SEC Filing | FLEETCOR Technologies, Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________

FORM 10-Q

__________________________________________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35004

__________________________________________________________

FleetCor Technologies, Inc.

(Exact name of registrant as specified in its charter)

__________________________________________________________



Delaware		72-1074903
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5445 Triangle Parkway, Peachtree Corners, Georgia		30092
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (770) 449-0479

__________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one:)



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at October 31, 2017
Common Stock, $0.001 par value		89,560,788

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FLEETCOR TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q

For the Three and Nine Month Periods Ended September 30, 2017

INDEX



		Page
PART I—FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets at September 30, 2017 (unaudited) and December 31, 2016	1

	Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016	2

	Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	3

	Unaudited Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	4

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44

Item 4.	CONTROLS AND PROCEDURES	44

PART II—OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	45

Item 1A.	RISK FACTORS	45

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	47

Item 3.	DEFAULTS UPON SENIOR SECURITIES	47

Item 4.	MINE SAFETY DISCLOSURES	47

Item 5.	OTHER INFORMATION	47

Item 6.	EXHIBITS	48

SIGNATURES		49

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FleetCor Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)



	September 30, 2017			December 31, 2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	834,756		$	475,018
Restricted cash	183,515			168,752
Accounts and other receivables (less allowance for doubtful accounts of $47,779 and $32,506 at September 30, 2017 and December 31, 2016)	1,456,255			1,202,009
Securitized accounts receivable—restricted for securitization investors	794,000			591,000
Prepaid expenses and other current assets	252,975			90,914
Total current assets	3,521,501			2,527,693
Property and equipment, net	168,065			142,504
Goodwill	4,644,559			4,195,150
Other intangibles, net	2,876,440			2,653,233
Investments	33,526			36,200
Other assets	86,203			71,952
Total assets	$	11,330,294		$	9,626,732
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,435,585		$	1,151,432
Accrued expenses	285,841			238,812
Customer deposits	731,501			530,787
Securitization facility	794,000			591,000
Current portion of notes payable and lines of credit	808,507			745,506
Other current liabilities	117,464			38,781
Total current liabilities	4,172,898			3,296,318
Notes payable and other obligations, less current portion	2,933,976			2,521,727
Deferred income taxes	742,498			668,580
Other noncurrent liabilities	50,504			56,069
Total noncurrent liabilities	3,726,978			3,246,376
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.001 par value; 475,000,000 shares authorized; 121,837,990 shares issued and 89,558,913 shares outstanding at September 30, 2017; and 121,259,960 shares issued and 91,836,938 shares outstanding at December 31, 2016	122			121
Additional paid-in capital	2,165,326			2,074,094
Retained earnings	2,676,224			2,218,721
Accumulated other comprehensive loss	(466,367		)	(666,403		)
Less treasury stock 32,279,077 shares at September 30, 2017 and 29,423,022 shares at December 31, 2016	(944,887		)	(542,495		)
Total stockholders’ equity	3,430,418			3,084,038
Total liabilities and stockholders’ equity	$	11,330,294		$	9,626,732

See accompanying notes to unaudited consolidated financial statements.

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FleetCor Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues, net	$	577,877		$	484,426		$	1,639,547		$	1,316,593
Expenses:
Merchant commissions	27,687			28,214			82,690			78,755
Processing	111,283			96,233			316,429			256,738
Selling	45,060			34,180			122,854			92,680
General and administrative	92,043			77,904			275,046			209,084
Depreciation and amortization	69,156			57,084			198,731			141,848
Other operating, net	11			(244		)	49			(690		)
Operating income	232,637			191,055			643,748			538,178
Investment loss (income)	47,766			2,744			52,497			(2,247		)
Other (income) expense, net	(175,271		)	293			(173,626		)	1,056
Interest expense, net	29,344			17,814			76,322			49,905
Loss on extinguishment of debt	3,296			—			3,296			—
Total other (income) expense	(94,865		)	20,851			(41,511		)	48,714
Income before income taxes	327,502			170,204			685,259			489,464
Provision for income taxes	124,679			40,586			227,756			132,503
Net income	$	202,823		$	129,618		$	457,503		$	356,961
Basic earnings per share	$	2.23		$	1.40		$	4.99		$	3.85
Diluted earnings per share	$	2.18		$	1.36		$	4.87		$	3.75
Weighted average shares outstanding:
Basic shares	90,751			92,631			91,619			92,604
Diluted shares	93,001			95,307			93,923			95,204

See accompanying notes to unaudited consolidated financial statements.

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FleetCor Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(In Thousands)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Net income	$	202,823	$	129,618		$	457,503	$	356,961
Other comprehensive (loss) income:
Foreign currency translation gains (losses), net of tax	112,301		(52,409		)	168,655		(41,339		)
Reclassification of foreign currency translation loss to investment, net of tax	31,381		—			31,381		—
Total other comprehensive income (loss)	143,682		(52,409		)	200,036		(41,339		)
Total comprehensive income	$	346,505	$	77,209		$	657,539	$	315,622

See accompanying notes to unaudited consolidated financial statements.

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FleetCor Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In Thousands)



	Nine Months Ended September 30,
	2017			2016
Operating activities
Net income	$	457,503		$	356,961
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	35,096			25,706
Stock-based compensation	68,897			50,025
Provision for losses on accounts receivable	35,949			24,512
Amortization of deferred financing costs and discounts	5,411			5,568
Amortization of intangible assets	158,897			112,455
Amortization of premium on receivables	4,738			3,687
Loss on extinguishment of debt	3,296			—
Deferred income taxes	(38,092		)	(23,566		)
Investment loss (income)	52,497			(2,247		)
Gain on disposition of business	(174,984		)	—
Other non-cash operating income	(49		)	(690		)
Changes in operating assets and liabilities (net of acquisitions and dispositions):
Restricted cash	(12,105		)	(28,744		)
Accounts and other receivables	(440,011		)	(527,255		)
Prepaid expenses and other current assets	(86,648		)	(1,291		)
Other assets	(15,378		)	(9,115		)
Accounts payable, accrued expenses and customer deposits	364,473			418,280
Net cash provided by operating activities	419,490			404,286
Investing activities
Acquisitions, net of cash acquired	(602,298		)	(1,331,079		)
Purchases of property and equipment	(49,459		)	(41,877		)
Proceeds from disposal of a business	316,501			—
Other	(6,327		)	1,411
Net cash used in investing activities	(341,583		)	(1,371,545		)
Financing activities
Proceeds from issuance of common stock	20,192			18,620
Repurchase of common stock	(402,392		)	(35,492		)
Borrowings on securitization facility, net	203,000			42,000
Deferred financing costs paid and debt discount	(11,230		)	(2,272		)
Proceeds from issuance of notes payable	780,656			600,000
Principal payments on notes payable	(388,656		)	(85,125		)
Borrowings from revolver – A Facility	845,000			1,105,107
Payments on revolver – A Facility	(804,808		)	(670,940		)
Borrowings on swing line of credit, net	7,800			5,188
Other	537			(673		)
Net cash used in financing activities	250,099			976,413
Effect of foreign currency exchange rates on cash	31,732			(50,871		)
Net increase (decrease) in cash and cash equivalents	359,738			(41,717		)
Cash and cash equivalents, beginning of period	475,018			447,152
Cash and cash equivalents, end of period	$	834,756		$	405,435
Supplemental cash flow information
Cash paid for interest	$	79,144		$	48,525
Cash paid for income taxes	$	257,349		$	79,599

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See accompanying notes to unaudited consolidated financial statements.

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FleetCor Technologies, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

1. Summary of Significant Accounting Policies

Basis of Presentation

Throughout this report, the terms “our,” “we,” “us,” and the “Company” refers to FleetCor Technologies, Inc. and its subsidiaries. The Company prepared the accompanying interim consolidated financial statements in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”). The unaudited consolidated financial statements reflect all adjustments considered necessary for fair presentation. These adjustments consist of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may differ from these estimates. Operating results for the three and nine month periods ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are made directly to accumulated other comprehensive income. Income and expenses are translated at the average monthly rates of exchange in effect during the period. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized foreign exchange gains of $0.6 million and foreign exchange losses of $0.7 million in the three months ended September 30, 2017 and 2016, respectively, which are recorded within other (income) expense, net in the Unaudited Consolidated Statements of Income. The Company recognized foreign exchange losses of $0.2 million and $1.5 million in the nine month periods ended September 30, 2017 and 2016, respectively.

Derivatives

With its acquisition of Cambridge Global Payments ("Cambridge") in August 2017, the Company uses derivatives to facilitate cross-currency corporate payments by writing derivatives to customers, which are not designated as hedging instruments. The majority of this business' revenue is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, this business also writes foreign currency forward and option contracts for its customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. The Company aggregates its foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, and hedges (economic hedge) the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. The changes in fair value related to these contracts are recorded in the Unaudited Consolidated Statements of Income.

The Company recognizes all derivatives in "prepaid expenses and other current assets" and "other current liabilities" in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with derivatives are included in cash flows from operating activities in the Unaudited Consolidated Statements of Cash Flows.

Adoption of New Accounting Standards

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP and permits the use of either the retrospective or modified retrospective transition method. The update requires significant additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09, as amended by ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," is effective for years beginning after December 15, 2017, including interim periods, with early adoption permitted for years beginning after December 15, 2016. Since the issuance of ASU 2014-09, the FASB has issued additional interpretive guidance, including new accounting standards updates, that clarifies certain points of the standard and modifies certain requirements.

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The Company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. The Company established an implementation team to assess the effects of the new revenue standard in a multi-phase approach. In the first phase, the Company is analyzing customer contracts for its most significant contract categories, applied the five-step model of the new standard to each contract category and comparing the results to our current accounting practices. The second phase, which includes quantifying the potential effects identified during the first phase, assessing additional contract categories and principal versus agent considerations, revising accounting policies and considering the effects on related disclosures and/or internal control over financial reporting is ongoing as of the end of the third quarter.

The new standard could change the amount and timing of revenue and expenses to be recognized under certain of our arrangement types. In addition, it could also increase the administrative burden on our operations to account for customer contracts and provide the more expansive required disclosures. More judgment and estimates may be required within the process of applying the requirements of the new standard than are required under existing GAAP, such as identifying performance obligations in contracts, estimating the amount of variable consideration to include in transaction price, allocating transaction price to each separate performance obligation and estimating expected customer lives. The Company has not completed its assessment or quantified the effect the new guidance will have on its consolidated financial statements, related disclosures and/or its internal control over financial reporting. This assessment will occur over the remainder of the calendar year and will include evaluating the application of the principal vs. agent cost to obtain a contract guidance. However, the Company's preliminary view is that the expected amount and timing of revenue to be recognized under ASU 2014-09 for its most significant contract categories, fuel card payments, corporate payments, toll payments, lodging payments and gift cards, will be similar to the amount and timing of revenue recognized under our current accounting practices. The Company also may be required to capitalize additional costs to obtain contracts with customers, and, in some cases, may be required to amortize these costs over a contractual time period. Finally, the Company expects disclosures about its revenues and related customer acquisition costs will be more extensive.

The Company plans to adopt ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on January 1, 2018. The Company will apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts that are not completed at the date of initial application. Under this method, the Company would not restate the prior financial statements presented, therefore the new standard requires the Company to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. This ASU also requires disclosures to provide additional information about the amounts recorded in the financial statements. This ASU is effective for the Company for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance for leases that exist or are entered into after the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of ASU 2016-02 on our consolidated financial statements; however, we expect to recognize right of use assets and liabilities for our operating leases in the consolidated balance sheet upon adoption.

Accounting for Breakage

In March 2016, the FASB issued ASU 2016-04, “Liabilities-Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products”, which requires entities that sell prepaid stored value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. The ASU must be adopted using either a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption or a full retrospective approach. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.

Cash Flow Classification

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments", which amends the guidance in ASC 230, Statement of Cash Flows. This amended guidance reduces the diversity in practice that has resulted from the lack of consistent principles related to the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations or financial condition.

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In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash", which amends the guidance in ASC 230, Statement of Cash Flows, on the classification and presentation of restricted cash in the statement of cash flows. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company is evaluating what impact if any the adoption of this ASU will have on the results of operations, financial condition, or cash flows.

Intangibles - Goodwill and Other Impairment

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1). The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows, unless a goodwill impairment is identified.

Definition of a Business

In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business", which amends the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The guidance is effective for the Company for reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows, however it could result in accounting for acquisitions as asset acquisitions versus business combinations upon adoption.

Accounting for Modifications to Stock-Based Compensation

In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting", which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. The guidance is effective for the Company for reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company's adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.

Accounting for Derivative Financial Instruments

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which amends the hedge accounting recognition and presentation requirements in ASC 815. The FASB issued accounting guidance to better align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and improve the disclosures of hedging arrangements. The guidance is effective for the Company for reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company's adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.

2. Accounts Receivable

The Company maintains a $950 million revolving trade accounts receivable Securitization Facility. Accounts receivable collateralized within our Securitization Facility relate to our U.S. trade receivables resulting from charge card activity. Pursuant to the terms of the Securitization Facility, the Company transfers certain of its domestic receivables, on a revolving basis, to FleetCor Funding LLC (Funding) a wholly-owned bankruptcy remote subsidiary. In turn, Funding sells, without recourse, on a revolving basis, up to $950 million of undivided ownership interests in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold to the Conduit. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.

The Company utilizes proceeds from the sale of its accounts receivable as an alternative to other forms of financing to reduce its overall borrowing costs. The Company has agreed to continue servicing the sold receivables for the financial institution at market rates, which approximates the Company’s cost of servicing. The Company retains a residual interest in the accounts

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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.

The Company’s 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 Company’s accounts receivable and securitized accounts receivable include the following at September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017			December 31, 2016
Gross domestic accounts receivable	$	651,328		$	529,885
Gross domestic securitized accounts receivable	794,000			591,000
Gross foreign receivables	852,706			704,630
Total gross receivables	2,298,034			1,825,515
Less allowance for doubtful accounts	(47,779		)	(32,506		)
Net accounts and securitized accounts receivable	$	2,250,255		$	1,793,009

A rollforward of the Company’s allowance for doubtful accounts related to accounts receivable for nine months ended September 30 is as follows (in thousands):



	2017			2016
Allowance for doubtful accounts beginning of period	$	32,506		$	21,903
Provision for bad debts	35,949			24,512
Write-offs	(20,676		)	(16,343		)
Allowance for doubtful accounts end of period	$	47,779		$	30,072

3. Fair Value Measurements

Fair value is a market-based measurement that reflects assumptions that market participants would use in pricing an asset or liability. GAAP discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.

As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:


•	Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

•

Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.


•	Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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The following table presents the Company’s financial assets and liabilities which are measured at fair values on a recurring basis as of September 30, 2017 and December 31, 2016, (in thousands).



	Fair Value		Level 1		Level 2		Level 3
September 30, 2017
Assets:
Repurchase agreements	$	363,335	$	—	$	363,335	$	—
Money market	50,341		—		50,341		—
Certificates of deposit	9,370		—		9,370		—
Foreign exchange contracts	111,235		28		111,207		—
Total assets	$	534,281	$	28	$	534,253	$	—
Cash collateral for foreign exchange contracts	$	33,911	$	—	$	—	$	—

Liabilities:
Foreign exchange contracts contracts	$	106,175	$	353	$	105,822	—
Total liabilities	$	106,175	$	353	$	105,822
Cash collateral obligation for foreign exchange contracts	$	20,272	$	—	$	—	$	—

December 31, 2016
Assets:
Repurchase agreements	$	232,131	$	—	$	232,131	$	—
Money market	50,179		—		50,179		—
Certificates of deposit	48		—		48		—
Total cash equivalents	$	282,358	$	—	$	282,358	$	—

The Company has highly-liquid investments classified as cash equivalents, with original maturities of 90 days or less, included in our Consolidated Balance Sheets. The Company utilizes Level 2 fair value determinations derived from directly or indirectly observable (market based) information to determine the fair value of these highly liquid investments. The Company has certain cash and cash equivalents that are invested on an overnight basis in repurchase agreements, money markets and certificates of deposit. The value of overnight repurchase agreements is determined based upon the quoted market prices for the treasury securities associated with the repurchase agreements. The value of money market instruments is the financial institutions' month-end statement, as these instruments are not tradeable and must be settled directly by us with the respective financial institution. Certificates of deposit are valued at cost, plus interest accrued. Given the short-term nature of these instruments, the carrying value approximates fair value. Foreign exchange derivative contracts are carried at fair value, with changes in fair value recognized in the Unaudited Consolidated Statements of Income. The fair value of the Company's derivatives is derived with reference to a valuation from a derivatives dealer operating in an active market, which the Company accepts as the fair value of these instruments. The fair value represents what would be received and or paid by the Company if the contracts were terminated as of the reporting date. Cash collateral received for foreign exchange derivatives is recorded within customer deposits in our Unaudited Consolidated Balance Sheets at September 30, 2017. Cash collateral paid for foreign exchange derivatives is recorded within cash and cash equivalents in our Unaudited Consolidated Balance Sheets at September 30, 2017.

The level within the fair value hierarchy and the measurement technique are reviewed quarterly. Transfers between levels are deemed to have occurred at the end of the quarter. There were no transfers between fair value levels during the periods presented for 2017 and 2016.

The Company’s assets that are measured at fair value on a nonrecurring basis and are evaluated with periodic testing for impairment include property, plant and equipment, investments, goodwill and other intangible assets. Estimates of the fair value of assets acquired and liabilities assumed in business combinations are generally developed using key inputs such as management’s projections of cash flows on a held-and-used basis (if applicable), discounted as appropriate, management’s projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements are in Level 3 of the fair value hierarchy. See footnote 13 for discussion of Masternaut's other than temporary decline in fair value during the third quarter of 2017.

The fair value of the Company’s cash, accounts receivable, securitized accounts receivable and related facility, prepaid expenses and other current assets, accounts payable, accrued expenses, customer deposits and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The carrying value of the Company’s debt obligations approximates fair value as the interest rates on the debt are variable market based interest rates that

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reset on a quarterly basis. These are each Level 2 fair value measurements, except for cash, which is a Level 1 fair value measurement.

4. Stockholders' Equity

On February 4, 2016, the Company's Board of Directors approved a stock repurchase program (the "Program") under which the Company may purchase up to an aggregate of $500 million of its common stock over the following 18 month period. On July 27, 2017, the Company's Board of Directors authorized an increase in the size of the Program by an additional $250 million and an extension of the Program by an additional 18 months. On November 1, 2017, the Company announced that its Board of Directors had authorized an increase in the size of the Program by an additional $350 million, resulting in total aggregate repurchases authorized under the Program of $1.1 billion. With the increase and giving effect to the Company's $590.1 million of previous repurchases, the Company may repurchase up to $510 million in shares of its common stock at any time prior to February 1, 2019.

Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information the Company 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 August 3, 2017, as part of the Program, the Company entered an Accelerated Share Repurchase agreement ("ASR Agreement") with a third-party financial institution to repurchase $250 million of its common stock. Pursuant to the ASR Agreement, the Company delivered $250 million in cash and received 1,491,647 shares based on a stock price of $142.46 on August 7, 2017. The ASR Agreement was completed on September 7, 2017, at which time the Company received 263,012 additional shares based on a final weighted average per share purchase price during the repurchase period of $142.48.

The Company accounted for the ASR Agreement as two separate transactions: (i) as shares of reacquired common stock for the shares delivered to us upon effectiveness of the 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 our own common stock met the criteria for equity classification, and these amounts were initially recorded in additional paid-in capital and then reclassified to treasury stock upon completion of the ASR agreement.

Since the beginning of the Program, 4,114,104 shares for an aggregate purchase price of $590.1 million have been repurchased. There were 2,854,959 shares totaling $402.4 million repurchased under the Program during the nine months ended September 30, 2017.

5. Stock-Based Compensation

The Company has Stock Incentive Plans (the Plans) pursuant to which the Company’s Board of Directors may grant stock options or restricted stock to employees. The table below summarizes the expense recognized related to share-based payments recognized for the three and nine month periods ended September 30 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stock options	$	16,212	$	8,304	$	42,254	$	25,942
Restricted stock	8,443		9,101		26,643		24,083
Stock-based compensation	$	24,655	$	17,405	$	68,897	$	50,025

The tax benefits recorded on stock based compensation were $36.1 million and $28.4 million for the nine month periods ended September 30, 2017 and 2016, respectively.

The following table summarizes the Company’s total unrecognized compensation cost related to stock-based compensation as of September 30, 2017 (cost in thousands):

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Stock Options

Stock options are granted with an exercise price estimated to be equal to the fair market value of the Company's stock on the date of grant as authorized by the Company’s 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.

The following summarizes the changes in the number of shares of common stock under option for the nine month period ended September 30, 2017 (shares and aggregate intrinsic value in thousands):



	Shares		Weighted Average Exercise Price		Options Exercisable at End of Period	Weighted Average Exercise Price of Exercisable Options		Weighted Average Fair Value of Options Granted During the Period		Aggregate Intrinsic Value
Outstanding at December 31, 2016	6,146		$	91.20	3,429	$	55.00			$	309,238
Granted	2,764		144.45					$	32.20
Exercised	(388	)	52.10							39,789
Forfeited	(265	)	142.93
Outstanding at September 30, 2017	8,257		$	109.20	3,956	$	71.26			$	376,264
Expected to vest as of September 30, 2017	8,257		$	109.20

The aggregate intrinsic value of stock options exercisable at September 30, 2017 was $330.4 million. The weighted average remaining contractual term of options exercisable at September 30, 2017 was 5.1 years.

The fair value of stock option awards granted was estimated using the Black-Scholes option pricing model during the nine months ended September 30, 2017 and 2016, with the following weighted-average assumptions for grants or modifications during the period:



	September 30,
	2017		2016
Risk-free interest rate	1.65	%	1.09	%
Dividend yield	—		—
Expected volatility	28.02	%	27.37	%
Expected life (in years)	3.4		3.4

Restricted Stock

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 or performance, or a combination of these. Shares vesting based on the passage of time have vesting provisions of one to three years.

The following table summarizes the changes in the number of shares of restricted stock and restricted stock units for the nine months ended September 30, 2017 (shares in thousands):

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	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	379		$	140.39
Granted	204		149.95
Vested	(204	)	136.85
Cancelled or forfeited	(48	)	153.24
Outstanding at September 30, 2017	331		$	149.24

6. Acquisitions

2017 Acquisitions

Cambridge Global Payments

On August 9, 2017, the Company acquired Cambridge, a leading business to business (B2B) international payments provider, for approximately $584.1 million in cash, net of cash acquired of $132.3 million and inclusive of a note payable of $23.9 million. Cambridge processes B2B cross-border payments, assisting business clients in making international payments to suppliers and employees. The purpose of this acquisition is to further expand the Company's corporate payments footprint. The Company financed the acquisition using a combination of existing cash and borrowings under its existing credit facility. The results from Cambridge are reported in its North America segment for business in the United States and Canada and within its International segment for business in all other countries outside of the United States and Canada, since acquisition. The following table summarizes the preliminary acquisition accounting for Cambridge (in thousands):



Prepaid expenses and other	79,725
Property and equipment	7,106
Other long term assets	10,025
Goodwill	436,138
Customer relationships and other identifiable intangible assets	358,168
Liabilities assumed	(187,664		)
Deferred tax liabilities	(119,419		)
Aggregate purchase price	$	584,079

The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):



	Useful Lives (in Years)	Value
Customer relationships and other identifiable intangible assets	10	$	358,168
		$	358,168

Acquisition accounting for Cambridge is preliminary as the Company is still completing the valuation for goodwill, intangible assets, income taxes, certain acquired contingencies, derivatives and the working capital adjustment period remains open. Goodwill recorded is comprised primarily of expected synergies from combining the operations of the Company and Cambridge, as well as assembled workforce. The allocation of the goodwill to the reporting units is not yet complete.

Other

On September 26, 2017, the Company acquired a fuel card provider in Russia. The accounting for this acquisition is preliminary as the Company is still completing the valuation of goodwill, intangible assets, income taxes and evaluation of acquired contingencies. The following table summarizes the preliminary acquisition accounting for the Russian acquisition (in thousands):

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Trade and other receivables	$	8,175
Prepaid expenses and other	783
Property and equipment	206
Goodwill	9,209
Other intangible assets	46,034
Liabilities assumed	(11,078		)
Deferred tax liabilities	(9,211		)
Aggregate purchase prices	$	44,118

The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):



	Useful Lives (in Years)	Value
Customer relationships and other identifiable intangible assets	8	$	46,034
		$	46,034

Subsequently, on October 13, 2017, the Company completed the acquisition of Creative Lodging Solutions ("CLS"), a small lodging tuck-in business.

2016 Acquisitions

STP

On August 31, 2016, the Company acquired all of the outstanding stock of Serviços e Tecnologia de Pagamentos S.A. (“STP”), for $1.23 billion, net of cash acquired of $40.2 million. STP is an electronic toll payments company in Brazil and provides cardless fuel payments at a number of Shell sites throughout Brazil. The purpose of this acquisition was to expand the Company's presence in the toll market in Brazil. The Company financed the acquisition using a combination of existing cash and borrowings under its existing credit facility. Results from the acquired business have been reported in the Company's international segment since the date of acquisition. The following table summarizes the acquisition accounting for STP (in thousands):



Trade and other receivables	$	243,157
Prepaid expenses and other	6,998
Deferred tax assets	20,644
Property and equipment	44,226
Other long term assets	14,280
Goodwill	663,040
Customer relationships and other identifiable intangible assets	548,682
Liabilities assumed	(315,082		)
Aggregate purchase price	$	1,225,945

The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):



	Useful Lives (in Years)	Value
Customer relationships	8.5-20	$	348,414
Trade names and trademarks - indefinite	N/A	154,851
Technology	6	45,417
		$	548,682

In connection with the STP acquisition, the Company recorded contingent liabilities aggregating $15.1 million, recorded within other noncurrent liabilities and accrued expenses in the consolidated balance sheet at the date of acquisition. A portion of these acquired liabilities have been indemnified by the respective sellers. As a result, an indemnification asset of $15.1 million was

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recorded within prepaid and other current assets and other long term assets in the consolidated balance sheet. Along with the Company's acquisition of STP, the Company signed noncompete agreements with certain parties with an estimated fair value of $23.2 million.

Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and STP, as well as assembled workforce. The goodwill and definite lived intangibles acquired with this business will be deductible for tax purposes.

Other

During 2016, the Company acquired additional fuel card portfolios in the U.S. and the United Kingdom, additional Shell fuel card markets in Europe and Travelcard in the Netherlands totaling $76.7 million, net of cash acquired of $11.1 million. The following table summarizes the acquisition accounting for these acquisitions (in thousands):



Trade and other receivables	$	27,810
Prepaid expenses and other	5,097
Property and equipment	992
Goodwill	28,540
Other intangible assets	61,823
Deferred tax asset	146
Liabilities assumed	(42,550		)
Deferred tax liabilities	(5,123		)
Aggregate purchase prices	$	76,735

The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):



	Useful Lives (in Years)	Value
Customer relationships and other identifiable intangible assets	10-18	$	61,823
		$	61,823

7. Goodwill and Other Intangible Assets

A summary of changes in the Company’s goodwill by reportable business segment is as follows (in thousands):



	December 31, 2016		Acquisitions		Dispositions			Acquisition Accounting Adjustments		Foreign Currency		September 30, 2017
Segment
North America	$	2,640,409	$	436,138	$	(92,046	)	$	—	$	707	$	2,985,208
International	1,554,741		9,209		—			3,751		91,650		1,659,351
	$	4,195,150	$	445,347	$	(92,046	)	$	3,751	$	92,357	$	4,644,559

Goodwill related to our acquisition of Cambridge is recorded in the Company's North America segment at September 30, 2017, as the acquisition accounting is preliminary. The Company is continuing to evaluate the reporting units and segments allocation related to its acquisition of Cambridge. As of September 30, 2017 and December 31, 2016, other intangible assets consisted of the following (in thousands):

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		September 30, 2017							December 31, 2016
	Weighted- Avg Useful Lives (Years)	Gross Carrying Amounts		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amounts		Accumulated Amortization			Net Carrying Amount
Customer and vendor relationships	15.9	$	2,845,048	$	(565,374	)	$	2,279,674	$	2,449,389	$	(458,118	)	$	1,991,271
Trade names and trademarks—indefinite lived	N/A	476,648		—			476,648		510,952		—			510,952
Trade names and trademarks—other	14.6	2,805		(2,130		)	675		2,746		(2,021		)	725
Software	6.0	203,643		(106,786		)	96,857		211,331		(85,167		)	126,164
Non-compete agreements	4.9	38,628		(16,042		)	22,586		35,191		(11,070		)	24,121
Total other intangibles		$	3,566,772	$	(690,332	)	$	2,876,440	$	3,209,609	$	(556,376	)	$	2,653,233

Changes in foreign exchange rates resulted in a $53.8 million increase to the carrying values of other intangible assets in the nine months ended September 30, 2017. Amortization expense related to intangible assets for the nine months ended September 30, 2017 and 2016 was $158.9 million and $112.5 million, respectively. As part of the Company's plan to exit the telematics business, on July 27, 2017, the Company sold NexTraq, a U.S. fleet telematics business, to Michelin Group, resulting in a $41.8 million reduction in the net carrying values of other intangible assets.

8. Debt

The Company’s debt instruments consist primarily of term notes, revolving lines of credit and a Securitization Facility as follows (in thousands):



	September 30, 2017		December 31, 2016
Term notes payable—domestic(a), net of discounts	$	3,027,472	$	2,639,279
Revolving line of credit A Facility—domestic(a)	595,000		465,000
Revolving line of credit A Facility—foreign(a)	38,047		123,412
Revolving line of credit A Facility—swing line(a)	40,193		26,608
Other debt(c)	41,771		12,934
Total notes payable and other obligations	3,742,483		3,267,233
Securitization Facility(b)	794,000		591,000
Total notes payable, credit agreements and Securitization Facility	$	4,536,483	$	3,858,233
Current portion	$	1,602,507	$	1,336,506
Long-term portion	2,933,976		2,521,727
Total notes payable, credit agreements and Securitization Facility	$	4,536,483	$	3,858,233

______________________

(a)

The Company has a Credit Agreement, which has been amended multiple times and provides for senior secured credit facilities consisting of a revolving A credit facility in the amount of $1.285 billion, a term loan A facility in the amount of $2.69 billion and a term loan B facility in the amount of $350.0 million as of September 30, 2017. 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 swing line loans and multi-currency borrowings and, (c) a revolving C facility in the amount of $35 million for multi-currency borrowings in Australian Dollars or New Zealand Dollars. On January 20, 2017, the Company entered into the second amendment to the Credit Agreement, which established a new term B loan. On August 2, 2017, the Company entered into the third amendment to the Credit Agreement, which increased the total facility by $708.7 million and extended the terms of the credit facilities. The term A and revolver maturity dates are August 2, 2022 and the term B maturity date is August 2,2024. The term A and revolver pricing remains the same and the term B pricing was reduced by 25 basis points to LIBOR plus 200 basis points. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.20% to 0.40% of the daily unused portion of the credit facility. The Company has unamortized debt discounts of $6.4 million related to the term A facility, $0.7 million related to the term B facility and deferred financings costs of

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$5.4 million at September 30, 2017. In August 2017, the Company expensed $3.3 million and capitalized $10.6 million of debt issuance costs associated with the refinancing of its Credit Facility.

(b)

The Company is party to a $950 million receivables purchase agreement (Securitization Facility) that was amended and restated on December 1, 2015. There is a program fee equal to one month LIBOR and the Commercial Paper Rate of 1.27% plus 0.90% and 0.85% plus 0.90% as of September 30, 2017 and December 31, 2016, respectively. The unused facility fee is payable at a rate of 0.40% per annum as of September 30, 2017 and December 31, 2016.


(c)	Other debt includes the long-term portion of contingent consideration and deferred payments associated with certain of our businesses.

The Company was in compliance with all financial and non-financial covenants at September 30, 2017.

9. Income Taxes

The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 35% to income before income taxes for the three months ended September 30, 2017 and 2016 due to the following (in thousands):



	2017					2016
Computed tax expense at the U.S. federal tax rate	$	114,626		35.0	%	$	59,571		35.0	%
Changes resulting from:
Foreign income tax differential	(9,247		)	(2.8	)%	(4,265		)	(2.5	)%
Excess tax benefits related to stock-based compensation	(4,360		)	(1.3	)%	(8,247		)	(4.9	)%
State taxes net of federal benefits	5,926			1.8	%	1,678			1.0	%
Foreign-sourced nontaxable income	1,558			0.5	%	(6,691		)	(3.9	)%
Valuation allowance on investment loss	16,718			5.1	%	960			0.6	%
Other	(542		)	(0.2	)%	(2,420		)	(1.4	)%
Provision for income taxes	$	124,679		38.1	%	$	40,586		23.9	%

10. Earnings Per Share

The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to shareholders of the Company by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share reflect the potential dilution related to equity-based incentives using the treasury stock method. The calculation and reconciliation of basic and diluted earnings per share for the three and nine months ended September 30 (in thousands, except per share data) follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net income	$	202,823	$	129,618	$	457,503	$	356,961
Denominator for basic earnings per share	90,751		92,631		91,619		92,604
Dilutive securities	2,250		2,676		2,304		2,600
Denominator for diluted earnings per share	93,001		95,307		93,923		95,204
Basic earnings per share	$	2.23	$	1.40	$	4.99	$	3.85
Diluted earnings per share	$	2.18	$	1.36	$	4.87	$	3.75

Diluted earnings per share for the three month periods ended September 30, 2017 excludes the effect of 3.5 million shares of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. Diluted earnings per share also excludes the effect of 0.3 million shares of performance based restricted stock for which the performance criteria have not yet been achieved for both the three month periods ended September 30, 2017 and 2016, respectively.

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11. Segments

The Company reports information about its operating segments in accordance with the authoritative guidance related to segments. The Company’s reportable segments represent components of the business for which separate financial information is evaluated regularly by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company operates in two reportable segments, North America and International. The Company began reporting its results from Cambridge acquired in the third quarter of 2017 in its North America segment for Cambridge's business in the United States and Canada and within its International segment for Cambridge's business in all other countries outside of the United States and Canada. The Company is continuing to evaluate the allocation of Cambridge results to its reporting units and segments. The results of operations from the fuel card business acquired in Russia are included within our International segment, from the date of acquisition. There were no inter-segment sales.

The Company’s segment results are as follows for the three and nine month periods ended September 30 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues, net:
North America	$	364,443	$	345,868	$	1,037,386	$	950,542
International	213,434		138,558		602,161		366,051
	$	577,877	$	484,426	$	1,639,547	$	1,316,593
Operating income:
North America	$	138,748	$	135,760	$	394,646	$	367,221
International	93,889		55,295		249,102		170,957
	$	232,637	$	191,055	$	643,748	$	538,178
Depreciation and amortization:
North America	$	37,600	$	32,739	$	104,161	$	96,351
International	31,556		24,345		94,570		45,497
	$	69,156	$	57,084	$	198,731	$	141,848
Capital expenditures:
North America	$	9,167	$	11,980	$	30,901	$	28,501
International	7,692		5,140		18,558		13,376
	$	16,859	$	17,120	$	49,459	$	41,877

12. Commitments and Contingencies

In the ordinary course of business, the Company is involved in various pending or threatened legal actions, arbitration proceedings, claims, subpoenas, and matters relating to compliance with laws and regulations (collectively, legal proceedings). Based on our current knowledge, management presently does not believe that the liabilities arising from these legal proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal proceedings could have a material adverse effect on our results of operations and financial condition for any particular period.

Shareholder Class Action and Derivative Lawsuits

On June 14, 2017, a shareholder filed a class action complaint in the United States District Court for the Northern District of Georgia against the Company and certain of its officers and directors on behalf of all persons who purchased or otherwise acquired the Company’s stock between February 5, 2016 and May 2, 2017. On October 13, 2017, the shareholder filed an amended complaint asserting claims on behalf of a putative class of all persons who purchased or otherwise acquired the Company's common stock between February 4, 2016 and May 3, 2017. The complaint alleges that the defendants made false or misleading statements regarding fee charges and the reasons for its earnings and growth in certain press releases and other public statements in violation of the federal securities laws. Plaintiff seeks class certification, unspecified monetary damages, costs, and attorneys’ fees. The Company disputes the allegations in the complaint and intends to vigorously defend against the claims.

On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia seeking recovery on behalf of the Company. The derivative complaint alleges that the defendants issued a false and misleading proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedly false

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and misleading public statements concerning the Company’s fee charges, and financial and business prospects; and that certain defendants breached their fiduciary duties through allegedly improper sales of stock. The complaint seeks unspecified monetary damages on behalf of the Company, corporate governance reforms, disgorgement of profits, benefits and compensation by the defendants, restitution, costs, and attorneys’ and experts’ fees. On August 18, 2017, the court entered an order deferring the case pending a ruling on the defendants' motion to dismiss the putative shareholder class action, or until otherwise agreed to by the parties. The defendants dispute the allegations in the complaint and intend to vigorously defend against the claims.

Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting from the matters described above.

13. Asset Dispositions

Telematics Businesses

As part of the Company's plan to exit the telematics business, on July 27, 2017, the Company sold NexTraq, a U.S. fleet telematics business, to Michelin Group for $316 million. The Company recorded a pre-tax gain on the disposal of NexTraq of $175.0 million during the third quarter of 2017, which is net of transaction closing costs. The Company recorded tax on the gain of disposal of $65.8 million. The gain on the disposal is included in other (income) expense, net in the accompanying Unaudited Consolidated Statements of Income. NexTraq has historically been included in the Company's North America segment.

On September 30, 2017, the Company entered into an amended Masternaut investment agreement that resulted in the loss of significant influence, and the Company began accounting for the Masternaut investment by applying the cost method.

The Company regularly evaluates the carrying value of its investment and during the third quarter of 2017, the Company determined that the fair value of its 44% investment in Masternaut had declined as a result of the Company's loss of significant influence due to the amendment of the Masternaut investment agreement, executed September 30, 2017. As a result, the Company determined that the carrying value of its investment exceeded its fair value, and concluded that this decline in value was other than temporary. The Company recorded a $44.6 million impairment loss in the Masternaut investment that includes adjustment for $31.4 million of currency losses previously recognized in accumulated other comprehensive income, in the three and nine months ended September 30, 2017, in the accompanying Unaudited Consolidated Statements of Income.

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14. Derivative Financial Instruments

As a result of the Cambridge acquisition, the Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity, which was acquired during the third quarter of 2017. Derivative transactions include:


•	Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash.


•	Option contracts, which gives the purchaser, the right, but not the obligation to buy or sell within a specified time a currency at a contracted price that may be settled in cash.


•	Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis.

The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815.

The aggregate equivalent United States dollar notional amount of foreign exchange derivative customer contracts held by the Company as of September 30, 2017 (in millions) is presented in the table below. Notional amounts do not reflect the netting of offsetting trades, although these offsetting positions may result in minimal overall market risk. Aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on market conditions, levels of customer activity and other factors.



	Net Notional
Foreign exchange contracts:
Swaps	$	272.8
Futures, forwards and spot	3,174.1
Written options	1,338.6
Purchased options	1,765.0
Total	$	6,550.5

The majority of customer foreign exchange contracts are written in major currencies such as the U.S. Dollar, Canadian Dollar, British Pound, Euro and Australian Dollar.

The following table summarizes the fair value of derivatives reported in the Unaudited Consolidated Balance Sheet as of September 30, 2017 (in millions):



	Derivative Assets			Derivative Liabilities
	Fair Value			Fair Value
Derivatives - undesignated:
Over the counter	$	111.2		$	105.8
Exchange traded	—			0.4
Foreign exchange contracts	111.2			106.2
Cash collateral	(33.9		)	(20.3		)
Total net derivative assets and liabilities	$	77.3		$	85.9

The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted to present the Company's net exposure with these counterparties. The Company recognizes all derivative assets in prepaid expense and other current assets and all derivative liabilities in other current liabilities, both net at the customer level as right of offset exists, in its Consolidated Balance Sheets at their fair value. The gain or loss on the fair value is recognized immediately within other (income) expense, net in the Consolidated Statements of Income. At September 30, 2017, $150.7 million derivative assets and $70.9 million derivative liabilities were recorded in the Consolidated Balance Sheet.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited 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. See “Special Cautionary Notice Regarding Forward-Looking Statements”. 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.

This management’s discussion and analysis should also be read in conjunction with the management’s discussion and analysis and consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016.

General Business

Fleetcor is a leading global provider of commercial payment solutions. We primarily go to market with our fuel card payments product solutions, corporate payments products, toll products, lodging cards and gift cards. Our products are used in 53 countries around the world, with our primary geographies in the U.S., Brazil and the U.K., which accounted for approximately 92% of our revenue in 2016. Our core products are primarily sold to businesses, retailers, major oil companies and marketers and government entities. Our payment programs enable our customers to better manage and control their commercial payments, card programs, and employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. We also provide a suite of fleet related and workforce payment solution products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments. In 2016, we processed approximately 2.2 billion transactions on our proprietary networks and third-party networks (which includes approximately 1.3 billion transactions related to our SVS product, acquired with Comdata). We believe that our size and scale, geographic reach, advanced technology and our expansive suite of products, services, brands and proprietary networks contribute to our leading industry position.

We provide our payment products and services in a variety of combinations to create customized payment solutions for our customers and partners. We collectively refer to our suite of product offerings as workforce productivity enhancement products for commercial businesses. We sell a range of customized fleet and lodging payment programs directly and indirectly to our customers through partners, such as major oil companies, leasing companies and petroleum marketers. We refer to these major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and other referral partners with whom we have strategic relationships as our “partners.” We provide our customers with various card products that typically function like a charge card to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations. While we refer to companies with whom we have strategic relationships as "partners", our legal relationships with these companies are contractual, and do not constitute legal partnerships.

We support our products with specialized issuing, processing and information services that enable us to manage card accounts, facilitate the routing, authorization, clearing and settlement of transactions, and provide value-added functionality and data, including customizable card-level controls and productivity analysis tools. In order to deliver our payment programs and services and process transactions, we own and operate proprietary “closed-loop” networks through which we electronically connect to merchants and capture, analyze and report customized information in North America and internationally. We also use third-party networks to deliver our payment programs and services in order to broaden our card acceptance and use. To support our payment products, we also provide a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionality and data. Our customers can use this data to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and lower overall workforce and fleet operating costs. Depending on our customers’ and partners’ needs, we provide these services in a variety of outsourced solutions ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to limited back office processing services.

Executive Overview

We operate in two segments, which we refer to as our North America and International segments. Our revenue is reported net of the wholesale cost for underlying products and services. In this report, we refer to this net revenue as “revenue.” See “Results of Operations” for additional segment information. We report our results from Cambridge acquired in the third quarter of 2017 in our North America segment for Cambridge's business in the United States and Canada and within our International segment for Cambridge's business in all other countries outside of the United States and Canada. We are continuing to evaluate the

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allocation of Cambridge results to our reporting units and segments. As part of our plan to exit the telematics business, on July 27, 2017, we sold NexTraq, a U.S. fleet telematics business, which has historically been included in our North America segment.

For the three and nine months ended September 30, 2017 and 2016, our North America and International segments generated the following revenue (in millions):



	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
(Unaudited)	Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net
North America	$	364.4	63.1	%	$	345.9	71.4	%	$	1,037.4	63.3	%	$	950.5	72.2	%
International	213.4		36.9	%	138.6		28.6	%	602.2		36.7	%	366.1		27.8	%
	$	577.9	100.0	%	$	484.4	100.0	%	$	1,639.5	100.0	%	$	1,316.6	100.0	%

Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are revenues, net, net income and net income per diluted share for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share amounts).



	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2017		2016		2017		2016
Revenues, net	$	577,877	$	484,426	$	1,639,547	$	1,316,593
Net income	$	202,823	$	129,618	$	457,503	$	356,961
Net income per diluted share	$	2.18	$	1.36	$	4.87	$	3.75

Adjusted Revenues, Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted revenues, adjusted net income and adjusted net income per diluted share for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share amounts).



	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2017		2016		2017		2016
Adjusted revenues	$	550,190	$	456,212	$	1,556,857	$	1,237,838
Adjusted net income	$	202,769	$	183,310	$	574,795	$	478,959
Adjusted net income per diluted share	$	2.18	$	1.92	$	6.12	$	5.03

We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants that participate in certain of our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. Thus, we believe this is an effective way to evaluate our revenue performance on a consistent basis. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. Adjusted revenues, adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”

Sources of Revenue

Transactions. In both of our segments, we derive revenue from transactions. As illustrated in the diagram below, a transaction is defined as a purchase by a customer. Our customers include holders of our card products and those of our partners, for whom we manage card programs, members of our proprietary networks who are provided access to our products and services and commercial businesses to whom we provide workforce payment productivity solutions. Revenue from transactions is derived from our merchant and network relationships, as well as our customers and partners. Through our merchant and network relationships we primarily offer fuel cards, corporate cards, virtual cards, purchasing cards, T&E cards, gift cards, stored value payroll cards, vehicle maintenance, food, fuel, toll and transportation cards and vouchers and lodging services to our customers.

The following diagram illustrates a typical transaction flow, for our fuel card, vehicle maintenance, lodging and food, toll and transportation card and voucher products. This illustration is not applicable to all of our businesses.

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Illustrative Transaction Flow

https://cdn.kscope.io/0611843bc5c37c344ea279836d7953b0-tranflowexamplea03.jpg

From our customers and partners, we derive revenue from a variety of program fees, including transaction fees, card fees, network fees and charges, which can be fixed fees, cost plus a mark-up or based on a percentage discount from retail prices. Our programs include other fees and charges associated with late payments and based on customer credit risk.

From our merchant and network relationships, we derive revenue mostly from the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction, as well as network fees and charges in certain businesses. As illustrated in the table below, the price paid to a merchant or network may be calculated as (i) the merchant’s wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit.

The following table presents an illustrative revenue model for transactions with the merchant, which is primarily applicable to fuel based product transactions, but may also be applied to our vehicle maintenance, lodging and food, fuel, toll and transportation card and voucher products, substituting transactions for gallons. This representative model may not include all of our businesses.

Illustrative Revenue Model for Fuel Purchases

(unit of one gallon)



				Merchant Payment Methods
Retail Price	$	3.00		i) Cost Plus Mark-up:			ii) Percentage Discount:				iii) Fixed Fee:
Wholesale Cost	(2.86		)	Wholesale Cost	$	2.86	Retail Price	$	3.00		Retail Price	$	3.00
				Mark-up	0.05		Discount (3%)	(0.09		)	Fixed Fee	(0.09		)
FleetCor Revenue	$	0.14
Merchant Commission	$	(0.05	)	Price Paid to Merchant	$	2.91	Price Paid to Merchant	$	2.91		Price Paid to Merchant	$	2.91
Price Paid to Merchant	$	2.91

Revenues by geography, product and source. Set forth below are further breakdowns of revenue by geography, product and source for the three and nine months ended September 30, 2017 and 2016 (in millions).



	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Geography*	2017				2016				2017				2016
(Unaudited)	Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net
United States	$	358	62	%	$	346	71	%	$	1,031	63	%	$	951	72	%
United Kingdom	61		11	%	56		12	%	174		11	%	175		13	%
Brazil	101		17	%	43		9	%	287		17	%	78		6	%
Other	58		10	%	40		8	%	148		9	%	113		9	%
Consolidated revenues, net	$	578	100	%	$	484	100	%	$	1,640	100	%	$	1,317	100	%

^*Columns may not calculate due to impact of rounding.

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Subsequent to 2016, as we continued to refine the level of detail behind the product category splits, we reclassified certain amounts into "Other" that we believe are more representative of that category. This reclassification has been applied to the 2016 and 2017 comparable data disclosed in the "Revenue by Product Category" table below.



	Three Months Ended September 30,								Nine Months Ended September 30,⁸
Revenue by Product Category*	2017				2016				2017				2016
(Unaudited)	Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net		Revenues, net		% of total revenues, net
Fuel cards	$	276	48	%	$	259	53	%	$	815	50	%	$	741	56	%
Corporate Payments	72		12	%	46		10	%	169		10	%	132		10	%
Tolls	83		14	%	26		5	%	236		14	%	30		2	%
Lodging	33		6	%	28		6	%	86		5	%	74		6	%
Gift	55		9	%	58		12	%	144		9	%	138		10	%
Other	59		10	%	67		14	%	189		12	%	201		15	%
Consolidated revenues, net	$	578	100	%	$	484	100	%	$	1,640	100	%	$	1,317	100	%

^*Columns may not calculate due to impact of rounding.

Three Months Ended September 30,

Nine Months Ended September 30,⁸

Major Sources of Revenue*

2017

2016

2017

2016

(Unaudited)

Revenues,

net

% of total

revenues, net

Revenues,

net

% of total

revenues, net

Revenues,

net

% of total

revenues, net

Revenues,

net

% of total

revenues, net

Customer

Processing and program revenue¹

288