
| | 93,594 |
|
|
|
1The Company applied the modified retrospective transition method when adopting ASC 606, therefore the Company's 2017 prior period results were not restated to reflect ASC 606.
|
2Reflects the impact of the Company's adoption of ASU 2016-02 "Leases", on January 1, 2019, using a modified retrospective transition method. Under this method, financial results reported in periods prior to 2019 are unchanged. Refer to footnote 14. |
| See accompanying notes. |
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Net income | | $ | 895,073 |
| | $ | 811,483 |
| | $ | 740,200 |
|
| Other comprehensive (loss) income: | | | | | | |
| Foreign currency translation (losses) gains, net of tax | | (15,855 | ) | | (362,001 | ) | | 83,165 |
|
| Reclassification of foreign currency translation gain to investment, net of tax | | — |
| | — |
| | 31,381 |
|
| Net change in derivative contracts, net of tax | | (42,752 | ) | | — |
| | — |
|
| Total other comprehensive (loss) income | | (58,607 | ) | | (362,001 | ) | | 114,546 |
|
| Total comprehensive income | | $ | 836,466 |
|
| $ | 449,482 |
|
| $ | 854,746 |
|
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | | 2015 | | 2014 |
| Net income | | $ | 452,385 |
| | $ | 362,431 |
| | $ | 368,707 |
|
| Other comprehensive loss: | | | | | | |
| Foreign currency translation loss, net of tax | | (95,592 | ) | | (279,303 | ) | | (223,691 | ) |
| Total other comprehensive loss | | (95,592 | ) | | (279,303 | ) | | (223,691 | ) |
| Total comprehensive income | | $ | 356,793 |
|
| $ | 83,128 |
|
| $ | 145,016 |
|
See accompanying notes.
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In Thousands)
| | | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| Balance at December 31, 2013 | | $ | 117 |
| | $ | 631,667 |
| | $ | 1,035,198 |
| | $ | (67,817 | ) | | $ | (375,663 | ) | | $ | 1,223,502 |
| |
| Balance at December 31, 2016 | | | $ | 121 |
| | $ | 2,074,094 |
| | $ | 2,218,721 |
| | $ | (666,403 | ) | | $ | (542,495 | ) | | $ | 3,084,038 |
|
| Net income | | — |
| | — |
| | 368,707 |
| | — |
| | — |
| | 368,707 |
| | — |
| | — |
| | 740,200 |
| | — |
| | — |
| | 740,200 |
|
| Other comprehensive loss, net of tax of $4 | | — |
| | — |
| | — |
| | (223,691 | ) | | — |
| | (223,691 | ) | |
| Issuance of treasury stock | | — |
| | 1,096,698 |
| | — |
| | — |
| | 29,266 |
| | 1,125,964 |
| |
| Other comprehensive income from currency exchange, net of tax of $0 | | | — |
| | — |
| | — |
| | 114,546 |
| | — |
| | 114,546 |
|
| Acquisition of common stock | | | — |
| | — |
| | — |
| | — |
| | (402,393 | ) | | (402,393 | ) |
Share-based compensation expense1 | | | — |
| | 93,297 |
| | — |
| | — |
| | — |
| | 93,297 |
|
| Issuance of common stock | | 3 |
| | 124,077 |
| | — |
| | — |
| | — |
| | 124,080 |
| | 1 |
| | 46,833 |
| | — |
| | — |
| | — |
| | 46,834 |
|
| Balance at December 31, 2014 | | 120 |
| | 1,852,442 |
| | 1,403,905 |
| | (291,508 | ) | | (346,397 | ) | | 2,618,562 |
| |
| Balance at December 31, 2017 | | | 122 |
| | 2,214,224 |
| | 2,958,921 |
| | (551,857 | ) | | (944,888 | ) | | 3,676,522 |
|
| Net income | | — |
| | — |
| | 362,431 |
| | — |
| | — |
| | 362,431 |
| | — |
| | — |
| | 811,483 |
| | — |
| | — |
| | 811,483 |
|
| Other comprehensive loss, net of tax of $0 | | — |
| | — |
| | — |
| | (279,303 | ) | | — |
| | (279,303 | ) | |
| Cumulative effect of change in accounting principle | | | — |
| | — |
| | 47,252 |
| | — |
| | — |
| | 47,252 |
|
| Other comprehensive loss from currency exchange, net of tax of $0 | | | — |
| | — |
| | — |
| | (362,001 | ) | | — |
| | (362,001 | ) |
| Acquisition of common stock | | — |
| | — |
| | — |
| | — |
| | (8,119 | ) | | (8,119 | ) | | — |
| | (33,000 | ) | | — |
| | — |
| | (925,696 | ) | | (958,696 | ) |
Share-based compensation expense1 | | | — |
| | 69,939 |
| | — |
| | — |
| | — |
| | 69,939 |
|
| Issuance of common stock | | 1 |
| | 136,475 |
| | — |
| | — |
| | — |
| | 136,476 |
| | 1 |
| | 55,680 |
| | — |
| | — |
| | — |
| | 55,681 |
|
| Balance at December 31, 2015 | | 121 |
| | 1,988,917 |
| | 1,766,336 |
| | (570,811 | ) | | (354,516 | ) | | 2,830,047 |
| |
| Balance at December 31, 2018 | | | 123 |
| | 2,306,843 |
| | 3,817,656 |
| | (913,858 | ) | | (1,870,584 | ) | | 3,340,180 |
|
| Net income | | — |
| | — |
| | 452,385 |
| | — |
| | — |
| | 452,385 |
| | — |
| | — |
| | 895,073 |
| | — |
| | — |
| | 895,073 |
|
| Other comprehensive loss, net of tax of $0 | | — |
| | — |
| | — |
| | (95,592 | ) | | — |
| | (95,592 | ) | |
| Acquisition/return of common stock | | — |
| | — |
| | — |
| | — |
| | (187,979 | ) | | (187,979 | ) | |
| Other comprehensive loss, net of tax | | | — |
| | — |
| | — |
| | (58,607 | ) | | — |
| | (58,607 | ) |
| Acquisition of common stock | | | — |
| | (42,000 | ) | | — |
| | — |
| | (652,909 | ) | | (694,909 | ) |
| Share-based compensation expense | | | — |
| | 60,953 |
| | — |
| | — |
| | — |
| | 60,953 |
|
| Issuance of common stock | | — |
| | 85,177 |
| | — |
| | — |
| | — |
| | 85,177 |
| | 1 |
| | 168,925 |
| | — |
| | — |
| | — |
| | 168,926 |
|
| Balance at December 31, 2016 | | $ | 121 |
| | $ | 2,074,094 |
| | $ | 2,218,721 |
| | $ | (666,403 | ) | | $ | (542,495 | ) | | $ | 3,084,038 |
| |
| Balance at December 31, 2019 | | | $ | 124 |
| | $ | 2,494,721 |
| | $ | 4,712,729 |
| | $ | (972,465 | ) | | $ | (2,523,493 | ) | | $ | 3,711,616 |
|
1 Comparable disclosure provided to align with 2019 presentation. Activity previously included with issuance of common stock.
See accompanying notes.
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
|
| | | | | | | | | | | | |
| | | Year Ended Year Ended December 31, |
| | | 20191 |
| 2018 |
| 20172 |
| Operating activities | | | | | | |
| Net income | | $ | 895,073 |
| | $ | 811,483 |
| | $ | 740,200 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation | | 62,784 |
| | 52,936 |
| | 46,599 |
|
| Stock-based compensation | | 60,953 |
| | 69,939 |
| | 93,297 |
|
| Provision for losses on accounts receivable | | 74,309 |
| | 64,377 |
| | 44,857 |
|
| Amortization of deferred financing costs and discounts | | 5,106 |
| | 5,342 |
| | 6,952 |
|
| Amortization of intangible assets and premium on receivables | | 211,426 |
| | 221,673 |
| | 217,961 |
|
| Loss on extinguishment of debt | | — |
| | 2,098 |
| | 3,296 |
|
| Loss on write-off of fixed assets | | 1,819 |
| | 8,793 |
| | — |
|
| Deferred income taxes | | 37,883 |
| | (2,750 | ) | | (247,712 | ) |
| Investment loss | | 3,470 |
| | 7,147 |
| | 53,164 |
|
| Gain on sale of assets/business | | — |
| | (152,750 | ) | | (174,983 | ) |
| Other non-cash operating income | | (1,297 | ) | | (186 | ) | | (61 | ) |
| Changes in operating assets and liabilities (net of acquisitions/disposition): | | | | | | |
| Accounts receivable and other receivables | | (196,028 | ) | | (159,024 | ) | | (431,003 | ) |
| Prepaid expenses and other current assets | | (185,391 | ) | | (27,650 | ) | | 26,102 |
|
| Other assets | | (6,792 | ) | | (25,432 | ) | | (20,957 | ) |
| Accounts payable, accrued expenses and customer deposits | | 198,756 |
| | 27,386 |
| | 322,346 |
|
| Net cash provided by operating activities | | 1,162,071 |
|
| 903,382 |
|
| 680,058 |
|
| Investing activities | | | | | | |
| Acquisitions, net of cash acquired | | (448,277 | ) | | (20,843 | ) | | (705,257 | ) |
| Purchases of property and equipment | | (75,170 | ) | | (81,387 | ) | | (70,093 | ) |
| Proceeds from disposal of an asset/business | | — |
| | 98,735 |
| | 316,501 |
|
| Other | | (255 | ) | | (22,775 | ) | | (38,953 | ) |
| Net cash used in investing activities | | (523,702 | ) | | (26,270 | ) | | (497,802 | ) |
| Financing activities | | | | | | |
| Proceeds from issuance of common stock | | 168,925 |
| | 55,680 |
| | 44,690 |
|
| Repurchase of common stock | | (694,909 | ) | | (958,696 | ) | | (402,393 | ) |
| Borrowings on securitization facility, net | | 84,973 |
| | 75,000 |
| | 220,000 |
|
| Deferred financing costs paid and debt discount | | (2,868 | ) | | (4,927 | ) | | (12,908 | ) |
| Proceeds from issuance of notes payable | | 700,000 |
| | 363,430 |
| | 780,656 |
|
| Principal payments on notes payable | | (138,500 | ) | | (498,305 | ) | | (423,156 | ) |
| Borrowings from revolver | | 1,811,509 |
| | 1,493,091 |
| | 1,100,000 |
|
| Payments on revolver | | (2,292,349 | ) | | (1,099,040 | ) | | (1,031,722 | ) |
| Borrowings from (payments on) swing line of credit, net | | 52,996 |
| | (4,935 | ) | | (23,686 | ) |
| Other | | 52 |
| | 887 |
| | 457 |
|
| Net cash (used in) provided by financing activities | | (310,171 | ) | | (577,815 | ) | | 251,938 |
|
| Effect of foreign currency exchange rates on cash | | (17,854 | ) | | (65,274 | ) | | 52,906 |
|
| Net increase in cash and cash equivalents and restricted cash | | 310,344 |
| | 234,023 |
| | 487,100 |
|
| Cash and cash equivalents and restricted cash, beginning of year | | 1,364,893 |
| | 1,130,870 |
| | 643,770 |
|
| Cash and cash equivalents and restricted cash, end of year | | $ | 1,675,237 |
| | $ | 1,364,893 |
| | $ | 1,130,870 |
|
| Supplemental cash flow information | | | | | | |
| Cash paid for interest | | $ | 178,417 |
| | $ | 156,749 |
| | $ | 113,416 |
|
| Cash paid for income taxes | | $ | 200,525 |
| | $ | 207,504 |
| | $ | 392,192 |
|
| Non cash investing activity, notes assumed in acquisitions | | $ | — |
| | $ | — |
| | $ | 29,341 |
|
|
| | | | | | | | | | | | |
| | | Year Ended Year Ended December 31, |
| | | 2016 | | 2015 | | 2014 |
| Operating activities | | | | | | |
| Net income | | $ | 452,385 |
| | $ | 362,431 |
| | $ | 368,707 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation | | 36,456 |
| | 30,462 |
| | 21,097 |
|
| Stock-based compensation | | 63,946 |
| | 90,122 |
| | 37,649 |
|
| Provision for losses on accounts receivable | | 35,885 |
| | 24,629 |
| | 24,412 |
|
| Amortization of deferred financing costs and discounts | | 7,582 |
| | 7,049 |
| | 2,796 |
|
| Loss on extinguishment of debt | | — |
| | — |
| | 15,764 |
|
| Amortization of intangible assets | | 161,635 |
| | 159,740 |
| | 86,149 |
|
| Amortization of premium on receivables | | 5,165 |
| | 3,250 |
| | 3,259 |
|
| Deferred income taxes | | (28,681 | ) | | 30,626 |
| | 41,716 |
|
| Equity method investment loss | | 36,356 |
| | 57,668 |
| | 8,586 |
|
| Other non-cash operating expenses | | (690 | ) | | (4,242 | ) | | (27,501 | ) |
| Changes in operating assets and liabilities (net of acquisitions): | | | | | | |
| Restricted cash | | (2,306 | ) | | (35,676 | ) | | 6,625 |
|
| Accounts receivable | | (338,796 | ) | | 40,017 |
| | 246,465 |
|
| Prepaid expenses and other current assets | | 5,301 |
| | (12,564 | ) | | 2,820 |
|
| Other assets | | (20,345 | ) | | (2,524 | ) | | 12,455 |
|
| Excess tax benefits related to stock-based compensation | | — |
| | (26,427 | ) | | (56,790 | ) |
| Accounts payable, accrued expenses and customer deposits | | 292,019 |
| | 30,023 |
| | (185,875 | ) |
| Net cash provided by operating activities | | 705,912 |
|
| 754,584 |
|
| 608,334 |
|
| Investing activities | | | | | | |
Acquisitions, net of cash acquired1 | | (1,331,985 | ) | | (49,069 | ) | | (2,395,778 | ) |
| Purchases of property and equipment | | (59,011 | ) | | (41,875 | ) | | (27,070 | ) |
| Other | | 1,411 |
| | (8,470 | ) | | (171,239 | ) |
| Net cash used in investing activities | | (1,389,585 | ) | | (99,414 | ) | | (2,594,087 | ) |
| Financing activities | | | | | | |
| Excess tax benefits related to stock-based compensation | | — |
| | 26,427 |
| | 56,790 |
|
| Proceeds from issuance of common stock | | 21,231 |
| | 19,926 |
| | 29,641 |
|
| (Payments) borrowings on securitization facility, net | | (23,000 | ) | | (61,000 | ) | | 326,000 |
|
| Repurchase of common stock | | (187,678 | ) | | — |
| | — |
|
| Deferred financing costs paid | | (2,272 | ) | | — |
| | (43,943 | ) |
| Proceeds from notes payable | | 600,000 |
| | — |
| | 2,320,000 |
|
| Principal payments on notes payable | | (118,500 | ) | | (103,500 | ) | | (546,875 | ) |
| Borrowings from revolver —A Facility | | 1,225,107 |
| | — |
| | 807,330 |
|
| Payments on revolver —A Facility | | (786,849 | ) | | (486,818 | ) | | (783,600 | ) |
| Payments on foreign revolver —B Facility | | — |
| | — |
| | (7,337 | ) |
| Borrowings (payments) from swing line of credit, net | | 26,606 |
| | (546 | ) | | 4,990 |
|
| Payment of contingent consideration | | — |
| | (42,177 | ) | | — |
|
| Other | | (676 | ) | | (377 | ) | | (731 | ) |
| Net cash provided by (used in) financing activities | | 753,969 |
| | (648,065 | ) | | 2,162,265 |
|
| Effect of foreign currency exchange rates on cash | | (42,430 | ) | | (37,022 | ) | | (37,548 | ) |
| Net increase (decrease) in cash | | 27,866 |
| | (29,917 | ) | | 138,964 |
|
| Cash and cash equivalents, beginning of year | | 447,152 |
| | 477,069 |
| | 338,105 |
|
|
|
1 Reflects the impact of the Company's adoption of ASU 2016-02 "Leases", on January 1, 2019 using the modified retrospective transition method. The adoption of the Leases guidance resulted in an adjustment to other assets, other current liabilities and other noncurrent liabilities in our consolidated balance sheet for the cumulative effect of applying the standard. Financial results reported in periods prior to 2019 are unchanged. |
2 Reflects the impact of the Company's adoption of Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230), which was adopted by the Company on January 1, 2018 and applied retrospectively to results for 2017. The adoption of Topic 230 resulted in the statement of cash flows presenting the changes in the total of cash, cash equivalents and restricted cash. As a result, the Company will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. |
| See accompanying notes. |
|
| | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 475,018 |
| | $ | 447,152 |
| | $ | 477,069 |
|
| Supplemental cash flow information | | | | | | |
| Cash paid for interest | | $ | 70,339 |
| | $ | 72,537 |
| | $ | 29,098 |
|
| Cash paid for income taxes | | $ | 101,951 |
| | $ | 83,380 |
| | $ | 79,124 |
|
1Amounts reported in acquisitions and investment, net of cash acquired, includes debt assumed and immediately repaid in acquisitions.
See accompanying notes.
FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 20162019
1. Description of Business
FleetCorFLEETCOR Technologies, Inc. and its subsidiaries (the Company) is a leading global providerbusiness payment solutions company that simplifies the way businesses manage and pay their expenses. The FLEETCOR portfolio of workforce payment products.brands help companies automate, secure, digitize and control payments on behalf of their employees and suppliers. The Company primarily goes to market withserves businesses, partners, merchants and consumers and payment networks in North America, Latin America, Europe, and Asia Pacific.
The Company has 2 reportable segments, North America and International. The Company reports these 2 segments as they reflect how the Company organizes and manages its fuel card payments product solutions, corporate payments products, toll products, lodging cardsemployees around the world, manages operating performance, contemplates the differing regulatory environments in North America versus other geographies, and gift cards. helps the Company isolate the impact of foreign exchange fluctuations on its financial results.
The Company's solutions are comprised of payment products, networks and associated services. The Company's payment products generally function like a charge card, prepaid card, one-time use virtual card and electronic RFID (radio-frequency identification,), etc. While the actual payment mechanisms vary from category to category, they are structured to afford control and reporting to the end customer. The Company groups its payments solutions into 5 primary categories: Fuel, Lodging, Tolls, Corporate Payments and Gift. Additionally, the Company provides other complementary payment products including fleet maintenance, employee benefits and long haul transportation-related services. The Company's payment solutions are used in 53more than 100 countries around the world, with its primary geographies inbeing the U.S., Brazil and the U.K.,United Kingdom, which combined accounted for approximately 92%87% of the Company's revenue in 2016. The Company's core products are primarily sold to businesses, retailers, major oil companies and marketers and government entities. The Company’s payment programs enable its customers to better manage and control their commercial payments, card programs, and employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. The Company also provides a suite of fleet related and workforce payment products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments.2019.
The Company providesuses both proprietary and third-party networks to deliver its payment productssolutions. FLEETCOR owns and services in a variety of combinationsoperates proprietary networks with well-established brands throughout the world, bringing incremental sales and loyalty to create customizedaffiliated merchants. Third-party networks are used to broaden payment solutions for customersproduct acceptance and partners. use.
The Company sells a range of customized fleetmarkets its products directly through multiple sales channels, including field sales, telesales and lodging payment programs directlydigital marketing, and indirectly tothrough our customers through partners, such as major oil companies, leasing companies and petroleum marketers. The Company refers to thesewhich include major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and other referral partners with whom we have strategic relationships as our “partners.” The Company provides customers with various card products that typically function like a charge card to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations.
The Company supports its products with specialized issuing, processing and information services that enables the Company to manage card accounts, facilitate the routing, authorization, clearing and settlement of transactions, and provide value-added functionality and data, including customizable card-level controls and productivity analysis tools. In order to deliver payment programs and services and process transactions, the Company owns and operates proprietary “closed-loop” networks through which the Company electronically connects to merchants and captures, analyzes and reports customized information in North America and internationally. The Company also uses third-party networks to deliver payment programs and services in order to broaden card acceptance and use. To support our payment products, the Company also provides a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionality and data. Customers can use this data to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and lower overall workforce and fleet operating costs. Depending on customer’s and partner’s needs, the Company provides these services in a variety of outsourced solutions ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to limited back office processing services.
The Company’s reportable segments, North America and International, reflect the Company’s global organization. In North America, the Company sells a fuel card product, commercial payment and data solutions, lodging and transportation management services, gift card and stored value solutions, as well as a fleet telematics offering. In its International segment, the Company provides fuel card and related fuel services, work force payments, toll and parking payments products and vehicle maintenance management solutions.partners.
2. Summary of Significant Accounting Policies
Revenue Recognition and Presentation
Revenue is derived from the Company’s merchant and network relationships as well as from customers and partners. The Company recognizes revenue on fees generated through services primarily to commercial fleets, commercial businesses, major oil companies, petroleum marketers and leasing companies and records revenue net of the wholesale cost of the underlying products and services based on the following: (i) the Company is not the primary obligor in the arrangement and is not responsible for fulfillment and the acceptability of the product; (ii) the Company has no inventory risk, does not bear the risk of product loss and does not make any changes to the product or have any involvement in the product specifications; (iii) the Company does not have significant latitude with respect to establishing the price for the product (predominantly fuel); and (iv) the amount the Company earns for services is fixed, within a limited range. The Company recognizes revenue from merchant and network relationships, processing and other arrangements when persuasive evidence of an arrangement exists, the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured, as more fully described below.
Through the Company’s merchant and network relationships the Company provides fuel, prepaid cards, vehicle maintenance, lodging, food, toll, and transportation related services to our customers. The Company derives revenue from its merchant and network relationships based on the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction. The Company’s revenue consists of margin on sales and fees for technical support, processing, communications and reporting. The price paid to a merchant or network may be calculated as (i) the merchant’s wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit. The difference between the price the Company pays to a merchant and the merchant’s wholesale cost for the underlying products and services is considered a merchant commission and is recognized as expense when the fuel purchase transaction is executed. The Company has entered into agreements with major oil companies, petroleum marketers and leasing companies, among others, that specify that a transaction is deemed to be captured when we have validated that the transaction has no errors and have accepted and posted the data to the Company’s records.
The Company also derives revenue from customers and partners from a variety of program fees including transaction fees, card fees, network fees, report fees and other transaction-based fees, which typically are calculated based on measures such as percentage of dollar volume processed, number of transactions processed, or some combination thereof. Such services are provided through proprietary networks or through the use of third-party networks. Transaction fees and other transaction-based fees generated from the Company’s proprietary networks and third-party networks are recognized at the time the transaction is captured. Card fees, network fees and program fees are recognized as the Company fulfills its contractual service obligations. In addition, the Company recognizes revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada. Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided. The Company ceases billing and accruing for late fees and finance charges approximately 30-40 days after the customer’s balance becomes delinquent.
The Company also charges its customers transaction fees to load value onto prepaid fuel, food, toll and transportation vouchers and cards. The Company recognizes fee revenue upon providing the activated fuel, food, toll and transportation vouchers and prepaid cards to the customer. Revenue is recognized on lodging and transportation management services when the lodging stay or transportation service is completed. Revenue is also derived from the sale of equipment in certain of the Company’s businesses, which is recognized at the time the device is sold and the risks and rewards of ownership have passed. This revenue is recognized gross of the cost of sales related to the equipment in revenues, net within the consolidated statements of income. The related cost of sales for the equipment is recorded within processing expenses. The Company has recorded $91.6 million, $84.1 million and $13.2 million of expenses related to sales of equipment within the processing expenses line of the consolidated statements of income for the year ended December 31, 2016, 2015 and 2014, respectively.
The Company delivers both stored value cards and card-based services primarily in the form of gift cards. For multiple-deliverable customer contracts, stored value cards and card-based services are separated into two units of accounting. Stored valued cards are generally recognized upon shipment to the customer. Card-based services are recognized when the card services are rendered.
Set forth below is a breakdown of revenue by product for the years ended December 31, 2016 and 2015 (in millions):
|
| | | | | | | | |
| | | Year Ended December 31, |
| | | 2016 | 2015 |
| Revenue by Product Category* | | Revenues, net | | Revenues, net |
| Fuel cards | | $ | 1,124 |
| | $ | 1,116 |
|
| Gift | | 185 |
| | 170 |
|
| Corporate payments | | 180 |
| | 162 |
|
| Tolls | | 103 |
| | 9 |
|
| Lodging | | 101 |
| | 92 |
|
| Other | | 140 |
| | 154 |
|
| Consolidated revenues, net | | $ | 1,832 |
| | $ | 1,703 |
|
* Columns may not calculate due to impact of rounding.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of FleetCorFLEETCOR Technologies, Inc. and all of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The Company’s fiscal year ends on December 31. In certain of the Company’s U.K. businesses, the Company records the operating results using a 4-4-5 week accounting cycle with the fiscal year ending on the Friday on or immediately preceding December 31. Fiscal years 2016, 20152019, 2018, and 20142017 include 52 weeks for the businesses reporting using a 4-4-5 accounting cycle.
Credit Risk and Reserve for Losses on Receivables
The Company controls credit risk by performing periodic credit evaluations of its customers. Payments from customers are generally due within 14 days or less of billing. The Company routinely reviews its accounts receivable balances and makes provisions forfrom the customer probable doubtful accounts based primarily on the aging of those balances. Accounts receivable are deemed uncollectible from the customer once they age past 90 days and are deemed uncollectible from the customer.days. The Company also provides an allowance for receivables aged less than 90 days that it expects will be uncollectible based on historical collections experience including
accounts that have filed for bankruptcy. At December 31, 20162019 and 2015,2018, approximately 95%98% and 98%99%, respectively, of outstanding accounts receivable were current. Accounts receivable deemed uncollectible are removed from accounts receivable and the allowance for doubtful accounts when internal collection efforts have been exhausted and accounts have been turned over to a third-party collection agency. Recoveries from the third-party collection agency are not significant.
Business Combinations
Business combinations completed by the Company have been accounted for under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined as of the acquisition date and changes thereafter reflected in income.date. For significant acquisitions, the Company obtains independent third-party valuation studies for certain of the assets acquired and liabilities assumed to assist the Company in determining fair value. Goodwill represents the excess of the purchase price over the fair values of the tangible and intangible assets acquired and liabilities assumed. The results of the acquired businesses are included in the Company’s results of operations beginning from the completion date of the applicable transaction.
Estimates of fair value are revised during an allocation period as necessary when, and if, information becomes available to further define and quantify the fair value of the assets acquired and liabilities assumed. Provisional estimates of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the final amounts recorded. The allocation period does not exceed one year from the date of the acquisition. To the extent additional information to refine the original allocation becomes available during the allocation period, the allocation of the purchase price is adjusted. Should information become available after the allocation period, those items are adjusted through operating results. The direct costs of the acquisition are recorded as operating expenses. Certain acquisitions include contingent consideration related to the performance of the acquired operations following the acquisition. Contingent consideration is recorded at estimated fair value at the date of the acquisition, and is remeasured each reporting period, with any changes in fair value recorded in the consolidated statementsConsolidated Statements of income.Income. The Company estimates the fair value of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities.
Impairment of Long-Lived Assets, Goodwill, Intangibles and Equity Method InvestmentInvestments
The Company tests its long-lived assets for impairment in accordance with relevant authoritative guidance. The Companyregularly evaluates if impairment indicators related to itswhether events and circumstances have occurred that indicate the carrying amount of property plant and equipment and otherfinite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets are present. Theseshould be evaluated for possible impairment, indicators may include a significant decrease in the market priceCompany assesses the potential impairment by determining whether the carrying amount of asuch long-lived asset or asset group, a significant adverse change inassets will be recovered through the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating orfuture undiscounted cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with theflows expected from use of a long-lived asset or asset group. If impairment indicators are present,
the Company estimates the future cash flows for the asset or asset group. The sum of the undiscounted future cash flows attributable to the asset or asset group is compared toand its carrying amount. The cash flows are estimated utilizing various projections of revenues and expenses, working capital and proceeds from asset disposals on a basis consistent with management’s intended actions.eventual disposition. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company determines the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally,is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market prices or discounted cash flow analysis as applicable. The Company regularly evaluates whether events and circumstances have occurred that indicate the Company performs its testinguseful lives of the asset group at the business-line level, as this is the lowest level for which identifiable cash flows are available.property and equipment and finite-life intangible assets may warrant revision.
The Company completes an impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level, and the impairment test consists of two steps, as well as a qualitative assessment, as appropriate.level. The Company has performedfirst performs a qualitative assessment of certain of its reporting units. In thisFactors considered in the qualitative assessment the Company individually considered the following items for each reporting unit where the Company determined a qualitative analysis to be appropriate: theinclude general macroeconomic conditions, including any deterioration of general conditions, limitations on accessing capital, fluctuations in foreign exchange rates and other developments in equity and credit markets; industry and market conditions, including any deteriorationcost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If the environment whereCompany elects to bypass the qualitative assessment or if it determines, on the basis of qualitative factors, that the fair value of the reporting unit operates, increased competition, changes in the products/services and regulator and political developments; cost of doing business; overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation; events affecting the reporting unit, including changes inis more likely than not less than the carrying value of net assets, likelihood of disposal and whether there were any other impairment considerations within the business; the overall performance of our share price in relation to the market and our peers; andamount, a quantitative stress test of the previously completed step 1 test from the prior year, updated with current year results, weighted-average cost of capital rates and future projections.
In step 1 ofwould be required. The Company then performs the goodwill impairment test for each reporting units,unit by comparing the reporting unit’s carrying amount, including goodwill, is compared to its fair value which is measured based upon, among other factors, a discounted cash flow analysis, as well as market multiples for comparable companies. Estimates critical to the Company’s evaluation of goodwill for impairment include the discount rate, projected revenue and earnings before interest taxes depreciation and amortization (EBITDA) growth, and projected long-term growth rates in the determination of terminal values. If the carrying amount of the reporting unit is greater than its fair value, goodwill is considered impaired and step two must be performed. Step two measures the impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets and liabilities of that unit (including unrecognized intangibles) as if the reporting unit had been acquired in a business combination. The excess of fair value over the amounts allocated to the assets and liabilities of the reporting unit is the implied fair value of goodwill. The excess of the carrying amount over the implied fair value is the impairment loss.
The Company estimated the fair value of its reporting units using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. The Company discounted the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multiples in the valuation estimate. Multiples are derived by relating the value of guideline companies, based on either the market price of publicly traded shares or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of the reporting unit in developing the valuation estimate.
Preparation of forecasts and the selection of the discount rates involve significant judgments about expected future business performance and general market conditions. Significant changes in forecasts, the discount rates selected or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.impaired.
Based on the goodwill asset impairment analysis performed quantitatively onas of October 1, 2016,2019, the Company determined that the fair value of each of ourits reporting units was in excess of the carrying value. No events or changes in circumstances have occurred since the date of this most recent annual impairment test that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. Estimates critical to the Company’s evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in its evaluation of trade names, projected
average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
The Company regularly evaluates the carrying value of its equity method investment,investments, which isare not carried at fair value, for other-than-temporary impairment. The Company estimatescompany has elected to measure certain investments in equity instruments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for similar investments of the issuer. Investments classified as trading securities are carried at fair value of its equity method investment using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. The Company discounts the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multipleswith any unrealized gain or loss being recorded in the valuation estimate. Multiples are derived by relating the valueConsolidated Statements of guideline companies, based on either the market price of publicly traded shares or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of our equity method investment in developing the valuation estimate. During the fourth quarters of 2016 and 2015, the Company determined that the performance improvement initiatives in its equity method investment in Masternaut Group Holdings Limited ("Masternaut") will take longer to and be more challenging to implement than originally projected, based on revised cash flow projections provided by the business. As a result, the Company has recorded a $36.1 million and $40 million non-cash impairment charge in its equity method investment for 2016 and 2015, respectively.Income.
Property, Plant and Equipment and Definite-Lived Intangible Assets
Property, plant and equipment are stated at cost and depreciated on the straight-line basis. Definite-lived intangible assets, consisting primarily of customer relationships, are stated at fair value upon acquisition and are amortized over their estimated useful lives. Customer and merchant relationship useful lives are estimated using historical attrition rates.
The Company develops software that is used in providing processing and information management services to customers. A significant portion of the Company’s capital expenditures are devoted to the development of such internal-use computer software. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all planning, designing, coding and testing activities that are necessary to determine that the software can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the software is ready for its intended use. Software development costs are amortized using the straight-line method over the estimated useful life of the software. The Company capitalized software costs of $33.1$49.8 million, $23.4$37.3 million and $17.7$37.4 million in 2016, 20152019, 2018 and 2014,2017, respectively. Amortization expense for software totaled $17.7$37.2 million, $11.6$24.2 million and $9.2$21.8 million in 2016, 20152019, 2018 and 2014,2017, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company has elected to treat the Global Intangible Low Taxed Income (GILTI) inclusion as a current period expense.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences becamebecome deductible. The Company evaluates on a quarterly basis whether it is more likely than not that its deferred tax assets will be realized in the future and concludes whether a valuation allowance must be established.
The Company does not provide deferred taxes for the undistributed earnings of the Company’s foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States in accordance with authoritative literature. If in the future these earnings are repatriated to the United States, or if the Company determines that the earnings will be remitted in the foreseeable future, additional tax provisions may be required.
Current accounting guidance clarifies the accountingaccounts for uncertainty in income taxes recognized in an entity’s financial statements and prescribes threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under the relevant authoritative literature, theThe impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the
relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 percent likelihood of being sustained. The Company includes any estimated interest and penalties on tax related matters in income tax expense. See Note 13 for further information regarding income taxes.
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. Restricted cash represents customer deposits repayable on demand.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are made directlyrecorded to accumulated other comprehensive income. Income and expenses are translated at the average monthly rates of exchange in effect during the year. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized a foreign exchange lossgain of $2.8$0.7 million for the year ended December 31, 2019 and foreign exchange losses of $0.1 million and $2.4$0.2 million for the years ended December 31, 20162018 and 2015,2017 respectively, and a gain of $1.4 million for the year ended 2014, which are recorded within other expense, net in the Consolidated Statements of Income. The Company recorded foreign currency losses on long-term intra-entity transactions of $88.1 million and $79.6 million for the years ended December 31, 2019 and 2018, respectively, included as a component of foreign currency translation (losses) gains, net of tax, on the Consolidated Statements of Comprehensives Income.
Derivatives
The Company uses derivatives to minimize its exposures related to changes in interest rates and facilitate cross-currency corporate payments by writing derivatives to customers.
The Company is exposed to the risk of changing interest rates because its borrowings are subject to variable interest rates. In order to mitigate this risk, the Company utilizes derivative instruments. Interest rate swap contracts designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company hedges a portion of its variable rate debt utilizing derivatives designated as cash flow hedges.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other assets or other noncurrent liabilities and offset against accumulated other comprehensive income/loss, net of tax. Derivative fair value changes that are recorded in accumulated other comprehensive income/loss are reclassified to earnings in the same period or periods that the hedged item affects earnings, to the extent the derivative is effective in offsetting the change in cash flows attributable to the hedged risk. The portions of the change in fair value that are either considered ineffective or are excluded from the measure of effectiveness are recognized immediately within earnings.
In the Company's cross-border payments business, the majority of revenue is from exchanges of currency at spot rates, which enables customers to make cross-currency payments. In addition, the Company writes foreign currency forward and option contracts for its customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. The Company aggregates its foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, as necessary, and economically hedges the net currency risks by entering into offsetting derivatives with established financial institution counterparties. The changes in fair value related to these derivatives are recorded in revenues, net in the Consolidated Statements of Income.
The Company recognizes all cross-border payments derivatives in "prepaid expenses and other current assets" and "other current liabilities" in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows. Refer to footnote 17.
Stock-Based Compensation
The Company accounts for employee stock options and restricted stock in accordance with relevant authoritative literature. Stock options are granted with an exercise price estimated to be equal to the fair market value on the date of grant as authorized by the Company’s board of directors. Options granted have vesting provisions ranging from one to sixfive years and vesting of the options is generally based on the passage of time or performance. Stock option grants are subject to forfeiture if employment terminates prior to vesting. The Company has selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards granted.awards. The Company has considered the retirement and forfeiture provisions of the options and utilized its historical experience to estimate the expected life of the options. Option forfeitures are accounted for upon occurrence. The Company bases the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period based on the number of years forover which the requisite service is expected to be rendered.
Awards of restricted stock and restricted stock units are independent of stock option grants and are subject to forfeiture if employment terminates prior to vesting. The vesting of shares granted is generally based on the passage of time, performance or market conditions, or a combination of these. Shares vesting based on the passage of time have vesting provisions of one year.to four years. The fair value of restricted stock where the shares vest based on the passage of time or performance is based on the
grant date fair value of the Company’s stock. The fair value of restricted stock sharesunits granted with market based on marketvesting conditions is estimated using the Monte Carlo option pricingsimulation valuation model. The risk-free interest rate and volatility assumptions used within the Monte Carlo option pricingsimulation valuation model are calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the stock option awards.
For performance-based restricted stock units and awards and performance based stock option awards, the Company must also make assumptions regarding the likelihood of achieving performance goals. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be materially affected.
Deferred Financing Costs/Debt Discounts
Costs incurred to obtain financing net of accumulated amortization, are amortized over the term of the related debt, using the effective interest method and are included within interest expense. In November 2014, theThe Company expensed $15.8 million and capitalized $9.2 million ofadditional debt issuance costs associated with the refinancing of its Credit Facility. In 2016, the Company capitalized $2.3$2.9 million of additional debt issuance costs associated with refinancing its Credit Facility.Facility and Securitization Facilities in 2019 and $4.9 million with refinancing its Credit Facility in 2018. At December 31, 20162019 and 2015,2018, the Company had net deferred financing costs of $13.1$7.4 million and $18.1$10.4 million, respectively.respectively, related to the revolver under the Credit Facility and the Securitization Facility, each recorded within prepaid and other assets, respectively, on the Consolidated Balance Sheets. At December 31, 2019 and 2018, the Company had deferred financing costs of $7.9 million and $10.9 million, respectively, related to the term notes under the Credit Facility, recorded as a discount to the term debt outstanding within the current portion of notes payable and lines of credit and notes payable and other obligations, less current portion, respectively, in the Consolidated Balance Sheets.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the total of net income and all other changes in equity that result from transactions and other economic events of a reporting period other than transactions with owners.
Accounts Receivable
The Company maintains a $950 million$1.2 billion revolving trade accounts receivable Securitization Facility. Accounts receivable collateralized within our Securitization Facility relate to trade receivables resulting from charge card activity.activity in the U.S. Pursuant to the terms of the Securitization Facility, the Company transfers certain of its domestic receivables, on a revolving basis, to FleetCorFLEETCOR Funding LLC (Funding), a wholly-owned bankruptcy remote subsidiary. In turn, Funding sells,transfers, without recourse, on a revolving basis, up to $950 million ofan undivided ownership interestsinterest in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold to the Conduit. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.
The Company utilizes proceeds from the sale of its accounts receivabletransferred assets as an alternative to other forms of financing to reduce its overall borrowing costs. The Company has agreed to continue servicing the sold receivables for the financial institution at market rates, which approximates the Company’s cost of servicing. The Company retains a residual interest in the accounts receivable soldtransferred asset as a form of credit enhancement. The residual interest’s fair value approximates carrying value due to its short-term nature. Funding determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount.
The Company’s consolidated balance sheetsConsolidated Balance Sheets and statementsStatements of incomeIncome reflect the activity related to securitized accounts receivable and the corresponding securitized debt, including interest income, fees generated from late payments, provision for losses on accounts receivable and interest expense. The cash flows from borrowings and repayments, associated with the securitized debt, are presented as cash flows from financing activities.
On The maturity date for the Company's Securitization Facility is November 14, 2014, the Company extended the term of its asset Securitization Facility to November 14, 2017. The Company capitalized $3.1 million in deferred financing fees in connection with this extension in the year ended December 31, 2014.2020.
The Company’s accounts receivable and securitized accounts receivable include the following at December 31 (in thousands):
|
| | | | | | | | |
| | | 2019 | | 2018 |
| Gross domestic unsecuritized accounts receivables | | $ | 734,410 |
| | $ | 668,154 |
|
| Gross domestic securitized accounts receivable | | 970,973 |
| | 886,000 |
|
| Gross foreign receivables | | 905,441 |
| | 817,624 |
|
| Total gross receivables | | 2,610,824 |
|
| 2,371,778 |
|
| Less allowance for doubtful accounts | | (70,890 | ) | | (59,963 | ) |
| Net accounts and securitized accounts receivable | | $ | 2,539,934 |
|
| $ | 2,311,815 |
|
|
| | | | | | | | |
| | | 2016 | | 2015 |
| Gross domestic accounts receivables | | $ | 529,885 |
| | $ | 338,275 |
|
| Gross domestic securitized accounts receivable | | 591,000 |
| | 614,000 |
|
| Gross foreign receivables | | 704,630 |
| | 322,582 |
|
| Total gross receivables | | 1,825,515 |
|
| 1,274,857 |
|
| Less allowance for doubtful accounts | | (32,506 | ) | | (21,903 | ) |
| Net accounts and securitized accounts receivable | | $ | 1,793,009 |
|
| $ | 1,252,954 |
|
A rollforward of the Company’s allowance for doubtful accounts related to accounts receivable for the years ended December 31 is as follows (in thousands):
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Allowance for doubtful accounts beginning of year | | $ | 59,963 |
| | $ | 46,031 |
| | $ | 32,506 |
|
| Provision for bad debts | | 74,309 |
| | 64,377 |
| | 44,857 |
|
| Write-offs | | (63,382 | ) | | (50,445 | ) | | (31,332 | ) |
| Allowance for doubtful accounts end of year | | $ | 70,890 |
| | $ | 59,963 |
| | $ | 46,031 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Allowance for doubtful accounts beginning of year | | $ | 21,903 |
| | $ | 23,842 |
| | $ | 22,416 |
|
| Provision for bad debts | | 35,885 |
| | 24,629 |
| | 24,412 |
|
| Write-offs | | (25,282 | ) | | (26,568 | ) | | (22,986 | ) |
| Allowance for doubtful accounts end of year | | $ | 32,506 |
| | $ | 21,903 |
| | $ | 23,842 |
|
Foreign receivables are not included in the Company’s receivable securitization program. At December 31, 2016 and 2015, there was $591 million and $614 million, respectively, of short-term debt outstanding under the Company’s accounts receivable Securitization Facility.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was $22.2$33.7 million, $19.9$26.3 million and $14.4$26.1 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.
Earnings Per Share
The Company reports basic and diluted earnings per share. Basic earnings per share is calculated using the weighted average of common stock and non-vested, non-forfeitable restricted shares outstanding, unadjusted for dilution, and net income attributable to common shareholders.
Diluted earnings per share is calculated using the weighted average shares outstanding and contingently issuable shares less weighted average shares recognized during the period. The net outstanding shares have been adjusted for the dilutive effect of common stock equivalents, which consist of outstanding stock options and unvested forfeitable restricted stock units.
Spot Trade Offsetting
The Company uses spot trades to facilitate cross-currency corporate payments in its Cambridge business. Timing in the receipt of cash from the customer results in intermediary balances in the receivable from the customer and the payment to the customer's counterparty. In accordance with ASC Subtopic 210-20, "Offsetting," the Company applies offsetting to spot trade assets and liabilities associated with contracts that include master netting agreements, as a right of setoff exists, which the Company believes to be enforceable. As such, the Company has netted the Company's exposure with these customer's counterparties, with the receivables from the customer. The Company recognizes all spot trade assets, net in accounts receivable and all spot trade liabilities, net in accounts payable, each net at the customer level, in its Consolidated Balance Sheets at their fair value. The following table presents the Company’s spot trade assets and liabilities at their fair value for the years ended December 31, 2019 and 2018 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| | Gross | | Offset on the Balance Sheet | | Net | | Gross | | Offset on the Balance Sheet | | Net |
| Assets | | | | | | | | | | | |
| Accounts Receivable | $ | 1,139.1 |
| | $ | (1,084.6 | ) | | $ | 54.5 |
| | $ | 815.7 |
| | $ | (745.2 | ) | | $ | 70.5 |
|
| Liabilities | | | | | | | | | | | |
| Accounts Payable | $ | 1,140.4 |
| | $ | (1,084.6 | ) | | $ | 55.8 |
| | $ | 760.8 |
| | $ | (745.2 | ) | | $ | 15.6 |
|
Adoption of New Accounting Standards
Going ConcernAccounting for Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. This ASU also requires disclosures to provide additional information about the amounts recorded in the financial statements. Effective January 1, 2019, the Company adopted Topic 842 using a modified retrospective approach, as discussed further in Footnote 14.
Accounting for Derivative Financial Instruments
In August 2013,2017, the FinancialFASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-15 “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”for Hedging Activities", which requires entitiesamends the hedge accounting recognition and presentation requirements in ASC 815. The FASB issued accounting guidance to perform interimbetter align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and annual assessmentsimprove the disclosures of the entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. This ASUhedging arrangements. The guidance is effective for fiscal years endingthe Company for reporting periods beginning after December 15, 20162018, and interim periods thereafter, with early adoption permitted.within those years. The Company’s adoption ofCompany
adopted this ASUguidance on January 1, 2019, which did not have a material impact on the Company's results of operations, financial condition, or cash flows, as it is disclosure based.
Simplification of Guidance on Debt Issuance Costsflows. The guidance did simplify the Company's accounting for interest rate swap hedges, allowing more time for the initial hedge effectiveness documentation and a qualitative hedge effectiveness assessment at each quarter end.
In April 2015,October 2018, the FASB issued ASU 2015-3, “Interest—Imputation2018-16, "Derivatives and Hedging (Topic 815): Inclusion of Interest”the Secured Overnight Financing Rate, Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes", which changesamends the presentation of debt issuance costs in financial statementshedge accounting to add overnight index swap rates based on the secured overnight financing rate as a direct deduction from the related debt liability rather than as an asset. This ASU is effective for us for fiscal years ending after December 15, 2015 and interim periods. Early adoption is permitted. In August 2015, the FASB issued ASU 2015-15, “Interest-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which is effective immediately. The SEC staff clarified that entities may continue presenting unamortized debt issuance costs for line-of-credit arrangements as an asset.fifth U.S. benchmark interest rate. The Company adopted this new guidance on January 1, 2016. As a result of the adoption of this ASU, $0.6 million and $1.5 million of unamortized debt issuance costs were retrospectively adjusted from prepaid expenses and other current assets to the current portion of notes payable and lines of credit and other assets to notes payable and other obligations, less current portion, respectively, in the Company’s Consolidated Balance Sheet as of December 31, 2015.
Accounting for Employee Stock-Based Payment
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting",2019, which requires excess tax benefits recognized on stock-based compensation expense be reflected in the consolidated statements of operations as a component of the provision for income taxes on a prospective basis. ASU 2016-09 also requires excess tax benefits recognized on stock-based compensation expense be classified as an operating activity in the consolidated statements of cash flows rather than a financing activity. Companies can elect to apply this provision retrospectively or prospectively. ASU 2016-09 also requires entities to elect whether to account for forfeitures as they occur or estimate expected forfeitures over the course of a vesting period. This ASU is effective for the Company for annual periods beginning after December 15, 2016. Early adoption is permitted.
During the third quarter of 2016, the Company elected to early adopt ASU 2016-09. The adoption of this ASU resulted in excess tax benefits being recorded as a reduction of income tax expense prospectively for all periods during 2016, rather than additional paid in capital, and an increase in the number of dilutive shares outstanding at the end of each period, which resulted in an increase to diluted earnings per share during the respective period. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in our consolidated statements of cash flows on a prospective basis within changes in accounts payable, accrued expenses and customer deposits. In accordance with ASU 2016-09, prior periods related to the classification of excess tax benefits have not been adjusted. The Company also elected to account for forfeitures as they occur, rather than estimate expected forfeitures over the course of a vesting period. As a result of the adoption of ASU 2016-09, the net cumulative effect of this change was not material.
The following table shows the impact of retrospectively applying ASU 2016-09 to the previously issued consolidated statements of operations for the three month period ended March 31 and the three and six month periods ended June 30 (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2016 | | Three Months Ended June 30, 2016 |
| | | As Previously Reported | | Adjustments | | As Recast | | As Previously Reported | | Adjustments | | As Recast |
| Income before income taxes | | $ | 156,912 |
|
| $ | — |
|
| $ | 156,912 |
|
| $ | 162,348 |
|
| $ | — |
|
| $ | 162,348 |
|
| Provision for income taxes | | 46,940 |
| (1,118 | ) |
| 45,822 |
|
| 48,163 |
|
| (2,068 | ) |
| 46,095 |
|
| Net income | | $ | 109,972 |
|
| $ | 1,118 |
|
| $ | 111,090 |
|
| $ | 114,185 |
|
| $ | 2,068 |
|
| $ | 116,253 |
|
| Earnings per share: | |
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share | | $ | 1.19 |
|
| $ | 0.01 |
|
| $ | 1.20 |
|
| $ | 1.23 |
|
| $ | 0.02 |
|
| $ | 1.25 |
|
| Diluted earnings per share | | $ | 1.17 |
|
| $ | — |
|
| $ | 1.17 |
|
| $ | 1.21 |
|
| $ | 0.01 |
|
| $ | 1.22 |
|
| Weighted average common shares outstanding: | |
|
|
|
|
|
|
|
|
|
|
|
| Basic | | 92,516 |
|
| — |
|
| 92,516 |
|
| 92,665 |
|
| — |
|
| 92,665 |
|
| Diluted | | 94,329 |
|
| 701 |
|
| 95,030 |
|
| 94,549 |
|
| 729 |
|
| 95,279 |
|
|
| | | | | | | | | | | | |
|
| Six Months Ended June 30, 2016 |
|
| As Previously Reported |
| Adjustments |
| As Recast |
| Income before income taxes |
| $ | 319,260 |
|
| $ | — |
|
| $ | 319,260 |
|
| Provision for income taxes |
| 95,103 |
|
| (3,186 | ) |
| $ | 91,917 |
|
| Net income |
| $ | 224,157 |
|
| $ | 3,186 |
|
| $ | 227,343 |
|
| Earnings per share: |
|
|
|
|
|
|
| Basic earnings per share |
| $ | 2.42 |
|
| $ | 0.04 |
|
| $ | 2.46 |
|
| Diluted earnings per share |
| $ | 2.37 |
|
| $ | 0.02 |
|
| $ | 2.39 |
|
| Weighted average common shares outstanding: |
|
|
|
|
|
|
| Basic |
| 92,591 |
|
| — |
|
| 92,591 |
|
| Diluted |
| 94,437 |
|
| 700 |
|
| 95,137 |
|
The following table shows the impact of retrospectively applying this guidance to the Consolidated Statement of Cash flows for the three months ended March 31, 2016 and six months ended June 30, 2016 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2016 | | Six Months Ended June 30, 2016 |
| | | As Previously Reported | | Adjustments | | As Recast | | As Previously Reported | | Adjustments | | As Recast |
| Net cash provided by operating activities | | $ | 121,505 |
|
| $ | 1,118 |
|
| $ | 122,623 |
|
| $ | 208,856 |
|
| $ | 3,186 |
|
| $ | 212,042 |
|
| Net cash used in investing activities | | (20,745 | ) |
| — |
|
| (20,745 | ) |
| (37,924 | ) |
| — |
|
| (37,924 | ) |
| Net cash used in financing activities | | (157,389 | ) |
| (1,118 | ) |
| (158,507 | ) |
| (118,303 | ) |
| (3,186 | ) |
| (121,489 | ) |
| Effect of foreign currency exchange rates on cash | | 8,795 |
|
| — |
|
| 8,795 |
|
| (6,696 | ) |
| — |
|
| (6,696 | ) |
| Net (decrease) increase in cash | | $ | (47,834 | ) |
| $ | — |
|
| $ | (47,834 | ) |
| $ | 45,933 |
|
| $ | — |
|
| $ | 45,933 |
|
Simplification of Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. This ASU is effective for the Company for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. During the fourth quarter of 2016, the Company elected to early adopt ASU 2015-17 on a prospective basis and prior periods were not retrospectively adjusted. The Company’s adoption of this ASU did not have a material impact on the Company's results of operations, financial condition, or cash flows.
Comprehensive Income Classification
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", that gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the "Tax Act"). An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the Tax Act’s change in U.S. federal tax rate for all items accounted for in other comprehensive income. These entities can also elect to reclassify other stranded effects that relate to the Tax Act but do not directly relate to the change in the federal rate. The Company adopted this guidance on January 1, 2019 and elected to not reclassify any items to retained earnings.
Non-Employee Share-Based Payments
In June 2018, the FASB issued ASU 2018-07, "Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting", that supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. Under the new guidance, the existing employee guidance will apply to non-employee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of non-employee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for non-employee awards. The Company adopted this guidance on January 1, 2019, which had no impact on the Company's results of operations, financial condition, or cash flows.
Pending Adoption of Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company’s management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
Revenue RecognitionCredit Losses on Financial Instruments
In May 2014, the FASB issued Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers”, which amends the guidance in former ASC 605, Revenue Recognition. This amended guidance requires revenue to be recognized in an amount that reflects the consideration to which the company expects to be entitled for those goods and services when the performance obligation has been satisfied. This amended guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which defers the effective date of the new revenue recognition standard by one year. In MarchJune 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which clarifieschanges how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model will require companies to immediately recognize an entity should identifyestimate of credit losses expected to occur over the unitremaining life of accountingthe financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The ASU is effective for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. Company on January 1, 2020.
In April 2016,2019, the FASB issued ASU 2016-10, "Identifying Performance Obligations2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Licensing"Hedging, and Topic 825, Financial Instruments", which clarifies thecertain aspects of accounting for intellectual property licensescredit losses, hedging activities, and identifying performance obligations. In May 2016,financial instruments. For clarifications around credit losses, the FASB issuedeffective date will be the same as the effective date in ASU 2016-11, "Rescission2016-13. For entities that have adopted ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", ASU 2019-04 is effective the first annual reporting period beginning after the date of SEC Guidance Becauseissuance of Accounting Standards Updates 2014-09ASU 2019-04 and 2014-16 Pursuantmay be early adopted. The amendments in ASU 2019-04 related to Staff Announcements at the March 3, 2016 EITF Meeting", which rescinds certain SEC guidance in response to announcements made by the SEC staff at the EITF's March 3, 2016 meeting and ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients", which clarifies the guidance on collectibility, non-cash consideration, the presentation of sales and other similar taxes collected from customers and contract modifications and completed contracts at transition. Additionally, ASU 2016-12 clarifies that entities electing the full retrospective transition method would no longer be required to disclose the effect of the change in accounting principle on the period of adoption; however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted. These ASUs2016-01 are effective for the Company for reporting periodsfiscal years beginning after December 15, 2017, but permit companies the option to adopt as of the original effective date. In 2016, the Company continued its assessment2019, including interim periods therein. Upon adoption of the new standard with a focus on identifyingJanuary 1, 2020, the performance obligations included within its revenue arrangements with customers and evaluating its methods of estimatingCompany will recognize an allowance for credit losses based on the amount of and timing of variable consideration. The guidance permits the use of either a retrospective or cumulative effect transition method.estimated lifetime expected credit loss related to our financial assets. The Company anticipates selectingis analyzing our credit policies and updating our accounting policies and internal controls that will be impacted by the modified retrospective method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in process as ofnew guidance. We do not anticipate that the adoption date. Underof this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any. The Company continues its assessment to evaluate thewill have a material impact of the provisions of ASC 606 on the results of operations, financial condition, or cash flows due to the relatively fast turnover of our trade receivables accounts and cash flows.limited other asset balances to which this standard applies.
Accounting for Leases
In February 2016,Cloud Computing Arrangements
On August 29, 2018, the FASB issued ASU 2016-02, “Leases”2018-15, "Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", that provides guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The ASU, which requires lesseeswas released in response to recognize a right-of-use asset and a lease liability onconsensus reached by the balance sheetEITF at its June 2018 meeting, aligns the accounting for all leasessuch costs with the exceptionguidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of short-term leases. This ASU also requires disclosuresa CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to provide additional information about the amounts recordeddetermine which implementation costs should be capitalized in the financial statements. This ASUsuch a CCA. The guidance is effective for the Company for annual periodsfiscal years beginning after December 15, 2018 and2019, including interim periods therein. Early adoption is permitted.within those fiscal years. The new standard mustguidance should be adopted using a modified retrospective transition and requires application of the new guidance for leases that existapplied either retrospectively or are entered intoprospectively to all implementation costs incurred after the beginningdate of the earliest comparative period presented.adoption. The Company is currently evaluatingupdating the impactaccounting policies and internal controls that will be impacted by the new guidance. The Company's adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Accounting for BreakageFair Value Measurement
In March 2016,On August 28, 2018, the FASB issued ASU 2016-04, “Liabilities-Extinguishments of Liabilities: Recognition of Breakage2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Certain Prepaid Stored-Value Products”Fair Value Measurement", which requires entities that sell prepaid stored value products redeemable for goods, services or cash at third-party merchants to derecognize liabilitiesremoves, modifies, and adds certain disclosure requirements related to those products for breakage. This ASUfair value measurements in ASC 820. The guidance is effective for the Company for reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early2019. The guidance on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other guidance should be applied retrospectively to all periods presented upon their effective date. The Company's adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Income Taxes
On December 18, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles of ASC 740 and simplifies other areas in order to simplify its application. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The ASU must be adopted using either a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption or a full retrospective approach. The Company’sCompany's adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
3. Revenue
The Company provides payment solutions to our business, merchant, consumer and payment network customers. Our payment solutions are primarily focused on specific commercial spend categories, including fuel, lodging, tolls, and general corporate payments, as well as gift card solutions (stored value cards and e-cards). The Company provides products that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. The Company also provides other payment solutions for fleet maintenance, employee benefits and long haul transportation-related services.
Payment Services
The Company’s primary performance obligation for the majority of its payment solution products (fuel, lodging, corporate payments, among others) is to stand-ready to provide authorization and processing services ("payment services") for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related payment services. Accordingly, the total transaction price is variable. Payment services involve a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. As a result, the Company allocates and recognizes variable consideration in the period it has the contractual right to invoice the customer. For the tolls payment solution, the Company's primary performance obligation is to stand-ready each month to provide access to the toll network and process toll transactions. Each period of access is determined to be distinct and substantially the same as the customer benefits over the period of access.
The Company records revenue for its payment services net of (i) the cost of the underlying products and services; (ii) assessments and other fees charged by the credit and debit payment networks (along with any rebates provided by them); (iii) customer rebates and other discounts; and (iv) taxes assessed (e.g. VAT and VAT-like taxes) by a government, imposed concurrent with, a revenue producing transaction.
Cash Flow Classification
In August 2016,The majority of the FASB issued ASU 2016-15, "Classificationtransaction price the Company receives for fulfilling the Payment Services performance obligation are comprised of Certain Cash Receipts and Cash Payments", which amendsone or a combination of the guidance in ASC 230, Statement of Cash Flows. This amended guidance reduces the diversity in practice that has resultedfollowing: 1) interchange fees earned from the lackpayment networks; 2) discount fees earned from merchants; 3) fees calculated based on a number of consistent principlestransactions processed; 4) fees calculated based upon a percentage of the transaction value for the underlying goods or services (i.e. fuel, food, toll and transportation cards and vouchers); and 5) monthly access fees.
The Company recognizes revenue when the underlying transactions are complete and its performance obligations are satisfied. Transactions are considered complete depending upon the related payment solution but generally when the Company has authorized the transaction, validated that the transaction has no errors and accepted and posted the data to the Company’s records.
The Company's performance obligation for its foreign exchange payment services is providing a foreign currency payment to a customer’s designated recipient and therefore, the Company recognizes revenue on foreign exchange payment services when the underlying payment is made. Revenues from foreign exchange payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market.
Gift Card Products and Services
The Company’s Gift product line delivers both stored value cards and e-cards (cards), and card-based services primarily in the form of gift cards to retailers. These activities each represent performance obligations that are separate and distinct. Revenue for stored valued cards are recognized (gross of the underlying cost of the related card, recorded within processing expense within the Consolidated Statements of Income) at the point in time when control passes to the Company's customer, which is generally upon shipment.
Card-based services consist of transaction processing and reporting of gift card transactions where the Company recognizes revenue based on an output measure of elapsed time for an unknown or unspecified quantity of transactions. As a result, the Company allocates and recognizes variable consideration over the estimated period of time over which the performance obligation is satisfied.
Other
The Company accounts for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada in accordance with ASC 310, "Receivables". Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided. The Company ceases billing and accruing for late fees and finance charges approximately 30 - 40 days after the customer’s balance becomes delinquent.
The Company also writes foreign currency forward and option contracts for its customers to facilitate future payments in foreign currencies, and recognizes revenue in accordance with authoritative fair value and derivative accounting (ASC 815, "Derivatives").
Revenue is also derived from the sale of equipment in certain of the Company’s businesses, which is recognized at the time the device is sold and control has passed to the customer. This revenue is recognized gross of the cost of sales related to the classificationequipment in "revenues, net" within the Consolidated Statements of certain cash receipts and paymentsIncome. The related cost of sales for the equipment is recorded within "processing expenses" in the statementConsolidated Statements of cash flows. This ASU is effectiveIncome.
Revenues from contracts with customers, within the scope of Topic 606, represents approximately 75% of total consolidated revenues, net, for the year ended December 31, 2019.
Disaggregation of Revenues
The Company provides its services to customers across different payment solutions and geographies. Revenue by product (in millions) as of and for reporting periods beginning afterthe years ended December 15, 2017. Early31 (in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | 2018 | | 2017 |
| Revenue by Product Category | | Revenues, net | | Revenues, net | | Revenues, net |
Fuel1 | | $ | 1,172,954 |
| | $ | 1,125,532 |
| | $ | 1,131,684 |
|
| Corporate payments | | 516,173 |
| | 415,856 |
| | 261,822 |
|
Tolls1 | | 357,209 |
| | 332,689 |
| | 320,880 |
|
| Lodging | | 212,597 |
| | 175,505 |
| | 126,657 |
|
| Gift | | 180,236 |
| | 186,646 |
| | 194,099 |
|
Other1 | | 209,679 |
| | 197,264 |
| | 214,396 |
|
| Consolidated revenues, net | | $ | 2,648,848 |
| | $ | 2,433,492 |
| | $ | 2,249,538 |
|
1 Reflects certain reclassifications of revenue in 2018 and 2017 between product categories for comparability, as the Company realigned its Brazil business into product lines, resulting in refinement of revenue classified as fuel versus tolls and the eCash/OnRoad product being fuel versus other, as a complimentary fuel product.
The table below presents the Company's revenues, net by geography as of and for the years ended December 31 (in thousands). |
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Revenues, net by location: | | | | | | |
| United States (country of domicile) | | $ | 1,595,266 |
| | $ | 1,481,785 |
| | $ | 1,400,801 |
|
| Brazil | | 427,918 |
| | 400,111 |
| | 394,550 |
|
| United Kingdom | | 275,218 |
| | 257,651 |
| | 236,550 |
|
| Other | | 350,446 |
| | 293,945 |
| | 217,637 |
|
| Consolidated Revenues, net | | $ | 2,648,848 |
| | $ | 2,433,492 |
| | $ | 2,249,538 |
|
Contract Liabilities
Deferred revenue contract liabilities for customers subject to ASC 606 were $71.8 million and $30.6 million as of December 31, 2019 and 2018, respectively. The Company expects to recognize substantially all of these amounts in revenues within approximately 12 months. Revenue recognized for the year ended December 31, 2019, that was included in the deferred revenue contract liability as of January 1, 2019, was approximately $27.5 million.
Costs to Obtain or Fulfill a Contract
With the adoption of ASC 606, the Company began capitalizing the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).
Costs incurred to fulfill a contract are capitalized if those costs meet all of the following criteria:
| |
| a. | The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify. |
| |
| b. | The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. |
| |
| c. | The costs are expected to be recovered. |
In order to determine the appropriate amortization period for contract costs, the Company considered a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology used by the Company to provide products and services to its customers, whether further contract renewals are expected and if there is permitted. Entities must applyany incremental commission to be paid on a contract renewal. Contract acquisition and fulfillment costs are amortized using the guidance retrospectivelystraight-line method over the expected period of benefit (ranging from five to ten years). Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred. The amortization of contract acquisition costs associated with sales commissions that qualify for capitalization will be recorded as selling expense in the Company’s Consolidated Statements of Income. The amortization of contract acquisition costs associated with cash payments
for client incentives is included as a reduction of revenues in the Company’s Consolidated Statements of Income. Amortization of capitalized contract costs recorded in selling expense was $14.3 million and $12.0 million for the years ended December 31, 2019 and 2018, respectively.
Costs to obtain or fulfill a contract are classified as contract cost assets within "prepaid expenses and other current assets" and "other assets" in the Company’s Consolidated Balance Sheets. The Company had capitalized costs to obtain a contract of $14.8 million and $12.7 million within prepaid expenses and $39.7 million and $34.5 million within "other assets" in the Company’s Consolidated Balance Sheets, for the years ended December 31, 2019 and 2018, respectively.
The Company has recorded $76.4 million, $83.9 million and $96.9 million of expenses related to sales of equipment within the processing expenses line of the Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, respectively.
Practical Expedients
ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as allowed by ASC 606, the Company elected to exclude this disclosure for any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As described above, the Company's most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
The Company elected to exclude all periods presented but may apply it prospectivelysales taxes and other similar taxes from the earliest date practicable if retrospective application would be impracticable. The Company’s adoptiontransaction price. Accordingly, the Company presents all collections from customers for these taxes on a net basis, rather than having to assess whether the Company is acting as an agent or a principal in each taxing jurisdiction.
In certain arrangements with customers, the Company has determined that certain promised services and products are immaterial in the context of this ASUthe contract, both quantitatively and qualitatively.
As a practical expedient, the Company is not expectedrequired to have a material impact onadjust the resultspromised amount of operations, financial condition, or cash flows.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash", which amends the guidance in ASC 230, Statement of Cash Flows, on the classification and presentation of restricted cash in the statement of cash flows. This ASU is effectiveconsideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised service or product to a customer and when the customer pays for reporting periods beginning afterthe service or product will be one year or less. As of December 15, 2017. Early adoption is permitted. If an entity early adopts31, 2019, the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied usingCompany’s contracts with customers did not contain a retrospective transition method to each period presented. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
significant financing component.
3.4. Fair Value Measurements
Fair value is a market-based measurement that should be determined based onreflects assumptions that market participants would use in pricing an asset or liability. GAAP discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company estimates the fair value of acquisition-related contingent consideration using various valuation approaches including the Monte Carlo Simulation approach and the probability-weighted discounted cash flow approach. Acquisition related contingent consideration liabilities are classified as Level 3 liabilities because the Company uses unobservable inputs to value them, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. A change in the unobservable inputs could result in a significantly higher or lower fair value measurement. Changes in the fair value of acquisition related contingent consideration are recorded as (income) expense in the Consolidated Statements of Income. The acquisition related contingent consideration liabilities are recorded in other current liabilities.
The following table presents the Company’s financial assets and liabilities which are measured at fair values on a recurring basis as of December 31, 20162019 and 2015,2018, (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| December 31, 2019 | | | | | | | | |
| Assets: | | | | | | | | |
| Repurchase agreements | | $ | 833,658 |
| | $ | — |
| | $ | 833,658 |
| | $ | — |
|
| Money market | | 54,978 |
| | — |
| | 54,978 |
| | — |
|
| Certificates of deposit | | 27,022 |
| | — |
| | 27,022 |
| | — |
|
| Trading Securities | | 22,955 |
| | 22,955 |
| | — |
| | — |
|
| Foreign exchange contracts | | 72,076 |
| | — |
| | 72,076 |
| | — |
|
| Total assets | | $ | 1,010,689 |
|
| $ | 22,955 |
|
| $ | 987,734 |
|
| $ | — |
|
| Cash collateral for foreign exchange contracts | | $ | 6,086 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Liabilities: | | | | | | | | |
| Interest Rate Swaps | | $ | 56,418 |
| | $ | — |
| | $ | 56,418 |
| | $ | — |
|
| Foreign exchange contracts | | 60,909 |
| | — |
| | 60,909 |
| | $ | — |
|
| Total liabilities | | $ | 117,327 |
| | $ | — |
| | $ | 117,327 |
| | $ | — |
|
| Cash collateral obligation for foreign exchange contracts | | $ | 25,618 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | |
| December 31, 2018 | | | | | | | | |
| Assets: | | | | | | | | |
| Repurchase agreements | | $ | 581,293 |
| | $ | — |
| | $ | 581,293 |
| | $ | — |
|
| Money market | | 50,644 |
| | — |
| | 50,644 |
| | — |
|
| Certificates of deposit | | 22,412 |
| | — |
| | 22,412 |
| | — |
|
| Foreign exchange contracts | | 68,814 |
| | 21 |
| | 68,793 |
| | — |
|
| Total assets | | $ | 723,163 |
| | $ | 21 |
| | $ | 723,142 |
| | $ | — |
|
| Cash collateral for foreign exchange contracts | | $ | 9,644 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Liabilities: | | | | | | | | |
| Foreign exchange contracts | | $ | 72,125 |
| | $ | — |
| | $ | 72,125 |
| |
|
| Total liabilities | | $ | 72,125 |
| | $ | — |
| | $ | 72,125 |
| |
|
| Cash collateral obligation for foreign exchange contracts | | $ | 73,140 |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| December 31, 2016 | | | | | | | | |
| Assets: | | | | | | | | |
| Repurchase agreements | | $ | 232,131 |
| | $ | — |
| | $ | 232,131 |
| | $ | — |
|
| Money market | | 50,179 |
| | — |
| | 50,179 |
| | — |
|
| Certificates of deposit | | 48 |
| | — |
| | 48 |
| | — |
|
| Total cash equivalents | | $ | 282,358 |
|
| $ | — |
|
| $ | 282,358 |
|
| $ | — |
|
| December 31, 2015 | | | | | | | | |
| Assets: | | | | | | | | |
| Repurchase agreements | | $ | 144,082 |
| | $ | — |
| | $ | 144,082 |
| | $ | — |
|
| Money market | | 55,062 |
| | — |
| | 55,062 |
| | — |
|
| Certificates of deposit | | 9,373 |
| | — |
| | 9,373 |
| | — |
|
| Total cash equivalents | | $ | 208,517 |
|
| $ | — |
|
| $ | 208,517 |
|
| $ | — |
|
The Company utilizes Level 1 fair value for financial assets designated as trading securities for which there are quoted market prices. Net unrealized gains on equity securities held during the period ended December 31, 2019 totaled $13.0 million. No securities were sold during the period.
The Company has highly liquidhighly-liquid investments classified as cash equivalents, with original maturities of 90 days or less, included in our Consolidated Balance Sheets. The Company utilizes Level 2 fair value determinations derived from directly or indirectly observable (market based) information to determine the fair value of these highly liquid investments. The Company has certain cash and cash equivalents that are invested on an overnight basis in repurchase agreements, money markets and certificates of deposit. The value of overnight repurchase agreements is determined based upon the quoted market prices for the treasury securities associated with the repurchase agreements. The value of money market instruments is the financial institutions' month-end statement, as these instruments are not tradeable and must be settled directly by us with the respective financial institution. Certificates of deposit are valued at cost, plus interest accrued. Given the short termshort-term nature of these instruments, the carrying value approximates fair value. Foreign exchange derivative contracts are carried at fair value, with changes in fair value recognized in the Consolidated Statements of Income. The fair value of the Company's derivatives is derived with reference to a valuation from a derivatives dealer operating in an active market, which approximates the fair value of these instruments.
The fair value represents the net settlement if the contracts were terminated as of the reporting date. Cash collateral received for foreign exchange derivatives is recorded within customer deposits in our Consolidated Balance Sheet at December 31, 2019. Cash collateral deposited for foreign exchange derivatives is recorded within restricted cash in our Consolidated Balance Sheet at December 31, 2019.
The level within the fair value hierarchy and the measurement technique are reviewed quarterly. Transfers between levels are deemed to have occurred at the end of eachthe quarter. There were no transfers between fair value levels during 2016the periods presented for 2019 and 2015.2018.
The Company’s nonfinancial assets that are measured at fair value on a nonrecurring basis include those in connectionand are evaluated with periodic testing for impairment includinginclude property, plant and equipment, equity method investment,investments, goodwill and other intangible assets. While completing the preliminary acquisition accounting in 2016, the Company generally uses projected cash flows, discounted as appropriate, to estimateEstimates of the fair valuesvalue of the assets acquired and liabilities assumed in business combinations are generally developed using key inputs such as management'smanagement’s projections of cash flows on a held-and-used basis (if applicable), management'sdiscounted as appropriate, management’s projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements are in Level 3 of the fair value hierarchy.
For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposures. Any ineffective portion of a financial instrument's change in fair value is immediately recognized into earnings. The Company determines the fair values of its derivatives based on quoted market prices or pricing models using current market rates.
The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, commodity rates or other financial indices. The Company's derivatives are over-the-counter instruments with liquid markets.
The Company regularly evaluates the carrying value of its equity method investmentinvestments and during the fourth quartersfirst quarter of 2016 and 2015, the Company2019, determined that the fair value of its 44%telematics investment was below cost and recorded an impairment of the investment of $15.7 million based on observable price changes. Since initial date of the telematics investments, the Company has recorded cumulative impairment losses of $136.3 million. The Company sold its remaining investment in Masternaut had declinedthe second quarter of 2019. Refer to footnote 16. The carrying amount of investments without readily determinable fair values is $7.4 million at December 31, 2019.
In 2018, the fair value of the Company's investment in Qui was impaired as a result of the performance improvement initiatives taking longer than projected to implement. As a result, thedecline in operating results and difficulty in obtaining financing. The Company determined that the carrying value of its investment exceeded its fair value and concluded that this decline in fair value was other than temporary. The Companybelow cost and recorded a $36.1$7.1 million and $40 million non-cash impairment charge during 2016 and 2015, respectively, which is includedloss in the equity method investment loss inrelated to the accompanying Consolidated Statement of Income.Qui investment.
The fair value of the Company’s cash, accounts receivable, securitized accounts receivable and related facility, prepaid expenses and other current assets, accounts payable, accrued expenses, customer deposits and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The carrying value of the Company’s debt obligations approximates fair value as the interest rates on the debt are variable market based interest rates that reset on a quarterly basis. These are each levelLevel 2 fair value measurements, except for cash, which is a levelLevel 1 fair value measurement.
4.5. Stockholders' Equity
On November 14, 2014, the Company acquired all of Comdata’s outstanding shares for a total payment of $3.4 billion, net of cash acquired, which included cash consideration of $2.4 billion and the issuance of 7,625,380 shares of the Company’s common stock from treasury shares to the former shareholders of Comdata.
On February 4, 2016, the Company’sThe Company's Board of Directors has approved a stock repurchase program (the(as updated from time to time, the "Program") under whichauthorizing the Company may begin purchasingto repurchase its common stock from time to time until February 1, 2023. On October 22, 2019, our Board increased the aggregate size of the Program by $1 billion, to $3.1 billion. Since the beginning of the Program, 11,119,657 shares have been repurchased for an aggregate purchase price of $2.2 billion, leaving the Company up to $500$857 million available under the Program for future repurchases in shares of its common stock, overtaking into account the next 18 months period. full $500 million committed with the 2019 ASR Agreement (defined below), which completed on February 20, 2020. There were 2,094,115 common shares totaling $603.8 million in 2019; 4,911,438 common shares totaling $958.7 million in 2018, and 2,854,959 common shares totaling $402.4 million in 2017; repurchased under the Program.
Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information the Companywe may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and working capital. There were 1,259,145debt.
On December 14, 2018, as part of the Program, the Company entered an accelerated share repurchase ("ASR') agreement ("2018 ASR Agreement") with a third-party financial institution to repurchase $220 million of its common stock. Pursuant to the 2018 ASR Agreement, the Company delivered $220 million in cash and received 1,057,035 shares based on a stock price of $176.91 on December 14, 2018. The 2018 ASR Agreement was completed on January 29, 2019, at which time the Company received 117,751 additional shares based on a final weighted average per share purchase price during the repurchase period of $187.27.
On December 18, 2019, the Company entered into another ASR Agreement ("2019 ASR Agreement") with a third-party financial institution to repurchase $500 million of its common stock. Pursuant to the 2019 ASR Agreement, the Company delivered $500 million in cash and received 1,431,989 shares based on a stock price of $285.70 on December 18, 2019. The 2019 ASR Agreement was completed February 20, 2020, at which time we received 175,340 additional shares based on a final weighted average per share purchase price during the repurchase period of $306.81.
The Company accounted for the 2018 ASR Agreement and the 2019 ASR Agreement as 2 separate transactions: (i) as shares of reacquired common stock for the shares delivered to the Company upon effectiveness of each ASR agreement and (ii) as a forward contract indexed to the Company's common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and results in an immediate reduction of the outstanding shares used to calculate the weighted average common shares totaling $187.7 million repurchased underoutstanding for basic and diluted earnings per share. The forward contracts indexed to the Program during 2016.Company's own common stock met the criteria for equity classification, and these amounts were initially recorded in additional paid-in capital.
5.6. Stock Based Compensation
The Company accounts for stock-based compensation pursuant to relevant authoritative guidance, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of estimated forfeitures, over the requisite service period for awards expected to vest. The Company has Stock Incentive Plans (the Plans) pursuant to which the Company’s board of directors may grant stock options or restricted stock to employees. The Company is authorized to issue grants of restricted stock and stock options to purchase up to 26,963,15030,463,150 shares for the years ended December 31, 2016, 20152019 and 2014, respectively. 2018, respectively, and 26,963,150 shares for the year ended December 31, 2017.
On May 13, 2013,February 7, 2018, the Company’s stockholders of the Company approved the FLEETCOR Technologies, Inc. Amended and Restated 2010 Equity Incentive Plan (the "Amended Plan"). The Amended Plan was authorized anand approved by the Company's Board of Directors on December 20, 2017, and Company's stockholders at a special meeting held on February 7, 2018. The Amended Plan amends the Registrant’s existing 2010 Equity Incentive Plan (as amended, the "Prior Plan") to, among other things, increase the number of 6,500,000 shares of common stock available for grant pursuantissuance from 13.25 million to 16.75 million and make certain other amendments to the 2010 Equity CompensationPrior Plan. Giving effect to this increase, there were 2,968,5843.1 million additional shares remaining available for grant under the Plans at December 31, 2016.2019.
The table below summarizes the expense recognized within general and administrative expenses in the Consolidated Statements of Income related to share-based payments recognized for the years ended December 31 (in thousands):
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Stock options | | $ | 32,736 |
| | $ | 43,443 |
| | $ | 56,400 |
|
| Restricted stock | | 28,217 |
| | 26,496 |
| | 36,897 |
|
| Stock-based compensation | | $ | 60,953 |
| | $ | 69,939 |
| | $ | 93,297 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Stock options | | $ | 35,234 |
| | $ | 44,260 |
| | $ | 13,267 |
|
| Restricted stock | | 28,712 |
| | 45,862 |
| | 24,382 |
|
| Stock-based compensation | | $ | 63,946 |
| | $ | 90,122 |
| | $ | 37,649 |
|
The tax benefits recorded on stock based compensation expense and upon the exercises of options were $35.0$61.6 million, $35.7$37.3 million and $13.0$48.6 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.
The following table summarizes the Company’s total unrecognized compensation cost related to stock-based compensation as of December 31, 20162019 (cost in thousands):
|
| | | | | | |
| | | Unrecognized Compensation Cost | | Weighted Average Period of Expense Recognition (in Years) |
| Stock options | | $ | 37,349 |
| | 1.15 |
| Restricted stock | | 36,936 |
| | 1.44 |
| Total | | $ | 74,285 |
| | |
|
| | | | | | |
| | | Unrecognized Compensation Cost | | Weighted Average Period of Expense Recognition (in Years) |
| Stock options | | $ | 53,026 |
| | 1.48 |
| Restricted stock | | 2,965 |
| | 0.96 |
| Total | | $ | 55,991 |
| | |
Stock Options
The following summarizes the changes in the number of shares of common stock under option for the following periods (shares and aggregate intrinsic value in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | Weighted Average Exercise Price | | Options Exercisable at End of Year | | Weighted Average Exercise Price of Exercisable Options | | Weighted Average Fair Value of Options Granted During the Year | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2016 | | 6,146 |
| | $ | 91.20 |
| | 3,429 |
| | $ | 55.00 |
| | | | $ | 309,238 |
|
| Granted | | 2,885 |
| | 145.35 |
| | | | | | $ | 32.57 |
| | |
| Exercised | | (633 | ) | | 71.43 |
| | | | | | | | 76,546 |
|
| Forfeited | | (367 | ) | | 144.51 |
| | | | | | | | |
| Outstanding at December 31, 2017 | | 8,031 |
| | 109.78 |
| | 4,029 |
| | 75.80 |
| | | | 663,815 |
|
| Granted | | 412 |
| | 204.59 |
| | | | | | $ | 50.07 |
| | |
| Exercised | | (708 | ) | | 73.26 |
| | | | | | | | 79,588 |
|
| Forfeited | | (119 | ) | | 155.41 |
| | | | | | | | |
| Outstanding at December 31, 2018 | | 7,616 |
| | 117.58 |
| | 5,174 |
| | 98.39 |
| | | | 518,954 |
|
| Granted | | 431 |
| | 244.35 |
| | | | | | $ | 57.99 |
| | |
| Exercised | | (1,482 | ) | | 115.53 |
| | | | | | | | 255,242 |
|
| Forfeited | | (302 | ) | | 167.35 |
| | | | | | | | |
| Outstanding at December 31, 2019 | | 6,263 |
| | $ | 124.38 |
| | 5,137 |
| | $ | 109.03 |
| | | | $ | 1,022,860 |
|
| Expected to vest at December 31, 2019 | | 1,126 |
| | $ | 194.44 |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | Weighted Average Exercise Price | | Options Exercisable at End of Year | | Weighted Average Exercise Price of Exercisable Options | | Weighted Average Fair Value of Options Granted During the Year | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2013 | | 5,331 |
| | $ | 25.68 |
| | 2,589 |
| | $ | 16.57 |
| | | | $ | 487,673 |
|
| Granted | | 1,544 |
| | 135.16 |
| | | | | | $ | 42.77 |
| | |
| Exercised | | (1,429 | ) | | 20.75 |
| | | | | | | | 182,904 |
|
| Forfeited | | (315 | ) | | 41.72 |
| | | | | | | | |
| Outstanding at December 31, 2014 | | 5,131 |
| | 58.71 |
| | 2,370 |
| | 21.75 |
| | | | 461,770 |
|
| Granted | | 654 |
| | 154.56 |
| | | | | | $ | 35.32 |
| | |
| Exercised | | (586 | ) | | 33.97 |
| | | | | | | | 63,863 |
|
| Forfeited | | (196 | ) | | 95.16 |
| | | | | | | | |
| Outstanding at December 31, 2015 | | 5,003 |
| | 72.72 |
| | 2,545 |
| | 26.82 |
| | | | 351,277 |
|
| Granted | | 1,780 |
| | 133.33 |
| | | | | | $ | 28.61 |
| | |
| Exercised | | (500 | ) | | 42.36 |
| | | | | | | | 49,592 |
|
| Forfeited | | (137 | ) | | 140.67 |
| | | | | | | | |
| Outstanding at December 31, 2016 | | 6,146 |
| | $ | 91.20 |
| | 3,429 |
| | $ | 55.00 |
| | | | $ | 309,238 |
|
| Expected to vest at December 31, 2016 | | 6,146 |
| | $ | 91.20 |
| | | | | | | | |
The following table summarizes information about stock options outstanding at December 31, 20162019 (shares in thousands):
|
| | | | | | | | |
| Exercise Price | | Options Outstanding | | Weighted Average Remaining Vesting Life in Years | | Options Exercisable |
| $10.00 – $114.90 | | 2,242 |
| | 0.00 | | 2,242 |
|
| 121.76 – 150.74 | | 2,834 |
| | 0.21 | | 2,516 |
|
| 151.16 – 165.96 | | 352 |
| | 0.61 | | 227 |
|
| 172.68 – 199.75 | | 342 |
| | 1.29 | | 124 |
|
| 202.02 – 209.05 | | 69 |
| | 2.28 | | 7 |
|
| 216.18 – 231.70 | | 144 |
| | 2.82 | | 21 |
|
| 252.50 – 288.37 | | 280 |
| | 2.88 | | — |
|
| | | 6,263 |
| | | | 5,137 |
|
|
| | | | | | | | |
| Exercise Price | | Options Outstanding | | Weighted Average Remaining Vesting Life in Years | | Options Exercisable |
| $10.00 – 58.02 | | 2,536 |
| | 0.00 | | 2,527 |
|
| 74.99 – 111.09 | | 159 |
| | 0.77 | | 71 |
|
| 114.90 – 138.47 | | 1,382 |
| | 1.28 | | 113 |
|
| 144.59 – 149.68 | | 935 |
| | 1.15 | | 653 |
|
| 151.16 – 158.24 | | 772 |
| | 2.44 | | 65 |
|
| 172.68 – 174.35 | | 362 |
| | 3.82 | | — |
|
| | | 6,146 |
| | | | 3,429 |
|
The aggregate intrinsic value of stock options exercisable at December 31, 20162019 was $296.7$917.9 million. The weighted average remaining contractual term of options exercisable at December 31, 20162019 was 5.04.9 years.
The fair value of stock option awards granted was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions for grants or modifications during the years ended December 31 as follows:
|
| | | | | | | | | |
|
| 2019 | | 2018 | | 2017 |
| Risk-free interest rate |
| 2.40 | % | | 2.57 | % | | 1.65 | % |
| Dividend yield |
| — |
| | — |
| | — |
|
| Expected volatility |
| 26.40 | % | | 26.92 | % | | 28.00 | % |
| Expected life (in years) |
| 3.7 |
| | 3.8 |
| | 3.4 |
|
|
| | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Risk-free interest rate | | 1.08 | % | | 1.47 | % | | 1.24 | % |
| Dividend yield | | — |
| | — |
| | — |
|
| Expected volatility | | 27.29 | % | | 27.77 | % | | 34.61 | % |
| Expected life (in years) | | 3.47 |
| | 4.46 |
| | 3.90 |
|
The weighted-average remaining contractual life for options outstanding was 6.75.4 years at December 31, 2016.2019.
Restricted Stock
The fair value of restricted stock units granted with market based vesting conditions was estimated using the Monte Carlo simulation valuation model with the following assumptions during 2019. There were no0 restricted stock shares granted with performancemarket based conditions or marketvesting conditions in 2016, 20152018 and 2014. 2017.
|
| | | |
| | 2019 |
| Risk-free interest rate | | 1.48 | % |
| Dividend yield | | — |
|
| Expected volatility | | 25.40 | % |
| Expected life (in years) | | 2.36 |
|
The following table summarizes the changes in the number of shares of restricted stock and restricted stock units for the following periods (shares in thousands):
|
| | | | | | | |
| | | Shares | | Weighted
Average
Grant Date
Fair Value |
| Outstanding at December 31, 2016 | | 379 |
| | $ | 140.39 |
|
| Granted | | 238 |
| | 141.99 |
|
| Cancelled | | (48 | ) | | 152.95 |
|
| Issued | | (204 | ) | | 136.85 |
|
| Outstanding at December 31, 2017 | | 365 |
| | 155.58 |
|
| Granted | | 107 |
| | 200.71 |
|
| Cancelled | | (47 | ) | | 339.34 |
|
| Issued | | (251 | ) | | 154.85 |
|
| Outstanding at December 31, 2018 | | 174 |
| | 190.73 |
|
| Granted | | 232 |
| | 212.79 |
|
| Cancelled | | (49 | ) | | 225.96 |
|
| Issued | | (114 | ) | | 206.05 |
|
| Outstanding at December 31, 2019 | | 243 |
| | $ | 246.34 |
|
|
| | | | | | | |
| | | Shares | | Weighted
Average
Grant Date
Fair Value |
| Outstanding at December 31, 2013 | | 634 |
| | $ | 67.83 |
|
| Granted | | 467 |
| | 146.12 |
|
| Cancelled | | (76 | ) | | 31.48 |
|
| Issued | | (309 | ) | | 74.56 |
|
| Outstanding at December 31, 2014 | | 716 |
| | 121.38 |
|
| Granted | | 126 |
| | 151.33 |
|
| Cancelled | | (52 | ) | | 135.92 |
|
| Issued | | (293 | ) | | 85.40 |
|
| Outstanding at December 31, 2015 | | 497 |
| | 149.40 |
|
| Granted | | 152 |
| | 128.90 |
|
| Cancelled | | (41 | ) | | 145.25 |
|
| Issued | | (229 | ) | | 151.72 |
|
| Outstanding at December 31, 2016 | | 379 |
| | $ | 140.39 |
|
6.7. Acquisitions
20162019 Acquisitions
During 2016,2019, the Company completed acquisitions with an aggregate purchase price of $1.3 billion,$416 million.
NvoicePay
On April 1, 2019, the Company completed the acquisition of NvoicePay, a provider of full accounts payable automation for business. The aggregate purchase price of this acquisition was approximately $208 million, net of cash acquired of $51.3 million, which includes deferred payments made during the period related to prior acquisitions of $6.1$4.1 million.
During 2016, the Company made additional investments of $7.9 million related to its equity method investment at Masternaut. The Company also received a $9.2 million return of its investment in Masternaut in 2016.
STP
On August 31, 2016, the Company acquired all of the outstanding stock of Serviços e Tecnologia de Pagamentos S.A. (“STP”), for approximately $1.23 billion, net of cash acquired of $40.2 million. STP is an electronic toll payments company in Brazil and provides cardless fuel payments at a number of Shell sites throughout Brazil. The purpose of this acquisition wasis to further expand our presence in the toll market in Brazil.Company's corporate payments product. The Company financed the acquisition using a combination of existingavailable cash and borrowings under its existing credit facility. ResultsThe results from the acquired business have beenNvoicePay are reported in the Company's international segment sinceNorth America segment. The Company signed noncompete agreements with certain parties with an estimated fair value of $10.7 million that were accounted for separately from the datebusiness acquisition. Acquisition accounting for NvoicePay is preliminary as the Company is still completing the valuation for goodwill, intangible assets, income taxes, noncompete agreements, and evaluation of acquisition. acquired contingencies.
The following table summarizes the preliminary acquisition accounting for STPNvoicePay (in thousands):
|
| | | |
| Trade and other receivables | $ | 1,513 |
|
| Prepaid expenses and other current assets | 396 |
|
| Property, plant and equipment | 1,030 |
|
| Other long term assets | 5,612 |
|
| Goodwill | 168,990 |
|
| Intangibles | 44,750 |
|
| Liabilities | (4,415 | ) |
| Other noncurrent liabilities | (6,130 | ) |
| Deferred tax liabilities | (4,178 | ) |
| Aggregate purchase price | $ | 207,568 |
|
|
| | | |
| Trade and other receivables | $ | 243,157 |
|
| Prepaid expenses and other | 6,998 |
|
| Deferred tax assets | 9,365 |
|
| Property and equipment | 38,732 |
|
| Other long term assets | 5,785 |
|
| Goodwill | 659,288 |
|
| Customer relationships and other identifiable intangible assets | 584,274 |
|
| Liabilities assumed | (320,110 | ) |
| Aggregate purchase price | $ | 1,227,489 |
|
| | |
Along with the Company's acquisition of STP, the Company signed noncompete agreements with certain parties for approximately $21.6 million. The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands): |
| | | | |
| | Useful Lives (in Years) | Value |
| Trade Name and Trademarks | Indefinite | $ | 8,700 |
|
| Proprietary Technology | 6 | 15,600 |
|
| Referral Partners | 10 | 810 |
|
| Supplier Network | 10 | 2,640 |
|
| Customer Relationships | 20 | 17,000 |
|
| | | $ | 44,750 |
|
|
| | | | |
| | Useful Lives (in Years) | Value |
| Customer relationships | 8.5-17 | $ | 349,310 |
|
| Trade names and trademarks - indefinite | N/A | 189,547 |
|
| Technology | 6 | 45,417 |
|
| | | $ | 584,274 |
|
In connection with the STP acquisition, the Company recorded contingent liabilities aggregating $20.0 million in the consolidated balance sheet, recorded within other noncurrent liabilities and accrued expenses in the consolidated balance sheet at the date of acquisition. A portion of these acquired liabilities have been indemnified by the respective sellers. As a result, an indemnification asset of $4.8 million was recorded within other long term assets in the consolidated balance sheet. The contingent liabilities and the indemnification asset are included in the preliminary acquisition accounting for STP at the date of acquisition. The potential range of acquisition related contingent liabilities that the Company estimates would be incurred and ultimately recoverable is still being evaluated.
The purchase price allocation related to this acquisition is preliminary as the Company is still completing the valuation for intangible assets, income taxes, certain acquired contingencies and the working capital adjustment period remains open. Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and STP and assembled workforce. The allocation of the goodwill to the reporting units has not been completed. The goodwill and definite lived intangibles acquired with this business is expected to be deductible for tax purposes.
Other
During 2016,2019, the Company acquired additional fuelSOLE Financial, a payroll card portfoliosprovider in the U.S.; r2c, a fleet maintenance, compliance and the United Kingdom, additional Shell fuel card markets in Europe and Travelcardworkshop management software provider in the Netherlands totalingU.K.; and Travelliance, an airline lodging provider in the U.S. The aggregate purchase price of these acquisitions was approximately $76.7$209 million, net of cash acquiredcash. The Company signed noncompete agreements with certain parties with an estimated fair value of $11.1 million. $8.1 million that were accounted for separately from the business acquisitions.
The following table summarizes the preliminary acquisition accounting for these acquisitions (in thousands):
|
| | | |
| Trade and other receivables | $ | 91,912 |
|
| Prepaid expenses and other current assets | 2,059 |
|
| Property, plant and equipment | 2,879 |
|
| Other long term assets | 4,593 |
|
| Goodwill | 119,408 |
|
| Intangibles | 82,925 |
|
| Liabilities | (78,579 | ) |
| Other noncurrent liabilities | (4,657 | ) |
| Deferred tax liabilities | (11,647 | ) |
| Aggregate purchase price | $ | 208,893 |
|
|
| | | |
| Trade and other receivables | $ | 27,810 |
|
| Prepaid expenses and other | 5,097 |
|
| Property and equipment | 992 |
|
| Goodwill | 28,540 |
|
| Other intangible assets | 61,823 |
|
| Deferred tax asset | 146 |
|
| Deferred tax liabilities | (5,123 | ) |
| Liabilities assumed | (42,550 | ) |
| Aggregate purchase prices | $ | 76,735 |
|
The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands): |
| | | | |
| | Useful Lives (in Years) | Value |
| Trade Names and Trademarks | 2 - Indefinite | $ | 10,140 |
|
| Technology | 5 - 10 | 14,032 |
|
| Lodging Network | 10 | 300 |
|
| Referral Partners | 20 | 2,000 |
|
| Customer Relationships | Varies | 56,453 |
|
| | | $ | 82,925 |
|
|
| | | | |
| | Useful Lives (in Years) | Value |
| Customer relationships and other identifiable intangible assets | 10-18 | $ | 61,823 |
|
| | | $ | 61,823 |
|
These other 2016 acquisitions were not material individually or in the aggregate to the Company’s consolidated financial statements. The accounting for certain of these acquisitions is preliminary as the Company is still completing the valuation of certain goodwill, intangible assets, income taxes and evaluation of acquired contingencies.
20152018 Acquisitions
During 2015,2018, the Company completed acquisitions of Shell portfolios related to our fuel card businesses in Europe, as well as a smallan acquisition internationally, with an aggregate purchase price of $46.3$21.2 million, made additional investmentsnet of $8.4cash acquired of $11.0 million related to its equity method investment at Masternaut and made deferred payments of $3.4$3.8 million related to acquisitions occurring in prior years. The following table summarizes the final acquisition accounting for the acquisitions completed during 2015 (in thousands):
|
| | | | |
| Trade and other receivables | | $ | 521 |
|
| Prepaid expenses and other | | 996 |
|
| Property and equipment | | 197 |
|
| Goodwill | | 9,561 |
|
| Other intangible assets | | 39,791 |
|
| Deferred tax liabilities | | (2,437 | ) |
| Liabilities assumed | | (2,331 | ) |
| Aggregate purchase prices | | $ | 46,298 |
|
The final estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):
|
| | | | | | |
| | | Useful Lives (in Years) | | Value |
| Customer relationships | | 14-20 | | $ | 39,791 |
|
| | | | | $ | 39,791 |
|
These acquisitions were not material individually or in the aggregate to the Company’s consolidated financial statements. The accounting for certain of these acquisitions is preliminary pending completing the valuation of intangible assets, income taxes and evaluation of acquired contingencies.
2014 Acquisitions
During 2014,2018, the Company completed acquisitions with an aggregate purchase pricemade investments in other businesses of $3.67 billion, net$17.0 million and payments on a seller note of cash acquired of $165.8$1.6 million.
Equity Method Investment in Masternaut
On April 28, 2014, the Company completed an equity method investment in Masternaut, Europe’s largest provider of telematics solutions to commercial fleets. The Company owns 44% of the outstanding equity of Masternaut. This investment is included in “Equity method investment” in the Company’s consolidated balance sheets.
Comdata
On November 14, 2014, the Company acquired Comdata for $3.4 billion, net of cash acquired. Comdata is a business-to-business provider of innovative electronic payment solutions. As an issuer and a processor, Comdata provides fleet, virtual card and gift card solutions. This acquisition complemented the Company’s current fuel card business in the U.S. and added a new product with the virtual payments business. Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and Comdata and assembled workforce. The goodwill acquired with this business is not deductible for tax purposes. FleetCor financed the acquisition with approximately $2.4 billion of new debt and the issuance of approximately 7.6 million shares of FleetCor common stock, including amounts applied at the closing to the repayment of Comdata’s debt. Results from the acquired business have been reported in the Company’s North America segment since the date of acquisition. The following table summarizes the final acquisition accounting for Comdata (in thousands):
|
| | | | |
| Restricted cash | | $ | 93,312 |
|
| Trade and other receivables | | 638,137 |
|
| Prepaid expenses and other | | 15,443 |
|
| Property and equipment | | 17,984 |
|
| Goodwill | | 2,253,348 |
|
| Other intangible assets | | 1,630,700 |
|
| Notes and other liabilities assumed | | (804,032 | ) |
| Deferred tax liabilities | | (423,977 | ) |
| Other long term liabilities | | (6,841 | ) |
| Aggregate purchase price | | $ | 3,414,074 |
|
The final estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):
|
| | | | | | |
| | | Useful Lives (in Years) | | Value |
| Customer relationships | | 19 | | $ | 1,269,700 |
|
| Trade names and trademarks—indefinite | | N/A | | 237,100 |
|
| Software | | 4 – 7 | | 123,300 |
|
| Non-competes | | 3 | | 600 |
|
| | | | | $ | 1,630,700 |
|
Other
During 2014, the Company acquired Pacific Pride, a U.S. fuel card business, and a fuel card business from Shell in Germany. The following table summarizes the final acquisition accounting for these acquisitions during 2014 (in thousands):
|
| | | | |
| Trade and other receivables | | $ | 62,604 |
|
| Prepaid expenses and other | | 232 |
|
| Property and equipment | | 71 |
|
| Goodwill | | 30,596 |
|
| Other intangible assets | | 47,974 |
|
| Notes and other liabilities assumed | | (66,499 | ) |
| Aggregate purchase prices | | $ | 74,978 |
|
The final estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):
|
| | | | | | |
| | | Useful Lives (in Years) | | Value |
| Customer relationships | | 8 | | $ | 15,574 |
|
| Trade names and trademarks—indefinite | | N/A | | 2,900 |
|
| Franchisee agreements | | 20 | | 29,500 |
|
| | | | | $ | 47,974 |
|
These acquisitions were not material individually or in the aggregate to the Company’s consolidated financial statements.
The Company expensed acquisition related expenses related tofinanced the acquisitions using a combination of existing cash and borrowings under its acquisitions of $3.3 million, $1.7 million and $3.2 million in the years ending December 31, 2016, 2015 and 2014, respectively.
existing credit facility.
7.8. Goodwill and Other Intangible Assets
A summary of changes in the Company’s goodwill by reportable business segment is as follows (in thousands): | | | | | December 31, 2015 | | Acquisitions | | Acquisition Accounting Adjustments | | Foreign Currency | | December 31, 2016 | | December 31, 2018 | | Acquisitions | | Acquisition Accounting Adjustments | | Foreign Currency | | December 31, 2019 |
| Segment | | | | | | | | | | | | | | | | | | | | |
| North America | | $ | 2,640,409 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,640,409 |
| | $ | 3,087,875 |
| | $ | 268,866 |
| | $ | 2,914 |
| | $ | 9,518 |
| | $ | 3,369,173 |
|
| International | | 905,625 |
| | 687,828 |
| | (521 | ) | | (38,191 | ) | | 1,554,741 |
| | 1,454,199 |
| | 19,531 |
| | — |
| | (9,856 | ) | | 1,463,874 |
|
| | | $ | 3,546,034 |
|
| $ | 687,828 |
|
| $ | (521 | ) |
| $ | (38,191 | ) |
| $ | 4,195,150 |
| | $ | 4,542,074 |
|
| $ | 288,397 |
|
| $ | 2,914 |
| | $ | (338 | ) | | $ | 4,833,047 |
|
| | | | | December 31, 2014 | | Acquisitions | | Acquisition Accounting Adjustments | | Foreign Currency | | December 31, 2015 | | December 31, 2017 | | Acquisitions | | Acquisition Accounting Adjustments | | Foreign Currency | | December 31, 2018 |
| Segment | | | | | | | | | | | | | | | | | | | | |
| North America | | $ | 2,659,417 |
| | $ | — |
| | $ | (19,008 | ) | | $ | — |
| | $ | 2,640,409 |
| | $ | 3,084,123 |
| | $ | 16,184 |
| | $ | 4,036 |
| | $ | (16,468 | ) | | $ | 3,087,875 |
|
| International | | 1,053,765 |
| | 10,082 |
| | (2,237 | ) | | (155,985 | ) | | 905,625 |
| | 1,631,700 |
| | — |
| | 20 |
| | (177,521 | ) | | 1,454,199 |
|
| | | $ | 3,713,182 |
|
| $ | 10,082 |
|
| $ | (21,245 | ) |
| $ | (155,985 | ) |
| $ | 3,546,034 |
| | $ | 4,715,823 |
|
| $ | 16,184 |
|
| $ | 4,056 |
| | $ | (193,989 | ) |
| $ | 4,542,074 |
|
At December 31, 20162019 and 2015,2018, approximately $362.6$861.4 million and $351.0$882.3 million of the Company’s goodwill is deductible for tax purposes, respectively. Acquisition accounting adjustments recorded in 20162019 and 20152018 are a result of the Company completing its acquisition accounting and working capital adjustment periodsadjustments for certain prior year acquisitions.
Other intangible assets consisted of the following at December 31 (in thousands):
| | | | | | | 2016 | | 2015 | | | | 2019 | | 2018 |
| | | Weighted- Avg Useful Life (Years) | | Gross Carrying Amounts | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amounts | | Accumulated Amortization | | Net Carrying Amount | | Weighted- Avg Useful Life (Years) | | Gross Carrying Amounts | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amounts | | Accumulated Amortization | | Net Carrying Amount |
| Customer and vendor agreements | | 17.0 | | $ | 2,449,389 |
| | $ | (458,118 | ) | | $ | 1,991,271 |
| | $ | 2,071,928 |
| | $ | (329,664 | ) | | $ | 1,742,264 |
| | 17.0 | | $ | 2,698,327 |
| | $ | (943,537 | ) | | $ | 1,754,790 |
| | $ | 2,625,270 |
| | $ | (776,383 | ) | | $ | 1,848,887 |
|
| Trade names and trademarks—indefinite lived | | N/A | | 510,952 |
| | — |
| | 510,952 |
| | 318,048 |
| | — |
| | 318,048 |
| | N/A | | 496,306 |
| | — |
| | 496,306 |
| | 479,555 |
| | — |
| | 479,555 |
|
| Trade names and trademarks—other | | 14.7 | | 2,746 |
| | (2,021 | ) | | 725 |
| | 3,067 |
| | (2,058 | ) | | 1,009 |
| | 13.4 | | 5,384 |
| | (2,877 | ) | | 2,507 |
| | 2,957 |
| | (2,501 | ) | | 456 |
|
| Software | | 5.3 | | 211,331 |
| | (85,167 | ) | | 126,164 |
| | 170,085 |
| | (54,250 | ) | | 115,835 |
| | 6.0 | | 242,783 |
| | (180,839 | ) | | 61,944 |
| | 212,733 |
| | (152,416 | ) | | 60,317 |
|
| Non-compete agreements | | 5.0 | | 35,191 |
| | (11,070 | ) | | 24,121 |
| | 15,209 |
| | (8,770 | ) | | 6,439 |
| | 4.1 | | 65,560 |
| | (39,225 | ) | | 26,335 |
| | 47,009 |
| | (28,314 | ) | | 18,695 |
|
| Total other intangibles | | $ | 3,209,609 |
|
| $ | (556,376 | ) |
| $ | 2,653,233 |
|
| $ | 2,578,337 |
|
| $ | (394,742 | ) |
| $ | 2,183,595 |
| | $ | 3,508,360 |
|
| $ | (1,166,478 | ) |
| $ | 2,341,882 |
|
| $ | 3,367,524 |
|
| $ | (959,614 | ) |
| $ | 2,407,910 |
|
Changes in foreign exchange rates resulted in an $36.8$2.0 million decreaseand $117 million decreases to the carrying values of other intangible assets in the yearyears ended December 31, 2016.2019 and 2018, respectively. Amortization expense related to intangible assets for the years ended December 31, 2016, 20152019, 2018 and 20142017 was $161.6$206.9 million, $159.7$216.3 million and $86.1$211.8 million, respectively.
The future estimated amortization of intangibles at December 31, 20162019 is as follows (in thousands):
|
| | | | |
| 2020 | | $ | 192,314 |
|
| 2021 | | 183,440 |
|
| 2022 | | 170,757 |
|
| 2023 | | 163,926 |
|
| 2024 | | 157,125 |
|
| Thereafter | | 978,014 |
|
|
| | | | |
| 2017 | | $ | 203,845 |
|
| 2018 | | 200,021 |
|
| 2019 | | 186,792 |
|
| 2020 | | 167,136 |
|
| 2021 | | 163,586 |
|
| Thereafter | | 1,220,901 |
|
8.9. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following at December 31 (in thousands):
|
| | | | | | | | | | |
| | | Estimated Useful Lives (in Years) | | 2016 | | 2015 |
| Computer hardware and software | | 3 to 5 | | $ | 197,958 |
| | $ | 131,409 |
|
| Card-reading equipment | | 4 to 6 | | 25,553 |
| | 10,887 |
|
| Furniture, fixtures, and vehicles | | 2 to 10 | | 15,418 |
| | 10,291 |
|
| Buildings and improvements | | 5 to 50 | | 14,432 |
| | 10,982 |
|
| Property, plant and equipment, gross | | | | 253,361 |
| | 163,569 |
|
| Less: accumulated depreciation | | | | (110,857 | ) | | (82,809 | ) |
| Property, plant and equipment, net | | | | $ | 142,504 |
| | $ | 80,760 |
|
|
| | | | | | | | | | |
| | | Estimated Useful Lives (in Years) | | 2019 | | 2018 |
| Computer hardware and software | | 3 to 5 | | $ | 341,282 |
| | $ | 291,404 |
|
| Card-reading equipment | | 4 to 6 | | 24,077 |
| | 20,117 |
|
| Furniture, fixtures, and vehicles | | 2 to 10 | | 19,319 |
| | 18,308 |
|
| Buildings and improvements | | 5 to 50 | | 29,127 |
| | 21,854 |
|
| Property, plant and equipment, gross | | | | 413,805 |
| | 351,683 |
|
| Less: accumulated depreciation | | | | (213,980 | ) | | (165,482 | ) |
| Property, plant and equipment, net | | | | $ | 199,825 |
| | $ | 186,201 |
|
Depreciation expense related to property and equipment for the years ended December 31, 2016, 20152019, 2018, and 20142017 was $36.5$62.8 million, $30.5$52.9 million and $21.1$46.6 million, respectively. DepreciationAmortization expense includes $17.7$37.2 million, $11.6$24.2 million and $9.2$21.8 million for capitalized computer software costs for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively. At December 31, 20162019 and 2015,2018, the Company had unamortized computer software costs of $60.2$118.8 million and $44.9$86.5 million, respectively.
The Company recorded write-offs of property, plant and equipment of $1.8 million and $8.7 million, within other operating expense, net within its Consolidated Statements of Income for the years ended 2019 and 2018. The Company did not record any write-offs of property, plant and equipment in 2017.
9.10. Accrued Expenses
Accrued expenses consisted of the following at December 31 (in thousands):
|
| | | | | | | | |
| | | 2019 | | 2018 |
| Accrued bonuses | | $ | 23,595 |
| | $ | 20,553 |
|
| Accrued payroll and severance | | 23,718 |
| | 15,932 |
|
| Accrued taxes | | 70,350 |
| | 85,346 |
|
| Accrued commissions/rebates | | 77,430 |
| | 60,593 |
|
| Other | | 80,418 |
| | 79,170 |
|
| | | $ | 275,511 |
| | $ | 261,594 |
|
|
| | | | | | | | |
| | | 2016 | | 2015 |
| Accrued bonuses | | $ | 15,866 |
| | $ | 11,995 |
|
| Accrued payroll and severance | | 10,704 |
| | 6,479 |
|
| Accrued taxes | | 104,623 |
| | 5,977 |
|
| Accrued commissions/rebates | | 43,467 |
| | 49,157 |
|
| Other | | 64,152 |
| | 77,069 |
|
| | | $ | 238,812 |
| | $ | 150,677 |
|
10.11. Debt
The Company’s debt instruments at December 31 consist primarily of term notes, revolving lines of credit and a Securitization Facility as follows (in thousands):
| | | | | 2016 | | 2015 | | 2019 | | 2018 |
| Term notes payable—domestic(a), net of discounts | | $ | 2,639,279 |
| | $ | 2,157,376 |
| |
| Revolving line of credit A Facility—domestic(a) | | 465,000 |
| | 160,000 |
| |
| Revolving line of credit A Facility—foreign(a) | | 123,412 |
| | — |
| |
| Revolving line of credit A Facility—swing line(a) | | 26,608 |
| | — |
| |
| Other(c) | | 12,934 |
| | 3,624 |
| |
| Term Loan A note payable (a), net of discounts | | | $ | 3,080,789 |
| | $ | 2,515,519 |
|
| Term Loan B note payable (a), net of discounts | | | 340,481 |
| | 344,180 |
|
| Revolving line of credit A Facility(a) | | | 325,000 |
| | 655,000 |
|
| Revolving line of credit B Facility(a) | | | 225,477 |
| | 345,446 |
|
| Revolving line of credit C Facility(a) | | | — |
| | 35,000 |
|
| Revolving line of credit B Facility —foreign swing line(a) | | | 52,038 |
| | — |
|
| Other debt(c) | | | 42,027 |
| | 37,902 |
|
| Total notes payable and other obligations | | 3,267,233 |
|
| 2,321,000 |
| | 4,065,812 |
| | 3,933,047 |
|
| Securitization Facility(b) | | 591,000 |
| | 614,000 |
| | 970,973 |
| | 886,000 |
|
| Total notes payable, credit agreements and Securitization Facility | | $ | 3,858,233 |
|
| $ | 2,935,000 |
| | $ | 5,036,785 |
| | $ | 4,819,047 |
|
| Current portion | | $ | 1,336,506 |
| | $ | 875,100 |
| | $ | 1,746,838 |
| | $ | 2,070,616 |
|
| Long-term portion | | 2,521,727 |
| | 2,059,900 |
| | 3,289,947 |
| | 2,748,431 |
|
| Total notes payable, credit agreements and Securitization Facility | | $ | 3,858,233 |
|
| $ | 2,935,000 |
| | $ | 5,036,785 |
| | $ | 4,819,047 |
|
_____________________
| |
| (a) | On October 24, 2014, theThe Company entered intohas a $3.36 billion New Credit Agreement, which has been amended multiple times and provides for senior secured credit facilities (collectively, the "Credit Facility") consisting of (a) a revolving A credit facility in the amount of $1.0$1.285 billion, with sublimits for letters of credit, swing line loans and multicurrency borrowings, (b) a revolving B facility in the amount of $35 million for loans in Australian Dollars or New Zealand Dollars, (c) a term A loan facility in the amount of $2.02 billion and (d) a term loan B facility in the amount $300 million. Proceeds from the Credit Facility may be used for working capital purposes, acquisitions, and other general corporate purposes. Interest on amounts outstanding under the New Credit Agreement (other than the term B loan ) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest is payable quarterly in arrears. On August 22, 2016, the Company entered into the first Amendment to the existing New Credit Agreement, which established an incremental term A loan in the amount of $600 million under the New Credit Agreement accordion feature. The proceeds from the additional $600 million in term A loans were used to partially finance the STP acquisition. The amendment also established an accordion feature for borrowing an additional $500 million in term A, term B or revolver A debt. On January 20, 2017, the Company entered into the second amendment to the New Credit Agreement, which established a new term B loan ("term B-2 loan") in the amount of $245 million to replace the existing Term B loan. Interest on the Term B-2 loan facility accrues based on the Eurocurrency Rate or the Base Rate, except that the applicable margin is fixed at 2.25% for Eurocurrency Loans and at 1.25% for Base Rate Loans. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.20% to 0.40% |
term loan A facility in the amount of $3.225 billion and a term loan B facility in the amount of $350 million as of December 31, 2019. The revolving credit facility consists of (a) a revolving A credit facility in the amount of $800 million with sublimits for letters of credit and swing line loans, (b) a revolving B facility in the amount of $450 million with borrowings in U.S. Dollars, Euros, British Pounds, Japanese Yen or other currently as agreed in advance and a sublimit for foreign swing line loans and, (c) a revolving C facility in the amount of $35 million with borrowings in U.S. Dollars, Australian Dollars or New Zealand Dollars. The Credit Agreement also includes an accordion feature for borrowing an additional $750 million in term loan A, term loan B, revolver A or revolver B debt and an unlimited amount when the leverage ratio on a pro-forma basis is less than 3.00 to 1.00. Proceeds from the credit facilities may be used for working capital purposes, acquisitions, and other general corporate purposes. On August 2, 2019, the Company entered into the sixth amendment to the Credit Agreement, which included an incremental term loan A in the amount of $700 million and changes to the consolidated leverage ratio definition and negative covenant related to indebtedness. The maturity date for the term loan A and revolving credit facilities is December 19, 2023. On November 14, 2019, the Company entered into the seventh amendment to the Credit Agreement, to lower the margin for term loan B from 2.00% to 1.75%. The maturity date for the term B loan is August 2, 2024.
Interest on amounts outstanding under the Credit Agreement (other than the term loan B) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest on the term B loan facility accrues based on the Eurocurrency Rate plus 1.75% for Eurocurrency Loans and at the Base Rate plus 0.75% for Base Rate Loans. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.25% to 0.35% of the daily unused portion of the credit facility.
At December 31, 2016,2019, the interest rate on the term A loan was 3.05% and the domesticinterest rate on borrowings under revolving A facility was 2.52%, the interest rate on the foreign revolving A facility was 2.01%3.03%, the interest rate on the revolving AB facility swing line of creditGBP Borrowings was 1.97%1.96%, the interest rate on the term loan B was 3.55% and the interest rate on the term B-2 loanforeign swing line was 3.77%1.93%. The unused credit facility fee was 0.35%0.25% for all revolving facilities at
December 31, 2016. The stated maturity dates for the term A loan, revolving loans, and letters of credit under the New Credit Agreement is November 14, 2019 and November 14, 2021 for the term B loan.
2019.
The term loans are payable in quarterly installments and are due on the last business day of each March, June, September, and December with the final principal payment due on the respective maturity date. Borrowings on the revolving line of credit are repayable at the option of one, two, three or ninesix months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than tentwenty business days after such loan is made.
AtThe Company has unamortized debt issuance costs of $6.7 million related to the revolving credit facility at December 31, 2016, the Company had $2.4 billion in borrowings outstanding on term A loan, excluding the related debt discount, $245.0 million in borrowings outstanding on term B-2 loan, excluding the related debt discount, $465.0 million in borrowings outstanding on the domestic revolving A facility, $123.4 million in borrowings outstanding on the foreign revolving A facility and $26.6 million in borrowings outstanding on the swing line revolving A facility.2019. The Company has unamortized debt discounts of $6.2$7.4 million related to the term A facility and $1.0$0.5 million related to the term B facility and deferred financing costs of $1.8 million related to the term A facility and $1.2 million related to the term B facility at December 31, 2016.2019. The effective interest rate incurred on term loans was 2.57% and 2.04%4.00% during 2016 and 2015, respectively,2019 related to the discount on debt. Principal payments of $118.5$138.5 million were made on the term loans during 2016.
2019.
| |
| (b) | The Company is party to a $950 million$1.2 billion receivables purchase agreement (Securitization Facility) that was amended on February 8, 2019 and restated for the fifth time on November 14, 2014 in connection with the Comdata acquisition to increase the commitments from $500.0 million to $1.2 billion, to extend the term of the facility to November 14, 2017, to add financial covenants and to add additional purchasers to the facility. On November 5, 2015, the first amendment to the fifth amended and restated receivables purchase agreement was entered into which allowed the Company to enter into a new contract with BP and modified the eligible receivables definition and on December 1, 2015, the second amendment to the fifth amended and restated receivables purchase agreement was entered into which reduced the commitments from $1.2 billion to $950 million.April 22, 2019. There is a program fee equal to one month LIBOR andplus 0.90% or the Commercial Paper Rate of 0.85% plus 0.90% and 0.43% plus 0.90%0.80% as of December 31, 20162019 and 2015, respectively.2018. The program fee was 1.80% plus 0.88% as of December 31, 2019 and 2.52% plus 0.89% as of December 31, 2018. The unused facility fee is payable at a rate of 0.40% as of December 31, 20162019 and 2015.2018. The Company has unamortized debt issuance costs of $0.7 million related to the Securitization Facility provides for certain termination events, which includes nonpayment, uponas of December 31, 2019 recorded within other assets in the occurrence of which the administrator may declare the facility termination date to have occurred, may exercise certain enforcement rights with respect to the receivables, and may appoint a successor servicer, among other things.consolidated balance sheet. |
The Securitization Facility provides for certain termination events, which includes nonpayment, upon the occurrence of which the administrator may declare the facility termination date to have occurred, may exercise certain enforcement rights with respect to the receivables, and may appoint a successor servicer, among other things.
| |
| (c) | Other includes the long termlong-term portion of contingent consideration and deferred payments associated with certain of our businesses.business acquisitions, deferred revenue, and deferred rent for the prior period presented. |
The Company was in compliance with all financial and non-financial covenants at December 31, 2016.2019.
The contractual maturities of the Company’s notes payable and other obligations at December 31, 20162019 are as follows (in thousands):
|
| | | | |
| 2020 | | $ | 775,865 |
|
| 2021 | | 192,577 |
|
| 2022 | | 162,156 |
|
| 2023 | | 2,607,293 |
|
| 2024 | | 327,921 |
|
| Thereafter | | — |
|
|
| | | | |
| 2017 | | $ | 745,506 |
|
| 2018 | | 273,223 |
|
| 2019 | | 2,010,302 |
|
| 2020 | | 1,734 |
|
| 2021 | | 235,518 |
|
| Thereafter | | 950 |
|
11.12. Accumulated Other Comprehensive Loss (AOCI)
The changes in the components of AOCI for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):
|
| | | | | | | | | | | | | |
| | | Cumulative Foreign Currency Translation | | Unrealized (Losses) Gains on Derivative Instruments | | Total Accumulated Other Comprehensive (Loss) Income |
| |
| | Balance at December 31, 2016 | | $ | (666,403 | ) | | $ | — |
| | $ | (666,403 | ) |
| | Other comprehensive income before reclassifications | | 83,165 |
| | — |
| | 83,165 |
|
| | Amounts reclassified from AOCI | | 31,381 |
| | | | 31,381 |
|
| | Tax effect | | — |
| | — |
| | — |
|
| | Other comprehensive income | | 114,546 |
| | — |
| | 114,546 |
|
| | Balance at December 31, 2017 | | (551,857 | ) | | — |
| | (551,857 | ) |
| | Other comprehensive loss before reclassifications | | (362,001 | ) | | — |
| | (362,001 | ) |
| | Amounts reclassified from AOCI | | — |
| | — |
| | — |
|
| | Tax effect | | — |
| | — |
| | — |
|
| | Other comprehensive loss | | (362,001 | ) | | — |
| | (362,001 | ) |
| | Balance at December 31, 2018 | | (913,858 | ) | | — |
| | (913,858 | ) |
| | Other comprehensive loss before reclassifications | | (15,855 | ) | | (68,928 | ) | | (84,783 | ) |
| | Amounts reclassified from AOCI | | — |
| | 5,828 |
| | 5,828 |
|
| | Tax effect | | — |
| | 20,348 |
| | 20,348 |
|
| | Other comprehensive loss | | (15,855 | ) | | (42,752 | ) | | (58,607 | ) |
| | Balance at December 31, 2019 | | $ | (929,713 | ) | | $ | (42,752 | ) | | $ | (972,465 | ) |
13. Income Taxes
Income before the provision for income taxes is attributable to the following jurisdictions (in thousands) for years ended December 31:
31 (in thousands):
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| United States | | $ | 505,818 |
| | $ | 622,214 |
| | $ | 524,669 |
|
| Foreign | | 572,001 |
| | 472,911 |
| | 368,921 |
|
| Total | | $ | 1,077,819 |
|
| $ | 1,095,125 |
|
| $ | 893,590 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| United States | | $ | 383,427 |
| | $ | 304,743 |
| | $ | 233,933 |
|
| Foreign | | 259,492 |
| | 231,261 |
| | 279,010 |
|
| Total | | $ | 642,919 |
|
| $ | 536,004 |
|
| $ | 512,943 |
|
The provision for income taxes for the years ended December 31 consists of the following (in thousands):
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Current: | | | | | | |
| Federal | | $ | 50,145 |
| | $ | 165,303 |
| | $ | 303,514 |
|
| State | | 10,285 |
| | 26,036 |
| | 19,234 |
|
| Foreign | | 84,433 |
| | 95,053 |
| | 78,354 |
|
| Total current | | 144,863 |
|
| 286,392 |
|
| 401,102 |
|
| Deferred: | | | | | | |
| Federal | | (10,479 | ) | | (19,688 | ) | | (255,188 | ) |
| State | | 3,745 |
| | 8,727 |
| | 276 |
|
| Foreign | | 44,617 |
| | 8,211 |
| | 7,200 |
|
| Total deferred | | 37,883 |
|
| (2,750 | ) |
| (247,712 | ) |
| Total provision | | $ | 182,746 |
|
| $ | 283,642 |
|
| $ | 153,390 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Current: | | | | | | |
| Federal | | $ | 147,406 |
| | $ | 82,926 |
| | $ | 39,168 |
|
| State | | 10,725 |
| | 8,051 |
| | 8,208 |
|
| Foreign | | 61,084 |
| | 51,970 |
| | 55,144 |
|
| Total current | | 219,215 |
|
| 142,947 |
|
| 102,520 |
|
| Deferred: | | | | | | |
| Federal | | (18,723 | ) | | 36,723 |
| | 41,814 |
|
| State | | 1,608 |
| | 1,525 |
| | (596 | ) |
| Foreign | | (11,566 | ) | | (7,622 | ) | | 498 |
|
| Total deferred | | (28,681 | ) |
| 30,626 |
|
| 41,716 |
|
| Total provision | | $ | 190,534 |
|
| $ | 173,573 |
|
| $ | 144,236 |
|
The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 21% for 2019 and 2018 and 35% 2017, respectively, to income before income taxes for the years ended December 31, 2019, 2018 and 2017 due to the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Computed “expected” tax expense | | $ | 226,342 |
| | 21.0 | % | | $ | 229,976 |
| | 21.0 | % | | $ | 312,756 |
| | 35.0 | % |
| Changes resulting from: | | | | | | | | | | | | |
| Change in valuation allowance | | (28,614 | ) | | (2.7 | ) | | 25,193 |
| | 2.8 |
| | 18,289 |
| | 2.0 |
|
| Foreign income tax differential | | (15,816 | ) | | (1.4 | ) | | 9,921 |
| | 0.9 |
| | (38,695 | ) | | (4.3 | ) |
| State taxes net of federal benefits | | 12,482 |
| | 1.2 |
| | 20,480 |
| | 1.9 |
| | 12,884 |
| | 1.4 |
|
| Foreign-sourced nontaxable income | | — |
| |
|
| | (28,861 | ) | | (2.6 | ) | | (8,836 | ) | | (1.0 | ) |
| Foreign withholding tax | | 20,360 |
| | 1.9 |
| | 20,569 |
| | 1.9 |
| | 9,362 |
| | 1.0 |
|
| IRC Section 199 deduction | | — |
| | — |
| | — |
| | — |
| | (8,844 | ) | | (1.0 | ) |
| Excess tax benefits related to stock-based compensation | | (38,156 | ) | | (3.5 | ) | | (19,255 | ) | | (1.8 | ) | | (18,058 | ) | | (2.0 | ) |
| Revaluation of capital loss deferred tax asset | | (24,279 | ) | | (2.3 | ) | | — |
| | — |
| | — |
| | — |
|
| Impact of the Tax Act: | | | | | | | | | | | | |
| One-time transition tax | | — |
| | — |
| | — |
| | — |
| | 195,779 |
| | 21.9 |
|
| Foreign tax credit- one-time transition tax | | — |
| | — |
| | 17,385 |
| | 1.6 |
| | (113,955 | ) | | (12.8 | ) |
| Deferred tax effects | | — |
| | — |
| | 7,128 |
| | 0.1 |
| | (209,965 | ) | | (23.5 | ) |
| Sub-part F Income/GILTI | | 49,859 |
| | 4.6 |
| | 40,200 |
| | 3.7 |
| | 3,741 |
| | 0.4 |
|
| Foreign tax credits | | (38,657 | ) | | (3.6 | ) | | (52,095 | ) | | (4.8 | ) | | — |
| | — |
|
| Other | | 19,225 |
| | 1.8 |
| | 13,001 |
| | 1.2 |
| | (1,068 | ) | | 0.1 |
|
| Provision for income taxes | | $ | 182,746 |
| | 17.0 | % | | $ | 283,642 |
| | 25.9 | % | | $ | 153,390 |
| | 17.2 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Computed “expected” tax expense | | $ | 225,022 |
| | 35.0 | % | | $ | 187,601 |
| | 35.0 | % | | $ | 179,530 |
| | 35.0 | % |
| Changes resulting from: | | | | | | | | | | | | |
| Change in valuation allowance | | 11,952 |
| | 1.9 |
| | 20,243 |
| | 3.8 |
| | (53 | ) | | — |
|
| Foreign income tax differential | | (25,533 | ) | | (4.0 | ) | | (23,718 | ) | | (4.4 | ) | | (24,972 | ) | | (4.9 | ) |
| State taxes net of federal benefits | | 9,439 |
| | 1.5 |
| | 6,711 |
| | 1.2 |
| | 4,492 |
| | 0.9 |
|
| Foreign-sourced nontaxable income | | (7,961 | ) | | (1.2 | ) | | (10,573 | ) | | (2.0 | ) | | (8,128 | ) | | (1.6 | ) |
| IRC Section 199 deduction | | (7,731 | ) | | (1.2 | ) | | (10,221 | ) | | (1.9 | ) | | — |
| | — |
|
| Excess tax benefits related to stock-based compensation | | (11,974 | ) | | (1.9 | ) | | — |
| | — |
| | — |
| | — |
|
| Other | | (2,680 | ) | | (0.4 | ) | | 3,530 |
| | 0.7 |
| | (6,633 | ) | | (1.3 | ) |
| Provision for income taxes | | $ | 190,534 |
| | 29.7 | % | | $ | 173,573 |
| | 32.4 | % | | $ | 144,236 |
| | 28.1 | % |
The adoption of ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting" resulted in excess tax benefits being recorded as a reduction of income tax expense during 2016, rather than additional paid in capital as discussed in the summary of significant accounting policies footnote.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31 are as follows (in thousands):
|
| | | | | | | | |
| | | 2019 | | 2018 |
| Deferred tax assets: | | | | |
| Accounts receivable, principally due to the allowance for doubtful accounts | | $ | 9,586 |
| | $ | 8,518 |
|
| Accrued expenses not currently deductible for tax | | 2,305 |
| | 6,734 |
|
| Lease deferral | | 24,713 |
| | — |
|
| Interest rate swap | | 13,781 |
| | — |
|
| Stock based compensation | | 39,779 |
| | 40,081 |
|
| Income tax credits | | 35,845 |
| | 26,770 |
|
| Net operating loss carry forwards | | 67,108 |
| | 53,221 |
|
| Investments | | — |
| | 39,062 |
|
| Accrued escheat | | 3,098 |
| | 3,608 |
|
| Other | | 3,522 |
| | 4,240 |
|
| Deferred tax assets before valuation allowance | | 199,737 |
|
| 182,234 |
|
| Valuation allowance | | (64,482 | ) | | (90,366 | ) |
| Deferred tax assets, net | | 135,255 |
|
| 91,868 |
|
| Deferred tax liabilities: | | | | |
| Intangibles—including goodwill | | (499,525 | ) | | (483,361 | ) |
| Basis difference in investment in subsidiaries | | (42,314 | ) | | (38,200 | ) |
| Lease deferral | | (21,810 | ) | | — |
|
| Mark to Market | | (3,213 | ) | | — |
|
| Accrued Expense Liability | | (4,023 | ) | | — |
|
| Prepaid expenses | | (2,075 | ) | |
|
|
| Property and equipment, prepaid expenses and other | | (79,620 | ) | | (59,101 | ) |
| Deferred tax liabilities | | (652,580 | ) |
| (580,662 | ) |
| Net deferred tax liabilities | | $ | (517,325 | ) |
| $ | (488,794 | ) |
|
| | | | | | | | |
| | | 2016 | | 2015 |
| Deferred tax assets: | | | | |
| Accounts receivable, principally due to the allowance for doubtful accounts | | $ | 7,148 |
| | $ | 6,277 |
|
| Accrued expenses not currently deductible for tax | | 2,647 |
| | 5,797 |
|
| Stock based compensation | | 41,415 |
| | 35,066 |
|
| Income tax credits | | 376 |
| | 3,830 |
|
| Net operating loss carry forwards | | 45,969 |
| | 39,970 |
|
| Equity investment | | 53,379 |
| | 38,760 |
|
| Accrued escheat | | 7,290 |
| | 13,497 |
|
| Fixed assets, intangibles and other | | 15,622 |
| | 14,191 |
|
| Deferred tax assets before valuation allowance | | 173,846 |
|
| 157,388 |
|
| Valuation allowance | | (76,395 | ) | | (62,605 | ) |
| Deferred tax assets, net | | 97,451 |
|
| 94,783 |
|
| Deferred tax liabilities: | | | | |
| Intangibles—including goodwill | | (687,443 | ) | | (732,017 | ) |
| Basis difference in investment in foreign subsidiaries | | (48,354 | ) | | (47,737 | ) |
| Prepaid expenses | | (3,644 | ) | | — |
|
| Property and equipment, principally due to differences between book and tax depreciation, and other | | (24,157 | ) | | (19,544 | ) |
| Deferred tax liabilities | | (763,598 | ) |
| (799,298 | ) |
| Net deferred tax liabilities | | $ | (666,147 | ) |
| $ | (704,515 | ) |
The Company’s deferred tax balances are classified in its balance sheets as of December 31 as follows (in thousands):
|
| | | | | | | | |
| | | 2016 | | 2015 |
| Current deferred tax assets and liabilities: | | | | |
| Current deferred tax assets | | $ | — |
| | $ | 9,585 |
|
| Current deferred tax liabilities | | — |
| | (672 | ) |
| Net current deferred taxes | | — |
|
| 8,913 |
|
| Long term deferred tax assets and liabilities: | | | | |
| Long term deferred tax assets | | 2,433 |
| | 1,639 |
|
| Long term deferred tax liabilities | | (668,580 | ) | | (715,067 | ) |
| Net long term deferred taxes | | (666,147 | ) | | (713,428 | ) |
| Net deferred tax liabilities | | $ | (666,147 | ) |
| $ | (704,515 | ) |
|
| | | | | | | | |
| | | 2019 | | 2018 |
| Long term deferred tax assets and liabilities: | | | | |
| Long term deferred tax assets | | $ | 2,655 |
| | $ | 3,152 |
|
| Long term deferred tax liabilities | | (519,980 | ) | | (491,946 | ) |
| Net deferred tax liabilities | | $ | (517,325 | ) |
| $ | (488,794 | ) |
The Company elected to early adopt Accounting Standards Update 2015-17, "Balance Sheet Classification of Deferred Taxes". The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). The Company elected to apply the new guidance prospectively.
We reduce federal and state income taxes payable by the tax benefits associated with the exercise of certain stock options. Prior to the adoption of ASU 2016-09, we recorded an excess tax benefit in stockholders’ equity to the extent realized tax deductions for options exceeded the amount recognized as deferred tax benefits related to share-based compensation for these option awards. We recorded excess tax benefits of $26.4 million and $56.8 million in the years ended 2015 and 2014, respectively.
For 2016, as a result of the adoption of ASU 2016-09, the excess tax benefit was recorded as a reduction of income tax expense rather than as additional paid in capital. The excess tax benefit recorded in 2016 was $12.0 million.
At December 31, 2016, U.S. taxes were not provided on earnings of the Company’s foreign subsidiaries. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. If in the future these earnings are repatriated to the U.S, or if the Company determines that the earnings will be remitted in the foreseeable future, an additional tax provision and related liability may be required. If such earnings were distributed, U.S. income taxes would be partially reduced by available credits for taxes paid to the jurisdictions in which the income was earned.
Cumulative undistributed earnings of non-U.S. subsidiaries for which U.S. taxes have not been provided are included in consolidated retained earnings in the amount of approximately $1,356.6 million at December 31, 2016. Because of the availability of United States foreign tax credits, it is not practicable to determine the domestic federal income tax liability that would be payable if such earnings were not reinvested indefinitely.
The valuation allowance for deferred tax assets at December 31, 2016 and 2015 was $76.4 million and $62.6 million, respectively. changed during 2019 as follows (in thousands): |
| | | | |
| Balance at December 31, 2016 | | $ | 76,395 |
|
| Additions based on changes in deferred tax assets in 2017 | | 5,332 |
|
| Reduction in valuation allowance due to rate change from Tax Act | | (22,378 | ) |
| Balance at December 31, 2017 (after impact of tax reform) | | 59,349 |
|
| Additions based on changes in deferred tax assets | | 25,193 |
|
| Increase in valuation allowance due to rate change from Tax Act | | 5,824 |
|
| Balance at December 31, 2018 | | 90,366 |
|
| Reductions based on changes in deferred tax assets | | (28,601 | ) |
| Additions based on changes in deferred tax assets | | 2,717 |
|
| Balance at December 31, 2019 | | $ | 64,482 |
|
The valuation allowance relatesallowances relate to basis differences in cost method investments, capital loss carryforwards, income tax credits, foreign net operating loss carryforwards and state net operating loss carry forwards, basis differences related to an equity method investment and foreign tax credit carry forwards.carryforwards. The net change in the total valuation allowance for the yearsyear ended December 31, 2016 and 20152019, was an increasea decrease of $13.8 million and $35.5 million, respectively.$28.6 million. The increases in 2016 and 2015 werevaluation decrease from the prior year was primarily due to changesthe sale of our investment in ourMasternaut, which will allow the Company to carryback the capital loss on its investment in Masternaut and offset it against a previously recorded capital gain from the sale of Nextraq in the third quarter of 2017. As the loss was not realizable in prior years based upon the available sources of taxable income in prior periods, a valuation allowance was recorded against the deferred tax asset related to basis differencesasset. The valuation allowance was reversed during the three months ended June 30, 2019 resulting in an equity method investment.a recognized tax benefit.
As of December 31, 2016,2019, the Company had a net operating loss carryforward for state income tax purposes of approximately $697.0$671.1 million that is available to offset future state taxable income through 2028.2038. Additionally, the Company had $43.5$68.1 million net operating loss carryforwards for foreign income tax purposes that are available to offset future foreign taxable income. The foreign net operating loss carryforwards will not expire in future years.
The Company recognizes interest and penalties on unrecognized tax benefits (including interest and penalties calculated on uncertain tax positions on whichhas provided a valuation allowance against $474.1 million of the Company believesnet operating losses as it will ultimately prevail) withindoes not anticipate utilizing the provision for income taxes on continuing operationslosses in the consolidated financial statements. foreseeable future.
During 20162019 and 2015,2018, the Company had recorded accrued interest and penalties related to the unrecognized tax benefits of $5.9$3.4 million and $5.4$1.5 million, respectively.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits including interest and penalties for the years ended December 31, 2016, 20152019, 2018 and 20142017 is as follows (in thousands):
|
| | | | |
| Unrecognized tax benefits at December 31, 2016 | | $ | 26,155 |
|
| Additions based on tax provisions related to the current year | | 4,143 |
|
| Additions for tax positions due to acquisitions | | 9,208 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (9,119 | ) |
| Additions based on tax provisions related to the prior year | | 1,171 |
|
| Unrecognized tax benefits at December 31, 2017 | | 31,558 |
|
| Additions based on tax provisions related to the current year | | 3,755 |
|
| Additions based on tax provisions related to the prior year | | 3,000 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (4,161 | ) |
| Unrecognized tax benefits at December 31, 2018 | | 34,152 |
|
| Additions based on tax provisions related to the current year | | 4,284 |
|
| Additions based on tax provisions related to the prior year | | 11,679 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (7,342 | ) |
| Unrecognized tax benefits at December 31, 2019 | | $ | 42,773 |
|
|
| | | | |
| | | |
| Unrecognized tax benefits at December 31, 2013 | | $ | 21,601 |
|
| Additions based on tax provisions related to the current year | | 1,676 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (4,636 | ) |
| Unrecognized tax benefits at December 31, 2014 | | 18,641 |
|
| Additions based on tax provisions related to the current year | | 9,079 |
|
| Additions based on tax provisions related to the prior year | | 477 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (6,363 | ) |
| Unrecognized tax benefits at December 31, 2015 | | 21,834 |
|
| Additions based on tax provisions related to the current year | | 3,332 |
|
| Additions based on tax provisions related to the prior year | | 2,496 |
|
| Deductions based on settlement/expiration of prior year tax positions | | (1,507 | ) |
| Unrecognized tax benefits at December 31, 2016 | | $ | 26,155 |
|
As of December 31, 2016,2019, the Company had total unrecognized tax benefits of $26.2$42.8 million all of which, $20.7 million, if recognized, would affect its effective tax rate. It is not anticipated that there are any unrecognized tax benefits that will significantly increase or decrease within the next twelve months.
The Company has immaterial outside basis differences in investments in foreign subsidiaries and has not recorded incremental income taxes for any additional outside basis differences, as these amounts continue to be indefinitely reinvested in foreign operations.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2013.2014. The statute of limitations for the Company’s U.K. income tax returns has expired for years prior to 2014.2017. The statute of
limitations has expired for years prior to 20132016 for the Company’s Czech Republic income tax returns, 20132016 for the Company’s Russian income tax returns, 20112014 for the Company’s Mexican income tax returns, 20112014 for the Company’s Brazilian income tax returns, 20112014 for the Company’s Luxembourg income tax returns, 20122015 for the Company’s New Zealand income tax returns, and 20142017 for the Company’s Australian income tax returns.
12.14. Leases
Effective January 1, 2019, the Company adopted Topic 842 using a modified retrospective method. Under this transition method, the Company has not restated comparative periods, and prior comparative periods will continue to be reported in conformity with ASC 840. On January 1, 2019, based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use (“ROU”) assets of $55.9 million and lease liabilities for operating leases of $65.5 million. At December 31, 2019, other assets include an ROU asset of $84.3 million, other current liabilities include short-term operating lease liabilities of $16.9 million, and other non-current liabilities include long term lease liabilities of $81.7 million. Finance leases are immaterial.
The Company primarily leases office space, data centers, vehicles, and equipment. Some of our leases contain variable lease payments, typically payments based on an index. The Company’s leases have remaining lease terms of one year to thirty years, some of which include options to extend from one to five years or more. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not reasonably certain to exercise and are not included in ROU assets and lease liabilities. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement, for the purposes of transition, the rate in effect at January 1, 2019. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability as of the modification date.
For contracts entered into on or after the effective date or at the inception of a contract, the Company assessed whether the contract is, or contains, a lease. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases. Therefore, leases entered into prior to January 1, 2019, are accounted for under the prior accounting standard and were not reassessed. The Company has also elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of twelve months or less. The effect of short-term leases would not be material to the ROU assets and lease liabilities.
Under ASC 842, a Company discounts future lease obligations by the rate implicit in the contract, unless the rate cannot be readily determined. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. In determining the borrowing rate, the Company considered the applicable lease terms, the Company's cost of borrowing, and for leases denominated in a foreign currency, the collateralized borrowing rate that the Company would obtain to borrow in the same currency in which the lease is denominated.
Total lease costs for the year ended December 31, 2019 were $20.5 million.
The supplementary cash and non-cash disclosures for the year ended December 31, 2019 are as follows (in thousands):
|
| | | |
| | December 31, 2019 |
| Cash paid for operating lease liabilities | $ | 19,763 |
|
Right-of-use assets obtained in exchange for new operating lease obligations 1 | $ | 102,586 |
|
| Weighted-average remaining lease term (years) | 7.54 |
|
| Weighted-average discount rate | 4.64 | % |
1 Includes $55.9 million for operating leases existing on January 1, 2019 |
Maturities of lease liabilities as of December 31, 2019 were as follows (in thousands):
|
| | | | |
| 2020 | | $ | 19,785 |
|
| 2021 | | 17,813 |
|
| 2022 | | 14,438 |
|
| 2023 | | 13,403 |
|
| 2024 | | 12,824 |
|
| Thereafter | | 38,992 |
|
| Total lease payments | | 117,255 |
|
| Less imputed interest | | 18,700 |
|
| Present value of lease liabilities | | $ | 98,555 |
|
Disclosures related to periods prior to the adoption of the new lease standard
The Company enters into noncancelable operating lease agreements for equipment, buildings and vehicles. The minimum lease payments for the noncancelable operating lease agreements are as follows (in thousands):
|
| | | | |
| 2019 | | $ | 19,678 |
|
| 2020 | | 16,658 |
|
| 2021 | | 14,826 |
|
| 2022 | | 11,733 |
|
| 2023 | | 11,017 |
|
| Thereafter | | 24,374 |
|
|
| | | | |
| 2017 | | $ | 18,145 |
|
| 2018 | | 14,408 |
|
| 2019 | | 10,561 |
|
| 2020 | | 8,029 |
|
| 2021 | | 7,604 |
|
| Thereafter | | 23,033 |
|
Rent expense for noncancelable operating leases approximated $15.1 million, $14.1$22.4 million and $12.5$18.4 million for the years ended December 31, 2016, 20152018 and 2014,2017, respectively. The leases are generally renewable at the Company’s option for periods of one to five years.
13.15. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various pending or threatened legal actions. The Company has recorded reserves for certainactions, arbitration proceedings, claims, subpoenas, and matters relating to compliance with laws and regulations (collectively, legal proceedings. The amounts recorded are estimated and as additional information becomes available,proceedings). Based on our current knowledge, management presently does not believe that the Companyliabilities arising from these legal proceedings will reassess the potential liability related to its pending litigation and revise its estimate in the period that information becomes known. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a material adverse effect on the Company’sour consolidated financial position,condition, results of operations or liquidity.cash flows. However, it is possible that the ultimate resolution of these legal proceedings could have a material adverse effect on our results of operations and financial condition for any particular period. The probability of loss for such contingencies is assessed and accrued as a liability and/or disclosed, as appropriate.
Shareholder Class Action and Derivative Lawsuits
On June 14, 2017, a shareholder filed a class action complaint in the United States District Court for the Northern District of Georgia against the Company and certain of its officers and directors on behalf of all persons who purchased or otherwise acquired the Company’s stock between February 5, 2016 and May 2, 2017. On October 13, 2017, the shareholder filed an amended complaint asserting claims on behalf of a class of all persons who purchased or otherwise acquired the Company's common stock between February 4, 2016 and May 3, 2017. The complaint alleges that the defendants made false or misleading statements regarding fee charges and the reasons for its earnings and growth in certain press releases and other public statements in violation of the federal securities laws. On July 17, 2019, the court granted plaintiff's motion for class certification. The complaint seeks unspecified monetary damages, costs, and attorneys’ fees. On October 3, 2019, the parties executed a term sheet to settle the case for a payment of $50 million for the benefit of the class. The full settlement amount is covered by the Company’s insurance policies. On December 12, 2019, the court granted the lead plaintiff’s motion for preliminary approval of the settlement. The Company disputes the allegations in the complaint and the settlement is without any admission of the allegations in the complaint.
On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia (“Federal Derivative Action”) seeking recovery on behalf of the Company. The Federal Derivative Action alleges that the defendants issued a false and misleading
proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedly false and misleading public statements concerning the Company’s fee charges, and financial and business prospects; and that certain defendants breached their fiduciary duties through allegedly improper sales of stock. The complaint seeks unspecified monetary damages on behalf of the Company, corporate governance reforms, disgorgement of profits, benefits and compensation by the defendants, restitution, costs, and attorneys’ and experts’ fees. On September 20, 2018, the court entered an order deferring the Federal Derivative Action pending a ruling on motions for summary judgment in the shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed to by the parties. After preliminary approval of the proposed settlement of the shareholder class action was granted, the stay on the Federal Derivative Action was lifted. Plaintiffs amended their complaint on February 22, 2020 and FleetCor has an April 10, 2020 date by which to move to dismiss or otherwise respond to the amended complaint in the Federal Derivative Action. On January 9, 2019, a similar shareholder derivative complaint was filed in the Superior Court of Gwinnett County, Georgia (“State Derivative Action”), which was stayed pending a ruling on motions for summary judgment in the shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed by the parties. On the parties’ joint motion, the court has continued the stay of the State Derivative Action “pending further developments in the first-filed Federal Derivative Action.” The defendants dispute the allegations in the derivative complaints and intend to vigorously defend against the claims.
FTC Investigation
In October 2017, the Federal Trade Commission (“FTC”) issued a Notice of Civil Investigative Demand to the Company for the production of documentation and a request for responses to written interrogatories. After discussions with the Company, the FTC proposed in October 2019 to resolve potential claims relating the Company’s advertising and marketing practices, principally in its U.S. direct fuel card business within its North American Fuel Card business. The parties reached impasse primarily related to what the Company believes are unreasonable demands for redress made by the FTC.
On December 20, 2019, the FTC filed a lawsuit in the Northern District of Georgia against the Company and Ron Clarke. See FTC v. FleetCor and Ronald F. Clarke, No. 19-cv-05727 (N.D. Ga.). The complaint alleges the Company and Clarke violated the FTC Act’s prohibitions on unfair and deceptive acts and practices. The complaint seeks among other things injunctive relief, consumer redress, and costs of suit. The Company continues to believe that the FTC’s claims are without merit. The Company has incurred and continues to incur legal and other fees related to this complaint. Any settlement of this matter, or defense against the lawsuit, could involve costs to the Company, including legal fees, fines, penalties, and remediation expenses. At this time, in view of the complexity and ongoing nature of the matter, we are unable to estimate a reasonably possible loss or range of loss that we may incur to settle this matter or defend against the lawsuit brought by the FTC.
14.16. Dispositions
Telematics Businesses
As part of the Company's plans to exit the telematics business, the Company sold its investment in Masternaut to Michelin Group during the second quarter of 2019. The Company impaired its investments in Masternaut by an additional $15.6 million during 2019, resulting in no gain or loss when the investment was sold. The Company has recorded cumulative impairment losses associated with its former investment in Masternaut of $136.3 million.
On September 30, 2017, we entered into an amended Masternaut investment agreement that resulted in the loss of significant influence, and we began accounting for the Masternaut investment by applying the cost method. As a result of our loss of significant influence and the operating results of Masternaut, we determined that the carrying value of our investment exceeded its fair value, and concluded that this decline in value was other than temporary. We recorded a$44.6 million impairment loss in the Masternaut investment that included an adjustment for $31.4 million of currency translation losses previously recognized in accumulated other comprehensive income, in the accompanying Consolidated Statements of Income in 2017.
On July 27, 2017, the Company sold NexTraq, a U.S. fleet telematics business, to Michelin Group for $316.5 million. The Company recorded a pre-tax gain on the disposal of NexTraq of $175.0 million during the third quarter of 2017, which is net of transaction closing costs. The Company recorded tax on the gain of disposal of $65.8 million. The gain on the disposal is included in other (income) expense, net in the accompanying Consolidated Statements of Income. NexTraq had historically been included in the Company's North America segment.
Chevron Portfolio
The Company completed the sale of the Chevron customer portfolio to WEX inc. resulting in a pre-tax gain of $152.8 million during the fourth quarter of 2018. The gain on the disposal is included in other (income) expense in the Consolidated Statements of Income. The asset was previously reported within the Company's North America segment.
17. Derivative Financial Instruments
The Company uses derivatives to facilitate cross-currency corporate payments by writing derivatives to customers within its Cambridge business. The Company writes derivatives, primarily foreign currency forward contracts, option contracts, and swaps, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity.
Derivative transactions associated with the Company's Cambridge business include:
| |
| • | Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash. |
| |
| • | Option contracts, which gives the purchaser, the right, but not the obligation to buy or sell within a specified time a currency at a contracted price that may be settled in cash. |
| |
| • | Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis. |
The credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815.
The aggregate equivalent U.S. dollar notional amount of foreign exchange derivative customer contracts held by the Company as of December 31, 2019 and 2018 (in millions) is presented in the table below. Notional amounts do not reflect the netting of offsetting trades, although these offsetting positions may result in minimal overall market risk. Aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on market conditions, levels of customer activity and other factors.
|
| | | | | | | |
| | Net Notional |
| | 2019 | | 2018 |
| Foreign exchange contracts: | | | |
| Swaps | $ | 599.5 |
| | $ | 929.5 |
|
| Futures, forwards and spot | 3,017.1 |
| | 3,249.9 |
|
| Written options | 6,393.9 |
| | 3,688.8 |
|
| Purchased options | 5,830.8 |
| | 2,867.2 |
|
| Total | $ | 15,841.3 |
| | $ | 10,735.4 |
|
The majority of customer foreign exchange contracts are written in major currencies such as the U.S. Dollar, Canadian Dollar, British Pound, Euro and Australian Dollar.
The following table summarizes the fair value of derivatives reported in the Consolidated Balance Sheet as of December 31, 2019 and 2018 (in millions):
|
| | | | | | | | | | | | | | | |
| December 31, 2019 | Fair Value, Gross | | Fair Value, Net |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Derivatives - undesignated: | | | | | | | |
| Foreign exchange contracts | $ | 114.9 |
| | $ | 103.8 |
| | $ | 72.1 |
| | $ | 60.9 |
|
| Cash collateral | 6.1 |
| | 25.6 |
| | 6.1 |
| | 25.6 |
|
| Total net derivative assets and liabilities | $ | 108.8 |
| | $ | 78.2 |
| | $ | 66.0 |
| | $ | 35.3 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | Fair Value, Gross | | Fair Value, Net |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Derivatives - undesignated: | | | | | | | |
| Foreign exchange contracts | 109.5 |
| | 112.9 |
| | 68.8 |
| | 72.1 |
|
| Cash collateral | 9.6 |
| | 73.1 |
| | 9.6 |
| | 73.1 |
|
| Total net derivative assets and liabilities | $ | 99.9 |
| | $ | 39.8 |
| | $ | 59.2 |
| | $ | (1.0 | ) |
The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted to present the Company's net exposure with these counterparties. The Company recognizes all derivative assets, net in prepaid expense and other current assets and all derivative liabilities, net in other current liabilities, both net at the customer level as right of offset exists, in its Consolidated Balance Sheets at their fair value. The gain or loss on the fair value is recognized immediately within revenues, net in the Consolidated Statements of Income. The Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. At December 31, 2019, $72.1 million derivative assets and $60.9 million derivative liabilities were recorded in other current assets and other current liabilities, respectively, in the Consolidated Balance Sheet. At December 31, 2018, $39.0 million derivative assets and $26.9 million derivative liabilities were recorded in other current assets and other current liabilities, respectively, in the Consolidated Balance Sheet. The Company receives cash from customers as collateral for trade exposures, which is recorded within restricted cash and customer deposits in the Consolidated Balance Sheet. The customer has the right to recall their collateral in the event exposures move in their favor, they unwind all outstanding trades or they cease to do business with the Company.
Cash Flow Hedges
On January 22, 2019, the Company entered into 3 interest rate swap cash flow contracts (the "swap contracts"). The objective of these swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. As of December 31, 2019, the Company had the following outstanding interest rate derivatives that qualify as hedging instruments and are designated as cash flow hedges of interest rate risk (in millions):
|
| | | | | | |
| | | Notional Amount as of | Fixed Rates | Maturity Date |
| | | December 31, 2019 |
| Interest Rate Derivative: | | | | |
| Interest Rate Swap | | $ | 1,000 |
| 2.56% | 1/31/2022 |
| Interest Rate Swap | | 500 |
| 2.56% | 1/31/2023 |
| Interest Rate Swap | | 500 |
| 2.55% | 12/19/2023 |
For each of these swap contracts, the Company will pay a fixed monthly rate and receive one month LIBOR.
The table below presents the fair value of the Company’s interest rate swap contracts, as well as their classification on the Consolidated Balance Sheets, as of December 31, 2019 (in millions). See footnote 4 for additional information on the fair value of the Company’s swap contracts.
|
| | | | | | |
| | | December 31, 2019 |
| | | Balance Sheet Location | | Fair Value |
| Derivatives designated as cash flow hedges: | | | | |
| Swap contracts | | Other liabilities | | $ | 56.4 |
|
The table below displays the effect of the Company’s derivative financial instruments in the Consolidated Statement of Income and other comprehensive loss for the twelve months ended December 31, 2019 (in millions):
|
| | | | |
| | | 2019 |
| Interest Rate Swaps: | | |
| Amount of loss recognized in other comprehensive income on derivatives, net of tax of $20.3 million | | $ | 42.8 |
|
| Amount of loss reclassified from accumulated other comprehensive income into interest expense | | 5.8 |
|
The estimated net amount of the existing losses expected to be reclassified into earnings within the next 12 months is approximately $19.5 million at December 31, 2019.
18. Earnings Per Share
The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to shareholders of the Company by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share reflect the potential dilution related to equity-based incentives using the treasury stock method.
The calculation and reconciliation of basic and diluted earnings per share for the years ended December 31 (in thousands, except per share data) follows:
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Net income | | $ | 895,073 |
| | $ | 811,483 |
| | $ | 740,200 |
|
| Denominator for basic earnings per share | | 86,401 |
| | 88,750 |
| | 91,129 |
|
| Dilutive securities | | 3,669 |
| | 3,401 |
| | 2,465 |
|
| Denominator for diluted earnings per share | | 90,070 |
|
| 92,151 |
|
| 93,594 |
|
| Basic earnings per share | | $ | 10.36 |
| | $ | 9.14 |
| | $ | 8.12 |
|
| Diluted earnings per share | | 9.94 |
| | 8.81 |
| | 7.91 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Net income | | $ | 452,385 |
| | $ | 362,431 |
| | $ | 368,707 |
|
| Denominator for basic earnings per share | | 92,597 |
| | 92,023 |
| | 84,317 |
|
| Dilutive securities | | 2,616 |
| | 2,116 |
| | 2,665 |
|
| Denominator for diluted earnings per share | | 95,213 |
|
| 94,139 |
|
| 86,982 |
|
| Basic earnings per share | | $ | 4.89 |
| | $ | 3.94 |
| | $ | 4.37 |
|
| Diluted earnings per share | | 4.75 |
| | 3.85 |
| | 4.24 |
|
There were 0.1 million antidilutive shares for the year ended December 31, 2016. Diluted earnings per share for the years ended December 31, 20162019, 2018, and 20152017 excludes the effect of 19 thousand, 0.4 million and 1.40.1 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. There were no antidilutive shares for 2014. Diluted earnings per share also excludes the effect of 0.20.1 million, 0.20.1 million and 0.50.3 million shares of performance based restricted stock for which the performance criteria have not yet been achieved for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.
15.19. Segments
The Company reports information about its operating segments in accordance with the authoritative guidance related to segments. The Company’s reportable segments represent components of the business for which separate financial information is evaluated regularly by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company operates in two2 reportable segments, North America and International. There were no intersegmentinter-segment sales.
The Company’s segment results are as follows as of and for the years ended December 31 (in thousands):
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 20171 |
| Revenues, net: | | | | | | | | | | | | |
| North America | | $ | 1,279,102 |
| | $ | 1,231,957 |
| | $ | 668,328 |
| | $ | 1,708,546 |
| | $ | 1,571,466 |
| | $ | 1,428,711 |
|
| International | | 552,444 |
| | 470,908 |
| | 531,062 |
| | 940,302 |
| | 862,026 |
| | 820,827 |
|
| | | $ | 1,831,546 |
|
| $ | 1,702,865 |
|
| $ | 1,199,390 |
| | $ | 2,648,848 |
|
| $ | 2,433,492 |
|
| $ | 2,249,538 |
|
| Operating income: | | | | | |
| | | | | |
|
| North America | | $ | 506,414 |
| | $ | 442,052 |
| | $ | 287,303 |
| | $ | 755,867 |
| | $ | 673,867 |
| | $ | 541,598 |
|
| International | | 247,739 |
| | 225,482 |
| | 278,146 |
| | 475,563 |
| | 416,831 |
| | 342,162 |
|
| | | $ | 754,153 |
|
| $ | 667,534 |
|
| $ | 565,449 |
| | $ | 1,231,430 |
|
| $ | 1,090,698 |
|
| $ | 883,760 |
|
| Depreciation and amortization: | | | | | | | | | | | | |
| North America | | $ | 129,653 |
| | $ | 127,863 |
| | $ | 39,275 |
| | $ | 160,246 |
| | $ | 154,405 |
| | $ | 139,418 |
|
| International | | 73,603 |
| | 65,590 |
| | 73,086 |
| | 113,964 |
| | 120,204 |
| | 125,142 |
|
| | | $ | 203,256 |
|
| $ | 193,453 |
|
| $ | 112,361 |
| | $ | 274,210 |
|
| $ | 274,609 |
|
| $ | 264,560 |
|
| Capital expenditures: | | | | | | | | | | | | |
| North America | | $ | 39,000 |
| | $ | 19,883 |
| | $ | 9,407 |
| | $ | 44,238 |
| | $ | 36,514 |
| | $ | 40,747 |
|
| International | | 20,011 |
| | 21,992 |
| | 17,663 |
| | 30,932 |
| | 44,873 |
| | 29,346 |
|
| | | $ | 59,011 |
|
| $ | 41,875 |
|
| $ | 27,070 |
| | $ | 75,170 |
|
| $ | 81,387 |
|
| $ | 70,093 |
|
| Long-lived assets (excluding goodwill): | | | | | |
| |
Long-lived assets (excluding goodwill and investments):2 | | | | | | |
|
| North America | | $ | 1,664,224 |
| | $ | 1,719,639 |
| | $ | 1,833,311 |
| | $ | 1,860,708 |
| | $ | 1,799,149 |
| | $ | 1,888,599 |
|
| International | | 1,203,465 |
| | 602,941 |
| | 698,925 |
| | 905,775 |
| | 942,594 |
| | 1,131,610 |
|
| | | $ | 2,867,689 |
|
| $ | 2,322,580 |
|
| $ | 2,532,236 |
| | $ | 2,766,483 |
|
| $ | 2,741,743 |
|
| $ | 3,020,209 |
|
1The Company attributes revenues, net from external customersapplied the modified retrospective transition method when adopting ASC 606, therefore the Company's 2017 prior period results were not restated to individual countries based uponreflect ASC 606.
2The Company applied the country in whichmodified retrospective transition method when adopting ASC 842, therefore the related servicesCompany's 2018 and 2017 prior period results were rendered. not restated to reflect ASC 842.
The table below presents certain financial information related to the Company’s significant operations as ofCompany's long-lived assets (excluding goodwill and for the years endedinvestments) at December 31 (in thousands):.
|
| | | | | | | | |
| | | 2019 | | 2018 |
| Long-lived assets (excluding goodwill): | | | | |
| United States (country of domicile) | | $ | 1,860,708 |
| | $ | 1,721,419 |
|
| Brazil | | 487,464 |
| | 541,891 |
|
| United Kingdom | | 282,351 |
| | 274,530 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Revenues, net by location: | | | | | | |
| United States (country of domicile) | | $ | 1,278,828 |
| | $ | 1,231,641 |
| | $ | 667,878 |
|
| Brazil | | 167,769 |
| | 85,124 |
| | 117,485 |
|
| United Kingdom | | 229,125 |
| | 248,598 |
| | 262,613 |
|
|
| | | | | | | | |
| | | 2016 | | 20151 |
| Long-lived assets (excluding goodwill): | | | | |
| United States (country of domicile) | | $ | 1,664,224 |
| | $ | 1,719,541 |
|
| Brazil | | 784,816 |
| | 146,596 |
|
| United Kingdom | | 286,928 |
| | 332,788 |
|
1Reflects the impact of the Company's adoption of ASU 2015-03, "Interest—Imputation of Interest”, which changes the presentation of debt issuance costs in financial statements as a direct deduction from the related debt liability rather than as an asset.
No single customer represented more than 10% of the Company’s consolidated revenue in 2016, 20152019, 2018 and 2014.2017.
16.20. Selected Quarterly Financial Data (Unaudited)
| | | Fiscal Quarters Year Ended December 31, 2016* | | First | | Second | | Third | | Fourth | |
| Fiscal Quarters Year Ended December 31, 2019 | | | First | | Second | | Third | | Fourth |
| Revenues, net | | $ | 414,262 |
| | $ | 417,905 |
| | $ | 484,426 |
| | $ | 514,953 |
| | $ | 621,825 |
| | $ | 647,094 |
| | $ | 681,048 |
| | $ | 698,881 |
|
| Operating income | | 175,955 |
| | 171,168 |
| | 191,055 |
| | 215,975 |
| | 284,176 |
| | 297,317 |
| | 329,141 |
| | 320,796 |
|
| Net income | | 111,090 |
| | 116,253 |
| | 129,618 |
| | 95,424 |
| | 172,107 |
| | 261,651 |
| | 225,805 |
| | 235,510 |
|
| Earnings per share: | | | | | | | | | |
| Basic earnings per share | | $ | 1.20 |
| | $ | 1.25 |
| | $ | 1.40 |
| | $ | 1.03 |
| | $ | 2.00 |
| | $ | 3.03 |
| | $ | 2.61 |
| | $ | 2.72 |
|
| Diluted earnings per share | | 1.17 |
| | 1.22 |
| | 1.36 |
| | 1.00 |
| | 1.93 |
| | 2.90 |
| | 2.49 |
| | 2.60 |
|
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | 92,516 |
| | 92,665 |
| | 92,631 |
| | 92,574 |
| |
| Diluted weighted average shares outstanding | | 95,030 |
| | 95,279 |
| | 95,307 |
| | 95,235 |
| |
| Basic shares | | | 85,941 |
| | 86,360 |
| | 86,662 |
| | 86,600 |
|
| Diluted shares | | | 89,244 |
| | 90,131 |
| | 90,522 |
| | 90,427 |
|
|
| | | | | | | | | | | | | | | | |
| Fiscal Quarters Year Ended December 31, 2018* | | First | | Second | | Third | | Fourth |
| Revenues, net | | $ | 585,500 |
| | $ | 584,985 |
| | $ | 619,586 |
| | $ | 643,422 |
|
| Operating income | | 260,087 |
| | 264,783 |
| | 281,090 |
| | 284,738 |
|
| Net income | | 174,937 |
| | 176,852 |
| | 157,694 |
| | 302,000 |
|
| Earnings per share: | | | | | | | | |
| Basic earnings per share | | $ | 1.95 |
| | $ | 1.98 |
| | $ | 1.78 |
| | $ | 3.45 |
|
| Diluted earnings per share | | 1.88 |
| | 1.91 |
| | 1.71 |
| | 3.33 |
|
| Weighted average shares outstanding: | | | | | | | | |
| Basic shares | | 89,765 |
| | 89,169 |
| | 88,456 |
| | 87,636 |
|
| Diluted shares | | 93,250 |
| | 92,702 |
| | 92,081 |
| | 90,703 |
|
|
| | | | | | | | | | | | | | | | |
| Fiscal Quarters Year Ended December 31, 2015 | | First | | Second | | Third | | Fourth |
| Revenues, net | | $ | 416,166 |
| | $ | 404,605 |
| | $ | 451,493 |
| | $ | 430,601 |
|
| Operating income | | 163,774 |
| | 169,151 |
| | 188,460 |
| | 146,149 |
|
| Net income | | 94,153 |
| | 98,678 |
| | 116,770 |
| | 52,830 |
|
| Earnings per share: | | | | | | | | |
| Basic earnings per share | | $ | 1.03 |
| | $ | 1.07 |
| | $ | 1.27 |
| | $ | 0.57 |
|
| Diluted earnings per share | | 1.00 |
| | 1.05 |
| | 1.24 |
| | 0.56 |
|
| Weighted average shares outstanding: | | | | | | | | |
| Basic weighted average shares outstanding | | 91,750 |
| | 91,904 |
| | 92,110 |
| | 92,321 |
|
| Diluted weighted average shares outstanding | | 93,934 |
| | 94,050 |
| | 94,157 |
| | 94,350 |
|
*20162018 quarterly amounts reflect the impact of the Company's adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting, to simplify several aspects ofASC 606 and related cost capitalization guidance, which was adopted by the accounting for share-based compensation, includingCompany on January 1, 2018 using the income tax consequences.modified retrospective transition method.
The sum of the quarterly earnings per common share amounts for 20162019 and 20152018 may not equal the earnings per common share for the 20162019 and 20152018 due to rounding.
The fourth quarter of 2016 includes unusual net unfavorable items totaling $4.3 million. This represents2019 includes: a $36.1gain of $13.0 million impairment charge related to the Company’sfair value adjustment of a minority investment, in Masternaut, partially offset by a $31.8write-off of property, plant and equipment costs of $1.8 million decrease in non-cash stock based compensation expense.and restructuring related costs of $2.8 million.
The fourth quarter of 2015 includes unusual unfavorable items totaling $74.42018 includes: the $152.8 million gain as a result of the sale of the Chevron portfolio, a write-off of capitalized software costs of $8.8 million, a legal settlement of $5.5 million and restructuring costs of $1.1 million. This represents a $40.0 million impairment charge related to the Company’s minority investment in Masternaut and a $34.4 million increase in non-cash stock based compensation expense.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2016,2019, management carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016,2019, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
Our management team is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016.2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. As of December 31, 2016,2019, management believes that the Company’s internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting, which is included in this annual report.
In connection with management's evaluation, our management team excluded from its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016,2019, the internal controls related to twofour subsidiaries that we acquired during the year ended December 31, 2016,2019, and for which financial results are included in our consolidated financial statements.
On August 31, 2016,April 1, 2019, we acquired all of the stock of Serviços e Tecnologia de Pagamentos S.A. (“STP”), an electronic toll payments company in Brazil andNvoicePay, a provider of cardless fuel payments at a number of Shell sites throughout Brazil.full accounts payable automation for business in the U.S. On August 4, 2016,April 1, 2019, we acquired all of the stock of Travelcard Nederland B.V. (“Travelcard”),r2c, a leading universal fuel card issuerfleet maintenance, compliance and workshop management software provider in the Netherlands.U.K. On July 8, 2019, we acquired SOLE Financial, a payroll card provider in the U.S. On October 1, 2019, we acquired Travelliance, an airline lodging provider in the U.S. Collectively we refer to these transactions as the Acquisitions. These Acquisitions constituted 18%6% of total assets, at December 31, 2016,2019, and 5%2% of revenues, net for the year then ended. This exclusion was in accordance with Securities and Exchange Commission guidance that an assessment of a recently acquired business may be omitted in management's report on internal control over financial reporting the year of acquisition.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Due to such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, such risk.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 20162019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of FLEETCOR Technologies, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited FLEETCOR Technologies, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, FLEETCOR Technologies, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of NvoicePay, SOLE Financial, r2c, and Travelliance, which are included in the 2019 consolidated financial statements FLEETCOR Technologies, Inc. and subsidiaries and constituted 6% of total assets as of December 31, 2019 and 2% of revenues, net for the year then ended. Our audit of internal control over financial reporting of FLEETCOR Technologies, Inc. and subsidiaries also did not include an evaluation of the internal control over financial reporting of NvoicePay, SOLE Financial, r2c, and Travelliance.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated March 2, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 2, 2020
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A list of our executive officers and biographical information appears in Part I, Item X of this Form 10-K. Information about our directors may be found under the caption “Nominees” and “Continuing Directors” in our Proxy Statement for the Annual Meeting of Shareholders to be held June 21, 201711, 2020 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Board Committees” in the Proxy Statement. ThatThe foregoing information is incorporated herein by reference.
The information in the Proxy Statement set forth under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” is incorporated herein by reference.
We have adopted the FleetCorFLEETCOR Code of Business Conduct and Ethics (the “code of ethics”), which applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Corporate Controller, and other finance organization employees. The code of ethics is publicly available on our Web sitewebsite at www.fleetcor.com under Investor Relations. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that Web sitewebsite or in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Proxy Statement set forth under the captions “Director Compensation,” “Named Executive Officer Compensation,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information in the Proxy Statement set forth under the captions “Securities Authorized for Issuance Under Equity Compensation Plans,” “Information Regarding Beneficial Ownership of Principal Shareholders, Directors, and Management” and “Equity Compensation Plan Information” is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information set forth in the Proxy Statement under the captions “Director Independence” and “Certain Relationships and Related Transactions” is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Fees Billed by Ernst & Young”Young LLP” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor” and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules
The financial statements are set forth under Item 8 of this Form 10-K, as indexed below. Financial statement schedules have been omitted since they either are not required, not applicable, or the information is otherwise included.
Index to Financial Statements
(b) Exhibit Listing
|
| | |
| | | |
| Exhibit no. | | |
| | | |
2.1 | | Stock Purchase Agreement, dated as of April 1, 2009, among FleetCor Technologies Operating Company, LLC, CLC Group, Inc., and the entities and individuals identified on the signature pages thereto (incorporated by reference to Exhibit No. 2.1 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file number 333-166092, filed with the SEC on May 20, 2010) |
|
2.2 | | Share Purchase Agreement among Arval UK Group Limited, FleetCor UK Acquisition Limited and FleetCor Technologies, Inc. (incorporated by reference to exhibit No. 2.1 to the registrant’s Form 8-K, filed with the SEC on December 13, 2011) |
|
2.3 | | Agreement and Plan of Merger, dated August 12, 2014, by and among Comdata Inc., Ceridian LLC, FleetCor Technologies, Inc. and FCHC Project, Inc. (incorporated by reference to Exhibit No. 2.1 to the registrant’s Form 10-Q, filed with the SEC with the SEC on November 10, 2014) |
|
2.4 | | Amendment to Agreement and Plan of Merger, dated November 10, 2014, by and among Comdata Inc., Ceridian LLC, FleetCor Technologies, Inc. and FCHC Project, Inc. (incorporated by reference to Exhibit No. 10.2 to the registrant’s Form 8-K, filed with the SEC on November 17, 2014) |
|
2.5 | | Acquisition agreement to acquire Serviços e Tecnologia de Pagamentos S.A. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, File No. 001-35004, filed with the Securities and Exchange Commission on March 18, 2016) |
| | |
| | Amended and Restated Certificate of Incorporation of FleetCorFLEETCOR Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s Annual Report on Form 10-K, File No. 001-35004, filed with SEC on March 25, 2011) |
| |
| | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of FLEETCOR Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K, File No. 001-35004, filed with the SEC on June 8, 2018) |
|
| | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of FLEETCOR Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K, File No. 001-35004, filed with the SEC on June 14, 2019) |
| | |
| | Amended and Restated Bylaws of FleetCor Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s CurrentRegistrant’s Annual Report on Form 8-K, File No. 001-35004, filed with the SEC on October 28, 2016)January 29, 2018) |
| | | |
| | Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the registrant’s Registration Statement on Form S-1, File No. 333-166092, filed with the SEC on June 29, 2010) |
| |
| | Description of FLEETCOR Technologies, Inc. Common Stock Registered under Section 12 of the Securities Exchange Act |
| | |
| | Form of Indemnity Agreement entered into between FleetCorFLEETCOR and its directors and executive officers (incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on June 29, 2010) |
| |
|
| | |
| | FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | First Amendment to FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| | | |
|
| | |
| | Second Amendment to FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Third Amendment to FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Fourth Amendment to FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Form of Incentive Stock Option Award Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Form of Non-Qualified Stock Option Award Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Form of Performance Share Restricted Stock Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on May 20, 2010) |
| |
| | Form of FleetCor Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file number 333-166092, filed with the SEC with the SEC on June 8, 2010) |
|
10.11* | | FleetCorFLEETCOR Technologies, Inc. Annual Executive Bonus Program (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 8, 2010) |
| |
10.12* | | Employee Noncompetition, Nondisclosure and Developments Agreement, dated September 25, 2000, between Fleetman, Inc. and Ronald F. Clarke (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 8, 2010) |
| |
10.13* | | Offer Letter, dated September 20, 2002, between FleetCorFLEETCOR Technologies, Inc. and Eric R. Dey (incorporated by reference to Exhibit 10.13 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 8, 2010) |
| |
10.14* | | Offer Letter, dated March 17, 2009, between FleetCor Technologies, Inc. and Todd W. House (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file number 333-166092, filed with the SEC with the SEC on June 8, 2010) |
|
10.15* | | Service Agreement, dated July 9, 2007, between FleetCorFLEETCOR Technologies, Inc. and Andrew R. Blazye (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 8, 2010) |
| |
10.16 | | Sixth Amended and Restated Registration Rights Agreement, dated April 1, 2009, between FleetCorFLEETCOR Technologies, Inc. and each of the stockholders party thereto (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 8, 2010) |
| |
10.17 | | First Amendment to Sixth Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit No. 10.17 to the registrant’s form 10-K, filed with the SECFile No. 001-35004. with the SEC on March 25, 2011) |
| |
10.18 | | Form of Indemnity Agreement to be entered into between FleetCorFLEETCOR and representatives of its major stockholders (incorporated by reference to Exhibit 10.37 to Amendment No. 3 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on June 29, 2010). |
| |
|
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10.19 | | Form of Director Restricted Stock Grant Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.38 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on November 30, 2010). |
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10.20* | | Form of Employee Performance Share Restricted Stock Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.39 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on November 30, 2010). |
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10.21* | | Form of Employee Incentive Stock Option Award Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.40 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC on November 30, 2010). |
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10.22* | | Form of Employee Non-Qualified Stock Option Award Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.41 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on November 30, 2010). |
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10.23 |
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| | Form of Director Non-Qualified Stock Option Award Agreement pursuant to the FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.42 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on November 30, 2010). |
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10.24* | | Amended and Restated Employee Noncompetition, Nondisclosure and Developments Agreement, dated November 29, 2010, between FleetCorFLEETCOR Technologies, Inc. and Ronald F. Clarke (incorporated by reference to Exhibit No. 10.43 to Amendment No. 6 to the registrant’s Registration Statement on Form S-1, file numberFile No. 333-166092, filed with the SEC with the SEC on November 30, 2010). |
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10.25 | | Arrangement Agreement Among FleetCorFLEETCOR Luxembourg Holdings2 S.À.R.L, FleetCorFLEETCOR Technologies, Inc. and CTF Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report onregistrant’s Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2012) |
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10.26 | | Repurchase Agreement, dated November 26, 2012, among the Company and the Repurchase Stockholders (incorporated by reference to Exhibit 10.1 to the Registrant’sregistrant’s Form 8-K, File No. 001-35004, filed with the SEC on November 27, 2012) |
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10.27* | | FleetCorFLEETCOR Technologies, Inc. 2010 Equity Compensation Plan, as amended and restated effective May 30, 2013February 7, 2018 (incorporated by reference from Appendix A to Exhibit 10.1 to the Proxy Statement,registrant's Form 8-K, File No. 001-35004, File No. 001-35004, filed with the SEC on April 24, 2013)February 12, 2018) |
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10.28 | | FleetCorFLEETCOR Technologies, Inc. Section 162(M) Performance—Based Program (incorporated by reference to Annex A to the Registrant’sregistrant’s Proxy Statement, File No. 001-35004, filed with the SEC on April 18, 2014) |
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10.29 | | Credit Agreement, dated October 24, 2014, among FleetCorFLEETCOR Technologies Operating Company, LLC, as Borrower, FleetCorFLEETCOR Technologies, Inc., as Parent, FleetCorFLEETCOR Technologies Operating Company, LLC, as a borrower and guarantor, certain of the our foreign subsidiaries as borrowers, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer and a syndicate of financial institutions (incorporated by reference to Exhibit No. 10.4 to the Registrant’sregistrant’s Form 10-Q, File No. 001-35004, filed with the SEC on November 10, 2014) |
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10.30 | | Fifth Amended and Restated Receivables Purchase Agreement, dated November 14, 2014, by and among FleetCorFLEETCOR Technologies, Inc. and PNC Bank, National Association, as administrator for a group of purchasers and purchaser agents, and certain other parties (incorporated by reference to Exhibit No. 10.1 to the Registrant’sregistrant’s Form 8-K, File No. 001-35004, filed with the SEC on November 17, 2014) |
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10.31 | | Amended and Restated Performance Guaranty dated as of November 14, 2014 made by FleetCorFLEETCOR Technologies, Inc. and FleetCorFLEETCOR Technologies Operating Company, LLC, in favor of PNC Bank, National Association, as administrator under the Fifth Amended and Restated Receivables Purchase Agreement (incorporated by reference to Exhibit 10.32 to the registrant’s Form 10-K, file numberFile No. 001-35004, filed with the SEC on March 2, 2015) |
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10.32 | | Amended and Restated Purchase and Sale Agreement dated as of November 14, 2014, among various entities listed on Schedule I thereto, as originators, and FleetCorFLEETCOR Funding LLC (incorporated by reference to Exhibit 10.3210.33 to the registrant’s Form 10-K, file numberFile No. 001-35004, filed with the SEC on March 2, 2015) |
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10.33 | | Receivables Purchase and Sale Agreement dated as of November 14, 2014, among Comdata TN, Inc. and Comdata Network, Inc. of California, as the sellers, and Comdata Inc., as the buyer (incorporated by reference to Exhibit 10.3210.34 to the registrant’s Form 10-K, file numberFile No. 001-35004, filed with the SEC on March 2, 2015) |
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10.34 | | Investor Rights Agreement, dated November 14, 2014, between FleetCorFLEETCOR Technologies, Inc. and Ceridian LLC (incorporated by reference to Exhibit 10.3210.35 to the registrant’s Form 10-K, file numberFile No. 001-35004, filed with the SEC on March 2, 2015) |
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10.35* | | Offer Letter, dated June 19, 2013, between FleetCorFLEETCOR Technologies, Inc. and John A. Reed (incorporated by reference to Exhibit No. 10.3 to the registrant’s Form 10-Q, File No. 001-35004, filed with the SEC on MarchMay 12, 2014) |
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10.36* | | Offer Letter, dated July 29, 2014, between FleetCorFLEETCOR Technologies, Inc. and Armando Lins Netto (incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q, file numberFile No. 001-35004, filed with the SEC on May 11, 2015) |
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10.37 | | First Amendment to the Fifth Amended and Restated Receivables Purchase Agreement, dated as of November 5, 2015, by and among FleetCorFLEETCOR Funding LLC, FleetCorFLEETCOR Technologies Operating Company, LLC and PNC Bank, National Association, as administrator for a group of purchasers and purchaser agents, and certain other parties (incorporated(incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q, file numberFile No. 001-35004, filed with the SEC on November 9, 2015) |
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10.38* |
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| | Employee agreement on confidentiality, work product, non-competition, and non-solicitation (incorporated by reference to Exhibit 10.3910.38 to the registrant's Form 10-K, file numberFile No. 001-35004, filed with the SEC on February 29, 2016) |
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10.39 | | Second Amendment to the Fifth Amended and Restated Receivables Purchase Agreement, dated as of December 1, 2015, by and among FleetCorFLEETCOR Funding LLC, FleetCorFLEETCOR Technologies Operating Company, LLC and PNC Bank, National Association, as administrator for a group of purchasers and purchaser agents, and certain other parties (incorporated by reference to Exhibit 10.39 to the registrant's Form 10-K, file numberFile No. 001-35004, filed with the SEC on February 29, 2016) |
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| | First Amendment to Credit Agreement and Lender Joiner Agreement, dated as of August 22, 2016, by and among FleetCorFLEETCOR Funding LLC, FleetCorFLEETCOR Technologies Operating Company, LLC and PNC Bank, National Association, as administrator for a group of purchasers and purchaser agents, and certain other parties (incorporated by reference to Exhibit 10.1 to the Registrant’sregistrant’s Form 10-Q, File No. 001-35004, filed with the Securities and Exchange CommissionSEC on November 9, 2016)
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| | Second Amendment to Credit Agreement, dated as of January 2017, among FleetCorFLEETCOR Technologies Operating Company, LLC, as the Company, FleetCorFLEETCOR Technologies, Inc., as the Parent, the designated borrowers party hereto, the other guarantors party hereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other lenders party hereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.41 to the registrant's Form 10-K, File No. 001-35004, filed with the SEC on March 1, 2017) |
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11.1 | | StatementThird Amendment to Credit Agreement, dated as of ComputationAugust 2, 2017, among FLEETCOR Technologies Operating Company, LLC, as the Company, FLEETCOR Technologies, Inc., as the Parent, the designated borrowers party hereto, the other guarantors party hereto, Bank of Share Earnings (See Note 14)America, N.A., as administrative agent, swing line lender and l/c issuer, and the other lenders party hereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q, File No. 001-35004, filed with the SEC on August 8, 2017) |
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| | Third Amendment to Fifth Amended and Restated Receivables Purchase Agreement, dated as of November 14, 2017, by and among FLEETCOR Funding LLC, FLEETCOR Technologies Operating Company, LLC, PNC Bank, National Association, as administrator for a group of purchasers and purchase agents, and certain other parties (incorporated by reference to Exhibit 10.43 to the registrant's Form 10-K, File No. 001-35004, filed with the SEC on March 1, 2018) |
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| | Offer letter, dated September 10, 2015, between FLEETCOR Technologies, Inc. and Alexey Gavrilenya (incorporated by reference to Exhibit 10.1 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2018) |
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| | Fourth Amendment to Credit Agreement, dated August 30, 2018, among FleetCor Technologies Operating Company, LLC, FleetCor Technologies Operating Company, LLC, FleetCor Technologies, Inc., the designated borrowers party thereto, Cambridge Mercantile Corp. (U.S.A.), the other guarantors party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on November 8, 2018) |
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| | Fourth Amendment to Fifth Amended and Restated Receivables Purchase Agreement, dated August 30, 2018, by and among FleetCor Funding LLC, FleetCor Technologies Operating Company, LLC, PNC Bank, National Association as administrator for a group of purchasers and purchaser agents, and certain other parties thereto (incorporated by reference to exhibit 10.3 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on November 8, 2018) |
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| | Fifth Amendment to Credit Agreement, dated as of December 19, 2018, among FLEETCOR Technologies Operating Company, LLC, as the Company, FLEETCOR Technologies, Inc., as the Parent, the designated borrowers party hereto, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party hereto Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner (incorporated by reference to exhibit 10.47 to the registrant's Form 10-K, File No. 001-35004, filed with the SEC on March 1, 2019)
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| | Offer Letter, dated March 30, 2018, between FLEETCOR Technologies, Inc. and David Krantz (incorporated by reference to exhibit 10.1 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2019) |
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| | Offer Letter, dated August14, 2015, between FLEETCOR Technologies, Inc. and Kurt Adams (incorporated by reference to exhibit 10.2 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2019) |
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| | Fifth Amendment to the Fifth Amended and Restated Receivables Purchase Agreement, dated February 8, 2019 by and among FleetCor Funding LLC, FleetCor Technologies Operating Company, LLC, PNC Bank, National Association as administrator for a group of purchasers and purchaser agents, and certain other parties thereto (incorporated by reference to exhibit 10.3 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2019) |
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| | Sixth Amendment to the Fifth Amended and Restated Receivables Purchase Agreement, dated April 22, 2019 by and among FleetCor Funding LLC, FleetCor Technologies Operating Company, LLC, PNC Bank, National Association as administrator for a group of purchasers and purchaser agents, and certain other parties thereto (incorporated by reference to exhibit 10.4 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on May 10, 2019) |
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| | Sixth Amendment to Credit Agreement, dated as of August 2, 2019, among FLEETCOR Technologies Operating Company, LLC, as the Company, FLEETCOR Technologies, Inc., as the Parent, the designated borrowers party hereto, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party hereto Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.5 to the registrant's Form 10-Q, File No. 001-35004, filed with the SEC on August 9, 2019) |
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| | Seventh Amendment to Credit Agreement, dated as of November 14, 2019, among FLEETCOR Technologies Operating Company, LLC, as the Company, FLEETCOR Technologies, Inc., as the Parent, the designated borrowers party hereto, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the other lenders party hereto Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner |
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| | List of subsidiaries of FleetCorFLEETCOR Technologies, Inc. |
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| | Consent of Independent Registered Public Accounting Firm |
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| | Certification of Chief Executive Officer Pursuant to Section 302 |
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| | Certification of Chief Financial Officer Pursuant to Section 302 |
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| | Certification of Chief Executive Officer Pursuant to Section 906 |
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| | Certification of Chief Financial Officer Pursuant to Section 906 |
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| 101 | | The following financial information for the Registrantregistrant formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income; (iv) the UnauditedConsolidated Statements of Stockholders' Equity; (v) the Consolidated Statements of Cash Flows and (v)(vi) the Notes to Unaudited Consolidated Financial Statements |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
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| * | Identifies management contract or compensatory plan or arrangement. |
ITEM 16. FORM 10-K SUMMARY
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Atlanta, State of Georgia, on March 1, 2017.2, 2020.
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FleetCorFLEETCOR Technologies, Inc. |
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| By: | | /S/ RONALD F. CLARKE |
| | | Ronald F. Clarke |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrantregistrant and in the capacities indicated on March 1, 2017.2, 2020.
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| Signature | | Title |
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/S/ RONALD F. CLARKE | | President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
| Ronald F. Clarke | | |
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/S/ ERIC R. DEY | | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
| Eric R. Dey | | |
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/s/ MICHAEL BUCKMAN | | Director |
| Michael Buckman | | |
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/s/ JOSEPH W. FARRELLY | | Director |
| Joseph W. Farrelly | | |
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/s/ THOMAS M. HAGERTY | | Director |
| Thomas M. Hagerty | | |
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/s/ MARK A. JOHNSON | | Director |
| Mark A. Johnson | | |
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/s/ RICHARD MACCHIA | | Director |
| Richard Macchia | | |
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| /s/ HALA G. MODDELMOG | | Director |
| Hala G. Moddelmog | | |
/s/ JEFFREY S. SLOAN | | Director |
| Jeffrey S. Sloan | | |
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/s/ STEVENSTEVEN T. STULL STULL | | Director |
| Steven T. Stull | | |
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