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

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described in Item 1A “Risk Factors” appearing elsewhere in this report. All foreign currency amounts that have been converted into U.S. dollars in this discussion are based on the exchange rate as reported by Oanda for the applicable periods.

The following discussion and analysis of our financial condition and results of operations generally discusses 2019 and 2018 items and year-over-year comparisons between 2019 and 2018. A detailed discussion of 2017 items and year-over-year comparisons between 2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

General Business

FLEETCOR is a leading global business payment solutions company that simplifies the way businesses manage and pay their expenses. The FLEETCOR portfolio of brands help companies automate, secure, digitize and control payments on behalf of their employees and suppliers. We serve businesses, partners, merchants and consumer and payment networks in North America, Latin America, Europe, and Asia Pacific. FLEETCOR’s predecessor company was organized in the United States in 1986, and FLEETCOR had its initial public offering in 2010 (NYSE: FLT).

FLEETCOR has two reportable segments, North America and International. We report these two segments as they reflect how we organize and manage our employees around the world, manage operating performance, contemplate the differing regulatory environments in North America versus other geographies, and help us isolate the impact of foreign exchange fluctuations on our financial results.

Our payment solutions provide our customers with a payment method designed to be superior to and more robust and effective than what they use currently, whether they use a competitor’s product or another alternative method such as cash or check. Our solutions are comprised of payment products, networks and associated services. We group our payment solutions into five primary categories: Fuel, Lodging, Tolls, Corporate Payments and Gift. Additionally, we provide other complementary payment products including fleet maintenance, employee benefits and long haul transportation-related services.

Each category is unique in its focus, customer base and target markets, but they also share a number of characteristics: customers are primarily businesses, have recurring revenue models, have specialized networks which create barriers to entry, have high EBITDA margins, and have similar selling systems. Our products are used in more than 100 countries around the world, with our primary geographies being the U.S., Brazil and the U.K., which combined accounted for approximately 87% of our revenue in 2019.

FLEETCOR’s payment products generally function like a charge card, prepaid card, one-time use virtual card, and electronic RFID (radio-frequency identification), etc. While the actual payment mechanisms vary from category to category, they are structured to afford control and reporting to the end customer.

FLEETCOR uses both proprietary and third-party networks to deliver its payment solutions. FLEETCOR owns and operates proprietary networks with well-established brands throughout the world, bringing incremental sales and loyalty to affiliated merchants. Third-party networks are used to broaden payment product acceptance and use.

FLEETCOR capitalizes on its products’ specialization with sales and marketing efforts by deploying product-dedicated sales forces to target specific customer segments. We market our products directly through multiple sales channels, including field sales, telesales and digital marketing, and indirectly through our partners, which include major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and referral partners.

We believe that our size and scale, product breadth and specialization, geographic reach, proprietary networks, robust distribution capabilities and advanced technology contribute to our industry leading position.

Executive Overview

We operate in two segments, which we refer to as our North America and International segments. Our revenue is generally reported net of the cost for underlying products and services purchased through our payment products. In this report, we refer to this net revenue as “revenue". See “Results of Operations” for additional segment information.

Revenues, net, by Segment. For the years ended December 31, 2019 and 2018, our North America and International segments generated the following revenue (in millions):

		Year ended December 31,
		2019							2018
		Revenues, net				% of total revenues, net			Revenues, net				% of total revenues, net
North America		$	1,709			64.5	%		$	1,571			64.6	%
International		940				35.5	%		862				35.4	%
		$	2,649			100.0	%		$	2,433			100.0	%

Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are revenues, net, net income and net income per diluted share for the years ended December 31, 2019 and 2018 (in millions, except per share amounts).

		Year ended December 31,
		2019				2018
Revenues, net		$	2,649			$	2,433
Net income		$	895			$	811
Net income per diluted share		$	9.94			$	8.81

Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted net income and adjusted net income per diluted share for the years ended December 31, 2019 and 2018 (in millions, except per share amounts).

		Year Ended December 31,
		2019				2018
Adjusted net income		$	1,062.1			$	969.8
Adjusted net income per diluted share		$	11.79			$	10.53

Adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures” for more information and a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis.

Sources of Revenue

FLEETCOR offers a variety of business payment solutions that help to simplify, automate, secure, digitize and effectively control the way businesses manage and pay their expenses. We provide our payment solutions to our business, merchant, consumer and payment network customers in more than 100 countries around the world today, although we operate primarily in 3 geographies, with approximately 87% of our business in the U.S., the U.K. and Brazil. Our products help our customers pay their suppliers and manage spend related to their employees more efficiently. We have a variety of products that help our customers achieve these goals, primarily in five product categories: fuel, corporate payments, toll, lodging and gift. Our customers may include commercial businesses (obtained through direct and indirect channels), partners for whom we manage payment programs, as well as individual consumers (for tolls).

Fuel represents approximately 44% of our revenues. Our fuel cards and products help businesses monitor and control fuel spend across multiple fuel networks, providing online analytical reporting to help customers managing the efficiency of their vehicles and drivers, while offering potential discounts off of the retail price of fuel. We generate revenue in our fuel products through a variety of program fees, including transaction fees, card fees, network fees and charges, as well as from interchange. These fees may be charged as fixed amounts, costs plus a mark-up, or based on a percentage of the transaction purchase

amounts, or a combination thereof. Our programs also include other fees and charges associated with late payments and based on customer credit risk.

Corporate payments represents approximately 19% of our revenues. Our products help streamline B2B payments for vendors and employees, both domestically and internationally. Our corporate payments products include virtual card solutions for invoice payments, corporate card programs, a fully-outsourced accounts payable solution, a payroll card solution for employers to distribute wages, as well as a cross-border payments product to facilitate customers making payments across differing currencies. In our corporate payments products, a primarily measure of volume is spend, the dollar amount of payments processed on behalf of customers through our various networks. In corporate payments, we primarily earn revenue from the difference between the amount charged to the customer and the amount paid to the third party for a given transaction as interchange revenue. Our programs may also charge fixed fees for access to the network and ancillary services provided.

Tolls represents approximately 13% of our revenues. Our toll product is primarily delivered via an RFID sticker affixed to the windshield of a customer vehicle in Brazil. This RFID enables customers to utilize toll roads, toll parking lots, pay for gas at partner stations and pay for drive-through food, via automated access and payment upon scan while remaining in the vehicle. In our toll product, the relevant measure of volume is average monthly tags active during the period. We primarily earn revenue from fixed fees for access to the network and ancillary services provided. We also earn interchange on certain services provided.

Lodging represents approximately 8% of our revenues. Our lodging products provide customers with a proprietary network of hotels with discounted room rates, centralized billing and robust reporting to help customers manage and control costs. In our lodging products, we define a transaction as a hotel room night purchased by a customer. In our lodging products, we primarily earn revenue from the difference between the amount charged to the customer and the amount paid to the hotel for a given transaction. Our products may also charge fees for access to the network and ancillary services provided.

Gift represents approximately 7% of our revenues. We provide fully integrated gift card product management and processing services via plastic and digital gift cards to our customers. We primarily earn revenue from the processing of gift card transactions sold by our customers to end users, as well as from the sale of the plastic cards. Our products may also charge fixed fees for ancillary services provided.

The remaining 8% of revenues represents other products, which include telematics, maintenance, food, and transportation related offerings.

The following table provides revenue per key performance metric by product category for the years ended December 31, 2019 and 2018 (in millions except revenues, net per transaction).*

		As Reported															Pro Forma and Macro Adjusted
		Year Ended December 31,															Year Ended December 31,
		2019				2018				Change				% Change			2019				2018				Change				% Change
FUEL
'- Revenues, net1		$	1,173			$	1,126			$	47			4	%		$	1,180			$	1,079			$	100			9	%
'- Transactions1		502				512				(10		)		(2	)%		499				494				6				1	%
'- Revenues, net per transaction		$	2.33			$	2.19			$	0.14			6	%		$	2.36			$	2.19			$	0.17			8	%
CORPORATE PAYMENTS
'- Revenues, net		$	516			$	416			$	100			24	%		$	521			$	433			$	88			20	%
'- Transactions		56				49				6				13	%		56				50				6				12	%
'- Revenues, net per transaction		$	9.25			$	8.42			$	0.83			10	%		$	9.33			$	8.68			$	0.65			7	%
'- Spend volume		$	73,437			$	55,744			$	17,693			32	%		$	74,366			$	56,736			$	17,630			31	%
'- Revenues, net per spend $		1		%		1		%		—		%		—	%		1		%		1		%		(0.1		)%		(8	)%
TOLLS
'- Revenues, net1		$	357			$	333			$	25			7	%		$	387			$	333			$	55			16	%
- Tags (average monthly)		5.1				4.7				0.4				8	%		5.1				4.7				0.4				8	%
'- Revenues, net per tag**		$	17.55			$	17.59			$	(0.04	)		—	%		$	19.04			$	17.59			$	1.45			8	%
LODGING
'- Revenues, net		$	213			$	176			$	37			21	%		$	213			$	189			$	24			13	%
'- Room nights		19				19				—				—	%		19				21				(2		)		(11	)%
'- Revenues, net per room night		$	11.15			$	9.14			$	2.01			22	%		$	11.15			$	8.80			$	2.35			27	%
GIFT
'- Revenues, net		$	180			$	187			$	(6	)		(3	)%		$	180			$	193			$	(13	)		(7	)%
'- Transactions		1,274				1,384				(110		)		(8	)%		1,274				1,385				(111		)		(8	)%
'- Revenues, net per transaction		$	0.14			$	0.13			$	0.01			7	%		$	0.14			$	0.14			$	—			—	%
OTHER****2
'- Revenues, net1		$	210			$	197			$	12			6	%		$	219			$	201			$	19			9	%
'- Transactions1		56				50				6				13	%		56				55				1				2	%
'- Revenues, net per transaction		$	3.75			$	3.99			$	(0.24	)		(6	)%		$	3.92			$	3.66			$	0.26			7	%
FLEETCOR CONSOLIDATED REVENUES
'- Revenues, net		$	2,649			$	2,434			$	215			9	%		$	2,700			$	2,428			$	272			11	%

1 Reflects certain reclassifications of revenue in 2018 between product categories as the Company realigned its Brazil business into product lines, resulting in refinement of revenue classified as fuel versus tolls and the eCash/OnRoad product being fuel versus other.
2 Other includes telematics, maintenance, food, and transportation related businesses.
* Columns may not calculate due to rounding.
**Represents revenues, net per quarter, per average monthly tag.

Revenue per relevant key performance indicator ("KPI"), which may include transaction, spend volume, monthly tags, room nights, etc...) is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates, fuel prices and fuel spread margins. Revenue per KPI per customer may change as the level of services we provide to a customer increases or decreases, as macroeconomic factors change and as adjustments are made to merchant and customer rates. See “Results of Operations” for further discussion of transaction volumes and revenue per transaction.

Sources of Expenses

We incur expenses in the following categories:

•	Merchant commissions—In certain of our card programs, we incur merchant commissions expense when we pay merchants with whom we have direct, contractual relationships for specific transactions where a customer purchases products or services from the merchant. In the card programs where it is paid, merchant commissions equal the

difference between the price paid by us to the merchant and the merchant’s wholesale cost of the underlying products or services. The adoption of ASC 606 on January 1, 2018, resulted in a change in the presentation of amounts previously classified as merchant commissions, resulting in these amounts being recorded within revenues, net in periods beginning in 2018.

•

Processing—Our processing expense consists of expenses related to processing transactions, servicing our customers and merchants, bad debt expense and cost of goods sold related to our hardware sales in certain businesses. Effective with the adoption of ASC 606 on January 1, 2018, certain third party processing expenses are netted with consolidated revenues, where the network is considered to be our customer.

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

•

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

•

Depreciation and amortization—Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks, software and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable.

•	Other operating expense, net—Our other operating, net includes other operating expenses and income items that do not relate to our core operations or that occur infrequently.

•	Investment loss, net—Our investment results primarily relate to impairment charges related to our investments and unrealized gains and losses related to a minority investment in a marketable security.

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

•	Interest expense, net—Our interest expense, net includes interest expense on our outstanding debt, interest income on our cash balances and interest on our interest rate swaps.

•	Provision for income taxes—Our provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services on a global basis.

Factors and Trends Impacting our Business

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

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

•

Foreign currency changes—Our results of operations are significantly impacted by changes in foreign currency rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro, Mexican peso, New Zealand dollar and Russian ruble, relative to the U.S. dollar. Approximately 60%, and 61% of our revenue in 2019 and 2018, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. See “Results of Operations” for information related to foreign currency impact on our total revenue, net.

•

Fuel prices—Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customer’s total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. We believe approximately 13% and 14% of revenues, net were directly impacted by changes in fuel price in 2019 and 2018, respectively.

•

Fuel-price spread volatility—A portion of our revenue involves transactions where we derive revenue from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant’s wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant’s wholesale cost of fuel. The inverse of these situations produces fuel-price spread expansion. We believe approximately 5% of revenues, net were directly impacted by fuel-price spreads in each of 2019 and 2018, respectively.

•

Acquisitions—Since 2002, we have completed over 80 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods.

•

Interest rates—Our results of operations are affected by interest rates. We are exposed to market risk to changes in interest rates on our cash investments and debt. On January 22, 2019, we entered into three interest rate swap cash flow contracts (the "swap contracts"). The objective of these swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. For each of these swap contracts, we will pay a fixed monthly rate and receive one month LIBOR.

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

•	Taxes— We pay taxes in various taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are different than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.

Acquisitions and Investments

During 2019, the Company completed acquisitions with an aggregate purchase price of approximately $416 million.

•	On April 1, 2019, we completed the acquisition of NvoicePay, a provider of full accounts payable automation for business in the U.S. The aggregate purchase price of this acquisition was approximately $208 million, net of cash acquired.

•	On April 1, 2019, we completed the acquisition of r2c, a fleet maintenance, compliance and workshop management software provider in the U.K.

•	On July 8, 2019, we completed the acquisition of SOLE Financial, a payroll card provider in the U.S.

•	On October 1, 2019, we completed the acquisition of Travelliance, an airline lodging provider in the U.S. The aggregate purchase price of this acquisition was approximately $110 million, net of cash acquired.

During 2018, we completed an acquisition with an aggregate purchase price of $21.2 million, net of cash acquired of $11.0 million and made deferred payments of $3.8 million related to acquisitions occurring in prior years. During 2018, we made investments in other businesses of $17.0 million and payments on a seller note of $1.6 million.

We report our results from our U.S. acquisitions in 2019 in our North American segment from the dates of acquisition. We report our results from our U.K. acquisition in 2019 in our International segment from the date of acquisition. We report our results from our Canadian acquisition in 2018 in our North America segment from the date of acquisition.

Disposition

As part of the Company's plans to exit the telematics business, we sold our investment in Masternaut to Michelin Group during the second quarter of 2019. We impaired our investment in Masternaut by an additional $15.6 million during 2019, resulting in no gain or loss when the investment was sold. We recorded cumulative impairment losses associated with our former investment in Masternaut of $136.3 million.

Results of Operations

Year ended December 31, 2019 compared to the year ended December 31, 2018

The following table sets forth selected consolidated statement of income and selected operational data for the years ended December 31, 2019 and 2018 (in millions, except percentages)*.

		Year ended December 31, 2019				% of total revenue			Year ended December 31, 2018****1				% of total revenue			Increase (decrease)				% Change
Revenues, net:
North America		$	1,708.5			64.5	%		$	1,571.5			64.6	%		$	137.1			8.7	%
International		940.3				35.5	%		862.0				35.4	%		78.3				9.1	%
Total revenues, net		2,648.8				100.0	%		2,433.5				100.0	%		215.4				8.8	%
Consolidated operating expenses:
Processing		530.7				20.0	%		487.7				20.0	%		43.0				8.8	%
Selling		204.8				7.7	%		182.6				7.5	%		22.2				12.2	%
General and administrative		407.2				15.4	%		389.2				16.0	%		18.0				4.6	%
Depreciation and amortization		274.2				10.4	%		274.6				11.3	%		(0.4		)		(0.1	)%
Other operating expense, net		0.5				—	%		8.7				(0.4	)%		(8.2		)		(94.0	)%
Operating income		1,231.4				46.5	%		1,090.7				44.8	%		140.7				12.9	%
Investment loss, net		3.5				0.1	%		7.1				0.3	%		(3.7		)		(51.4	)%
Other expense (income), net		0.1				—	%		(152.2		)		(6.3	)%		(152.3		)		(100.1	)%
Interest expense, net		150.0				5.7	%		138.5				5.7	%		11.6				8.3	%
Loss on extinguishment of debt		—				—	%		2.1				0.1	%		(2.1		)		(100.0	)%
Provision for income taxes		182.7				6.9	%		283.6				11.7	%		(100.9		)		(35.6	)%
Net income		$	895.1			33.8	%		$	811.5			33.3	%		$	83.6			10.3	%
Operating income for segments:
North America		$	755.9						$	673.9						$	82.0			12.2	%
International		475.6							416.8							58.7				14.1	%
Operating income		$	1,231.4						$	1,090.7						$	140.7			12.9	%
Operating margin for segments:
North America		44.2		%					42.9		%					1.4		%
International		50.6		%					48.4		%					2.2		%
Total		46.5		%					44.8		%					1.7		%

*The sum of the columns and rows may not calculate due to rounding.

Revenues

Our consolidated total revenues, net increased from $2,433.5 million in 2018 to $2,648.8 million in 2019, an increase of $215.4 million, or 8.8%. The increase was primarily due to:

•	Organic growth of approximately 11% on a constant fuel price, fuel spread margin, foreign currency and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.

•	The impact of acquisitions completed during 2019 contributed approximately $40 million in additional revenue.

•

Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for 2019 over 2018 of approximately $59 million. Foreign exchange rates had an unfavorable impact on consolidated revenues of approximately $61 million due to unfavorable fluctuations in foreign exchange rates primarily in Brazil and the U.K. and lower fuel prices of $4 million, partially offset by favorable fuel spread margins of approximately $6 million.

•	The increases were partially offset by a net decrease to consolidated revenues of approximately $33 million due to the disposition of the Chevron fuel portfolio during the fourth quarter of 2018.

North America segment revenues. North America revenues, net increased from $1,571.5 million in 2018 to $1,708.5 million in 2019, an increase of $137.1 million, or 8.7%. The increase was primarily due to:

•	Organic growth of approximately 9%, on a constant fuel price, fuel spread margin and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.

•	The impact of our acquisitions during 2019 contributed approximately $37 million in additional revenue.

•

Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our North America segment revenue in 2019 over in 2018 of approximately $5 million, primarily due to lower fuel prices of approximately $7 million and the unfavorable impact of foreign exchange rates in Canada of $4 million, partially offset by the favorable impact of higher fuel spread margins of approximately $6 million.

•	The increases were partially offset by a net decrease to consolidated revenues of approximately $33 million due to the disposition of the Chevron fuel portfolio during the fourth quarter of 2018.

International segment revenues. International segment revenues, net increased from $862.0 million in 2018 to $940.3 million in 2019, an increase of $78.3 million, or 9.1%. The increase was primarily due to:

•	Organic growth of approximately 15% on a constant macroeconomic and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.

•	The impact of an acquisition in 2019 contributed approximately $3 million in additional revenue.

•

Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for 2019 over 2018 of approximately $54 million. Changes in foreign exchange rates had an unfavorable impact on consolidated revenues of approximately $57 million, partially offset by the favorable impact of changes in fuel prices of approximately $3 million.

Revenues by geography and product category. Set forth below are further breakdowns of revenue by geography and product category for the years ended December 31, 2019 and 2018 (in millions).

		Year Ended December 31,
(Unaudited)		2019							2018
Revenue by Geography*		Revenues, net				% of total revenues, net			Revenues, net				% of total revenues, net
United States		$	1,595			60	%		$	1,482			61	%
Brazil		428				16	%		400				18	%
United Kingdom		275				10	%		258				11	%
Other		350				13	%		294				12	%
Consolidated revenues, net		$	2,649			100	%		$	2,433			100	%

*Columns may not calculate due to rounding.

		Year Ended December 31,
(Unaudited)		2019							2018
Revenue, net by Product Category*1		Revenues, net				% of total revenues, net			Revenues, net				% of total revenues, net
Fuel		$	1,173			44	%		$	1,126			46	%
Corporate Payments		516				19	%		416				17	%
Tolls		357				13	%		333				14	%
Lodging		213				8	%		176				7	%
Gift		180				7	%		187				8	%
Other		210				8	%		197				8	%
Consolidated revenues, net		$	2,649			100	%		$	2,433			100	%

*Columns may not calculate due to rounding.

1 Reflects certain reclassifications in 2018 between product categories as the Company realigned its Brazil business into product lines, resulting in refinement of revenue classified as fuel versus tolls and the eCash/OnRoad product being fuel versus other.

Consolidated operating expenses

Processing. Processing expenses increased from $487.7 million in 2018 to $530.7 million in 2019, an increase of $43.0 million or 8.8%. Increases in processing expenses were primarily due to expenses related to acquisitions completed in 2019 of approximately $19 million, organic growth in certain lines of business and incremental bad debt of approximately $10 million, partially offset by the favorable impact of fluctuations in foreign exchange rates of approximately $10 million.

Selling. Selling expenses increased from $182.6 million in 2018 to $204.8 million in 2019, an increase of $22.2 million or 12.2%. Increases in selling expenses are primarily due to expenses related to acquisitions completed in 2019 of approximately $8 million and additional spending in certain lines of business. These increases were partially offset by the favorable impact of fluctuations in foreign exchange rates of approximately $4 million.

General and administrative. General and administrative expense increased from $389.2 million in 2018 to $407.2 million in 2019, an increase of $18.0 million or 4.6%. The increase was primarily due to ongoing expenses related to acquisitions completed in 2019 of approximately $19 million and additional spending in certain lines of business. These increases were partially offset by the favorable impact of fluctuations in foreign exchange rates of approximately $8 million and a decrease in stock based compensation expense of approximately $3 million.

Depreciation and amortization. Depreciation and amortization decreased from $274.6 million in 2018 to $274.2 million in 2019, a decrease of $0.4 million or 0.1%. The decrease was primarily due to the favorable impact of foreign exchange rates of approximately $8 million, offset by ongoing expenses related to acquisitions completed in 2019 of approximately $10 million.

Other operating, net. Other operating, net decreased from $8.7 million in 2018 to $0.5 million in 2019, a decrease of $8.2 million, or 94.0% primarily as a result of a write-off of capitalized software costs in 2018.

Investment loss. Investment loss of $3.5 million in 2019 relates to an impairment charge to our telematics investment, as compared to an investment loss of $7.1 million in 2018. In 2019, we recorded an impairment of our Masternaut investment of approximately $16 million, which was then was sold in 2019 at an amount approximating carrying value. This loss was partially offset by an approximate $13 million gain related to a minority investment in a marketable security.

Other expense (income), net. Other expense, net was $0.1 million in 2019, compared to other income, net of $152.2 million in 2018. The gain in 2018 was due to the pre-tax gain on the sale of the Chevron customer portfolio of approximately $152.8 million.

Interest expense, net. Interest expense increased from $138.5 million in 2018 to $150.0 million in 2019, an increase of $11.6 million or 8.3%. The increase in interest expense is primarily due to the impact of additional borrowings to repurchase our common stock and to finance acquisitions completed in 2019, as well as increases in LIBOR. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused credit facility fees and swaps.

(Unaudited)		2019			2018
Term loan A		3.70	%		3.52	%
Term loan B		4.23	%		3.98	%
Domestic Revolver A		3.96	%		3.51	%
Revolver B GBP Borrowings		2.18	%		2.61	%
Revolving C		—	%		4.00	%
Foreign swing line		2.13	%		2.11	%

The average unused credit facility fee for the revolving credit facilities was 0.29% and 0.31% in 2019 and 2018, respectively. On January 22, 2019, we entered into three interest rate swap contracts. The objective of these interest rate swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with $2 billion of variable rate debt, tied to the one month LIBOR benchmark interest rate. During 2019, as a result of these swaps, we incurred additional interest expense of approximately $5.8 million or 0.32% over the average LIBOR rates on $2 billion of borrowings.

Loss on extinguishment of debt. Loss on extinguishment of debt of $2.1 million in 2018 relates to the write-off of debt issuance costs associated with the refinancing of our credit facility during the fourth quarter of 2018.

Provision for income taxes. The provision for income taxes decreased from $283.6 million in 2018 to $182.7 million in 2019, a decrease of $100.9 million or 35.6%. Our effective tax rate decreased to 17.0% for 2019 from 25.9% for 2018. Included in the 2019 tax rate was the reversal of a valuation allowance and remeasurement of the related deferred tax asset, due to the capital loss realized upon the sale of our investment in Masternaut that was carried back to 2017 when the U.S. federal tax rate was 35%. Our tax rate was also impacted by the impairment charge to our investment in Masternaut in the first quarter of 2019. Excluding these discreet items, our tax rate for 2019 would have been approximately 23.0%.

We pay taxes in different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are different than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.

Net income. For the reasons discussed above, our net income increased from $811.5 million in 2018 to $895.1 million in 2019, an increase of $83.6 million or 10.3%.

Operating income and operating margin

Consolidated operating income. Operating income increased from $1,090.7 million in 2018 to $1,231.4 million in 2019, an increase of $140.7 million or 12.9%. Consolidated operating margin was 44.8% in 2018 and 46.5% in 2019. The increase in operating income was driven primarily by organic growth. Included in 2019, was the negative impact of the macroeconomic environment of approximately $29 million, driven primarily by unfavorable movements in foreign exchange rates. Operating income in 2019 was also negatively affected by approximately $26 million due to the disposition of the Chevron portfolio.

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

North America segment operating income. North America operating income increased from $673.9 million in 2018 to $755.9 million in 2019, an increase of $82.0 million, or 12.2%. North America operating margin was 42.9% in 2018 and 44.2% in 2019. The increase in operating income was due primarily to organic growth. Included in 2019, was the negative impact of the macroeconomic environment of approximately $4 million. Operating income in 2019 was also negatively affected by approximately $26 million due to the disposition of the Chevron portfolio.

International segment operating income. International operating income increased from $416.8 million in 2018 to $475.6 million in 2019, an increase of $58.7 million, or 14.1%. International operating margin was 48.4% in 2018 and 50.6% in 2019. The increase in operating income was due primarily to organic growth. The increase was partially offset by the negative impact of the macroeconomic environment of approximately $25 million, driven primarily by unfavorable movements in foreign exchange rates.

Liquidity and Capital Resources

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

Sources of liquidity. At December 31, 2019, our cash balances totaled $1,675.2 million, with approximately $403.7 million restricted. Restricted cash represents customer deposits in the Czech Republic and in our Comdata business in the U.S., as well as collateral received from customers for cross-currency transactions in our Cambridge business, which are restricted from use other than to repay customer deposits, as well as secure and settle cross-currency transactions.

We have immaterial outside basis differences in our investments in foreign subsidiaries and have not recorded incremental income taxes for any additional outside basis differences, as these amounts continue to be indefinitely reinvested in foreign operations.

We utilize an accounts receivable Securitization Facility (defined below) to finance a majority of our domestic receivables, to lower our cost of borrowing and more efficiently use capital. We generate and record accounts receivable when a customer makes a purchase from a merchant using one of our card products and generally pay merchants before collecting the receivable. As a result, we utilize the Securitization Facility as a source of liquidity to provide the cash flow required to fund merchant payments while we collect customer balances. These balances are primarily composed of charge balances, which are typically billed to the customer on a weekly, semimonthly or monthly basis, and are generally required to be paid within 14 days of billing. We also consider the undrawn amounts under our Securitization Facility and Credit Facility (defined below) as funds available for working capital purposes and acquisitions. At December 31, 2019, we had no additional liquidity under our Securitization Facility. At December 31, 2019, we had approximately $638 million available under our Credit Facility.

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

Cash flows

The following table summarizes our cash flows for the years ended December 31, 2019 and 2018.

		Year ended December 31,
(in millions)		2019				2018
Net cash provided by operating activities		$	1,162.1			$	903.4
Net cash used in investing activities		(523.7		)		(26.3		)
Net cash used in financing activities		(310.2		)		(577.8		)

Operating activities. Net cash provided by operating activities increased from $903.4 million in 2018 to $1,162.1 million in 2019. The increase in operating cash flows was primarily due to higher net income and movements in working capital.

Investing activities. Net cash used in investing activities increased from $26.3 million in 2018 to $523.7 million in 2019. This increase was primarily due to the increase in cash paid for acquisitions completed in 2019, partially offset by the proceeds received from the sale of Chevron in 2018.

Financing activities. Net cash used in financing activities decreased from $577.8 million in 2018 to $310.2 million in 2019. The decreased use of cash is primarily due to incremental borrowings on Term A Loan in the amount of $700 million, as well as fewer repurchases of our common stock of $264 million in 2019 over 2018. These reductions in cash usage were partially offset by net payments made on our revolving debt of $875 million.

Capital spending summary

Our capital expenditures decreased from $81.4 million in 2018 to $75.2 million in 2019, a decrease of $6 million or 7.6%.

Credit Facility

FLEETCOR Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), are parties to a $4.86 billion Credit Agreement (the "Credit Agreement"), with Bank of America, N.A., as administrative agent, swing line lender and local currency issuer, and a syndicate of financial institutions (the “Lenders”), which has been amended multiple times. The Credit Agreement provides for senior secured credit facilities (collectively, the "Credit Facility") consisting of a revolving credit facility in the amount of $1.285 billion, a term loan A facility in the amount of $3.225 billion and a term loan B facility in the amount of $350.0 million as of December 31, 2019. The revolving credit facility consists of (a) a revolving A credit facility in the amount of $800 million, with sublimits for letters of credit and swing line loans, (b) a revolving B facility in the amount of $450 million for borrowings in U.S. Dollars, Euros. British Pounds, Japanese Yen or other currency as agreed in advance, and a sublimit for swing line loans, and (c) a revolving C facility in the amount of $35 million with borrowings in U.S. Dollars, Australian Dollars or New Zealand Dollars. The Credit Agreement also includes an accordion feature for borrowing an additional $750 million in term loan A, term loan B, revolver A or revolver B debt and an unlimited amount when the leverage ratio on a proforma basis is less than 3.00 to 1.00. Proceeds from the Credit Facility may be used for working capital purposes, acquisitions, and other general corporate purposes.

On August 30, 2018, the Credit Agreement was amended to change the consolidated leverage ratio definition and the negative covenant related to indebtedness. On December 19, 2018, we entered into the fifth amendment to the Credit Agreement, which modified the term A loan and revolver pricing grid and extended the maturity date of the term loan A and revolving credit facilities to December 19, 2023. The maturity date for the term loan B is August 2, 2024. On August 2, 2019, we entered into the sixth amendment to the Credit Agreement, which included an incremental term loan A in the amount of $700 million and changes to the consolidated leverage ratio definition and negative covenant related to indebtedness. On November 14, 2019, we entered into the seventh amendment to the Credit Agreement, to lower the margin for term loan B from 2.00% to 1.75%.

Interest on amounts outstanding under the Credit Agreement (other than the term loan B) accrues based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate), plus a margin based on a leverage ratio, or our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest on the term loan facility accrues based on the Eurocurrency Rate plus 1.75% for Eurocurrency Loans and at the Base Rate plus 0.75% for Base Rate Loans. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.25% to 0.35% of the daily unused portion of the credit facility.

At December 31, 2019, the interest rate on the term loan A was 3.05% and the interest rate on the borrowings under revolving A facility was 3.03%, the interest rate on the revolving B facility GBP Borrowings was 1.96%, the interest rate on the term loan B was 3.55% and the interest rate on the foreign swing line was 1.93%. The unused credit facility fee was 0.25% for all revolving facilities at December 31, 2019.

The term loans are payable in quarterly installments due on the last business day of each March, June, September, and December with the final principal payment due on the respective maturity date. Borrowings on the revolving line of credit are repayable at the option of one, two, three or six months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than twenty business days after such loan is made.

The Credit Agreement contains representations, warranties and events of default, as well as certain affirmative and negative covenants, customary for financings of this nature. These covenants include limitations on the ability to pay dividends and make other restricted payments under certain circumstances and compliance with certain financial ratios. As of December 31, 2019, we were in compliance with each of the covenants under the Credit Agreement.

Our 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 3.25:1.00 and we are in compliance with the financial covenants and (ii) no default or event of default shall exist or result therefrom. The Credit Agreement also contains customary events of default. The Credit Agreement includes financial covenants where the Company is required to maintain a consolidated leverage ratio to consolidated EBITDA of less than (i) 4.00 to 1.00 as of the end of any fiscal quarter provided that in connection with any Material Acquisition the leverage ratio may be increased to 4.25 to 1.00 for the quarter in which the Material Acquisition is consummated and the next three fiscal quarters; and a consolidated interest coverage ratio of no higher than 4.00 to 1.0.

The obligations of the Borrowers under the Credit Agreement are secured by substantially all of the assets of FLEETCOR and its domestic subsidiaries, pursuant to a security agreement and includes a pledge of (i) 100% of the issued and outstanding equity interests owned by us of each Domestic Subsidiary and (2) 66% of the voting shares of the first-tier foreign subsidiaries, but excluding real property, personal property located outside of the U.S., accounts receivables and related assets subject to the Securitization Facility and certain investments required under money transmitter laws to be held free and clear of liens.

At December 31, 2019, we had $3.1 billion in borrowings outstanding on term loan A, excluding the related debt discount, $342.1 million in borrowings outstanding on term loan B, excluding the related debt discount, $325 million in borrowings outstanding on the revolving A facility, $225.5 million in borrowings outstanding on the revolving B facility and $52.0 million in borrowings outstanding on the foreign swing line. We have unamortized debt issuance costs of $6.7 million related to the revolving credit facility as of December 31, 2019. We have unamortized debt discounts of $7.4 million related to the term loan A facility and $0.5 million related to the term B facility and deferred financing costs of $1.8 million related to the term A facility and deferred financing costs of $1.2 million related to the term B facility at December 31, 2019. The effective interest rate incurred on term loans was 4.00% during 2019 related to the discount on debt.

During 2019, we made principal payments of $138.5 million on the term loans and $2,292.3 million on the revolving facilities, and $101.5 million on the swing line revolving facility.

Cash Flow Hedges

On January 22, 2019, we entered into three interest rate swap cash flow contracts with U.S. dollar notional amounts of $1 billion with a fixed rate of 2.56%, $500 million with a fixed rate of 2.56%, and $500 million with a fixed rate of 2.55%. The purpose of these contracts is to eliminate the variability of cash flows in interest payments associated with $2 billion of our variable rate debt outstanding under our Credit Agreement, the sole source of which is due to changes in the 1-month LIBOR benchmark interest rate. These derivative instruments qualify as hedging instruments and are designated as cash flow hedges of interest rate risk. The effective date of the hedges is January 31, 2019 and the maturity dates are January 31, 2022, January 31, 2023 and December 19, 2023, respectively.

Securitization Facility

We are a party to a $1.2 billion receivables purchase agreement among FleetCor Funding LLC, as seller, PNC Bank, National Association as administrator, and various purchaser agents, conduit purchasers and related committed purchasers parties thereto, which was amended and restated for the fifth time as of November 14, 2014. We refer to this arrangement as the Securitization Facility. There have been several amendments to the Securitization Facility, with the latest on April 22, 2019. The Securitization Facility expires on November 14, 2020 and contains customary financial covenants.

There is a program fee equal to one month LIBOR plus 0.90% or the Commercial Paper Rate plus 0.80% as of December 31, 2019 and 2018. The program fee was 1.80% plus 0.88% as of December 31, 2019 and 2.52% plus 0.89% as of December 31, 2018. The unused facility fee is payable at a rate of 0.40% as of December 31, 2019 and 2018. The Company has unamortized debt issuance costs of $0.7 million related to the Securitization Facility as of December 31, 2019 recorded within other assets in the consolidated balance sheet.

Under a related purchase and sale agreement, dated as of December 20, 2004, and last 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 all financial and non-financial covenant requirements related to our Securitization Facility as of December 31, 2019.

Other Liabilities

In connection with our acquisition of certain businesses, we owe final payments of $14.2 million, of which $13.7 million is payable in the next twelve months and $0.5 million in periods beyond a year.

Stock Repurchase Program

Our Board of Directors has approved a stock repurchase program (as updated from time to time, the "Program"), authorizing the Company to repurchase its common stock from time to time until February 1, 2023. On October 22, 2019, our Board increased the aggregate size of the Program by $1 billion, to $3.1 billion. Since the beginning of the Program, 11,119,657 shares have been repurchased for an aggregate purchase price of $2.2 billion, leaving us up to $857 million available under the Program for future repurchases of our common stock, taking into account the full $500 million committed with the 2019 ASR Agreement (defined below), which completed on February 20, 2020. There were 2,094,115 common shares totaling $603.8 million in 2019; 4,911,438 common shares totaling $958.7 million in 2018, and 2,854,959 common shares totaling $402.4 million in 2017; repurchased under the Program.

Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information we may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and debt.

On December 14, 2018, as part of the Program, we entered an accelerated share repurchase ("ASR") agreement ("2018 ASR Agreement") with a third-party financial institution to repurchase $220 million of our common stock. Pursuant to the 2018 ASR Agreement, we delivered $220 million in cash and received 1,057,035 shares based on a stock price of $176.91 on December 14, 2018. The 2018 ASR Agreement was completed on January 29, 2019, at which time we received 117,751 additional shares based on a final weighted average per share purchase price during the repurchase period of $187.27.

On December 18, 2019, we entered into another ASR Agreement ("2019 ASR Agreement") with a third-party financial institution to repurchase $500 million of our common stock. Pursuant to the 2019 ASR Agreement, the Company delivered $500 million in cash and received 1,431,989 shares based on a stock price of $285.70 on December 18, 2019. The 2019 ASR Agreement was completed February 20, 2020, at which time we received 175,340 additional shares based on a final weighted average per share purchase price during the repurchase period of $306.81.

We accounted for the 2018 ASR Agreement and the 2019 ASR Agreement as two separate transactions: (i) as shares of reacquired common stock for the shares delivered to the Company upon effectiveness of each ASR agreement and (ii) as a forward contract indexed to the Company's common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and results in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. The forward contracts indexed to our own common stock met the criteria for equity classification, and these amounts were initially recorded in additional paid-in capital.

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.

See Footnote 2 to the Consolidated Financial Statements, Summary of Significant Accounting Policies.

Revenue recognition and presentation. We provide payment solutions to our business, merchant, consumer and payment network customers. Our payment solutions are primarily focused on specific commercial spend categories, including fuel, lodging, tolls, and general corporate payments, as well as gift card solutions (stored value cards and e-cards). We provide products that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. We also provide other payment solutions for fleet maintenance, employee benefits and long haul transportation-related services.

Payment Services

Our primary performance obligation for the majority of our payment solution products (fuel, lodging, corporate payments, among others) is to stand-ready to provide authorization and processing services ("payment services") for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related payment services. Accordingly, the total transaction price is variable. Payment services involve a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. As a result, the Company allocates and recognizes variable consideration in the period it has the contractual right to invoice the customer. For the tolls payment solution, the Company's primary performance obligation is to stand-ready each month to provide access to the toll network and process toll transactions. Each period of access is determined to be distinct and substantially the same as the customer benefits over the period of access.

We record revenue for our payment services net of (i) the cost of the underlying products and services; (ii) assessments and other fees charged by the credit and debit payment networks (along with any rebates provided by them); (iii) customer rebates and other discounts; and (iv) taxes assessed (e.g. VAT and VAT-like taxes) by a government, imposed concurrent with, a revenue producing transaction.

The majority of the transaction price we receive for fulfilling the Payment Services performance obligation are comprised of one or a combination of the following: 1) interchange fees earned from the payment networks; 2) discount fees earned from merchants; 3) fees calculated based on a number of transactions processed; 4) fees calculated based upon a percentage of the transaction value for the underlying goods or services (i.e. fuel, food, toll and transportation cards and vouchers); and 5) monthly access fees.

We recognize revenue when the underlying transactions are complete and our performance obligations are satisfied. Transactions are considered complete depending upon the related payment solution but generally when we have authorized the transaction, validated that the transaction has no errors and accepted and posted the data to our records.

Our performance obligation for our foreign exchange payment services is providing a foreign currency payment to a customer’s designated recipient and therefore, we recognize revenue on foreign exchange payment services when the underlying payment is made. Revenues from foreign exchange payment services are primarily comprised of the difference between the exchange rate set by us to the customer and the rate available in the wholesale foreign exchange market.

Gift Card Products and Services

Our Gift product line delivers both stored value cards and card-based services primarily in the form of gift cards to retailers. These activities each represent performance obligations that are separate and distinct. Revenue for stored valued cards are recognized (gross of the underlying cost of the related card, recorded within processing expense within the Consolidated Statements of Income) at the point in time when control passes to our customer, which is generally upon shipment.

Card-based services consist of transaction processing and reporting of gift card transactions where we recognize revenue based on an output measure of elapsed time for an unknown or unspecified quantity of transactions. As a result, we allocate and recognize variable consideration over the estimated period of time over which the performance obligation is satisfied.

Other

We account for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada in accordance with ASC 310, "Receivables". Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided. We cease billing and accruing for late fees and finance charges approximately 30 - 40 days after the customer’s balance becomes delinquent.

We also write foreign currency forward and option contracts for our customers to facilitate future payments in foreign currencies, and recognize revenue in accordance with authoritative fair value and derivative accounting (ASC 815, "Derivatives").

Revenue is also derived from the sale of equipment in certain of our businesses, which is recognized at the time the device is sold and control has passed to the customer. This revenue is recognized gross of the cost of sales related to the equipment in "revenues, net" within the Consolidated Statements of Income. The related cost of sales for the equipment is recorded within "processing expenses" in the Consolidated Statements of Income.

Revenues from contracts with customers, within the scope of Topic 606, represents approximately 75% of total consolidated revenues, net, the year ended December 31, 2019.

Contract Liabilities

Deferred revenue contract liabilities for customers subject to ASC 606 were $71.8 million and $30.6 million as of December 31, 2019 and 2018, respectively. We expect to recognize substantially all of these amounts in revenues within approximately 12 months. Revenue recognized for the year ended December 31, 2019, that was included in the deferred revenue contract liability as of January 1, 2019, was approximately $27.5 million.

Costs to Obtain or Fulfill a Contract

With the adoption of ASC 606, we began capitalizing the incremental costs of obtaining a contract with a customer if we expect to recover those costs. The incremental costs of obtaining a contract are those that we incur to obtain a contract with a customer that we would not have incurred if the contract had not been obtained (for example, a sales commission).

Costs incurred to fulfill a contract are capitalized if those costs meet all of the following criteria:

a.	The costs relate directly to a contract or to an anticipated contract that we can specifically identify.

b.	The costs generate or enhance resources of ours that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.

c.	The costs are expected to be recovered.

In order to determine the appropriate amortization period for contract costs, we considered a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology used by us to provide products and services to our customers, whether further contract renewals are expected and if there is any incremental commission to be paid on a contract renewal. Contract acquisition and fulfillment costs are amortized using the straight-line method over the expected period of benefit (ranging from five to ten years). Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred. The amortization of contract acquisition costs associated with sales commissions that qualify for capitalization will be recorded as selling expense in our Consolidated Statements of Income. The amortization of contract acquisition costs associated with cash payments for client incentives is included as a reduction of revenues in the Company’s Consolidated Statements of Income. Amortization of capitalized contract costs recorded in selling expense was $14.3 million and $12.0 million for the years ended December 31, 2019 and 2018, respectively.

Costs to obtain or fulfill a contract are classified as contract cost assets within "prepaid expenses and other current assets" and "other assets" in our Consolidated Balance Sheets. We have capitalized costs to obtain a contract of $14.8 million and $12.7 million within "prepaid expenses" and $39.7 million and $34.5 million within "other assets" in our Consolidated Balance Sheets, for the year ended December 31, 2019 and 2018, respectively.

We have recorded $76.4 million, $83.9 million and $96.9 million of expenses related to sales of equipment within the processing expenses line of the Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, respectively.

Practical Expedients

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as allowed by ASC 606, we elected to exclude this disclosure for any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As described above, our most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

We elected to exclude all sales taxes and other similar taxes from the transaction price. Accordingly, we present all collections from customers for these taxes on a net basis, rather than having to assess whether we are acting as an agent or a principal in each taxing jurisdiction.

In certain arrangements with customers, we determined that certain promised services and products are immaterial in the context of the contract, both quantitatively and qualitatively.

As a practical expedient, we are not required to adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised service or product to a customer and when the customer pays for the service or product will be one year or less. As of December 31, 2019, our contracts with customers did not contain a significant financing component.

Accounts receivable. As described above under the heading “Securitization facility,” we maintain a revolving trade accounts receivable Securitization Facility. The current purchase limit under the Securitization Facility is $1.2 billion. Accounts receivable collateralized within our Securitization Facility relate to trade receivables resulting from charge card activity in the U.S. Pursuant to the terms of the Securitization Facility, we transfer certain of our domestic receivables, on a revolving basis, to

FLEETCOR Funding LLC (Funding), a wholly-owned bankruptcy remote subsidiary. In turn, Funding transfers, without recourse, on a revolving basis, an undivided ownership interest in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold to the Conduit. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.

We utilize proceeds from the transfer of our accounts receivable as an alternative to other forms of financing, to reduce our overall borrowing costs. We have agreed to continue servicing the sold receivables for the financial institution at market rates, which approximates our cost of servicing. We retain a residual interest in the accounts receivable sold as a form of credit enhancement. The residual interest’s fair value approximates carrying value due to its short-term nature. Funding determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount.

Our Consolidated Balance Sheets and Statements of Income reflect the activity related to securitized accounts receivable and the corresponding securitized debt, including interest income, fees generated from late payments, provision for losses on accounts receivable and interest expense. The cash flows from borrowings and repayments, associated with the securitized debt, are presented as cash flows from financing activities. The maturity date for the Securitization Facility is November 14, 2020.

Foreign receivables are not included in our receivable securitization program. At December 31, 2019 and 2018, there was $971 million and $886 million, respectively, of short-term debt outstanding under our accounts receivable 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 or less of billing. We routinely review our accounts receivable balances and make provisions for probable doubtful accounts based primarily on the aging of those balances. Accounts receivable are deemed uncollectible from the customer once they age past 90 days. We also provide an allowance for receivables aged less than 90 days that we expect will be uncollectible based on historical collections experience including accounts that have filed for bankruptcy. At December 31, 2019, approximately 98% of outstanding accounts receivable were current. Accounts receivable deemed uncollectible are removed from accounts receivable and the allowance for doubtful accounts when internal collection efforts have been exhausted and accounts have been turned over to a third-party collection agency. Recoveries from the third-party collection agency are not significant.

Impairment of long-lived assets, intangibles and investments. We regularly evaluate whether events and circumstances have occurred that indicate the carrying amount of property and equipment and finite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, we assess the potential impairment by determining whether the carrying amount of such long-lived assets will be recovered through the future undiscounted cash flows expected from use of the asset and its eventual disposition. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market prices or discounted cash flow analysis as applicable. We regularly evaluate whether events and circumstances have occurred that indicate the useful lives of property and equipment and finite-life intangible assets may warrant revision.

We complete an impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level. We first perform a qualitative assessment of certain of our reporting units. Factors considered in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required. We then perform the goodwill impairment test for each reporting unit by comparing the reporting unit’s carrying amount, including goodwill, to its fair value which is measured based upon, among other factors, a discounted cash flow analysis, as well as market multiples for comparable companies. Estimates critical to our evaluation of goodwill for impairment include the discount rate, projected revenue and earnings before interest taxes depreciation and amortization (EBITDA) growth, and projected long-term growth rates in the determination of terminal values. If the carrying amount of the reporting unit is greater than its fair value, goodwill is considered impaired.

Based on the goodwill asset impairment analysis performed quantitatively as of October 1, 2019, we determined that the fair value of each of our reporting units was in excess of the carrying value. No events or changes in circumstances have occurred since the date of this most recent annual impairment test that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We also evaluate indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. We also test for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived

intangible asset is below its carrying amount. Estimates critical to our evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in our evaluation of trade names, projected average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.

We regularly evaluate the carrying value of our investments, which are not carried at fair value, for impairment. We have elected to measure certain investments in equity instruments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for similar investments of the issuer. Investments classified as trading securities are carried at fair value with any unrealized gain or loss being recorded in the Consolidated Statements of Income.

Income taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We have elected to treat the Global Intangible Low Taxed Income (GILTI) inclusion as a current period expense.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. We evaluate on a quarterly basis whether it is more likely than not that our deferred tax assets will be realized in the future and conclude whether a valuation allowance must be established.

We account for uncertainty in income taxes recognized in an entity’s financial statements and prescribe thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 percent likelihood of being sustained. We include any estimated interest and penalties on tax related matters in income tax expense. See Note 13 in the accompanying financial statements for further information regarding income taxes.

Business combinations. Business combinations completed by us have been accounted for under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined as of the acquisition date. For significant acquisitions, we obtain independent third-party valuation studies for certain of the assets acquired and liabilities assumed to assist us in determining fair value. Goodwill represents the excess of the purchase price over the fair values of the tangible and intangible assets acquired and liabilities assumed. The results of the acquired businesses are included in our results of operations beginning from the completion date of the transaction.

Estimates of fair value are revised during an allocation period as necessary when, and if, information becomes available to further define and quantify the fair value of the assets acquired and liabilities assumed. Provisional estimates of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the final amounts recorded. The allocation period does not exceed one year from the date of the acquisition. To the extent additional information to refine the original allocation becomes available during the allocation period, the allocation of the purchase price is adjusted. Should information become available after the allocation period, those items are adjusted through operating results. The direct costs of the acquisition are recorded as operating expenses. Certain acquisitions include contingent consideration related to the performance of the acquired operations following the acquisition. Contingent consideration is recorded at estimated fair value at the date of the acquisition, and is remeasured each reporting period, with any changes in fair value recorded in the Consolidated Statements of Income. We estimate the fair value of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities.

Stock-based compensation. We account for employee stock options and restricted stock in accordance with relevant authoritative literature. Stock options are granted with an exercise price equal to the fair market value on the date of grant as authorized by our board of directors. Options granted have vesting provisions ranging from one to five years and vesting of the options is generally based on the passage of time or performance. Stock option grants are subject to forfeiture if employment terminates prior to vesting. We have selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards. We have considered the retirement and forfeiture provisions of the options and utilized our historical experience to estimate the expected life of the options. Option forfeitures are accounted for upon occurrence. We base the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Stock-based compensation cost is measured at the grant date based on the value of the award and is

recognized as expense over the requisite service period based on the number of years which the requisite service is expected to be rendered.

Awards of restricted stock and restricted stock units are independent of stock option grants and are subject to forfeiture if employment terminates prior to vesting. The vesting of shares granted is generally based on the passage of time, performance or market conditions, or a combination of these. Shares vesting based on the passage of time have vesting provisions of one to four years. The fair value of restricted stock where the shares vest based on the passage of time or performance is based on the grant date fair value of our stock. The fair value of restricted stock units granted with market based vesting conditions is estimated using the Monte Carlo simulation valuation model. The risk-free interest rate and volatility assumptions used within the Monte Carlo simulation valuation model are calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the stock option awards.

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

Derivatives. We use derivatives to minimize our exposures related to changes in interest rates and facilitate cross-currency corporate payments by writing derivatives to customers.

We are exposed to the risk of changing interest rates because our borrowings are subject to variable interest rates. In order to mitigate this risk, we utilize derivative instruments. Interest rate swap contracts designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We hedge a portion of our variable rate debt utilizing derivatives designated as cash flow hedges.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other assets or other noncurrent liabilities and offset against accumulated other comprehensive income/loss, net of tax. Derivative fair value changes that are recorded in accumulated other comprehensive income/loss are reclassified to earnings in the same period or periods that the hedged item affects earnings, to the extent the derivative is effective in offsetting the change in cash flows attributable to the hedged risk. The portions of the change in fair value that are either considered ineffective or are excluded from the measure of effectiveness are recognized immediately within earnings.

In our cross-border payments business, the majority of revenue is from exchanges of currency at spot rates, which enables customers to make cross-currency payments. In addition, we write foreign currency forward and option contracts for our customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. We aggregate our foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, as necessary, and economically hedge the net currency risks by entering into offsetting derivatives with established financial institution counterparties. The changes in fair value related to these derivatives are recorded in revenues, net in the Consolidated Statements of Income.

We recognize all cross border payments derivatives in "prepaid expenses and other current assets" and "other current liabilities" in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows.

Adoption of New Accounting Standards

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

Accounting for Leases. In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. This ASU also requires disclosures to provide additional information about the amounts recorded in the financial statements. Effective January 1, 2019, we adopted Topic 842 using a modified retrospective approach, as discussed further in Footnote 14.

Accounting for Derivative Financial Instruments. In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which amends the hedge accounting recognition and presentation requirements in ASC 815. The FASB issued accounting guidance to better align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and improve the disclosures of hedging arrangements. The guidance is effective for reporting periods beginning after December 15, 2018, and interim periods within

those years. We adopted this guidance on January 1, 2019, which did not have a material impact on our results of operations, financial condition, or cash flows. The guidance did simplify the accounting for interest rate swap hedges, allowing more time for the initial hedge effectiveness documentation and a qualitative hedge effectiveness assessment at each quarter end.

In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate, Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes", which amends the hedge accounting to add overnight index swap rates based on the secured overnight financing rate as a fifth U.S. benchmark interest rate. We adopted this guidance on January 1, 2019, which did not have a material impact on our results of operations, financial condition, or cash flows.

Comprehensive Income Classification. In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", that gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the "Tax Act"). An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the Tax Act’s change in U.S. federal tax rate for all items accounted for in other comprehensive income. These entities can also elect to reclassify other stranded effects that relate to the Tax Act but do not directly relate to the change in the federal rate. We adopted this guidance on January 1, 2019 and elected to not reclassify any items to retained earnings.

Non-Employee Share-Based Payments. In June 2018, the FASB issued ASU 2018-07, "Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting", that supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. Under the new guidance, the existing employee guidance will apply to non-employee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of non-employee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for non-employee awards. We adopted this guidance on January 1, 2019, which had no impact on our results of operations, financial condition, or cash flows.

Pending Adoption of Recently Issued Accounting Standards

Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The ASU is effective for the Company on January 1, 2020.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. For clarifications around credit losses, the effective date will be the same as the effective date in ASU 2016-13. For entities that have adopted ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", ASU 2019-04 is effective the first annual reporting period beginning after the date of issuance of ASU 2019-04 and may be early adopted. The amendments in ASU 2019-04 related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Upon adoption of the new standard on January 1, 2020, we will recognize an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets. We are analyzing our credit policies and updating our accounting policies and internal controls that will be impacted by the new guidance. We do not anticipate that the adoption of this new standard will have a material impact on the results of operations, financial condition, or cash flows due to the relatively fast turnover of our trade receivables accounts and limited other asset balances to which this standard applies.

Cloud Computing Arrangements. On August 29, 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", that provides guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The ASU, which was released in response to a consensus reached by the EITF at its June 2018 meeting, aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA. The guidance is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are updating the accounting policies and internal controls that will be impacted by the new guidance. Our adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.

Fair Value Measurement. On August 28, 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement", which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. The guidance is effective for us for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The guidance on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other guidance should be applied retrospectively to all periods presented upon their effective date. Our adoption of this ASU on January 1, 2020, is not expected to have a material impact on the results of operations, financial condition, or cash flows.

Income Taxes. On December 18, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles of ASC 740 and simplifies other areas in order to simplify its application. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We do not expect this ASU to have a material impact on the results of operations, financial condition, or cash flows.

Contractual Obligations

The table below summarizes the estimated dollar amounts of payments under contractual obligations identified below as of December 31, 2019 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
Credit Facility		$	4,023.8			$	764.4			$	324.2			$	2,935.2			$	—
Securitization Facility		971.0				971.0				—				—				—
Estimated interest payments - Credit Facility (b)		448.0				118.6				221.1				108.3				—
Estimated interest payments- Securitization Facility(b)		22.8				22.8				—				—				—
Operating leases		117.3				19.8				32.3				26.2				39.0
Deferred purchase price		2.7				2.2				0.5				—				—
Estimated interest payments - Swaps (c)		42.3				15.1				23.3				3.9				—
Other(d)		41.5				11.5				30.0				—				—
Total		$	5,669.4			$	1,925.4			$	631.4			$	3,073.6			$	39.0

---

(a)

Deferred income tax liabilities as of December 31, 2019 were approximately $517.3 million. Refer to Note 13 to our accompanying consolidated financial statements. This amount is not included in the total contractual obligations table because we believe this presentation would not be meaningful. Deferred income tax liabilities are calculated based on temporary differences between the tax bases of assets and liabilities and their respective book bases, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, as this scheduling

would not relate to liquidity needs. At December 31, 2019, we had approximately $42.8 million of unrecognized income tax benefits related to uncertain tax positions. We cannot reasonably estimate when all of these unrecognized income tax benefits may be settled. We do not expect reductions to unrecognized income tax benefits within the next 12 months as a result of projected resolutions of income tax uncertainties.

(b)

We draw upon and pay down on the revolver within our Credit Agreement and our Securitization Facility borrowings outside of a normal schedule, as excess cash is available. For our variable rate debt, we have assumed the December 31, 2019 interest rates to calculate the estimated interest payments, for all years presented. This analysis also assumes that outstanding principal is held constant at the December 31, 2019 balances for our Credit Agreement and Securitization Facility, except for mandatory pay downs on the term loans in accordance with the loan documents. We typically expect to settle such interest payments with cash flows from operating activities and/or other short-term borrowings.

(c)	For our interest rate swap cash flow contracts (the "swap contracts"), we have used the fixed interest rate on each swap less the one month LIBOR rate in effect on our term loans at December 31, 2019, to calculate the estimated interest payments, for all years presented.

(d)	The long-term portion of contingent consideration agreements and Cambridge seller note due within the next 12 months is included with ‘other debt’ in the detail of our debt instruments disclosed in Note 11 to our accompanying consolidated financial statements.

Management’s Use of Non-GAAP Financial Measures

We have included in the discussion above certain financial measures that were not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors.

Pro forma and macro adjusted revenue and transactions by product. We define the pro forma and macro adjusted revenue as revenue, net as reflected in our statement of income, adjusted to eliminate the impact of the macroeconomic environment and the impact of acquisitions, dispositions and the impact of adoption of ASC 606. The macroeconomic environment includes the impact that market fuel spread margins, fuel prices and foreign exchange rates have on our business. We use pro forma and macro adjusted revenue and transactions to evaluate the organic growth in our revenue and the associated transactions. Set forth below is a reconciliation of pro forma and macro adjusted revenue and transactions to the most directly comparable GAAP

measure, revenue, net and transactions (in millions):

		Revenue								Key Performance Indicators
		Year Ended December 31,*								Year Ended December 31,*
(Unaudited)		2019				2018				2019			2018
FUEL - TRANSACTIONS
Pro forma and macro adjusted		$	1,180			$	1,079			499			494
Impact of acquisitions/dispositions		11				46				3			18
Impact of fuel prices/spread		2				—				—			—
Impact of foreign exchange rates		(19		)		—				—			—
As reported		$	1,173			$	1,126			502			512
CORPORATE PAYMENTS - TRANSACTIONS
Pro forma and macro adjusted		$	521			$	433			56			50
Impact of acquisitions/dispositions		—				(17		)		—			—
Impact of fuel prices/spread		—				—				—			—
Impact of foreign exchange rates		(4		)		—				—			—
As reported		$	516			$	416			56			49
CORPORATE PAYMENTS - SPEND
Pro forma and macro adjusted		Intentionally Left Blank								74,366			56,736
Impact of acquisitions/dispositions			—			(993	)
Impact of fuel prices/spread			—			—
Impact of foreign exchange rates			(930	)		—
As reported			73,437			55,744
TOLLS - TAGS
Pro forma and macro adjusted		$	387			$	333			5.1			4.7
Impact of acquisitions/dispositions		—				—				—			—
Impact of fuel prices/spread		—				—				—			—
Impact of foreign exchange rates		(30		)		—				—			—
As reported		$	357			$	333			5.1			4.7
LODGING - ROOM NIGHTS
Pro forma and macro adjusted		$	213			$	189			19			21
Impact of acquisitions/dispositions		—				(13		)		—			(2	)
Impact of fuel prices/spread		—				—				—			—
Impact of foreign exchange rates		—				—				—			—
As reported		$	213			$	176			19			19
GIFT - TRANSACTIONS
Pro forma and macro adjusted		$	180			$	193			1,274			1,385
Impact of acquisitions/dispositions		—				(7		)		—			(1	)
Impact of fuel prices/spread		—				—				—			—
Impact of foreign exchange rates		—				—				—			—
As reported		$	180			$	187			1,274			1,384
OTHER****1 - TRANSACTIONS
Pro forma and macro adjusted		$	219			$	201			56			55
Impact of acquisitions/dispositions		—				(3		)		—			(5	)
Impact of fuel prices/spread		—				—				—			—
Impact of foreign exchange rates		(9		)		—				—			—
As reported		$	210			$	197			56			50
FLEETCOR CONSOLIDATED REVENUES
Pro forma and macro adjusted		$	2,700			$	2,428			Intentionally Left Blank
Impact of acquisitions/dispositions		11				6
Impact of fuel prices/spread		2				—
Impact of foreign exchange rates		(64		)		—
As reported		$	2,649			$	2,434

• Columns may not calculate due to rounding.

1 Other includes telematics, maintenance, food and transportation related businesses.

Adjusted net income and adjusted net income per diluted share. We have defined the non-GAAP measure adjusted net income as net income as reflected in our statement of income, adjusted to eliminate (a) non-cash stock based compensation expense related to share based compensation awards, (b) amortization of deferred financing costs, discounts and intangible assets, amortization of the premium recognized on the purchase of receivables, and our proportionate share of amortization of intangible assets at our equity method investment, and (c) other non-recurring items, such as the impact of the Tax Act, impairment of investment, asset write-offs, restructuring costs, gains and related taxes due to disposition of assets and a business, loss on extinguishment of debt, legal settlements/litigation, and the unauthorized access impact.

We have defined the non-GAAP measure adjusted net income per diluted share as the calculation previously noted divided by the weighted average diluted shares outstanding as reflected in our statement of income.

We use adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. We believe it is useful to exclude non-cash share based compensation expense from adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time and share based compensation expense is not a key measure of our core operating performance. We also believe that amortization expense can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired; therefore, we have excluded amortization expense from our adjusted net income. We also believe one-time non-recurring gains, losses, and impairment charges do not necessarily reflect how our investments and business are performing. We believe that adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be considered as an alternative to net income or cash flow from operations, as determined by U.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies.

Set forth below is a reconciliation of adjusted net income and adjusted net income per diluted share to the most directly comparable GAAP measure, net income and net income per diluted share (in thousands, except per share amounts)*:

		Year Ended December 31,*
(Unaudited)		2019				2018
Net income		$	895,073			$	811,483
Stock based compensation		60,953				69,939
Amortization of intangible assets, premium on receivables, deferred financing costs and discounts		216,532				227,015
Investment losses		2,705				7,147
Net gain on disposition of assets/business		—				(152,750		)
Loss on write-off of fixed assets		1,819				8,793
Loss on extinguishment of debt		—				2,098
Legal settlements/litigation		6,181				5,500
Restructuring and related costs		2,814				4,969
Unauthorized access impact		—				2,065
Total pre-tax adjustments		291,004				174,777
Income tax impact of pre-tax adjustments at the effective tax rate1		(61,619		)		(39,151		)
Impact of investment sale, other discrete item and tax reform2		(62,333		)		22,731
Adjusted net income		$	1,062,125			$	969,840
Adjusted net income per diluted share		$	11.79			$	10.53
Diluted shares		90,070				92,151

1 Includes discrete tax effect of non-cash investment gain. Also excludes impact of a Section 199 tax adjustment related to a prior tax year on the 2019 effective income tax rate.
2Represents the impact to taxes from the reversal of a valuation allowance related to the disposition of our investment in Masternaut of $64.9 million and $0.8 million in the second and fourth quarters of 2019, respectively, and impact of tax reform adjustments included in our effective tax rate of $22.7 million in the third quarter of 2018. Also, includes the impact of a discrete tax item for a Section 199 adjustment related to a prior tax year in the third quarter of 2019 results of $1.8 million.
* Columns may not calculate due to rounding.