Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described in Item 1A “Risk Factors” appearing elsewhere in this report. All foreign currency amounts that have been converted into U.S. dollars in this discussion are based on the exchange rate as reported by Oanda for the applicable periods. In this report, when we refer to consolidated revenue, the provision for bad debts and interest expense on a “managed basis,” such amounts have been adjusted for the impact of the new accounting guidance related to our securitization facility as further discussed below. The term “managed basis” is used throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

General Business

FleetCor is a leading independent global provider of fuel cards, commercial payment and data solutions, stored value solutions, and workforce payment products and services to businesses, retailers, commercial fleets, major oil companies, petroleum marketers and government entities in countries throughout North America, Latin America, Europe, Australia and New Zealand. 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 a mobile telematics service, fleet maintenance management and employee benefit and transportation related payments. In 2014, we processed approximately 652 million transactions on our proprietary networks and third-party networks (which includes approximately 270 million 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.

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 customer’s and partner’s 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.

FleetCor’s predecessor company was organized in the United States in 1986. In 2000, our current chief executive officer joined us and we changed our name to FleetCor Technologies, Inc. Since 2000, we have grown significantly through a combination of organic initiatives, product and service innovation and over 65 acquisitions of businesses and commercial account portfolios. Our corporate headquarters are located in Norcross, Georgia. As of December 31, 2014, we employed approximately 4,780 employees, approximately 2,180 of whom are located in the United States.

Executive Overview

Segments

We operate in two segments, which we refer to as our North America and International segments. The results from our Shell Germany business acquired during the third quarter of 2014 are reported in our International segment. The results from our Pacific Pride business acquired in the second quarter of 2014 and Comdata business acquired in the fourth quarter of 2014 are included within our North America segment. See “Results of Operations” for additional segment information.

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.” For the years ended December 31, 2014, 2013 and 2012, our North America and International segments generated the following revenue:


	Year ended December 31,
	2014					2013					2012
(dollars in millions)	Revenues, net		% of total revenues, net			Revenues, net		% of total revenues, net			Revenues, net		% of total revenues, net
North America	$	668.3		55.7	%	$	460.7		51.5	%	$	400.1		56.6	%
International		531.1		44.3	%		434.5		48.5	%		307.4		43.4	%

	$	1,199.4		100.0	%	$	895.2		100.0	%	$	707.5		100.0	%

Sources of Revenue

Transactions. In both of our segments, we derive revenue from transactions and the related revenue per transaction. 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, store value payroll cards, vehicle maintenance, food, fuel, toll and transportation cards and vouchers or lodging services to our customers.

The following diagram illustrates a typical card transaction flow, but may also be applied to our vehicle maintenance, lodging and food, fuel, toll and transportation card and voucher products, substituting transactions for gallons. This representative model may not include all of our businesses.

Illustrative Transaction Flow

LOGO

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)


Illustrative Revenue Model				Merchant Payment Methods
Retail Price	$	3.00		i) Cost Plus Mark-up:			ii) Percentage Discount:				iii) Fixed Fee:
Wholesale Cost		(2.86	)	Wholesale Cost	$	2.86	Retail Price	$	3.00		Retail Price	$	3.00

				Mark-up		0.05	Discount (3%)		(0.09	)	Fixed Fee		(0.09	)

FleetCor Revenue	$	0.14

Merchant Commission	$	(0.05	)	Price Paid to Merchant	$	2.91	Price Paid to Merchant	$	2.91		Price Paid to Merchant	$	2.91

Price Paid to Merchant	$	2.91

Set forth below are our sources of revenue for the years ended December 31, 2014, 2013 and 2012, expressed as a percentage of consolidated revenues:


	Year Ended December 31,
	2014			2013			2012
Revenue from customers and partners		54.9	%		53.6	%		46.9	%
Revenue from merchants and networks		45.1	%		46.4	%		53.1	%
Revenue tied to fuel-price spreads1		16.5	%		15.7	%		17.5	%
Revenue influenced by absolute price of fuel1		17.0	%		19.6	%		20.7	%
Revenue from program fees, transaction fees, late fees and other		66.5	%		64.7	%		61.8	%

1	Although we cannot precisely calculate the impact of fuel price spreads and the absolute price of fuel on our consolidated revenues, we believe these percentages approximate their relative impacts.

Revenue per transaction. Set forth below is revenue per transaction information for the years ended December 31, 2014, 2013 and 2012:


	Year ended December 31,
	2014		2013		2012
Transactions (in millions)2
North America		459.9		165.0		156.9
International		192.5		162.5		146.9

Total transactions		652.4		327.5		303.8

Revenue per transaction
North America	$	1.45	$	2.79	$	2.55
International		2.76		2.67		2.09
Consolidated revenue per transaction		1.84		2.73		2.33
Consolidated adjusted revenue per transaction3		1.69		2.53		2.14

2	Transactions in 2014 includes appropriately 270 million transactions related to our SVS product, which is part of the Comdata business acquired in November 2014.

Adjusted revenues is a non-GAAP financial measure defined as revenues, net less merchant commissions. We believe this measure is a more effective way to evaluate our revenue performance. We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants to participate in our card programs. Adjusted revenues is a supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”

Revenue per transaction 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. Revenue per transaction per customer changes as the level of services we provide to a customer increases or decreases, as macroeconomic factors changes and as adjustments are made to merchant and customer rates. See “Results of Operations” for further discussion of transaction volumes and revenue per transaction.

From 2013 to 2014, total transactions increased from 327.5 million to 652.4 million, an increase of 324.9 million or 99.2%. We experienced an increase in transactions in our North America and International segments primarily due to organic growth in certain payment programs, the impact of the acquisitions completed in 2014 and the full year impact of acquisitions completed in 2013. In 2014, transaction volume was primarily affected by the inclusion of approximately 270 million transactions related to our SVS product, which is part of the Comdata business acquired in November 2014.

From 2012 to 2013, total transactions increased from 303.8 million to 327.5 million, an increase of 23.7 million or 7.8%. We experienced an increase in transactions in our North America and International segments primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2013 and the full year impact of acquisitions completed in 2012.

Revenue per transaction in our International segment has historically run higher than in our North America segment. Included in revenue per transactions is the impact of recent acquisitions. Revenue per transaction on a consolidated basis has been significantly impacted by acquisitions in our International segment from 2012 through 2014. Furthermore, as previously discussed, revenue per transaction in our North America segment has been significantly impacted by our acquisition the SVS product, which is part of our Comdata business acquired in November 2014.

In 2012, we acquired a Russian fuel card business and CTF Technologies, Inc. (CTF), both in our International segment, which have higher revenue per transaction products in comparison to our other businesses. In 2013, we acquired several businesses in our international segment; FleetCard in Australia, CardLink in New Zealand, VB Servicos (VB) and DB Trans S.A. (DB) in Brazil and Epyx in the U.K. Certain of these international acquisitions have higher revenue per transaction products in comparison to our other international businesses, which when combined with the impact of 2012 acquisitions, contributes to the increase in transaction volumes and revenue per transaction in our International segment in 2013 over 2012.

We also acquired NexTraq in the U.S in 2013 which has a higher revenue per transaction product in comparison to our other North America businesses. This contributed to higher transaction volumes and revenue per transaction in our North America segment in 2013 over 2012, in addition to organic growth.

In 2014, we acquired Comdata in the U.S., which has a higher revenue per transaction product in comparison to our other North American business, when excluding the impact of SVS, a part of the Comdata business. The SVS product carries a very high volume of transactions at a very low revenue per transaction. For discussion of revenue per transactions, we are going to exclude the impact of the SVS product which had approximately 270 million transactions in 2014 at a very low revenue per transaction.

Sources of Expenses

We incur expenses in the following categories:

	•		Merchant commissions—In certain of our card programs, we incur merchant commissions expense when we reimburse merchants with whom we have direct, contractual relationships for specific transactions where a customer purchases products or services from the merchant. In the card programs where it is paid, merchant commissions equal the difference between the price paid by us to the merchant and the merchant’s wholesale cost of the underlying products or services.

	•		Processing—Our processing expense consists of expenses related to processing transactions, servicing our customers and merchants, bad debt expense and cost of goods sold related to our hardware sales in certain businesses.

	•		Selling—Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities.

	•		General and administrative—Our general and administrative expenses include compensation and related expenses (including stock-based compensation) for our executive, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses.

	•		Depreciation and amortization—Our depreciation and amortization 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 intangible assets related to customer and vendor relationships, trade names and trademarks and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable.

	•		Other operating, net—Our other operating, net includes other operating expenses and income items unusual to the period and presented separately.

	•		Other income, net—Other income, net includes foreign currency transaction gains or losses, proceeds/costs from the sale of assets and other miscellaneous operating costs and revenue.

	•		Equity method investment loss—Equity method investment loss relates to our minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for as an equity method investment.

	•		Interest expense, net—Interest expense, net includes interest income on our cash balances and interest expense on our outstanding debt and on our securitization facility. We have historically invested our cash primarily in short-term money market funds.

	•		Loss on early extinguishment of debt—Loss on early extinguishment of debt relates to our write-off of debt issuance costs associated with the refinancing of our Existing Credit Facility and entry into our New Credit Agreement, along with our recent acquisition of Comdata.

	•		Provision for income taxes—The provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services in the United States and internationally. Our worldwide effective tax rate is lower than the U.S. statutory rate of 35%, due primarily to lower rates in foreign jurisdictions and foreign-sourced non-taxable income.

Adjusted Revenues, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted revenues, adjusted earnings before interest, taxes, depreciation and amortization, other expense, net, equity method investment loss and loss on extinguishment of debt (Adjusted EBITDA), adjusted net income and diluted adjusted net income per share for the years ended December 31, 2014, 2013 and 2012.


	Year Ended December 31,
	2014		2013		2012
(in thousands except per share amounts)
Adjusted revenues	$	1,103,136	$	827,028	$	648,961
Adjusted EBITDA		677,810		493,369		376,964
Adjusted net income		447,670		342,680		255,984
Adjusted net income per diluted share		5.15		4.05		2.99

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 a more effective way to evaluate our revenue performance on a consistent basis. We use adjusted EBITDA, calculated as earnings before interest, taxes, depreciation and amortization, other expense, net, equity method investment loss and loss on extinguishment of debt to eliminate the impact of certain non-core items during the period. 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 EBITDA, 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.”

Factors and Trends Impacting our Business

We believe that the following factors and trends are important in understanding our financial performance:

	•		Fuel prices—Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customer’s total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. See “Sources of Revenue” above for further information related to the absolute price of fuel.

	•		Fuel-price spread volatility—A portion of our revenue involves transactions where we derive revenue from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant’s wholesale cost of fuel. See “Sources of Revenue” above for further information related to fuel-price spreads.

	•		Acquisitions—Since 2002, we have completed over 65 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods.

	•		Interest rates—Our results of operations are affected by interest rates. We are exposed to market risk changes in interest rates on our cash investments and debt.

	•		Global economic downturn—Our results of operations are materially affected by conditions in the economy generally, both in North America and internationally. Factors affected by the economy include our transaction volumes and the credit risk of our customers. These factors affected our businesses in both our North America and International segments.

	•		Foreign currency changes—Our results of operations are significantly impacted by changes in foreign currency rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro, Mexican peso, New Zealand dollar and Russian ruble, relative to the U.S. dollar. Approximately 56%, 51% and 56% of our revenue in 2014, 2013 and 2012, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. See “Results of Operations” for information related to foreign currency impact on our total revenue, net.

	•		Expenses— Over the long term, we expect that our general and administrative expense will decrease as a percentage of revenue as our revenue increases. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force.

Acquisitions and Investments

During 2014, we completed acquisitions with an aggregate purchase price of $3.67 billion, net of cash acquired of $165.8 million.

	•		In April 2014, we completed an equity method investment in Masternaut Group Holdings Limited (“Masternaut”), Europe’s largest provider of telematics solutions to commercial fleets, included in “Equity method investment” in our Consolidated Balance Sheets. We own 44% of the outstanding equity of Masternaut.

	•		In July 2014, we also acquired Pacific Pride (“PacPride”), a U.S. fuel card business, and in August 2014, we acquired a fuel card portfolio from Shell in Germany (“Shell Germany”). The purpose of these acquisitions was to strengthen our presence in the U.S. marketplace and establish our presence in the German fuel card market, respectively.

	•		In November 2014, we acquired Comdata Inc. (“Comdata”) from Ceridian LLC, a portfolio company of funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) and Fidelity National Financial Inc. (NYSE: FNF), for $3.42 billion. Comdata is a leading business-to-business provider of innovative electronic payment solutions. As an issuer and a processor, Comdata provides fleet, virtual card and gift card solutions to over 20,000 customers. Comdata has approximately 1,300 employees and enables over $54 billion in payments annually. This acquisition will complement the Company’s current fuel card business in the U.S. and add a new product with the virtual payments business. FleetCor financed the acquisition with approximately $2.4 billion of debt and the issuance of 7,625,380 shares of FleetCor common stock, including amounts applied at the closing to the repayment of Comdata’s debt.

The results of operations of the Shell Germany business are included within our International segment, from the date of acquisition. The results of operations from PacPride and Comdata are included within our North America segment, from the date of acquisition.

During 2013, we completed acquisitions with an aggregate purchase price of $839.3 million, net of cash acquired of $35.6 million, including deferred payments of $36.8 million and the estimated fair value of contingent consideration payments of $83.1 million. During 2014, we recorded adjustments to the estimated fair value of contingent consideration of $28.1 million, based on actual results of the business, which included the impact of an unfavorable tax judgment against VB during the fourth quarter of 2014.The most significant acquisitions are described below.

The results of operations of the Fleet Card, CardLink, VB, Epyx and DB businesses are included within our International segment, from the date of acquisition. The results from NexTraq are included within our North America segment, from the date of acquisition.

	•		In March 2013, we acquired certain fuel card assets from GE Capital Australia’s Custom Fleet leasing business. The consideration for the transaction was paid using the Company’s existing cash and credit facilities. GE Capital’s “Fleet Card” is a multi-branded fuel card product with acceptance in over 6,000 fuel outlets and over 7,000 automotive service and repair centers across Australia. Through this transaction, the Company acquired the Fleet Card product, brand, acceptance network contracts, supplier contracts, and approximately one-third of the customer relationships with regards to fuel cards (together, “Fleet Card”). The remaining customer relationships will be retained by Custom Fleet, and are comprised of companies which have commercial relationships with Custom Fleet beyond fueling, such as fleet management and leasing. The purpose of this acquisition was to establish our presence in the Australian marketplace.

	•		In April 2013, we acquired all of the outstanding stock of CardLink. The consideration for the transaction was paid using the Company’s existing cash and credit facilities. CardLink provides a proprietary fuel card program with acceptance at retail fueling stations across New Zealand. CardLink markets its fuel cards directly to mostly small-to-midsized businesses, and provides processing and outsourcing services to oil companies and other partners. With this transaction, the Company entered

	into a $12.0 million New Zealand dollar ($9.8 million) revolving line of credit, which will be used to fund the working capital needs of the CardLink business. The purpose of this acquisition was to enter the Australia and New Zealand regions and follows our recent purchase of GE Capital’s Fleet Card business in Australia.

	•		In August 2013, we acquired all of the outstanding stock of VB, a provider of transportation cards and vouchers in Brazil. The consideration for the transaction was paid using the Company’s existing cash and credit facilities. VB is a provider of transportation cards in Brazil where employers are required by legislation to provide certain employees with prepaid public transportation cards to subsidize their commuting expenses. VB serves over 35,000 business clients and supports approximately 800 transportation agencies across Brazil. VB also markets food cards. The purpose of this acquisition was to strengthen our presence in the Brazilian marketplace.

	•		In October 2013, we acquired all of the outstanding stock of Epyx, a provider to the fleet maintenance, service and repair marketplace in the UK. Epyx provides an internet based system and a vehicle repair network of approximately 9,000 service garages to fleet operators in the UK. The Epyx service helps its customers better manage their vehicle maintenance, service, and repair needs. The consideration for the transaction was paid using existing cash and credit facilities. This acquisition extends our offerings beyond fleet fueling, to fleet maintenance in the UK marketplace.

	•		In October 2013, we acquired DB, a provider of payment solutions for independent truckers in Brazil. The consideration for the transaction was paid using existing cash and credit facilities. With this acquisition, we strengthened our presence in the Brazilian marketplace.

	•		In October 2013, we acquired NexTraq, a U.S. based provider of telematics solutions to small and medium-sized businesses. NexTraq provides fleet operators with an internet based system that enhances workforce productivity through real time vehicle tracking, route optimization, job dispatch, and fuel usage monitoring, and has 100,000 active subscribers. The consideration for the transaction was paid using existing cash and credit facilities. With this acquisition, we have a cross marketing opportunity due to the similarity of the commercial fleet customer base.

During 2012, we completed several foreign acquisitions with an aggregate purchase price of $207.4 million, net of cash acquired, which included deferred payments of $11.3 million and contingent consideration payments of $4.9 million. The Company estimated the fair value of remaining payments related to this contingent consideration of $0.5 million at December 31, 2014. The most significant acquisitions are described below. The results of our additional Russian fuel card company and CTF businesses are included within our International segment, from the date of acquisition.

	•		In June 2012, we acquired all of the outstanding stock of a leading Russian fuel card company, which is a Russian leader in fuel card systems, and serves major oil clients and hundreds of independent fuel card issuers. The consideration for the transaction was paid using existing cash and credit facilities. As a result of this acquisition, we further expanded our presence in the Russian fuel card marketplace.

	•		In July 2012, we acquired all of the outstanding stock of CTF, a fuel payment processor in Brazil, for $156 million. The consideration for the transaction was paid with existing cash and credit facilities CTF provides fuel payment processing services for over-the-road fleets, ships, mining equipment, and railroads in Brazil. CTF’s payment platform links together fleet operators, banks, and oil companies. With this acquisition, we established our presence in the Brazilian fuel processing services marketplace.

Results of operations

Year ended December 31, 2014 compared to the year ended December 31, 2013

The following table sets forth selected consolidated statement of income and selected operational data for the years ended December 31, 2014 and 2013 (in millions, except percentages).


	Year ended December 31, 2014			% of total revenue			Year ended December 31, 2013			% of total revenue			Increase (decrease)			% Change
Revenues, net:
North America	$	668.3			55.7	%	$	460.7			51.5	%	$	207.6			45.1	%
International		531.1			44.3	%		434.5			48.5	%		96.6			22.2	%

Total revenues, net		1,199.4			100.0	%		895.2			100.0	%		304.2			34.0	%
Consolidated operating expenses:
Merchant commissions		96.3			8.0	%		68.2			7.6	%		28.1			41.3	%
Processing		173.3			14.4	%		134.0			15.0	%		39.3			29.3	%
Selling		75.5			6.3	%		57.4			6.4	%		18.2			31.7	%
General and administrative		206.0			17.2	%		142.3			15.9	%		63.7			44.8	%
Depreciation and amortization		112.4			9.4	%		72.7			8.1	%		39.6			54.5	%
Other operating, net		(29.5	)		2.5	%		—			—			(29.5	)		(100	%)

Operating income		565.4			47.1	%		420.6			47.0	%		144.8			34.4	%

Other (income) expense, net		(0.7	)		NM			0.6			0.1	%		(1.3	)		NM
Equity method investment loss		8.6			0.7	%		—			—			8.6			100	%
Interest expense, net		28.9			2.4	%		16.4			1.8	%		12.4			75.3	%
Loss on early extinguishment of debt		15.8			1.3	%		—			—			15.8			100	%
Provision for income taxes		144.2			12.0	%		119.1			13.3	%		25.2			21.1	%

Net income	$	368.7			30.7	%	$	284.5			31.8	%	$	84.2			29.6	%

Operating income for segments:
North America	$	287.3					$	220.5					$	66.8			30.3	%
International		278.1						200.1						78.0			39.0	%

Operating income	$	565.4					$	420.6					$	144.8			34.4	%

Operating margin for segments
North America		43.0	%					47.9	%					(4.9	)%
International		52.4	%					46.1	%					6.3	%
Total		47.1	%					47.0	%					0.1	%


	Year ended December 31,
	2014		2013
Transactions (in millions)
North America1		459.9		165.0
International		192.5		162.5

Total transactions1		652.4		327.5

Revenue per transaction
North America	$	1.45	$	2.79
International		2.76		2.67
Consolidated revenue per transaction		1.84		2.73
Consolidated adjusted revenue per transaction		1.69		2.53

1	Transactions in 2014 includes appropriately 270 million transacts related to our SVS product, which is part of the Comdata business acquired in November 2014.

NM = Not Meaningful

The sum of the columns or rows may not equal the totals or differences due to rounding.

Revenues and revenue per transaction

Our consolidated revenue increased from $895.2 million in 2013 to $1,199.4 million in 2014, an increase of $304.2 million, or 34.0%. The increase in our consolidated revenue was primarily due to the following:

	•		The full year impact of acquisitions completed in 2013 as well as acquisitions completed in 2014, which contributed approximately $183 million in revenue in 2014 over the comparable period in 2013.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our consolidated revenue for 2014 over the comparable period in 2013. The macroeconomic environment was primarily impacted by higher fuel spread margins in 2014 over the comparable period in 2013, partially offset by the impact of lower fuel prices and foreign exchange rates. Changes in foreign exchange rates had an unfavorable impact on revenues of $9.4 million, due primarily to unfavorable fluctuations in the Brazilian Real, British Pound and Russian Ruble, in 2014 compared with 2013.

Consolidated revenue per transaction decreased from $2.73 in 2013 to $1.84 in 2014, a decrease of $0.89 per transaction or 32.7%. Consolidated revenue per transaction includes the impact of the SVS product, which is part of our Comdata business acquired in November 2014. The SVS product had approximately 270 million transactions during 2014 at a very low revenue per transaction. Consolidated revenue per transaction for 2014, excluding the SVS product, increased 13.3% to $3.10 from $2.73 in 2013. This increase is primarily a result of organic growth in certain of our payment programs and the full year impact in 2014 of acquisitions completed in 2013, as noted above, as well as acquisitions completed in 2014, some of which have higher revenue per transaction products in comparison to our other businesses. The increase also was due to the impact of the macroeconomic environment, specifically higher fuel spread margins in 2014 over 2013.

North America segment revenues and revenue per transaction

North America revenue increased from $460.7 million in 2013 to $668.3 million in 2014, an increase of $207.6 million, or 45.1%. The increase in our North America revenue was primarily due to the following:

	•		The full period impact of acquisitions completed in 2013, as well as acquisitions completed in 2014, which contributed approximately $104 million in additional revenues in 2014 over the comparable period in 2013.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. 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 2014 over the comparable period in 2013, primarily due to the impact of higher fuel spread margins, partially offset by the impact of lower fuel prices in the US.

North America segment revenue per transaction decreased from $2.79 in 2013 to $1.45 in 2014, a decrease of $1.34 per transaction or 48.0%. North American revenue per transaction includes the impact of the SVS product,

which is part of our Comdata business acquired in November 2014. The SVS product had approximately 270 million transactions during 2014 at a very low revenue per transaction. North American revenue per transaction for 2014, excluding the SVS product, increased 23.1% to $3.44 from $2.79 in 2013. This increase is primarily a result of organic growth in certain of our payment programs and the full year impact in 2014 of acquisitions completed in 2013, as noted above, as well as acquisitions completed in 2014, some of which have higher revenue per transaction products in comparison to our other businesses. The increase is also due to the positive impact of the macroeconomic environment; specifically higher fuel spread margins in 2014 compared with 2013.

International segment revenue

International segment revenue increased from $434.5 million in 2013 to $531.1 million in 2014, an increase of $96.6 million, or 22.2%. The increase in International segment revenue was due primarily to the following:

	•		The full period impact of acquisitions completed in 2013, as well as acquisitions completed in 2014, which contributed approximately $79 million in additional revenue in 2014 over the comparable period in 2013.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for 2014 over 2013, primarily due to changes in foreign exchange rate and lower fuel prices internationally. Changes in foreign exchange rates had an unfavorable impact on revenues of $9.4 million, due primarily to unfavorable fluctuations in the Brazilian Real, British Pound and Russian Ruble in 2014 over 2013. The impact of foreign exchange rates and lower fuel prices were partially offset by lower fuel spread margins in 2014 over 2013.

International segment revenue per transaction increased from $2.67 in 2013 to $2.76 in 2014, an increase of $0.09 per transaction or 3.2%. This increase in revenue per transaction, as well as the increase in transaction volume, is primarily due to the full period impact of acquisitions completed in 2013 and 2014, some of which have higher revenue per transaction products in comparison to our other businesses, as well as organic growth in certain of our payment programs. We experienced an increase in transactions in our International segment primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2014 and the full year impact of acquisitions completed in 2013.

Consolidated operating expenses

Merchant commission Merchant commissions increased from $68.2 million in 2013 to $96.3 million in 2014, an increase of $28.1 million, or 41.3%. This increase was due primarily to additional commissions paid due to higher fuel spread margins, as well as the impact of higher volume in revenue streams where merchant commissions are paid.

Processing Processing expenses increased from $134.0 million in 2013 to $173.3 million in 2014, an increase of $39.3 million, or 29.3%. Our processing expenses increased primarily due to acquisitions completed in 2013 and 2014 and organic growth in transaction volume, as well as incremental bad debt expense of approximately $3.0 million in our Russia business due to the slowdown in their economy.

Selling Selling expenses increased from $57.4 million in 2013 to $75.5 million in 2014, an increase of $18.2 million, or 31.7%. The increase was primarily due to acquisitions completed in 2013 and 2014, as well as additional sales and marketing spending in certain markets.

General and administrative General and administrative expense increased from $142.3 million in 2013 to $206.0 million in 2014, an increase of $63.7 million, or 44.8%. Our general and administrative expenses

increased primarily due to the impact of acquisitions completed in 2013 and 2014, as well as approximately $22.6 million of incremental one-time deal related costs related to severance and legal fees, accounting, tax, and various advisory fees, as well as additional stock based compensation expense of $12.8 million.

Depreciation and amortization Depreciation and amortization increased from $72.7 million in 2013 to $112.4 million in 2014, an increase of $39.6 million, or 54.5%. The increase in our depreciation and amortization expense is primarily due to acquisitions completed during 2013 and 2014, which resulted in an increase of $38.3 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software and increased depreciation expense.

Other operating, net Other operating, net of 29.5 million in 2014, represents the $28.1 million favorable impact of fair value adjustments recorded related to contingent consideration arrangements for our acquisition of VB in Brazil and the net favorable impact of $1.4 million from the reversal of other various contingent liabilities for tax indemnifications related to our acquisitions of DB and VB in Brazil.

Operating income and operating margin

Consolidated operating income

Operating income increased from $420.6 million in 2013 to $565.4 million in 2014, an increase of $144.8 million, or 34.4%. Consolidated operating margin was 47.0% in 2013 and 47.1% in 2014. The increase in operating income is due primarily to the impact of acquisitions completed during 2013 and 2014, organic growth in the business driven by increases in volume and revenue per transactions. We believe the impact of the macroeconomic environment was positive to consolidated operating results in 2014 over 2013, primarily due to higher fuel spread margins. These positive drivers of consolidated results were partially offset by incremental stock based compensation expense, increased amortization expense related to acquired intangible assets, increased bad debt expense in our Russian business and incremental onetime costs related to acquisitions of $22.6 million.

For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Similarly, segment operating margin is calculated by dividing segment operating income by segment revenue.

North America segment operating income

North America operating income increased from $220.5 million in 2013 to $287.3 million in 2014, an increase of $66.8 million, or 30.3%. North America operating margin was 47.9% in 2013 and 43.0% in 2014. The increase in operating income is due primarily to the impact of acquisitions completed in 2013 and 2014, as well as organic growth in the business driven by increases in volume and revenue per transaction. We believe that the impact of the macroeconomic environment was positive to North American operating results in 2014 over 2013, primarily due to higher fuel spread margins. The decrease in operating margin is due primarily to the impact of increased stock based compensation expense, the majority of which is recorded in our North America segment, as well as incremental one-time deal related expenses of $26.6 million primarily incurred related to our acquisition of Comdata during 2014.

International segment operating income

International operating income increased from $200.1 million in 2013 to $278.1 million in 2014, an increase of $78.0 million, or 39.0%. International operating margin was 46.1% in 2013 and 52.4% in 2014. The increase in operating income and operating margin is due primarily to the impact of acquisitions completed in 2013 and 2014 and organic growth in the business driven by increases in volume and revenue per transaction. We believe that the impact of the macroeconomic environment was negative to International operating results in 2014 over

2013, due primarily to unfavorable fluctuations in the Brazilian Real, British Pound and Russian Ruble. Included in International operating income was the favorable impact of adjustments recorded related to contingent consideration arrangements for our acquisition of VB in Brazil of $28.1 million, the net favorable impact from reversal of other various contingent liabilities for tax indemnifications related to our acquisitions of DB and VB in Brazil of approximately $1.4 million and incremental savings on deal fees over the comparable period in 2013 of $4.1 million. These favorable items contributed to the increase in operating margin from 2013 to 2014.

Interest expense, net

Interest expense increased from $16.4 million in 2013 to $28.9 million in 2014, an increase of $12.4 million, or 75.3%. The increase in interest expense is due to an increase in borrowings in 2014 over 2013, primarily due to funding the purchase price for acquisitions as well as increased interest rates as a result of the uptick in our leverage ratio due to the additional borrowings to fund acquisitions. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, including the relevant unused credit facility fees.


	2014			2013
Term loan, including unused credit facility fee		2.35	%		2.02	%
Domestic Revolver A, including unused credit facility fee		2.24	%		2.07	%
Foreign Revolver A		2.27	%		2.13	%
Foreign Revolver B, including unused credit facility fee		4.73	%		4.62	%
Foreign swing line		2.28	%		1.98	%

Equity method investment loss

On April 28, 2014, we acquired a minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for as an equity method investment. The loss at Masternaut was driven primarily by amortization of intangible assets at this investment of approximately $8.0 million in 2014.

Loss on early extinguishment of debt

Loss on early extinguishment of debt relates to our write-off of $15.8 million of debt issuance costs associated with the refinancing of our Existing Credit Facility and entry into our New Credit Agreement, along with our recent acquisition of Comdata.

Provision for income taxes

The provision for income taxes increased from $119.1 million in 2013 to $144.2 million in 2014, an increase of $25.2 million, or 21.1%. Our effective tax rate decreased from 29.5% in 2013 to 28.1% in 2014. Discrete items and changes in the estimate of the annual tax rate are recorded in the period they occur. The effective tax rate in 2014 was favorably impacted by entity reorganization in Brazil, which allowed the reversal of deferred tax liability of $9.5 million, setup at the time of acquisition in 2013.

We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. The lower tax rate in 2014 was also driven by a shift in the mix of earnings, largely due to acquisitions, to foreign jurisdictions with lower tax rates.

Net income

For the reasons discussed above, our net income increased from $284.5 million in 2013 to $368.7 million in 2014, an increase of $84.2 million, or 29.6%.

Results of operations

Year ended December 31, 2013 compared to the year ended December 31, 2012

The following table sets forth selected consolidated statement of income and selected operational data for the years ended December 31, 2013 and 2012 (in millions, except percentages).


	Year ended December 31, 2013			% of total revenue			Year ended December 31, 2012			% of total revenue			Increase (decrease)			% Change
Revenues, net:
North America	$	460.7			51.5	%	$	400.1			56.6	%	$	60.6			15.1	%
International		434.5			48.5	%		307.4			43.4	%		127.1			41.3	%

Total revenues, net		895.2			100.0	%		707.5			100.0	%		187.7			26.5	%
Consolidated operating expenses:
Merchant commissions		68.2			7.6	%		58.6			8.3	%		9.6			16.3	%
Processing		134.0			15.0	%		115.5			16.3	%		18.5			16.1	%
Selling		57.4			6.4	%		46.4			6.6	%		11.0			23.5	%
General and administrative		142.3			15.9	%		110.1			15.6	%		32.2			29.2	%
Depreciation and amortization		72.7			8.1	%		52.0			7.3	%		20.7			40.0	%

Operating income		420.6			47.0	%		324.9			45.9	%		95.7			29.5	%

Other expense (income), net		0.6			0.1	%		1.1			0.2	%		(0.5	)		NM
Interest expense, net		16.4			1.8	%		13.0			1.8	%		3.4			26.5	%
Provision for income taxes		119.1			13.3	%		94.6			13.4	%		24.5			25.9	%

Net income	$	284.5			31.8	%	$	216.2			30.6	%	$	68.3			31.6	%

Operating income for segments:
North America	$	220.5					$	196.7					$	23.8			12.1	%
International		200.1						128.2						71.9			56.0	%

Operating income	$	420.6					$	324.9					$	95.7			29.5	%

Operating margin for segments
North America		47.9	%					49.1	%					(1.2	)%
International		46.1	%					41.7	%					4.4	%
Total		47.0	%					45.9	%					1.1	%


	Year ended December 31,
	2013		2012
Transactions (in millions)
North America		165.0		156.9
International		162.5		146.9

Total transactions		327.5		303.8

Revenue per transaction
North America	$	2.79	$	2.55
International		2.67		2.09
Consolidated revenue per transaction		2.73		2.33
Consolidated adjusted revenue per transaction		2.53		2.14

NM = Not Meaningful

The sum of the columns or rows may not equal the totals or differences due to rounding.

Revenues and revenue per transaction

Our consolidated revenue increased from $707.5 million in 2012 to $895.2 million in 2013, an increase of $187.7 million, or 26.5%. The increase in our consolidated revenue was primarily due to the following:

	•		The full year impact of acquisitions completed in 2012 as well as acquisitions completed in 2013, which contributed approximately $100 million in revenue in 2013 over the comparable period in 2012.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for 2013 over the comparable period in 2012. The macroeconomic environment was primarily impacted by lower fuel prices and foreign exchange rates. Changes in foreign exchange rates had an unfavorable impact on revenues of $5.6 million, due to primarily to unfavorable fluctuations in the Brazilian Real and British Pound, in 2013 over 2012. These unfavorable impacts were partially offset by the impact of higher fuel spread margins, in 2013 over the comparable period in 2012.

Consolidated revenue per transaction increased from $2.33 in 2012 to $2.73 in 2013, an increase of $0.40 per transaction or 17.3%. This increase is primarily due to organic growth in certain of our payment programs and the full year impact in 2013 of acquisitions completed in 2012, as noted above, as well as acquisitions completed in 2013, some of which have higher revenue per transaction products in comparison to our other businesses. Total transactions increased from 303.8 million to 327.5 million, an increase of 23.7 million or 7.8%.

North America segment revenues and revenue per transaction

North America revenue increased from $400.1 million in 2012 to $460.7 million in 2013, an increase of $60.6 million, or 15.1%. The increase in our North America revenue was primarily due to the following:

	•		The impact of acquisitions completed in 2013, which contributed approximately $15 million in additional revenues in 2013 over the comparable period in 2012.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly positive impact on our North America segment revenue for 2013 over the comparable period in 2012, primarily due to the impact of higher fuel spread margins, partially offset by the impact of lower fuel prices in the US.

North America segment revenue per transaction increased from $2.55 in 2012 to $2.79 in 2013, an increase of $0.24 per transaction or 9.5%. North America segment revenue per transaction was impacted by the reasons discussed above. We experienced an increase in transactions in our North America segment primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2013.

International segment revenue

International segment revenue increased from $307.4 million in 2012 to $434.5 million in 2013, an increase of $127.1 million, or 41.3%. The increase in International segment revenue was due primarily to the following:

	•		The full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, which contributed approximately $85 million in additional revenue in 2013 over the comparable period in 2012.

	•		Organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction.

	•		Included within organic growth, is the impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for 2013 over 2012, primarily due to lower fuel prices internationally and changes in foreign exchange rates. Changes in foreign exchange rates had an unfavorable impact on revenues of $5.6 million, due primarily to unfavorable fluctuations in the Brazilian Real and British Pound, in 2013 over 2012. There was no impact from changes in fuel spread margins.

International segment revenue per transaction increased from $2.09 in 2012 to $2.67 in 2013, an increase of $0.58 per transaction or 27.7%. This increase is primarily due to organic growth in certain of our payment programs and the full period impact of acquisitions completed in 2012 and 2013, some of which have higher revenue per transaction products in comparison to our other businesses. We experienced an increase in transactions in our International segment primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2013 and the full year impact of acquisitions completed in 2012.

Consolidated operating expenses

Merchant commission Merchant commissions increased from $58.6 million in 2012 to $68.2 million in 2013, an increase of $9.6 million, or 16.3%. This increase was primarily due to the fluctuation of the margin between the wholesale cost and retail price of fuel, which impacted merchant commissions in certain card programs, as well as the impact of higher volume in revenue streams where merchant commissions are paid, primarily in our North America segment.

Processing Processing expenses increased from $115.5 million in 2012 to $134.0 million in 2013, an increase of $18.5 million, or 16.1%. Our processing expenses primarily increased due to the impact of acquisitions completed in 2012 and 2013, partially offset by efficiencies gained in certain of our more recently acquired businesses.

Selling Selling expenses increased from $46.4 million in 2012 to $57.4 million in 2013, an increase of $11.0 million, or 23.5%. The increase was primarily due to acquisitions completed in 2012 and 2013, as well as additional sales and marketing spending in certain markets.

General and administrative General and administrative expense increased from $110.1 million in 2012 to $142.3 million in 2013, an increase of $32.2 million, or 29.2%. Our general and administrative expenses increased primarily due to the impact of acquisitions completed in 2012 and 2013, as well as approximately $6.0 million of additional one-time deal related costs, and additional stock based compensation expense of $7.4 million.

Depreciation and amortization Depreciation and amortization increased from $52.0 million in 2012 to $72.7 million in 2013, an increase of $20.7 million, or 40.0%. The increase in our depreciation and amortization expense is primarily due to acquisitions completed during 2012 and 2013, which resulted in an increase of $21.5 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software, as well as acquired fixed assets and development related to our GFN processing application.

Operating income and operating margin

Consolidated operating income

Operating income increased from $324.9 million in 2012 to $420.6 million in 2013, an increase of $95.7 million, or 29.5%. Our operating margin increased from 45.9% in 2012 to 47.0% in 2013. The increase in operating

income and operating margin is due primarily to the impact of acquisitions completed during 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transactions, as well as synergies gained in certain of our acquired businesses. These positive drivers of consolidated results were partially offset by the negative impact of the macroeconomic environment, primarily due to lower fuel prices and unfavorable changes in foreign exchange rates, as well as one-time deal related expenses incurred during the year of approximately $6.0 million.

North America segment operating income

North America operating income increased from $196.7 million in 2012 to $220.5 million in 2013, an increase of $23.8 million, or 12.1%. North America operating margin decreased from 49.1% in 2012 to 47.9% in 2013. The increase in operating income is due primarily to organic growth in the business driven by increases in volume and revenue per transaction and the impact of acquisitions completed in 2013. The decrease in operating margin is due primarily to the impact of increased stock based compensation expense, the majority of which is recorded in our North America segment, as well as one-time deal related expenses incurred during the year of $6.0 million.

International segment operating income

International operating income increased from $128.2 million in 2012 to $200.1 million in 2013, an increase of $71.9 million, or 56.0%. International operating margin increased from 41.7% in 2012 to 46.1% in 2013. The increase in operating income and operating margin is due primarily to the impact of acquisitions completed in 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transaction, as well as synergies gained in certain of our acquired businesses. The macroeconomic environment had a negative effect on International segment operating income, primarily driven by the unfavorable impact of foreign exchange rates and lower fuel prices.

Interest expense, net

Interest expense increased from $13.0 million in 2012 to $16.4 million in 2013, an increase of $3.4 million, or 26.5%. The increase is due to an increase in borrowings in 2013 over 2012, primarily due to funding the purchase price for acquisitions. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, to include our term loan, domestic Revolver A, foreign Revolver B and foreign swing line of credit, as well as the relevant unused credit facility fees in 2013 and 2012. There were no borrowings under our foreign Revolver B in 2012.


	2013			2012
Term loan, including unused credit facility fee		2.02	%		2.00	%
Domestic Revolver A, including unused credit facility fee		2.07	%		1.99	%
Foreign Revolver A		2.13	%		N/A
Foreign Revolver B, including unused credit facility fee		4.62	%		N/A
Foreign swing line		1.98	%		2.03	%

Provision for income taxes

The provision for income taxes increased from $94.6 million in 2012 to $119.1 million in 2013, an increase of $24.5 million, or 25.9%. Our effective tax rate decreased from 30.4% in 2012 to 29.5% in 2013. Discrete items and changes in the estimate of the annual tax rate are recorded in the period they occur. Included in income tax

expense in both 2012 and 2013 is the impact of income tax benefits resulting from the enactment of a U.K. statutory tax rate reduction during the third quarter of each period. This lower statutory rate was applied to deferred tax items, which are primarily payable in future periods, reducing income tax expense in 2012 and 2013 by approximately $3.3 million and $4.0 million, respectively. Furthermore, our effective tax rate in 2012 was negatively impacted by an increase in taxes of $1.9 million during the fourth quarter of 2012 due to the impact of the controlled foreign corporation look-through exclusion expiring for the Company on December 1, 2012. The exclusion was retroactively extended in January 2013 and the $1.9 million was reversed, benefiting income tax expense in 2013.

We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. The lower tax rate in 2013 was also driven by a shift in the mix of earnings, largely due to acquisitions, to foreign jurisdictions with lower tax rates.

Net income

For the reasons discussed above, our net income increased from $216.2 million in 2012 to $284.5 million in 2013, an increase of $68.3 million, or 31.6%.

Liquidity and capital resources

Our principal liquidity requirements are to service and repay our indebtedness, complete acquisitions of businesses and commercial account portfolios and meet working capital, tax and capital expenditure needs.

Sources of liquidity

At December 31, 2014, our unrestricted cash and cash equivalents balance totaled $477.1 million. Our restricted cash balance at December 31, 2014 totaled $135.1 million. Restricted cash primarily represents customer deposits in our Comdata product as well as in the Czech Republic, which we are restricted from using other than to repay customer deposits and for the Czech Republic, which may not be deposited outside of the country.

At December 31, 2014, cash and cash equivalents held in foreign subsidiaries where we have determined we are permanently reinvested is $290.9 million. All of the cash and cash equivalents held by our foreign subsidiaries, excluding restricted cash, are available for general corporate purposes. Our current intent is to permanently reinvest these funds outside of the U.S. Our current expectation for funds held in our foreign subsidiaries is to use the funds to finance foreign organic growth, to pay for potential future foreign acquisitions and to repay any foreign borrowings that may arise from time to time. We currently believe that funds generated from our U.S. operations, along with potential borrowing capabilities in the U.S. will be sufficient to fund our U.S. operations for the foreseeable future, and therefore do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations. However, if at a future date or time these funds are needed for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto or the ultimate impact any such action may have on our results of operations or financial condition.

We utilize an accounts receivable Securitization Facility to finance a portion of our domestic fuel card receivables, to lower our cost of funds 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 within seven days of receiving the merchant billing. 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, 2014, we had the ability to generate approximately $29 million of additional liquidity under our Securitization Facility. At December 31, 2014, we had approximately $387 million available under our Credit Facility.

Based on our current forecasts and anticipated market conditions, we believe that our current cash balances, our available borrowing capacity and our ability to generate cash from operations, will be sufficient to fund our liquidity needs for at least the next twelve months. However, we regularly evaluate our cash requirements for current operations, commitments, capital requirements and acquisitions, and we may elect to raise additional funds for these purposes in the future, either through the issuance of debt or equity securities. We may not be able to obtain additional financing on terms favorable to us, if at all.

Cash flows

The following table summarizes our cash flows for the years ended December 31, 2014, 2013 and 2012.


	Year ended December 31,
(in millions)	2014			2013			2012
Net cash provided by operating activities	$	608.3		$	375.7		$	135.5
Net cash used in investing activities		(2,594.1	)		(749.1	)		(209.6	)
Net cash provided by financing activities		2,162.3			435.7			62.0

Operating activities Net cash provided by operating activities increased from $375.7 million in 2013 to $608.3 million in 2014. The increase is primarily due to changes in working capital, increases in amortization of acquired intangibles of $36.4 million, as well as additional net income during 2014 over 2013 of $84.2 million, partially offset by fair value adjustments for contingent consideration of $27.5 million.

Net cash provided by operating activities increased from $135.5 million in 2012 to $375.7 million in 2013. The increase is primarily due to a customer deposit of $46 million and a liability acquired with the Allstar acquisition of $108 million that were each paid in 2012. The remaining fluctuation is due to changes in working capital, as well as additional net income of $68.9 million.

Investing activities Net cash used in investing activities increased from $749.1 million in 2013 to $2,594.1 million in 2014. The increase is primarily due to the increase in cash paid for acquisitions in 2014, specifically $2.4 billion related to Comdata.

Net cash used in investing activities increased from $209.6 million in 2012 to $749.1 million in 2013. The increase in cash used in investing activities is attributable to the increase in cash used for acquisitions in 2013.

Financing activities Net cash provided by financing activities increased from $435.7 million in 2013 to $2,162.3 million in 2014. The increase in cash provided by financing activities is primarily due to increased net borrowings on our Credit Facility and Securitization Facility of $1,456.4 million and $275 million, respectively, in 2014 over 2013, primarily due to funding the purchase price for Comdata.

Net cash provided by financing activities increased from $62 million in 2012 to $435.7 million in 2013. The increase in cash provided by financing activities is primarily due to increased net borrowings on our Credit Facility, net of acquired debt payments, and Securitization Facility of $145 million and $33 million, respectively, in 2013 over 2012, primarily due to funding the purchase price for acquisitions, as well as working capital needs.

Capital spending summary

Our capital expenditures increased from $20.8 million in 2013 to $27.1 million in 2014, an increase of $6.3 million, or 30.2%. The increase was primarily related to additional spending related to our businesses acquired in 2013 and 2014.

Our capital expenditures increased from $19.1 million in 2012 to $20.8 million in 2013, an increase of $1.7 million, or 8.9%. The increase was primarily related to additional investments to continue to enhance our existing processing systems and continued development of a new European processing system, GlobalFleetNet (GFN).

Credit Facility

On October 24, 2014, FleetCor Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), entered into a new $3.355 billion Credit Agreement (the New 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”). The New Credit Agreement provides for senior secured credit facilities consisting of (a) a revolving A credit facility in the amount of $1.0 billion, with sublimits for letters of credit, swing line loans and multicurrency borrowings, (b) a revolving B facility in the amount of $35 million for loans in Australian Dollars or New Zealand Dollars, (c) a term loan A facility in the amount of $2.02 billion and (d) a term loan B facility in the amount $300 million. The New Credit Agreement also contains an accordion feature for borrowing an additional $500 million in term A or revolver A and term B. Proceeds from the New Credit Facility may be used for working capital purposes, acquisitions, and other general corporate purposes. The proceeds of the New Credit Facility were used to paydown borrowings under the Existing Credit Facility as discussed below. On November 14, 2014 in order to finance a portion of the Comdata Acquisition and to refinance our Existing Credit Agreement, we made initial borrowings under the New Credit Agreement.

The New Credit Agreement replaced the Existing Credit Agreement, which was a five-year, $900 million Credit Agreement (the “Existing Credit Agreement”) with Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and a syndicate of financial institutions (the “Lenders”) entered into on June 22, 2011. On March 13, 2012, we entered into the first Amendment to the existing Credit Agreement. The Amendment added two U.K. entities as designated borrowers and added a $110 million foreign currency swing line subfacility under the existing revolver, which allows for alternate currency borrowing on the swing line. The Amendment also permitted us to provide a cash deposit of up to $50 million in connection with one of our MasterCard programs. On November 6, 2012, we entered into a second amendment to the Credit Agreement to increase our total borrowing capacity from $900 million to $1.4 billion, comprised of an increase to the term loan from $300 million to $550 million and an increase to the revolving line of credit from $600 million to $850 million. In addition, we increased the accordion feature from $150 million to $250 million. The interest rates on the amended Credit Agreement did not change. On March 20, 2013, we entered into a third amendment to the Credit Agreement to extend the term of the facility for an additional five years from the amendment date, with a new maturity date of March 20, 2018, separated the revolver into two tranches (a $815 million Revolving A facility and a $35 million Revolving B facility), added a designated borrower in Australia and another in New Zealand, with the ability to borrow in local currency and U.S. Dollars under the Revolving B facility and removed a cap to allow for additional investments in certain business relationships. The revolving line of credit contains a $20 million sublimit for letters of credit, a $20 million sublimit for swing line loans and sublimits for multicurrency borrowings in Euros, Sterling, Japanese Yen, Australian Dollars and New Zealand Dollars.

The obligations of the Borrowers under the New Credit Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries, pursuant to a security agreement and includes a pledge of (i) 100% of the issued and outstanding equity interests owned by us of each Domestic Subsidiary and (2) 66% of the voting shares of the first-tier foreign subsidiaries, but excluding real property, personal property located outside of the United States, accounts receivables and related assets subject to the Securitization Facility and certain

investments required under money transmitter laws to be held free and clear of liens. At December 31, 2014, we had $2.02 billion in borrowings outstanding on the term loan A, $250 million in borrowings outstanding on the term loan B, $595 million in borrowings outstanding on the domestic revolving A credit facility, and $53 million in borrowings outstanding on the foreign revolving A credit facility.

Interest on amounts outstanding under the New Credit Agreement (other than the term loan B facility) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest is payable quarterly in arrears. Interest on the term loan B facility accrues based on the Eurocurrency Rate or the Base Rate, as described above, except that the applicable margin is fixed at 3% for Eurocurency Loans and at 2% for Base Rate Loans. In addition, we have agreed to pay 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. At December 31, 2014, the interest rate on the term loan A and domestic revolving A facility was 2.16%, the interest rate on the foreign revolving A facility was 2.50% and the interest rate on the term loan B facility was 3.75%. The rate on the unused credit facility was 0.40% for all facilities at December 31, 2014. There were no borrowings outstanding at December 31, 2014 on the foreign revolving B facility or the foreign swing line of credit.

The stated maturity dates for our term loan A, revolving loans, and letters of credit under the New Credit Agreement is November 14, 2019 and November 14, 2021 for our term loan B. The term loans are payable in quarterly installments and are due on the last business day of each March, June, September, and December with the final principal payment due on the respective maturity date. Borrowings on the revolving line of credit are repayable at our option of one, two, three or nine 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 ten business days after such loan is made.

Our New Credit Agreement contains a number of negative covenants restricting, among other things, limitations on liens (with exceptions for our Securitization Facility) and investments, incurrence or guarantees of indebtedness, mergers, acquisitions, dissolutions, liquidations and consolidations, dispositions, dividends and other restricted payments and prepayments of other indebtedness. In particular, we are not permitted to make any restricted payments (which includes any dividend or other distribution) except that the we may declare and make dividend payments or other distributions to our stockholders so long as (i) on a pro forma basis both before and after the distribution the consolidated leverage ratio is not greater than 3.00:1.00 and we are in compliance with the financial covenants and (ii) no default or event of default shall exist or result therefrom. The New Credit Agreement also contains customary events of default. The New Credit Agreement includes financial covenants where the Company is required to maintain a consolidated leverage ratio to consolidated EBITDA of less than (i) 4.25 to 1.0 as of the end of any fiscal quarter prior to December 31, 2015; (ii) 4.00 to 1.0 as of any fiscal quarter after December 31, 2015 but on or prior to December 31, 2016; (iii) 3.75 to 1.0 as of any fiscal quarter after December 31, 2016 but on or prior to June 30, 2018; 3.50 to 1.0 as of any fiscal quarter after June 30, 2018; and a consolidated interest coverage ratio of no more than 4.00 to 1.0.

During 2014, we made principal payments of $496.9 million on the Existing term A loan, $50.0 million on the new Term B Loan $565 million on the domestic revolving A facility, $218.6 million on the foreign revolving A facility and $7.3 million on the foreign revolving B facility. As of December 31, 2014, we were in compliance with each of the covenants under the New Credit Agreement.

New Zealand Facility

On April 29, 2013, we entered into a $12 million New Zealand dollar ($9.4 million) facility with Westpac Bank in New Zealand (“New Zealand Facility”). This facility is for purposes of funding the working capital needs of our acquired business, CardLink, in New Zealand. This facility matures on April 30, 2015. A line of credit charge

accrues at a rate of 0.025% times the facility limit each month. Interest accrues on outstanding borrowings at the Bank Bill Mid-Market (BKBM) settlement rate plus a margin of 1.0%. The New Zealand Facility contains representations, warranties and events of default, as well as certain affirmative and negative covenants, customary for financings of this nature. These covenants include compliance with certain financial ratios.

At December 31, 2014, we did not have an outstanding unpaid balance on this facility and we were in compliance with each of the covenants under the New Zealand Facility.

Securitization Facility

We are a party to a receivables purchase agreement among FleetCor Funding LLC, as seller, PNC Bank, National Association as administrator, and various purchaser agents, conduit purchasers and related committed purchasers parties thereto, which was amended and restated for the Fifth time as of November 14, 2014. We refer to this arrangement as the Securitization Facility in this report. The current purchase limit under the Securitization Facility is $1.2 billion.

On November 14, 2014, in order to finance a portion of the Comdata acquisition, the Company and certain of its subsidiaries entered into a Fifth Amended and Restated Receivables Purchase Agreement (the “New Receivables Purchase Agreement”), which amended and restated the Fourth Amended and Restated Receivables Purchase Agreement dated as of October 29, 2007 (as amended, the “Existing Receivables Purchase Agreement”), which was most recently amended on February 3, 2014, pursuant to the Tenth Amendment to the Fourth Amended and Restated Receivables Purchase Agreement. Under the terms of the New Receivables Purchase agreement, the purchase limit was increased from $500 million to $1.2 billion, the term of the facility was extended to November 14, 2017, financial covenants and additional purchasers were added to the facility.

The Existing Receivables Purchase agreement was amended for the seventh time on February 6, 2012 to add a new purchaser and extend the facility termination date, for the eighth time on February 4, 2013 to extend the facility termination date, for the ninth time on September 25, 2013 to change a committed purchaser, and for the tenth time on February 3, 2014 to extend the facility termination date, change pricing and to return to prorated funding by participating banks. There is a program fee equal to one month LIBOR and the Commercial Paper Rate of 0.18% plus 0.90% and 0.17% plus 0.675% as of December 31, 2014 and 2013, respectively. The unused facility fee is payable at a rate of 0.40% and 0.30% per annum as of December 31, 2014 and 2013, respectively.

Under a related purchase and sale agreement, dated as of December 20, 2004, amended on July 7, 2008 and most recently amended on November 14, 2014 to include Comdata as an originator, between FleetCor Funding LLC, as purchaser, and certain of our subsidiaries, as originators, the receivables generated by the originators are deemed to be sold to FleetCor Funding LLC immediately and without further action upon creation of such receivables. At the request of FleetCor Funding LLC, as seller, undivided percentage ownership interests in the receivables are ratably purchased by the purchasers in amounts not to exceed their respective commitments under the facility. Collections on receivables are required to be made pursuant to a written credit and collection policy and may be reinvested in other receivables, may be held in trust for the purchasers, or may be distributed. Fees are paid to each purchaser agent for the benefit of the purchasers and liquidity providers in the related purchaser group in accordance with the Securitization Facility and certain fee letter agreements.

The Securitization Facility provides for certain termination events, which includes nonpayment, upon the occurrence of which the administrator may declare the facility termination date to have occurred, may exercise certain enforcement rights with respect to the receivables, and may appoint a successor servicer, among other things.

We were in compliance with the financial covenant requirements related to our Securitization Facility as of December 31, 2014.

Assumed Debt

In connection with one of our 2013 acquisitions, we assumed debt of $164.1 million, which we paid off during 2013.

Other Liabilities

In connection with our acquisition of certain businesses, we owe final payments of $11.7 million, which are payable $6.6 million in 2015, $3.3 million in 2016 and $1.7 million in 2017. Also in connection with our acquisition of certain businesses, we have remaining contingent consideration payments to the respective sellers with estimated fair values totaling $43.5 million, which are payable $42.9 million in 2015 and $0.5 million in 2016. We made a contingent consideration payment on February 13, 2015, settling all amounts due in 2015 under these arrangements.

Critical accounting policies and estimates

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.

Revenue recognition and presentation

Revenue is derived from our merchant and network relationships as well as from customers and partners. We recognize revenue on fees generated through services to commercial fleets, commercial businesses, major oil companies, petroleum marketers and leasing companies and record revenue net of the wholesale cost of the underlying products and services based on the following: (i) we are not the primary obligor in the arrangement and we are not responsible for fulfillment and the acceptability of the product; (ii) we have no inventory risk, do not bear the risk of product loss and do not make any changes to the product or have any involvement in the product specifications; (iii) we do not have significant latitude with respect to establishing the price for the product (predominantly fuel) and (iv) the amount we earn for our services is fixed, within a limited range.

Through our merchant and network relationships we provide fuel, prepaid cards, vehicle maintenance, lodging, food, toll, and transportation related services to our customers. We derive revenue from our merchant and network relationships based on the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction. Our net revenue consists of margin on sales and fees for technical support, processing, communications and reporting. The price paid to a merchant or network may be calculated as (i) the merchant’s wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit. The difference between the price we pay to a merchant and the merchant’s wholesale cost for the underlying products and services is considered a merchant commission and is recognized as expense when the fuel purchase transaction is executed. We recognize revenue from merchant and network relationships when persuasive evidence of an

arrangement exists, the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured. We have entered into agreements with major oil companies, petroleum marketers and leasing companies, among others, that specify that a transaction is deemed to be captured when we have validated that the transaction has no errors and have accepted and posted the data to our records.

We also derive revenue from customers and partners from a variety of program fees including transaction fees, card fees, network fees, report fees and other transaction-based fees which typically are calculated based on measures such as percentage of dollar volume processed, number of transactions processed, or some combination thereof. Such services are provided through proprietary networks or through the use of third-party networks. Transaction fees and other transaction-based fees generated from our proprietary networks and third-party networks are recognized at the time the transaction is captured. Card fees, network fees and program fees are recognized as we fulfill our contractual service obligations. In addition, we recognize revenue from late fees and finance charges. Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and service are provided.

We also charge our customers transaction fees to load value onto prepaid fuel, food, toll and transportation vouchers and cards. We recognize fee revenue upon providing the activated fuel, food, toll and transportation vouchers and prepaid cards to the customer. Revenue is recognized from the processing arrangements with merchants when persuasive evidence of an arrangement exists, the services have been provided, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is recognized on lodging and transportation management services when the lodging stay or transportation service is completed. Revenue is also derived from the sale of equipment in certain of our businesses, which is recognized at the time the device is sold and the risks and rewards of ownership have passed. This revenue is recognized gross of the cost of sales related to the equipment in revenues, net within the consolidated statements of income. The related cost of sales for the equipment is recorded within processing expenses. We have recorded $15.1 million of expenses related to sales of equipment within the processing expenses line of the consolidated statements of income in 2014.

Our fiscal year ends on December 31. In certain of our U.K. businesses, we record the operating results using a 4-4-5 week accounting cycle with the fiscal year ending on the Friday on or immediately preceding December 31. Fiscal years 2014 and 2012 include 52 weeks for the businesses reporting using a 4-4-5 accounting cycle. Fiscal year 2013 included 53 weeks for business reporting using a 4-4-5 accounting cycle.

We deliver both stored value cards and card-based services primarily in the form of gift cards. For multiple-deliverable customer contracts, stored value cards and card-based services are separated into two units of accounting. Store valued cards are generally recognized upon shipment to the customer. Card-based services are recognized when the card services are rendered.

Accounts receivable

As described above under the heading “Securitization Facility,” we maintain a $1.2 billion revolving trade accounts receivable Securitization Facility. Pursuant to the terms of the Securitization Facility, we transfer certain of our domestic receivables, on a evolving basis, to FleetCor Funding LLC, (Funding) a wholly-owned bankruptcy remote subsidiary (Conduit). In turn, Funding sells, without recourse, on a revolving basis, up to $1.2 billion of undivided ownership interests in this pool of accounts receivable to a multi-seller, asset-backed commercial paper 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 sale of our accounts receivable as an alternative to other forms of debt, effectively reducing our overall borrowing costs. We have agreed to continue servicing the sold receivables for the financial institutions 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.

On November 14, 2014, in order to finance a portion of the Comdata acquisition, the Company and certain of its subsidiaries entered into a New Receivables Purchase Agreement. Under the terms of the New Receivables Purchase agreement, the purchase limit was increased from $500 million to $1.2 billion, the term of the facility was extended to November 14, 2017.

All foreign receivables are owned receivables and are not included in our receivable securitization program. At December 31, 2014 and 2013, there was $675 million and $349 million, respectively, of short-term debt outstanding under our Securitization Facility.

Credit risk and reserve for losses on receivables

We control credit risk by performing periodic credit evaluations of our customers. Payments from customers are generally due within 14 days of billing. We routinely review our accounts receivable balances and make provisions for probable doubtful accounts based primarily on the aging of those balances. Accounts receivable are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when internal collection efforts have been exhausted and accounts have been turned over to a third-party collection agency. Recoveries from the third-party collection agency are not significant.

Impairment of long-lived assets and intangibles

We test our other long-lived assets for impairment in accordance with relevant authoritative guidance. We evaluate whether impairment indicators related to our property, plant and equipment and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, we estimate the future cash flows for the asset or group of assets. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various projections of revenues and expenses, working capital and proceeds from asset disposals on a basis consistent with management’s intended actions. If the carrying amount exceeds the sum of the undiscounted future cash flows, we determine the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, we perform our testing of the asset group at the business-line level, as this is the lowest level for which identifiable cash flows are available.

We complete an asset impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level, and the impairment test consists of two steps, as well as a qualitative assessment, as appropriate. As deemed appropriate, we have performed a qualitative assessment of certain of our reporting units. In this qualitative assessment we individually considered the following items for each reporting unit where we determined a qualitative analysis to be appropriate: the macroeconomic conditions, including any deterioration of general conditions, limitations on accessing capital, fluctuations in foreign exchange rates and other developments in equity and credit markets; industry and market conditions, including any deterioration in the environment where the reporting unit operates, increased competition, changes in the products/services and regulator and political developments; cost of doing business; overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation; events affecting the reporting unit, including changes in the carrying value of net assets, likelihood of disposal and whether there were any other impairment considerations within the business; the overall performance of our share price in relation to the market and our peers; and a quantitative stress test of the previously completed step 1 test from the prior year, updated with current year results, weighted-average cost of capital rates and future projections.

We completed step 1 of the goodwill impairment testing for certain of our reporting units for which the qualitative assessment was not performed. In this first step the reporting unit’s carrying amount, including goodwill is compared to its fair value which is measured based upon, among other factors, a discounted cash flow analysis as well as market multiples for comparable companies. If the carrying amount of the reporting unit is greater than its fair value, goodwill is considered impaired and step two must be performed. Step two measures the impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets and liabilities of that unit (including unrecognized intangibles) as if the reporting unit had been acquired in a business combination. The excess of fair value over the amounts allocated to the assets and liabilities of the reporting unit is the implied fair value of goodwill. The excess of the carrying amount over the implied fair value is the impairment loss.

We estimate the fair value of our reporting units using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. We discount the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multiples in the valuation estimate. Multiples are derived by relating the value of guideline companies, based on either the market price of publicly traded shares or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of the reporting unit in developing the valuation estimate.

Preparation of forecasts and the selection of the discount rates involve significant judgments about expected future business performance and general market conditions. Significant changes in forecasts, the discount rates selected or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

Based on the goodwill asset impairment analysis performed quantitatively and qualitatively on October 1, 2014, we determined that the fair value of each of our reporting units is in excess of the carrying value. No events or changes in circumstances have occurred since the date of our most recent annual impairment test that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We also evaluate indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. We also test for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. Estimates critical to our evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in our evaluation of trade names, projected average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.

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.

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 became deductible. On a quarterly basis, we evaluate whether it is more likely than not that our deferred tax assets will be realized in the future and conclude whether a valuation allowance must be established.

We do not provide deferred taxes for the undistributed earnings of our foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States in accordance with authoritative literature. We include any estimated interest and penalties on tax related matters in income tax expense.

We do not provide deferred taxes for the undistributed earnings of our foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States in accordance with relevant authoritative literature. If in the future these earnings are repatriated to the United States, or if we determine that the earnings will be remitted in the foreseeable future, additional tax provisions may be required.

Current guidance clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under the relevant authoritative literature, 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.

Business combinations

We have accounted for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities including contingencies, be recorded at fair value determined on the acquisition date and changes thereafter reflected in income. For significant acquisitions, we obtain independent third party valuation studies for certain of the assets acquired and liabilities assumed to assist in determining fair value. Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible assets acquired and liabilities assumed. The estimation of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results of operations beginning from the completion date of the applicable transaction.

Estimates of fair value are revised during an allocation period as necessary when, and if, information becomes available to further define and quantify the fair value of the assets acquired and liabilities assumed. 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 estimated to be equal to the fair market value on the date of grant as authorized by our board of directors. Options granted have vesting provisions ranging from one to six years. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting. We have selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards granted. We have considered the retirement and forfeiture provisions of the options and utilized our historical experience to estimate the expected life of the options. We base the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period based on the number of years for which the requisite service is expected to be rendered.

Awards of restricted stock and restricted stock units are independent of stock option grants and are generally 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 ranging from one to six years. The fair value of restricted stock shares based on performance is based on the grant date fair value of our stock. The fair value of restricted stock shares based on market conditions is estimated using the Monte Carlo option pricing model. The risk-free interest rate and volatility assumptions used within the Monte Carlo option pricing model are calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the stock option awards.

For performance-based restricted stock awards and performance based stock option awards, we must also make assumptions regarding the likelihood of achieving performance goals. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Adoption of New Accounting Standards

Foreign Currency

In March 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”, which indicates that the entire amount of a cumulative translation adjustment (“CTA”) related to an entity’s investment in a foreign entity should be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated) or step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. This ASU is effective for us for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2013. The adoption of this ASU did not have a material impact on results of operations, financial condition, or cash flows.

Unrecognized Tax Benefit When an NOL Exists

In July 2013, the FASB issued ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which indicates that to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective for us for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2013. The adoption of this ASU did not have a material impact on our results of operations, financial condition, or cash flows.

Pending Adoption of Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

Going Concern

In August 2013, the FASB issued ASU 2014-15 “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”, which requires entities to perform interim and annual assessments of the entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. This ASU is effective for fiscal years ending after December 15, 2016 and interim periods thereafter, with early adoption permitted. Our adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows, as it is disclosure based.

Discontinued Operations Reporting

In April 2014, the FASB issued an ASU 2014-08, “Discounted Operations Reporting” that changes the requirements for reporting discontinued operations. This update will have the impact of reducing the frequency of disposals reported as discontinued operations, by requiring such a disposal to represent a strategic shift that has a major effect on an entity’s operations and financial results. This update also expands the disclosures for discontinued operations, and requires new disclosures related to individually significant disposals that do not qualify as discontinued operations. This new guidance becomes effective for us prospectively in the first quarter of 2015. This amended guidance will only have a potential impact to the extent that we discontinue any operations in future periods.

Revenue Recognition

In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers”, which amends the guidance in former ASC 605, Revenue Recognition. This amended guidance requires revenue to be recognized in an amount that reflects the consideration to which the company expects to be entitled for those goods and services when the performance obligation has been satisfied. This amended guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. This ASU is effective for us for fiscal years ending after December 15, 2016 and interim periods, with early adoption not permitted. We are currently evaluating the impact of the provisions of ASC 606.

Stock-Based Payment Awards with Performance Targets

In June 2014, the FASB issued ASU 2014-12, “Share-Based Payment Awards With Performance Targets That Are Attainable After the Requisite Service Period”, for companies that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. This new guidance becomes effective for us beginning in the first quarter of 2015, but early adoption is permitted. This new guidance is not expected to have a material impact on our consolidated financial position or results of operations.

Contractual obligations

The table below summarizes the estimated dollar amounts of payments under contractual obligations identified below as of December 31, 2014 for the periods specified:


			Payments due by period(a)
(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases	$	41.6	$	12.4	$	15.4	$	8.4	$	5.4
Credit Facility		2,909.2		749.8		203.4		1,718.9		237.1
Contingent consideration agreements(b)		43.5		42.9		0.6		—		—
Deferred purchase price payments(b)		11.6		6.6		5.0		—		—
Other(b)		4.0		—		3.6		0.4		—
Securitization facility		675.0		675.0		—		—		—

Total	$	3,684.9	$	1,486.7	$	228.0	$	1,727.7	$	242.5

(a)

Deferred income tax liabilities as of December 31, 2014 were approximately $815.2 million. Refer to Note 11 to our audited 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.

(b)

The long-term portion of contingent consideration agreements and deferred purchase price payments are included with ‘other debt’ in the detail of our debt instruments disclosed in Note 10 to our audited consolidated financial statements. To reconcile the amount of ‘other debt’ as disclosed in the footnote to the contractual obligations table above, the long-term portion of contingent consideration agreements and deferred purchase price payments should be combined with ‘other’.

Management’s Use of Non-GAAP Financial Measures

We have included in the discussion under the caption “Adjusted Revenues, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income Per Diluted Share” above certain financial measures that were not prepared in accordance with GAAP. We have also included in the discussion under the caption “Transaction volume and revenue per transaction” above a financial measure that was not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors.

Adjusted revenues

We have defined the non-GAAP measure adjusted revenues as revenues, net less merchant commissions as reflected in our income statement.

We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants to participate in our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. We believe that adjusted revenue is an appropriate supplemental measure of financial performance and may be useful to investors to understanding our revenue performance on a consistent basis. Adjusted revenues are not intended to be a substitute for GAAP financial measures and should not be used as such.

Set forth below is a reconciliation of adjusted revenues to the most directly comparable GAAP measure, revenues, net (in thousands):


	Year Ended December 31,
	2014		2013		2012
Revenues, net	$	1,199,390	$	895,171	$	707,534
Merchant commissions		96,254		68,143		58,573

Total adjusted revenues	$	1,103,136	$	827,028	$	648,961

Adjusted EBITDA

We have defined the non-GAAP measure adjusted EBITDA, as net income as reflected in our statement of income, adjusted to eliminate (a) interest expense, (b) tax expense, (c) depreciation of long-lived assets (d) amortization of intangible assets, (e) other expense (income), net (f) equity method investment loss and (g) loss on extinguishment of debt.

We use adjusted EBITDA as a basis to evaluate our operating performance net of the impact of certain non-core items during the period. We believe that adjusted EBITDA may be useful to investors to understanding our operating performance on a consistent basis. Adjusted EBITDA is not intended to be a substitute for GAAP financial measures and should not be used as such.

Set forth below is a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net income (in thousands):


	Year Ended December 31,
	2014			2013		2012
Net income	$	368,707		$	284,501	$	216,199
Provision for income taxes		144,236			119,068		94,591
Interest expense, net		28,856			16,461		13,017
Depreciation and amortization		112,361			72,737		52,036
Other (income) expense, net		(700	)		602		1,121
Equity method investment loss		8,586			—		—
Loss on extinguishment of debt		15,764			—		—

Adjusted EBITDA	$	677,810		$	493,369	$	376,964

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 share-based compensation awards, (b) amortization of deferred financing costs and intangible assets (c) amortization of the premium recognized on the purchase of receivables, (d) amortization of intangibles at our equity method investment, (e) loss on extinguishment of debt and (f) other non-cash adjustments.

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 stock 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 stock 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 adjusted net income. We believe that the effect of fair value adjustments resulting from acquisitions is not a key measure of our core operating performance. We believe that adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be used as such.

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,
	2014			2013			2012
Net income	$	368,707		$	284,501		$	216,199
Net income per diluted share	$	4.24		$	3.36		$	2.52
Stock based compensation		37,649			26,676			19,275
Amortization of intangible assets		86,149			49,313			32,376
Amortization of premium on receivables		3,259			3,263			3,265
Amortization of deferred financing costs		2,796			3,276			2,279
Amortization of intangibles at equity method investment		7,982			—			—
Loss on extinguishment of debt		15,764			—			—
Other non-cash adjustments		(28,869	)2		—			—

Total pre-tax adjustments		124,730			82,528			57,195
Income tax impact of pre-tax adjustments at the effective tax rate		(45,767	)1		(24,349	)		(17,410	)

Adjusted net income	$	447,670		$	342,680		$	255,984

Adjusted net income per diluted share	$	5.15		$	4.05		$	2.99
Diluted shares		86,982			84,655			85,736

1	The effective tax rate used to calculate the income tax impact of pre-tax adjustments excludes the impact of a $9.5 million discrete tax benefit, as well as other non-cash adjustments and their related income tax expense.

2	Other non-cash adjustments are unusual items reflecting adjustments to purchase accounting entries for contingent consideration and tax indemnifications for our 2013 acquisitions of DB and VB in Brazil.

Previous: Item 6. SELECTED FINANCIAL DATA · Next: Item 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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