FLEETCOR TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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 2020 and 2019 items and year-over-year
comparisons between 2020 and 2019. A detailed discussion of 2018 items and
year-over-year comparisons between 2019 and 2018 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, 2019.
Executive Overview
FLEETCOR is a leading global provider of digital payment solutions that enables
businesses to control purchases and make payments more effectively and
efficiently. Since its incorporation in 2000, FLEETCOR has continued to deliver
on its mission: to provide businesses with "a better way to pay". FLEETCOR has
been a member of the S&P 500 since 2018 and trades on the New York Stock
Exchange under the ticker FLT.
Businesses spend an estimated $170 trillion each year. In many instances, they
lack the proper tools to monitor what is being purchased, and employ manual,
paper-based, disparate processes and methods to both approve and make payments
for their purchases. This often results in wasted time and money due to
unnecessary or unauthorized spending, fraud, receipt collection, data input and
consolidation, report generation, reimbursement processing, account
reconciliations, employee disciplinary actions, and more.
FLEETCOR's vision is that every payment is digital, every purchase is
controlled, and every related decision is informed. Digital payments are faster
and more secure than paper-based methods such as checks, and provide timely and
detailed data which can be utilized to effectively reduce unauthorized purchases
and fraud, automate data entry and reporting, and eliminate reimbursement
processes. Combining this payment data with analytical tools delivers powerful
insights, which managers can use to better run their businesses. Our wide range
of modern, digitized solutions generally provides control, reporting, and
automation benefits superior to many of the payment methods businesses often
used, such as cash, paper checks, general purpose credit cards, as well as
employee pay and reclaim processes.
Our revenue is generally reported net of the cost for underlying products and
services purchased through our payment products. In this report, we refer to
this net revenue as "revenue". See "Results of Operations" for additional
segment information.
Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization declared the novel strain of
coronavirus (COVID-19) a global pandemic and recommended containment and
mitigation measures worldwide. The pandemic and these containment and mitigation
measures have created adverse impacts on the U.S. and global economies and it is
unclear how long the pandemic and related economic impacts will continue. The
COVID-19 pandemic has impacted our business operations in 2020 as described in
more detail under "Results of Operations" below, due to a significant decrease
in the level of business activity across industries worldwide, which reduced the
volume of payment services provided to our customers and revenue generated
beginning during the second half of March 2020 and continuing through the date
of this Report.
The COVID-19 pandemic has had, and could continue to have, an adverse impact on
our results of operations and liquidity; the operations of our suppliers,
vendors and customers; and on our employees as a result of quarantines, facility
closures, travel and logistics restrictions and general decreases in the level
of consumer confidence and business activity. Our business operations and
results of operations, including our revenues, earnings and cash flows, have
been and may continue to be negatively impacted by certain factors arising from
the pandemic including, but not limited to:
•changes in business and consumer confidence and spending habits, including
negative trends in our customers' purchasing patterns due to decreased levels of
business activity, credit availability, high debt levels and financial distress;
•volatile fuel prices and fuel price spreads;
•lower volumes of commercial trucking;
•fluctuations in the dollar compared to other currencies around the world;
•reduction in the level of business travel;
•decreased productivity due to travel bans, work-from-home policies or
shelter-in-place orders;
•slowdown in the U.S. and global economies, and an uncertain global economic
outlook or a potential credit crisis; and
                                       33
--------------------------------------------------------------------------------

  Table     of Contents
•customers experiencing financial distress or declaring bankruptcy, including
seeking extended payment terms, which could create incremental credit loss
expense.
The COVID-19 pandemic continues to impact the world economy and our customers,
in particular, by restricting day-to-day operations and business activity
generally, which adversely impacted our financial performance in 2020. The
extent to which the COVID-19 pandemic impacts our business operations, financial
results, and liquidity into 2021 will depend on numerous evolving factors that
we may not be able to accurately predict or assess, including the duration and
scope of the pandemic; vaccine availability, distribution, efficacy to new
strains of the virus and the public's willingness to get vaccinated; our
response to the continued impact of the pandemic; the negative impact it has on
global and regional economies and general economic activity, including the
duration and magnitude of its impact on unemployment rates and business spending
levels; its short- and longer-term impact on the levels of consumer confidence;
the ability of our suppliers, vendors and customers to successfully address the
continued impacts of the pandemic; actions governments, businesses and
individuals take in response to the pandemic; and how quickly economies recover
after the pandemic subsides.
We have taken steps to mitigate the potential risks related to the circumstances
and impacts of COVID-19. We have been focused on addressing these challenges
with proactive actions designed to protect our employees, provide uninterrupted
service to our customers, and meet our near term liquidity needs. Such actions
include, but are not limited to:
•Safety: ensuring the safety of our approximately 8,400 employees worldwide,
with the vast majority of our employees working from home;
•Business Continuity: ensuring that our systems and payment solutions continue
to operate efficiently for our customers;
•Liquidity: actively monitoring availability under our existing credit
facilities;
•Expenses: slowing discretionary sales and technology spending, and furloughing
contractors; and
•Credit: in select distressed verticals, tightening customer credit lines and
payment terms, including closing inactive lines, reducing unused capacity, and
reducing payment terms.
While we believe the COVID-19 pandemic will continue to have an adverse effect
on our revenues and earnings in 2021, we expect continued improvement throughout
the year as economic activity recovers.
Performance
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, 2020 and 2019 (in millions, except per share amounts).
                                                      Year ended December 31,
                                                       2020                2019
            Revenues, net                     $      2,389               $ 2,649
            Net income                        $        704               $   895
            Net income per diluted share      $       8.12               $  9.94


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, 2020 and 2019 (in millions, except per share amounts).
                                                          Year Ended December 31,
                                                           2020                2019
       Adjusted net income                        $        962               $ 1,062
       Adjusted net income per diluted share      $      11.09

$ 11.79

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
FLEETCOR 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 business in the U.S., Brazil, and the U.K. Our customers may include
                                       34
--------------------------------------------------------------------------------

  Table     of Contents
commercial businesses (obtained through direct and indirect channels), partners
for whom we manage payment programs, as well as individual consumers.
FLEETCOR has three reportable segments, North America, International, and
Brazil. We report these three segments as they reflect how we organize and
manage our global employee base, manage operating performance, contemplate the
differing regulatory environments across geographies, and help us isolate the
impact of foreign exchange fluctuations on our financial results. However, to
help facilitate an understanding of our expansive range of solutions around the
world, we describe them in two categories: Corporate Payments solutions, which
simplify and automate payments, and Expense Management solutions, which help
control and monitor employee spending.
Our Corporate Payments solutions are designed to help businesses streamline the
back-office operations associated with making outgoing payments. Companies save
time, cut costs, and manage B2B payment processing more efficiently with our
suite of corporate payment solutions, including accounts payable (AP)
automation, virtual cards, cross-border, and purchasing and T&E cards. Our
Expense Management solutions (Fuel, Tolls, and Lodging) are purpose-built to
provide customers with greater control and visibility of employee spending when
compared with less specialized payment methods, such as cash or general-purpose
credit cards. FLEETCOR provides several other payments solutions that, due to
their nature or size, are not considered within our Corporate Payments and
Expense Management solutions.
Revenues, net, by Segment. The presentation of segment information has been
recast for prior periods to align with our current segment presentation. For the
years ended December 31, 2020 and 2019, our segments generated the following
revenue (in millions):
                                            Year ended December 31,
                                    2020                                   2019
                        Revenues,            % of Total        Revenues,        % of Total
                           net              Revenues, net         net          Revenues, net
North America      $     1,582                       66  %    $    1,709                65  %
Brazil                     344                       14  %           428                16  %
International              463                       19  %           512                19  %
                   $     2,389                      100  %    $    2,649               100  %

Revenues, net, by Geography and Solution. Revenue by geography and solution category for the years ended December 31, 2020 and 2019 (in millions), was as follows:

                                                                                     Year Ended December 31,
(Unaudited)                                                         2020                                                2019
                                                  Revenues,                 % of total                Revenues,                 % of total
Revenue by Geography*                                net                  revenues, net                  net                  revenues, net
United States                                   $     1,468                             61  %       $     1,595                             60  %
Brazil                                                  344                             14  %               428                             16  %
United Kingdom                                          263                             11  %               275                             10  %
Other                                                   314                             13  %               351                             13  %
Consolidated revenues, net                      $     2,389                            100  %       $     2,649                            100  %

*Columns may not calculate due to rounding.

                                                                                      Year Ended December 31,
(Unaudited)                                                          2020                                                2019
                                                   Revenues,                                           Revenues,                 % of total
Revenue, net by Solution Category*1                   net             % of total revenues, net            net                  revenues, net
Fuel                                             $     1,057                             44  %       $     1,173                             44  %
Corporate Payments                                       434                             18  %               450                             17  %
Tolls                                                    292                             12  %               357                             13  %
Lodging                                                  207                              9  %               213                              8  %
Gift                                                     154                              6  %               180                              7  %
Other                                                    244                             10  %               276                             10  %
Consolidated revenues, net                       $     2,389                            100  %       $     2,649                            100  %

*Columns may not calculate due to rounding.

                                       35
--------------------------------------------------------------------------------

  Table     of Contents
1Reflects certain reclassifications of revenue between solution categories as the Company
realigned its Corporate Payments solution, resulting in reclassification of Payroll Card
revenue from Corporate Payments to Other.


Fuel solutions help businesses monitor and control fuel spend across multiple
fuel networks, providing online analytical reporting to help customers managing
the efficiency of their vehicles and drivers, while offering potential discounts
off of the retail price of fuel. We generate revenue in our Fuel solution
through a variety of program fees, including transaction fees, card fees,
network fees and charges, as well as from interchange. These fees may be charged
as fixed amounts, costs plus a mark-up, or based on a percentage 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.
Corporate Payments solutions help streamline B2B payments for vendors and
employees, both domestically and internationally. Our corporate payments
products include Virtual Card solutions for invoice payments, corporate card
programs, a fully-outsourced AP Automation solution, as well as a Cross-Border
solution to facilitate customers making payments across differing currencies. In
our Corporate Payments solutions, the primary measure of volume is spend, the
dollar amount of payments processed on behalf of customers through our various
networks. We primarily earn revenue from the difference between the amount
charged to the customer and the amount paid to the third party for a given
transaction, as interchange or spread revenue. Our programs may also charge
fixed fees for access to the network and ancillary services provided.
Our Tolls solution 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 vehicle. In our Tolls solution, 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 solutions provide customers, both workforce and airline/cruise line
based, 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 solutions, we define a transaction as a hotel room night
purchased by a customer. 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 and commissions paid by hotels. We may also charge fees for access
to the network and ancillary services provided.
Gift provides fully integrated gift card program 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 from the sale of the plastic cards. We may also charge
fixed fees for ancillary services provided.
The remaining revenues represents other products that due to their nature or
size, are not considered primary products. These include payroll cards, fleet
maintenance, food and transportation employee benefits related offerings, and
telematics offerings.
The following table provides revenue per key performance metric by solution
category for the years ended December 31, 2020 and 2019 (in millions except
revenues, net per key performance metric).*
                                       36
--------------------------------------------------------------------------------

  Table     of Contents
                                                              As Reported                                                        Pro Forma and Macro Adjusted3
                                                        Year Ended December 31,                                                     Year Ended December 31,
                                    2020              2019             Change             % Change               2020              2019             Change             % Change
FUEL
'- Revenues, net                 $  1,057          $  1,173          $   (116)                  (10) %       $   1,057          $  1,161          $   (104)                   (9) %
'- Transactions                       442               502               (60)                  (12) %             442               499               (57)                  (11) %
'- Revenues, net per
transaction                      $   2.39          $   2.34          $   0.05                     2  %       $    2.39          $   2.33          $   0.06                     3  %
CORPORATE PAYMENTS
'- Revenues, net1                $    434          $    450          $    (16)                   (4) %       $     435          $    454          $    (19)                   (4) %
'- Spend volume                  $ 64,740          $ 73,437          $ (8,697)                  (12) %       $  64,740          $ 73,829          $ (9,089)                  (12) %
'- Revenues, net per spend
$                                    0.67  %           0.61  %           0.06  %                 10  %            0.67  %           0.62  %           0.06  %                  9  %
TOLLS
 - Revenues, net                 $    292          $    357          $    (65)                  (18) %       $     378          $    357          $     21                     6  %
 - Tags (average monthly)             5.4               5.1               0.3                     6  %             5.4               5.1               0.3                     6  %
 - Revenues, net per tag         $  13.43          $  17.56          $  (4.13)                  (24) %       $   17.38          $  17.56          $  (0.17)                   (1) %
LODGING
'- Revenues, net                 $    207          $    213          $     (6)                   (3) %       $     207          $    272          $    (65)                  (24) %
'- Room nights                         22                19                 3                    16  %              22                28                (7)                  (23) %
'- Revenues, net per room
night                            $   9.54          $  11.14          $  (1.60)                  (14) %       $    9.55          $   9.62          $  (0.08)                   (1) %
GIFT
'- Revenues, net                 $    154          $    180          $    (26)                  (14) %       $     154          $    180          $    (26)                  (14) %
'- Transactions                     1,045             1,274              (230)                  (18) %           1,045             1,274              (230)                  (18) %
'- Revenues, net per
transaction                      $   0.15          $   0.14          $   0.01                     7  %       $    0.15          $   0.14          $   0.01                     7  %
OTHER2
'- Revenues, net1                $    244          $    276          $    (32)                  (11) %       $     252          $    285          $    (33)                  (12) %
'- Transactions1                       41                56               (15)                  (27) %              41                58               (17)                  (29) %
'- Revenues, net per
transaction                      $   5.99          $   4.94          $   1.05                    21  %       $    6.18          $   4.93          $   1.24                    25  %
FLEETCOR CONSOLIDATED
REVENUES
'- Revenues, net                 $  2,389          $  2,649          $   (260)                  (10) %       $   2,484          $  2,711          $   (227)                   (8) %



1 Reflects certain reclassifications of revenue between solution categories as the Company
realigned its Corporate Payments solution, resulting in reclassification of Payroll Card revenue
from Corporate Payments to Other.
2 Other includes telematics, maintenance, food, transportation and payroll card related
businesses.
3 See heading entitled "Managements' Use of Non-GAAP Financial Measures" for a reconciliation of
pro forma and macro adjusted revenue by product and metric non-GAAP measures to the comparable
financial measure calculated in accordance with GAAP.
* Columns may not calculate due to rounding.


Revenue per relevant key performance indicator (KPI), which may include
transaction, spend volume, monthly tags, room nights, or other metrics, 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, fuel prices and fuel price spreads. Revenue per KPI per customer may
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:
•Processing-Our processing expense consists of expenses related to processing
transactions, servicing our customers and merchants, credit losses and cost of
goods sold related to our hardware sales in certain businesses.
                                       37
--------------------------------------------------------------------------------

  Table     of Contents
•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, 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 (gain) loss, net-Our investment results primarily relate to
impairment charges related to our investments and unrealized gains and losses
related to a noncontrolling interest in a marketable security, which was
disposed in 2020.
•Other expense (income), net-Our other expense (income), net includes gains or
losses from the sale of assets, foreign currency transactions, 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, in North America, Brazil, and
internationally, including the ultimate impact of the COVID-19 pandemic. 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 each of our segments.
•Foreign currency changes-Our results of operations are significantly impacted
by changes in foreign currency exchange 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 61%, and 60% of our revenue in 2020 and 2019,
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.
Our cross-border foreign currency trading business aggregates foreign exchange
exposures arising from customer contracts and economically hedges the resulting
net currency risks by entering into offsetting contracts with established
financial institution counterparties. These contracts are subject to
counterparty credit risk.
•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 11% and 13% of revenues, net were directly impacted by
changes in fuel price in 2020 and 2019, respectively.
•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 8% and
5% of revenues, net were directly impacted by fuel price spreads in 2020 and
2019, respectively.
                                       38
--------------------------------------------------------------------------------

  Table     of Contents
•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 changes in interest rates on our cash investments and
debt. On January 22, 2019, we entered into three 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 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
Subsequent to 2020
On January 13, 2021, we acquired Roger, a global accounts payable (AP) cloud
software platform for small businesses located in Denmark, for approximately $40
million. This acquisition is not expected to be material to the financial
results of the Company.
2020 and 2019 Acquisitions
On November 30, 2020, we completed the acquisition of a fuel card provider in
New Zealand for an immaterial amount.
On September 17, 2020, we signed a definitive agreement to acquire Associated
Foreign Exchange (AFEX), a U.S. based, cross-border payment solutions provider,
for approximately $450 million. The transaction is expected to close in 2021,
subject to regulatory approval and standard closing conditions.
On August 10, 2020, we completed the acquisition of a business in the lodging
space in the U.S. for an immaterial amount.
During 2019, we completed acquisitions with an aggregate purchase price of
approximately $417 million.
•On April 1, 2019, we completed the acquisition of NvoicePay, a provider of full
accounts payable automation for business in the U.S. The aggregate purchase
price of this acquisition was approximately $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 U.K.
•On July 3, 2019, we completed the acquisition of SOLE Financial, a payroll card
provider in the U.S.
•On October 1, 2019, we completed the acquisition of Travelliance, an airline
lodging provider in the U.S. The aggregate purchase price of this acquisition
was approximately $110 million, net of cash acquired.
We report our results from our 2020 and 2019 U.S. acquisitions in our North
America segment. We report our results from our 2020 New Zealand acquisition and
our 2019 U.K. acquisition in our International segment. We report our results
from all 2020 and 2019 acquisitions from the date of acquisition.
Dispositions
During the third quarter of 2020, we sold a trading security investment for
$53.0 million.
As part of our 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 $15.7 million during 2019, resulting
in no gain or loss when the investment was sold.

                                       39
--------------------------------------------------------------------------------

  Table     of Contents
Results of Operations
Year ended December 31, 2020 compared to the year ended December 31, 2019
The following table sets forth selected consolidated statements of income and
selected operational data for the years ended December 31, 2020 and 2019 (in
millions, except percentages)*.
                                     Year ended                                     Year ended
                                    December 31,             % of total            December 31,             % of total             Increase
                                        2020                  revenue                  2019                  revenue              (decrease)           % Change
Revenues, net:
North America                      $    1,581.5                     66.2  %       $    1,708.5                     64.5  %       $  (127.0)                 (7.4) %
International                             463.1                     19.4  %              512.4                     19.3  %           (49.3)                 (9.6) %
Brazil                                    344.2                     14.4  %              427.9                     16.2  %           (83.7)                (19.6) %
Total revenues, net                     2,388.9                    100.0  %            2,648.8                    100.0  %          (260.0)                 (9.8) %
Consolidated operating
expenses:

Processing                                596.4                     25.0  %              530.7                     20.0  %            65.7                  12.4  %
Selling                                   192.7                      8.1  %              204.8                      7.7  %           (12.1)                 (5.9) %
General and administrative                374.7                     15.7  %              407.2                     15.4  %           (32.5)                 (8.0) %
Depreciation and
amortization                              254.8                     10.7  %              274.2                     10.4  %           (19.4)                 (7.1) %
Other operating (income)
expense, net                               (2.0)                    (0.1) %                0.5                        -  %            (2.5)               NM
Operating income                          972.3                     40.7  %            1,231.4                     46.5  %          (259.2)                (21.0) %
Investment (gain) loss, net               (30.0)                    (1.3) %                3.5                      0.1  %           (33.5)               NM
Other (income) expense, net               (10.1)                    (0.4) %                0.1                        -  %            10.1                NM
Interest expense, net                     129.8                      5.4  %              150.0                      5.7  %           (20.2)                (13.5) %

Provision for income taxes                178.3                      7.5  %              182.7                      6.9  %            (4.4)                 (2.4) %
Net income                         $      704.2                     29.5  %       $      895.1                     33.8  %       $  (190.9)                (21.3) %
Operating income for
segments:
North America                      $      547.9                                   $      754.5                                   $  (206.6)                (27.4) %
International                             276.3                                          301.3                                       (25.0)                 (8.3) %
Brazil                                    148.1                                          175.6                                       (27.6)                (15.7) %
Operating income                   $      972.3                                   $    1,231.4                                   $  (259.2)                (21.0) %
Operating margin for
segments:
North America                              34.6  %                                        44.2  %                                     (9.5) %
International                              59.7  %                                        58.8  %                                      0.9  %
Brazil                                     43.0  %                                        41.0  %                                      2.0  %
Total                                      40.7  %                                        46.5  %                                     (5.8) %


*The sum of the columns and rows may not calculate due to rounding.
NM - not meaningful
Revenues, net
Consolidated revenues were $2,388.9 million in 2020, a decrease of $260.0
million, or 9.8%, from $2,648.8 million in 2019. Consolidated revenues and
organic growth declined primarily due to decreases in transaction volume as a
result of the COVID-19 pandemic and the negative impact of the macroeconomic
environment on 2020 revenue. Organically, consolidated revenues were down only
approximately 8%, due to the proforma impact of acquisitions and dispositions of
$62 million.
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 2020 over 2019 of approximately $95 million. Foreign exchange rates
had an unfavorable impact on consolidated revenues of approximately $112
million, due to unfavorable fluctuations in foreign exchange rates primarily in
Brazil, Mexico and Russia, and lower fuel prices had an unfavorable impact of
$31 million. These decreases were partially offset by the impact of favorable
fuel price spreads of approximately $48 million.
                                       40
--------------------------------------------------------------------------------

  Table     of Contents
North America segment revenues, net
North America revenues were $1,581.5 million in 2020, a decrease of $127.0
million, or 7.4%, from $1,708.5 million in 2019. North America revenues and
organic growth declined primarily due to decreases in volumes as a result of the
COVID-19 pandemic. Organically, North America segment revenues were down
approximately 12%, which is higher due to the proforma impact of acquisitions
and dispositions of $61 million.
This decrease was partially offset by the favorable impact of fuel price
spreads. Although we cannot precisely measure the impact of the macroeconomic
environment, in total we believe it had a positive impact on our North America
segment revenue for 2020 over 2019 of approximately $17 million, driven
primarily by favorable fuel price spreads of approximately $48 million,
partially offset by lower fuel prices of approximately $30 million and the
unfavorable impact of foreign exchange rates in Canada of $1 million.
International segment revenues, net
International segment revenues were $463.1 million in 2020, a decrease of $49.3
million, or 9.6%, from $512.4 million in 2019. International revenues declined
primarily due to decreases in transaction volume as a result of the COVID-19
pandemic, the unfavorable impact of foreign exchange rates and lower fuel
prices. Organically, International segment revenues were down approximately 8%.
We believe unfavorable foreign exchange rates of approximately $10 million and
lower fuel prices of approximately $1 million had a negative impact on our
International segment revenues for 2020 over 2019.
Brazil segment revenues, net
Brazil segment revenues were $344.2 million in 2020, a decrease of $83.7 million
or 19.6%, from $427.9 million in 2019. Organic growth in our Brazil segment was
approximately 4%, which was offset by the unfavorable impact of foreign exchange
rates. We believe unfavorable foreign exchange rates negatively impacted Brazil
segment revenues for 2020 over 2019 by approximately $101 million.
Consolidated operating expenses
Processing. Processing expenses were $596.4 million in 2020, an increase of
$65.7 million, or 12.4%, from $530.7 million in 2019. Increases in processing
expenses were primarily due to a write-off of a significant customer receivable
in our foreign currency trading business of approximately $90 million in the
first quarter of 2020 and acquisitions completed in 2019 and 2020 of
approximately $26 million. These increases were partially offset by the
favorable impact of fluctuations in foreign exchange rates of approximately $29
million and lower variable costs due to reduced sales volumes and expense
reductions in response to the COVID-19 pandemic.
Selling. Selling expenses were $192.7 million in 2020, a decrease of $12.1
million or 5.9% from $204.8 million in 2019. Decreases in selling expenses were
primarily due to lower commissions and other variable costs due to reduced sales
volumes and the favorable impact of fluctuations in foreign exchange rates of
approximately $8 million. These decreases were partially offset by expenses
related to acquisitions completed in 2019 and 2020 of approximately $4 million.
General and administrative. General and administrative expenses were $374.7
million in 2020, a decrease of $32.5 million or 8.0% from $407.2 million in
2019. The decrease was primarily due to decreased discretionary spending,
decreased stock based compensation expense of approximately $20 million, and the
favorable impact of fluctuations in foreign exchange rates of approximately $10
million. These decreases were partially offset by the impact of acquisitions
completed in 2019 and 2020 of approximately $15 million and professional fees of
$7 million over the prior year.
Depreciation and amortization. Depreciation and amortization expenses were
$254.8 million in 2020, a decrease of $19.4 million or 7.1% from $274.2 million
in 2019. The decrease was primarily due to the favorable impact of foreign
exchange rates of approximately $16 million and the impact of fully amortized
assets of $16 million, partially offset by expenses related to acquisitions
completed in 2019 and 2020 of approximately $10 million.
Investment (gain) loss. Investment gain of $30.0 million in 2020 relates to
market value net gains recorded on an investment in a trading security, which we
sold during the third quarter of 2020. In 2019, we recorded an impairment of our
Masternaut investment of approximately $16 million, which was then sold in 2019
at an amount approximating carrying value. This loss was partially offset by an
approximate $13 million unrealized gain related to a marketable security
investment.
Other (income) expense, net. Other income, net was $10.1 million in 2020,
primarily resulting from a $7 million favorable purchase price settlement from
our Cambridge acquisition.
                                       41
--------------------------------------------------------------------------------

  Table     of Contents
Interest expense, net. Interest expense was $129.8 million in 2020, a decrease
of $20.2 million or 13.5% from $150.0 million in 2019. The decrease in interest
expense is primarily due to decreases in LIBOR and lower borrowings on our
Securitization Facility, partially offset by the impact of additional borrowings
to repurchase our common stock. The average interest rates paid on borrowings
under our Credit Facility, excluding the related unused credit facility fees and
swaps was as follows in 2020 and 2019.
          (Unaudited)                                             2020        2019
          Term loan A                                            2.09  %     3.70  %
          Term loan B                                            2.37  %     4.23  %

Revolver line of credit A, B & C USD Borrowings 2.12 %

3.96 %

          Revolver line of credit B GBP Borrowings               1.77  %     2.18  %

          Foreign swing line                                     1.65  %     2.13  %


There were no borrowings on the revolving D facility in 2020. The average unused
facility fee for the Credit Facility excluding the revolving D facility was
0.29% and 0.29% in 2020 and 2019, respectively. The fixed unused facility fee
for the revolving D facility was 0.375% in 2020. On August 20, 2020, we
terminated the revolving D facility.
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 the previously unhedged interest payments associated with $2
billion of variable rate debt, tied to the one month LIBOR benchmark interest
rate. During 2020, as a result of these swaps, we incurred additional interest
expense of approximately $39 million or 1.94% over the average LIBOR rates on $2
billion of borrowings.
Provision for income taxes. The provision for income taxes and effective tax
rate were $178.3 million and 20.2% in 2020, a decrease of $4.4 million, from
$182.7 million and 17.0%, respectively, in 2019. Included in the 2019 provision
for income taxes was the reversal of a valuation allowance and remeasurement of
the related deferred tax asset, due to the capital loss realized upon the sale
of our Masternaut investment that was carried back to when the U.S. federal tax
rate was 35%, and also an impairment charge to this investment prior to
disposal. Excluding these discrete items, our income taxes and effective rate
for 2019 would have been approximately $248 million and 23.0%, respectively.
Excluding these discrete items, 2020 reflects lower tax expense of $70 million
and a lower effective rate compared to 2019, attributable primarily to lower
book income and higher excess tax benefits related to share based compensation.
We pay taxes in 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 different than the U.S. tax rate. Consequently, as our
earnings fluctuate between taxing jurisdictions, our effective tax rate
fluctuates.
Net income. For the reasons discussed above, our net income was $704.2 million
in 2020, a decrease of $190.9 million or 21.3% from $895.1 million in 2019.
Operating income and operating margin
Consolidated operating income. Operating income was $972.3 million in 2020, a
decrease of $259.2 million or 21.0% from $1,231.4 million in 2019. Consolidated
operating margin was 40.7% in 2020 and 46.5% in 2019. The decrease in operating
income and margin were primarily driven by the write-off of a significant
customer receivable in our cross-border payments business of approximately $90
million, decreases in volume as a result of the COVID-19 pandemic, lower fuel
prices of approximately $31 million and the negative impact of acquisitions
completed in 2019 and 2020. Operating income was also negatively impacted by the
unfavorable movements in foreign exchange rates of approximately $50 million.
The decreases in operating income and operating margin were partially offset by
the favorable impact of fuel price spreads of approximately $48 million.
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. North America operating income was
$547.9 million in 2020, a decrease of $206.6 million or 27.4% from $754.5
million in 2019. North America operating margin was 34.6% in 2020 and 44.2% in
2019. The decrease in operating income and operating margin was due primarily to
the write-off of a significant customer receivable in our cross-border payments
business of approximately $90 million, decreases in volume as a result of the
COVID-19 pandemic, lower fuel prices of approximately $30 million and the
negative impact of acquisitions completed in 2019 and 2020. These decreases in
operating income and operating margin were partially offset by the favorable
impact of fuel price spreads of approximately $48 million. Additionally, the
decrease in operating income was partially offset by favorable movements in
foreign exchange rates of approximately $3 million.
International segment operating income. International operating income was
$276.3 million in 2020, a decrease of $25.0 million, or 8.3% from $301.3 million
in 2019. International operating margin was 59.7% in 2020 and 58.8% in 2019. The
decrease in operating income was primarily due to decreases in volume as a
result of the COVID-19 pandemic and the
                                       42
--------------------------------------------------------------------------------

  Table     of Contents
unfavorable impact of the macroeconomic environment of approximately $9 million,
primarily driven by unfavorable movements in foreign exchange rates. Operating
margin increased primarily due to a reduction in operating expenses as a result
of the COVID-19 pandemic.
Brazil segment operating income. Brazil operating income was $148.1 million in
2020, a decrease of $27.6 million or 15.7% from $175.6 million in 2019. Brazil
operating margin was 43.0% in 2020 and 41.0% in 2019. The decrease in operating
income was due primarily to the unfavorable impact of foreign exchange rates of
$45 million. The decrease was partially offset by organic growth in Brazil
segment revenues of approximately 4%, which positively impacted our operating
margin.
Liquidity and capital resources
Our principal liquidity requirements are to service and repay our indebtedness,
make 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. We believe that our current level of cash and borrowing
capacity under our Credit Facility and Securitization Facility (each defined
below), together with expected future cash flows from operations, will be
sufficient to meet the needs of our existing operations and planned requirements
for the foreseeable future, based on our current assumptions. At December 31,
2020, we had approximately $1.9 billion in total liquidity, consisting of
approximately $941 million available under our Credit Facility (defined below)
and unrestricted cash of $935 million. Restricted cash primarily represents
customer deposits in our Comdata business in the U.S., as well as collateral
received from customers for cross-currency transactions in our cross-border
payments business, which are restricted from use other than to repay customer
deposits, as well as secure and settle cross-currency transactions.
We also utilize an accounts receivable Securitization Facility to finance a
majority of our domestic 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 as funds
available for working capital purposes and acquisitions. At December 31, 2020,
we had no additional liquidity under our Securitization Facility.
The Company has determined that outside basis differences associated with our
investment in foreign subsidiaries would not result in a material deferred tax
liability, and consistent with our assertion that these amounts continue to be
indefinitely reinvested, have not recorded incremental income taxes for the
additional outside basis differences.
We cannot assure you that our assumptions used to estimate our liquidity
requirements will remain accurate due to the unprecedented nature of the
disruption to our operations and the unpredictability of the COVID-19 global
pandemic. As a consequence, our estimates of the duration of the pandemic and
the severity of the impact on our future earnings and cash flows could change
and have a material impact on our results of operations and financial condition.
The following have impacted or may impact our liquidity:
•The negative impact of the COVID-19 global pandemic on our business as
discussed above under "Impact of COVID-19 on Our Business".
•We have principal and interest obligations under our debt and ongoing financial
covenants under those debt facilities.
•During 2020, we repurchased 3.5 million common shares totaling $940.8 million
in connection with our stock repurchase program (the "Program"). On October 22,
2020, our Board of Directors increased the aggregate size of the Program by $1.0
billion, to $4.1 billion. At December 31, 2020, we had approximately $1.0
billion remaining repurchase authorization under our current share repurchase
program.
•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.
•While we intend to employ a disciplined and highly selective approach, we may
pursue strategic business acquisitions in the future.
•We intend to balance discretionary spending and hiring with revenue and volume
trends.
                                       43
--------------------------------------------------------------------------------

  Table     of Contents
Cash flows
The following table summarizes our cash flows for the years ended December 31,
2020 and 2019.
                                                            Year ended December 31,
      (in millions)                                          2020               2019

Net cash provided by operating activities $ 1,472.6

$ 1,162.1

      Net cash used in investing activities                 (106.2)        

(523.7)

      Net cash used in financing activities               (1,416.8)        

(310.2)

Operating activities. Net cash provided by operating activities was $1,472.6
million in 2020, an increase from $1,162.1 million in 2019. The increase in
operating cash flows was primarily due to favorable working capital adjustments,
due to the timing of cash receipts and payments in 2020 over 2019.
Investing activities. Net cash used in investing activities was $106.2 million
in 2020, a decrease from $523.7 million in 2019. The decrease was primarily due
to the decrease in cash paid for acquisitions in 2020 over 2019 and the proceeds
from the sale of an investment in 2020.
Financing activities. Net cash used in financing activities was $1,416.8 million
in 2020, an increase from $310.2 million in 2019. The increased use of cash is
primarily due to decreased net borrowings on our Credit Facility and
Securitization Facility of $563.4 million and $355.9 million, respectively, and
an increase in repurchases of our common stock of $155.0 million in 2020 over
2019.
Capital spending summary
Our capital expenditures were $78.4 million in 2020, an increase of $3.3 million
or 4.3%, from $75.2 million in 2019.
Credit Facility
FLEETCOR Technologies Operating Company, LLC, and certain of our domestic and
foreign owned subsidiaries, as designated co-borrowers (the "Borrowers"), are
parties to a $4.86 billion Credit Agreement (the "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 Credit Agreement provides 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 million as of December 31, 2020. 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 for borrowings in U.S. Dollars, Euros,
British Pounds, Japanese Yen or other currency as agreed in advance, and a
sublimit for 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
April 24, 2020, we entered into the eighth amendment to the Credit Agreement to
add a $250 million revolving D facility. On August 20, 2020, we terminated the
revolving D facility. The maturity date for the term loan A and revolving credit
facilities A, B and C is December 19, 2023. The maturity date for the term loan
B 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 loan B 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, 2020, the interest rate on the term loan A and revolving A
facility was 1.65%, the interest rate on the revolving B facility GBP Borrowings
was 1.52%, the interest rate on the term loan B was 1.90% and the interest rate
on the foreign swing line was 1.53%. The unused credit facility fee was 0.30%
for all revolving facilities at December 31, 2020.
The term loans are payable in quarterly installments 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 six 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 twenty business days
after such loan is made.
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,
                                       44
--------------------------------------------------------------------------------

  Table     of Contents
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, 2020, we had $2.9 billion in borrowings outstanding on term loan
A, net of discounts, and $337.3 million in borrowings outstanding on term loan
B, net of discounts, as of December 31, 2020. We have unamortized debt issuance
costs of $5.0 million related to the revolving facilities as of December 31,
2020 recorded within other assets in the Consolidated Balance Sheet. We have
unamortized debt discounts and debt issuance costs related to the term loans of
$7.1 million and $0.9 million at December 31, 2020, respectively. The effective
interest rate incurred on term loans was 2.30% during 2020 related to the
discount on debt.
During 2020, we made principal payments of $165 million on the term loans, $1.5
billion on the revolving facilities, and $104 million on the swing line
revolving facility. In addition, we made principal payments on a notes payable
related to an acquisition of $11 million.
As of December 31, 2020, we were in compliance with each of the covenants under
the Credit Agreement.
Cash Flow Hedges
On January 22, 2019, we entered into three 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. These swap contracts qualify as hedging instruments and have been
designated as cash flow hedges. For each of these swap contracts, we pay a fixed
monthly rate and receive one month LIBOR. We reclassified approximately $39
million of losses from accumulated other comprehensive loss into interest
expense during the year ended December 31, 2020 as a result of these hedging
instruments. The maturity dates of the swap contracts are January 31, 2022 for
$1 billion, January 31, 2023 for $500 million and December 19, 2023 for $500
million.
Securitization Facility
We are a party to a $1 billion receivables purchase agreement feature among
FleetCor Funding LLC, as seller, PNC Bank, National Association as
administrator, and various purchaser agents, conduit purchasers and related
committed purchasers parties thereto. We refer to this arrangement as the
Securitization Facility. There have been several amendments to the
Securitization Facility. On April 24, 2020, we reduced our Securitization
Facility commitment from $1.2 billion to $1 billion. On November 13, 2020, we
extended the Securitization Facility termination date to November 12, 2021,
added an uncommitted accordion to increase the purchase limit by up to
$500 million, revised obligor concentration limits and reserve calculations,
added a 0.375% LIBOR floor and modified certain swing line terms. In addition,
the program fee for LIBOR borrowings increased from 0.90% to 1.25% and the
program fee for Commercial Paper Rate borrowings increased from 0.80% to 1.15%.
We were in compliance with all financial and non-financial covenant requirements
related to our Securitization Facility as of December 31, 2020.
Stock Repurchase Program
The Company's Board of Directors (the "Board") has approved a stock repurchase
program (as updated from time to time, the "Program") authorizing the Company to
repurchase its common stock from time to time until February 1, 2023. On October
22, 2020, the Board increased the aggregate size of the Program by $1.0 billion,
to $4.1 billion. Since the beginning of the Program, 14,616,942 shares have been
repurchased for an aggregate purchase price of $3.1 billion, leaving the Company
up to $1.0 billion available under the Program for future repurchases in shares
of its common stock. There were 3,497,285 common shares totaling $940.8 million
in 2020 and 2,211,866 common shares totaling $636.8 million in 2019; 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 we 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 debt.
On December 18, 2019, the Company entered an accelerated stock repurchase
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 on
December 18, 2019. An additional 175,340 shares were received on February 20,
2020 upon completion of the 2019 ASR Agreement.
The Company accounted for 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 outstanding for basic and diluted earnings per share. The forward
contracts indexed to the our own common stock met the criteria for equity
classification, and these amounts were initially recorded in additional paid-in
capital.
                                       45
--------------------------------------------------------------------------------

  Table     of Contents
Pending Acquisition
On September 17, 2020, we signed a definitive agreement to acquire Associated
Foreign Exchange (AFEX), a cross-border payment solutions provider, for
approximately $450 million. The transaction is expected to close in 2021,
subject to regulatory approval and standard closing conditions.
Critical Accounting Policies and Estimates, Adoption of New Accounting
Standards, and Pending Adoption of Recently Issued Accounting Standards
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. We provide payment solutions to our
business, merchant, consumer and payment network customers. Our payment
solutions are primarily focused on specific commercial spend categories,
including Corporate Payments, Fuel, Lodging, Tolls, as well as Gift solutions
(stored value cards and e-cards). We provide solutions 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 solutions
(Corporate Payments, Fuel, Lodging, Gift, 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, we allocate and recognize variable consideration in the
period we have the contractual right to invoice the customer. For the tolls
payment solution, our 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 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.
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 a number of transactions
processed; 4) fees calculated based upon a percentage of the transaction value
for the underlying goods or services (i.e. fuel, food, toll, lodging, and
transportation cards and vouchers); and 5) monthly access fees.
We recognize revenue when the underlying transactions are complete and our
performance obligations are satisfied. Transactions are considered complete
depending upon the related payment solution but generally when we have
authorized the transaction, validated that the transaction has no errors and
accepted and posted the data to our records.
Our 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 foreign exchange payment services are
primarily comprised of the difference between the exchange rate set by us to the
customer and the rate available in the wholesale foreign exchange market.
Gift Card Products and Services
Our Gift solution 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 is recognized (gross of the underlying
cost of the related card, recorded in processing expensed within the
                                       46
--------------------------------------------------------------------------------

  Table     of Contents
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 processing and reporting of gift card
transactions where we recognize revenue based on an output measure of elapsed
time for an unknown or unspecified quantity of transactions. As a result, we
allocate and recognize variable consideration over the estimated period of time
over which the performance obligation is satisfied.
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 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. We cease billing and accruing
for late fees and finance charges approximately 30 - 40 days after the
customer's balance becomes delinquent.
We also write foreign currency forward and option contracts for our customers to
facilitate future payments in foreign currencies, and recognize 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 our 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
equipment in revenues, net within the Consolidated Statements of Income. The
related cost of sales for the equipment is recorded in processing expenses
within the Consolidated Statements of Income.
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, 2020.
Contract Liabilities
Deferred revenue contract liabilities for customers subject to ASC 606 were
$73.0 million and $71.8 million as of December 31, 2020 and 2019, respectively.
We expect to recognize approximately $43.7 million of these amounts in revenues
within 12 months and the remaining $29.3 million over the next five years as of
December 31, 2020. The amount and timing of revenue recognition is affected by
several factors, including contract modifications and terminations, which could
impact the estimate of amounts allocated to remaining performance obligations
and when such revenues could be recognized. Revenue recognized for the year
ended December 31, 2020, that was included in the deferred revenue contract
liability as of January 1, 2020, was approximately $37.7 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 $15.3 million and $14.3 million for the years ended December 31, 2020 and
2019, respectively.
Costs to obtain or fulfill a contract are classified as contract cost assets in
prepaid expenses and other current assets and other assets within our
Consolidated Balance Sheets. We had capitalized costs to obtain a contract of
$15.1 million and $14.8 million in prepaid expenses and other current assets and
$37.2 million and $39.7 million within other assets within our Consolidated
Balance Sheets, for the year ended December 31, 2020 and 2019, respectively.
We have recorded $65.5 million and $76.4 million of expenses related to sales of
equipment in processing expenses within the Consolidated Statements of Income
for the years ended December 31, 2020 and 2019, respectively.
                                       47
--------------------------------------------------------------------------------

  Table     of Contents
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 each taxing jurisdiction.
In certain arrangements with customers, we determined that certain promised
services and products are immaterial in the context of the contract, both
quantitatively and qualitatively.
As a practical expedient, we are not required to adjust the promised amount of
consideration for the effects of a significant financing component if we expect,
at contract inception, that the period between when we transfer a promised
service or product to a customer and when the customer pays for the service or
product will be one year or less. As of December 31, 2020, our contracts with
customers did not contain a significant financing component.
Accounts receivable. As described above under the heading "Securitization
Facility," we maintain a revolving trade accounts receivable Securitization
Facility. The current purchase limit under the Securitization Facility is $1
billion. Accounts receivable collateralized within our Securitization Facility
relate to trade receivables resulting from charge card 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 Funding LLC (Funding), a
wholly-owned bankruptcy remote subsidiary. In turn, Funding transfers, without
recourse, on a revolving basis, an undivided ownership interest 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.
We utilize proceeds from the transfer of our accounts receivable as an
alternative to other forms of financing to reduce our overall borrowing costs.
We have agreed to continue servicing the sold receivables for the financial
institution 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.
Our 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 12, 2021.
Foreign receivables are not included in our receivable securitization program.
At December 31, 2020 and 2019, there was $700 million and $971 million,
respectively, of short-term debt outstanding under our accounts receivable
Securitization Facility. The amounts outstanding as of December 31, 2020
represent the maximum allowable amounts available to us under the terms of
Securitization Facility.
Financial Instruments-Credit Losses. We adopted ASU 2016-13, "Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments", on January 1, 2020, under which the Current Expected
Credit Loss methodology for measurement of credit losses on financial assets
measured at amortized cost basis, replaces the previous incurred loss impairment
methodology. Our financial assets subject to credit losses are primarily trade
receivables. We utilize a combination of aging and loss-rate methods to develop
an estimate of current expected credit losses, depending on the nature and risk
profile of the underlying asset pool, based on product, size of customer and
historical losses. Expected credit losses are estimated based upon an assessment
of risk characteristics, historical payment experience, and the age of
outstanding receivables, adjusted for forward-looking economic conditions. The
allowances for remaining financial assets measured at amortized cost basis are
evaluated based on underlying financial condition, credit history, and current
and forecast economic conditions. The estimation process for expected credit
losses includes consideration of qualitative and quantitative risk factors
associated with the age of asset balances, expected timing of payment, contract
terms and conditions, changes in specific customer risk profiles or mix of
customers, geographic risk, economic trends and relevant environmental factors.
At December 31, 2020 and 2019, approximately 97% and 98%, respectively, of
outstanding accounts receivable were current. Accounts receivable deemed
uncollectible are removed from accounts receivable and the allowance for credit
losses 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.
                                       48
--------------------------------------------------------------------------------

  Table     of Contents
Impairment of long-lived assets, intangibles and investments. We regularly
evaluate whether events and circumstances have occurred that indicate the
carrying amount of property and equipment and finite-life intangible assets may
not be recoverable. When factors indicate that these long-lived assets should be
evaluated for possible impairment, we assess the potential impairment by
determining whether the carrying amount of such long-lived assets will be
recovered through the future undiscounted cash flows expected from use of the
asset and its eventual disposition. If the carrying amount of the asset 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. We regularly evaluate whether events and circumstances
have occurred that indicate the useful lives of 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. We first perform a
qualitative assessment of certain of our reporting units. Factors considered in
the qualitative assessment include general macroeconomic conditions, industry
and market conditions, cost 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 qualitative
assessment or if we determine, on the basis of qualitative factors, that the
fair value of the reporting unit is more likely than not less than the carrying
amount, a quantitative test would be required. We then perform the goodwill
impairment test for each reporting unit by comparing the reporting unit's
carrying amount, including goodwill, 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.
Based on the goodwill asset impairment analysis performed quantitatively as of
October 1, 2020, we determined that the fair value of each of our 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.
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 revenue growth and projected long-term growth rates in the
determination of terminal values. An impairment loss is recorded if the carrying
amount of an indefinite-lived intangible asset exceeds the estimated fair value
on the measurement date.
We regularly evaluate the carrying value of our investments, which are not
carried at fair value, for impairment.  We have 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 with any unrealized
gain or loss recorded within investment (gain) loss in the Consolidated
Statements of Income.
Income 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 become deductible. We evaluate on a quarterly basis 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 account for uncertainty in income taxes recognized in an entity's financial
statements and prescribe thresholds and measurement attributes for financial
statement disclosure of tax positions taken or expected to be taken on a tax
return. The 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 completed by us 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. For significant
acquisitions, we obtain independent third-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 values
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 transaction.
                                       49
--------------------------------------------------------------------------------

  Table     of Contents
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 involve 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 Statements of 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. We account for employee stock options and restricted
stock in accordance with relevant authoritative literature. Stock options are
granted with an exercise price 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 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. 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 over 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 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 our
stock. The fair value of restricted stock units granted with market based
vesting conditions is estimated using the Monte Carlo simulation valuation
model. The risk-free interest rate and volatility assumptions used within the
Monte Carlo simulation 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, 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.
Derivatives. We use derivatives to minimize our exposures related to changes in
interest rates and to facilitate cross-currency corporate payments by writing
derivatives to customers.
We are exposed to the risk of changing 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.
Changes in the fair value of derivatives that are designated and qualify as cash
flow hedges are recorded to the derivative assets/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 our 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, 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 necessary, and economically
hedge 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.
We recognize current cross-border payments derivatives in prepaid expenses and
other current assets and other current liabilities and derivatives greater than
one year in other assets and other noncurrent 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. See Footnote 17 to the Consolidated
Financial Statements, Derivatives.
                                       50
--------------------------------------------------------------------------------

  Table     of Contents
Spot Trade Offsetting. We use spot trades to facilitate cross-currency corporate
payments in our cross-border payments 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," we apply offsetting to spot trade assets and
liabilities associated with contracts that include master netting agreements, as
a right of setoff exists, which we believe to be enforceable. As such, we have
netted our exposure with these customer's counterparties, with the receivables
from the customer. We recognize all spot trade assets, net in accounts
receivable and all spot trade liabilities, net in accounts payable, each net at
the customer level, in our Consolidated Balance Sheets at their fair value
Contractual Obligations
The table below summarizes the estimated dollar amounts of payments under
contractual obligations identified as of December 31, 2020 for the periods
specified:
                                                                                         Payments due by period(a)
                                                                    Less than             1-3                3-5             More than
(in millions)                                      Total              1 year             years              years             5 years
Credit Facility                                 $ 3,603.1          $  

505.7 $ 2,769.4 $ 327.9 $ - Securitization Facility

                             700.0              700.0                  -                 -                   -
Estimated interest payments - Credit
Facility (b)                                        171.4               58.9              108.9               3.6                   -
Estimated interest payments-
Securitization Facility(b)                            9.6                9.6                  -                 -                   -
Operating leases                                    109.3               20.2               32.3              27.9                28.8
Deferred purchase price                               0.8                0.6                0.2                 -                   -
Estimated interest payments - Swaps (c)              86.8               48.2               38.6                 -                   -
Other(d)                                             29.3                  -               29.3                 -                   -
Total                                           $ 4,710.3          $ 1,343.2          $ 2,978.8          $  359.5          $     28.8

______________________

(a)Deferred income tax liabilities as of December 31, 2020 were approximately
$493.3 million. Refer to Note 13 to our accompanying 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. At December 31, 2020, we had approximately $35.7 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)We draw upon and pay down on the revolver within our 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, 2020
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, 2020 balances for our 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, 2020, to calculate the estimated
interest payments, for all years presented.
(d)The long-term portion of contingent consideration agreements is included with
other obligations 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 each 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.
                                       51
--------------------------------------------------------------------------------

  Table     of Contents
Pro forma and macro adjusted revenue and transactions by product. We define the
pro forma and macro adjusted revenue as revenue, net as reflected in our
statement of income, adjusted to eliminate the impact of the macroeconomic
environment and the impact of acquisitions and dispositions. The macroeconomic
environment includes the impact that market fuel price spreads, fuel prices and
foreign exchange rates have on our business. We use pro forma and macro adjusted
revenue and transactions to evaluate the organic growth in our revenue and the
associated transactions. Set forth below is a reconciliation of pro forma and
macro adjusted revenue and transactions to the most directly comparable GAAP
measure, revenue, net and transactions (in millions):
                                                                                       Revenue                                       Key Performance Indicators
                                                                              Year Ended December 31,*                                Year Ended December 31,*
(Unaudited)                                                                   2020                      2019                   2020                               2019
FUEL - TRANSACTIONS
Pro forma and macro adjusted                                        $       1,057                   $    1,161                    442                                499
Impact of acquisitions/dispositions                                             -                           11                      -                                  3
Impact of fuel prices/spread                                                   18                            -                      -                                  -
Impact of foreign exchange rates                                              (18)                           -                      -                                  -
As reported                                                         $       1,057                   $    1,173                    442                                502

CORPORATE PAYMENTS - SPEND
Pro forma and macro adjusted                                        $         435                   $      454                 64,740                   

73,829

Impact of acquisitions/dispositions                                             -                           (4)                     -                               (392)
Impact of fuel prices/spread                                                   (1)                           -                      -                                  -
Impact of foreign exchange rates                                               (1)                           -                      -                                  -
As reported                                                         $         434                   $      450                 64,740                             73,437

TOLLS - TAGS
Pro forma and macro adjusted                                        $         378                   $      357                    5.4                                5.1
Impact of acquisitions/dispositions                                             -                            -                      -                                  -
Impact of fuel prices/spread                                                    -                            -                      -                                  -
Impact of foreign exchange rates                                              (86)                           -                      -                                  -
As reported                                                         $         292                   $      357                    5.4                                5.1

LODGING - ROOM NIGHTS
Pro forma and macro adjusted                                        $         207                   $      272                     22                                 28
Impact of acquisitions/dispositions                                             -                          (60)                     -                                 (9)
Impact of fuel prices/spread                                                    -                            -                      -                                  -
Impact of foreign exchange rates                                                -                            -                      -                                  -
As reported                                                         $         207                   $      213                     22                                 19

GIFT - TRANSACTIONS
Pro forma and macro adjusted                                        $         154                   $      180                  1,045                              1,274
Impact of acquisitions/dispositions                                             -                            -                      -                                  -
Impact of fuel prices/spread                                                    -                            -                      -                                  -
Impact of foreign exchange rates                                                -                            -                      -                                  -
As reported                                                         $         154                   $      180                  1,045                              1,274

OTHER1 - TRANSACTIONS
Pro forma and macro adjusted                                        $         252                   $      285                     41                                 58
Impact of acquisitions/dispositions                                             -                           (9)                     -                                 (2)
Impact of fuel prices/spread                                                    -                            -                      -                                  -
Impact of foreign exchange rates                                               (8)                           -                      -                                  -
As reported                                                         $         244                   $      276                     41                                 56

FLEETCOR CONSOLIDATED REVENUES
Pro forma and macro adjusted                                        $       2,484                   $    2,711
Impact of acquisitions/dispositions                                             -                          (62)
Impact of fuel prices/spread2                                                  17                            -                        Intentionally Left Blank
Impact of foreign exchange rates                                             (112)                           -
As reported                                                         $       2,389                   $    2,649



                                       52

--------------------------------------------------------------------------------

  Table     of Contents
* Columns may not calculate due to rounding.
1 Other includes telematics, maintenance, food, transportation and payroll card related
businesses.
2 Revenues reflect an estimated $17 million net negative impact of fuel prices and fuel price
spreads, where lower fuel prices had an estimated $31 million negative impact and higher fuel
spreads had an offsetting $48 million favorable impact.


Adjusted net income and adjusted net income per diluted 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 based compensation
expense related to share based compensation awards, (b) amortization of deferred
financing costs, discounts and intangible assets, amortization of the premium
recognized on the purchase of receivables, and our proportionate share of
amortization of intangible assets at our equity method investment, and (c)
integration and deal related costs, and (d) other non-recurring items, including
unusual credit losses occurring largely due to COVID-19, the impact of discrete
tax items, impairment charges, asset write-offs, restructuring costs, gains due
to disposition of assets and a business, loss on extinguishment of debt, and
legal settlements.
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 share 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
share 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, we have excluded amortization expense
from our adjusted net income. We also believe that integration and deal related
costs and one-time non-recurring expenses, gains, losses, and impairment charges
do not necessarily reflect how our investments and business are performing. We
adjust net income for the tax effect of each of these non-tax items. Adjusted
net income and adjusted net income per diluted share are supplemental measures
of operating performance that do not represent and should not be considered as
an alternative to net income, net income per diluted share or cash flow from
operations, as determined by U.S. generally accepted accounting principles, or
U.S. GAAP. 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
considered as 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.
Organic revenue growth is calculated as revenue growth in the current period
adjusted for the impact of changes in the macroeconomic environment (to include
fuel price, fuel price spreads and changes in foreign exchange rates) over
revenue in the comparable prior period adjusted to include or remove the impact
of acquisitions and/or divestitures and non-recurring items that have occurred
subsequent to that period. We believe that organic revenue growth on a
macro-neutral, one-time item, and consistent
acquisition/divestiture/non-recurring item basis is useful to investors for
understanding the performance of FLEETCOR.
Management uses adjusted net income, adjusted net income per diluted share and
organic revenue growth:
•as measurements of operating performance because they assist us in comparing
our operating performance on a consistent basis;
•for planning purposes, including the preparation of our internal annual
operating budget;
•to allocate resources to enhance the financial performance of our business; and
•to evaluate the performance and effectiveness of our operational strategies.
                                       53
--------------------------------------------------------------------------------

Table of Contents 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,
(Unaudited)                                                                          2020                  2019
Net income                                                                      $    704,216          $   895,073
Net income per diluted share                                                    $       8.12          $      9.94
Stock based compensation                                                              43,384               60,953

Amortization of intangible assets, premium on receivables, deferred financing costs and discounts

                                                        196,106              216,532
Investment (gain) loss                                                               (30,008)               2,705

Loss on write-off of fixed assets                                                        294                1,819

Integration and deal related costs1                                                   12,020                    -
Restructuring and related costs                                                        4,215                2,814
Legal settlements/litigation                                                            (144)               6,181
Write-off of customer receivable 2                                                    90,058                    -

Total pre-tax adjustments                                                            315,926              291,004

Income tax impact of pre-tax adjustments at the effective tax rate3

          (67,762)             (61,619)
Impact of discrete tax item4                                                           9,848              (62,333)
Adjusted net income                                                             $    962,228          $ 1,062,125
Adjusted net income per diluted share                                           $      11.09          $     11.79
Diluted shares                                                                           86,719               90,070



1 Beginning in 2020, the Company included integration and deal related costs in its
definition to calculate adjusted net income and adjusted net income per diluted share.
Prior period amounts were considered immaterial.
2 Represents a bad debt loss in the first quarter of 2020 from a large client in our
cross-border payments business entering voluntary bankruptcy due to the extraordinary
impact of the COVID-19 pandemic.
3 Excludes the results of the Company's investment in 2019, on our effective tax rate, as
results from Masternaut investment are reported within the consolidated Statements of
Income on a post-tax basis and no tax-over-book outside basis difference prior to
disposition.
4 Represents impact of a discrete tax reserve adjustment related to prior year tax
positions in 2020 and the impact from the disposition of our investment in Masternaut of
$64 million in 2019, as well as the impact of a discrete tax item from a prior year for a
Section 199 adjustment of $2 million.
* Columns may not calculate due to rounding.






                                       54

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses