Item 1. Financial Statements

112K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

FLEETCOR Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share and Par Value Amounts)


	September 30, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,317,544	$	1,520,027
Restricted cash	983,336		730,668
Accounts and other receivables (less allowance for credit losses of $134,027 at September 30, 2022 and $98,719 at December 31, 2021)	2,184,629		1,793,274
Securitized accounts receivable—restricted for securitization investors	1,482,000		1,118,000
Prepaid expenses and other current assets	618,559		326,079

Total current assets	6,586,068		5,488,048
Property and equipment, net	272,589		236,294

Goodwill	5,068,954		5,078,978
Other intangibles, net	2,169,232		2,335,385
Investments	74,349		52,016
Other assets	314,832		213,932
Total assets	$	14,486,024	$	13,404,653
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,693,988	$	1,406,350
Accrued expenses	389,953		369,054
Customer deposits	1,599,853		1,788,705
Securitization facility	1,482,000		1,118,000
Current portion of notes payable and lines of credit	994,088		399,628
Other current liabilities	478,283		208,614
Total current liabilities	6,638,165		5,290,351
Notes payable and other obligations, less current portion	4,745,122		4,460,039
Deferred income taxes	571,448		566,291
Other noncurrent liabilities	304,237		221,392
Total noncurrent liabilities	5,620,807		5,247,722
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.001 par value; 475,000,000 shares authorized; 127,591,768 shares issued and 73,727,244 shares outstanding at September 30, 2022; and 127,113,023 shares issued and 78,879,551 shares outstanding at December 31, 2021	128		127
Additional paid-in capital	3,001,687		2,878,751
Retained earnings	6,985,450		6,256,442
Accumulated other comprehensive loss	(1,660,445)		(1,464,616)
Less treasury stock, 53,864,524 shares at September 30, 2022 and 48,233,471 shares at December 31, 2021	(6,099,768)		(4,804,124)
Total stockholders’ equity	2,227,052		2,866,580
Total liabilities and stockholders’ equity	$	14,486,024	$	13,404,653


See accompanying notes to unaudited consolidated financial statements.

FLEETCOR Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues, net	$	893,000	$	755,477	$	2,543,519	$	2,031,481
Expenses:

Processing	203,315		149,564		563,097		388,286
Selling	74,005		71,204		230,218		186,511
General and administrative	149,294		121,785		440,262		345,155
Depreciation and amortization	77,213		74,237		232,489		209,184
Other operating, net	3		—		82		81
Operating income	389,170		338,687		1,077,371		902,264
Other expenses:
Investment loss (gain)	174		—		519		(9)
Other expense (income), net	3,688		1,532		6,187		(2,547)
Interest expense, net	45,410		29,033		90,510		92,269
Loss on extinguishment of debt	—		—		1,934		6,230
Total other expense	49,272		30,565		99,150		95,943
Income before income taxes	339,898		308,122		978,221		806,321
Provision for income taxes	91,013		74,115		249,213		191,828
Net income	$	248,885	$	234,007	$	729,008	$	614,493

Basic earnings per share	$	3.34	$	2.86	$	9.55	$	7.42
Diluted earnings per share	$	3.29	$	2.80	$	9.38	$	7.24
Weighted average shares outstanding:
Basic shares	74,461		81,836		76,311		82,811
Diluted shares	75,558		83,716		77,687		84,917

See accompanying notes to unaudited consolidated financial statements.

FLEETCOR Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(In Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	248,885	$	234,007	$	729,008	$	614,493
Other comprehensive loss:
Foreign currency translation losses, net of tax	(252,719)		(179,839)		(228,666)		(102,191)
Net change in derivative contracts, net of tax	6,107		8,972		32,837		29,305
Total other comprehensive loss	(246,612)		(170,867)		(195,829)		(72,886)
Total comprehensive income	$	2,273	$	63,140	$	533,179	$	541,607

See accompanying notes to unaudited consolidated financial statements.

FLEETCOR Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Stockholders’ Equity

(In Thousands)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Balance at December 31, 2021	$	127	$	2,878,751	$	6,256,442	$	(1,464,616)	$	(4,804,124)	$	2,866,580
Net income	—		—		217,952		—		—		217,952
Other comprehensive income, net of tax	—		—		—		201,179		—		201,179
Acquisition of common stock	—		—		—		—		(422,736)		(422,736)
Share-based compensation	—		32,631		—		—		—		32,631
Issuance of common stock	—		8,810		—		—		—		8,810


Balance at March 31, 2022	127		2,920,192		6,474,394		(1,263,437)		(5,226,860)		2,904,416
Net income	—		—		262,171		—		—		262,171
Other comprehensive loss, net of tax	—		—		—		(150,396)		—		(150,396)
Acquisition of common stock	—		—		—		—		(372,566)		(372,566)
Share-based compensation	—		34,017		—		—		—		34,017
Issuance of common stock	1		10,026		—		—		—		10,027
Balance at June 30, 2022	128		2,964,235		6,736,565		(1,413,833)		(5,599,426)		2,687,669
Net income	—		—		248,885		—		—		248,885
Other comprehensive loss, net of tax	—		—		—		(246,612)		—		(246,612)
Acquisition of common stock	—		—		—		—		(500,342)		(500,342)
Share-based compensation	—		34,180		—		—		—		34,180
Issuance of common stock	—		3,272		—		—		—		3,272
Balance at September 30, 2022	$	128	$	3,001,687	$	6,985,450	$	(1,660,445)	$	(6,099,768)	$	2,227,052


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Balance at December 31, 2020	$	126	$	2,749,900	$	5,416,945	$	(1,363,158)	$	(3,448,402)	$	3,355,411
Net income	—		—		184,239		—		—		184,239
Other comprehensive loss, net of tax	—		—		—		(117,861)		—		(117,861)
Acquisition of common stock	—		—		—		—		(170,382)		(170,382)
Share-based compensation	—		17,747		—		—		—		17,747
Issuance of common stock	1		27,344		—		—		—		27,345
Balance at March 31, 2021	127		2,794,991		5,601,184		(1,481,019)		(3,618,784)		3,296,499
Net income	—		—		196,247		—		—		196,247
Other comprehensive income, net of tax	—		—		—		215,842		—		215,842
Acquisition of common stock	—		—		—		—		(246,203)		(246,203)
Share-based compensation	—		17,885		—		—		—		17,885
Issuance of common stock	—		8,577		—		—		—		8,577
Balance at June 30, 2021	127		2,821,453		5,797,431		(1,265,177)		(3,864,987)		3,488,847
Net income	—		—		234,007		—		—		234,007
Other comprehensive loss, net of tax	—		—		—		(170,867)		—		(170,867)
Acquisition of common stock	—		—		—		—		(405,692)		(405,692)
Share-based compensation	—		16,453		—		—		—		16,453
Issuance of common stock	—		12,237		—		—		—		12,237
Balance at September 30, 2021	$	127	$	2,850,143	$	6,031,438	$	(1,436,044)	$	(4,270,679)	$	3,174,985

See accompanying notes to unaudited consolidated financial statements.

FLEETCOR Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In Thousands)


	Nine Months Ended September 30,
	2022		2021
Operating activities
Net income	$	729,008	$	614,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	67,066		55,605
Stock-based compensation	100,828		52,085
Provision for credit losses on accounts and other receivables	89,976		19,419
Amortization of deferred financing costs and discounts	5,949		4,903
Amortization of intangible assets and premium on receivables	165,423		153,579
Loss on extinguishment of debt	1,934		6,230

Deferred income taxes	(7,987)		10,051

Other non-cash operating loss	601		72
Changes in operating assets and liabilities (net of acquisitions/dispositions):
Accounts and other receivables	(950,237)		(1,020,900)
Prepaid expenses and other current assets	(300,600)		190,543
Other assets	(105,013)		28,370

Accounts payable, accrued expenses and customer deposits	641,659		485,091
Net cash provided by operating activities	438,607		599,541
Investing activities
Acquisitions, net of cash acquired	(160,117)		(545,052)
Purchases of property and equipment	(107,631)		(74,455)

Other	—		(2,281)
Net cash used in investing activities	(267,748)		(621,788)
Financing activities
Proceeds from issuance of common stock	22,109		48,159
Repurchase of common stock	(1,295,644)		(822,277)
Borrowings on securitization facility, net	364,000		398,000
Deferred financing costs	(10,282)		(21,508)
Proceeds from notes payable	3,000,000		1,150,000
Principal payments on notes payable	(2,800,500)		(462,438)
Borrowings from revolver	4,338,000		1,140,000
Payments on revolver	(3,658,000)		(798,851)
Borrowings (payments) on swing line of credit, net	194		(51,049)

Other	—		(811)
Net cash (used in) provided by financing activities	(40,123)		579,225
Effect of foreign currency exchange rates on cash	(80,551)		(24,660)
Net increase in cash and cash equivalents and restricted cash	50,185		532,318
Cash and cash equivalents and restricted cash, beginning of period	2,250,695		1,476,619
Cash and cash equivalents and restricted cash, end of period	$	2,300,880	$	2,008,937
Supplemental cash flow information
Cash paid for interest	$	138,310	$	96,146
Cash paid for income taxes	$	309,567	$	147,028



See accompanying notes to unaudited consolidated financial statements.

FLEETCOR Technologies, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

September 30, 2022

1. Summary of Significant Accounting Policies

Basis of Presentation

Throughout this Quarterly Report on Form 10-Q, the terms "our," "we," "us," and the "Company" refers to FLEETCOR Technologies, Inc. and its subsidiaries. The Company prepared the accompanying unaudited interim consolidated financial statements in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States ("GAAP"). The unaudited interim consolidated financial statements reflect all adjustments considered necessary for fair presentation. These adjustments consist of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may differ from these estimates.

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available to us as of September 30, 2022 and through the date of this Report. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates due to the uncertainty around the ongoing conflict between Russia and Ukraine, the impact of changes to monetary policy, as well as other factors.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are recorded to accumulated other comprehensive income (loss). Income and expenses are translated at the average monthly rates of exchange in effect during the year. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized foreign exchange losses, which are recorded within other expense, net in the Unaudited Consolidated Statements of Income, for the three and nine months ended September 30, 2022 and 2021 as follows (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Foreign exchange (losses)	$	(1.9)	$	(1.2)	$	(4.1)	$	(2.9)

The Company recorded foreign currency gains (losses) on long-term intra-entity transactions included as a component of foreign currency translation gains (losses), net of tax, in the Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 as follows (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Foreign currency gains (losses) on long-term intra-entity transactions	$	27.8	$	(46.0)	$	184.1	$	(20.2)

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. Restricted cash represents customer deposits repayable on demand, as well as collateral received from customers for cross-currency transactions in our cross-border payments business, which are restricted from use other than to repay customer deposits, as well as secure and settle cross-currency transactions. Based on our assessment of the current capital market conditions and related impact on our access to cash, we have reclassified all cash held at our Russian businesses of $246.6 million to restricted cash as of September 30, 2022.

Financial Instruments - Credit Losses

The Company accounts for financial assets' expected credit losses in accordance with Accounting Standards Codification (ASC) 326, "Financial Instruments - Credit Losses". The Company’s financial assets subject to credit losses are primarily trade receivables. The Company utilizes a combination of aging and loss-rate methods to develop an estimate of current expected credit losses, depending on the nature and risk profile of the underlying asset pool, based on product, size of customer and historical losses. Expected credit losses are estimated based upon an assessment of risk characteristics, historical payment experience, and the age of outstanding receivables, adjusted for forward-looking economic conditions. The allowances for remaining financial assets measured at amortized cost basis are evaluated based on underlying financial condition, credit history, and current and forward-looking economic conditions. The estimation process for expected credit losses includes consideration of qualitative and quantitative risk factors associated with the age of asset balances, expected timing of payment, contract terms and conditions, changes in specific customer risk profiles or mix of customers, geographic risk, economic trends and relevant environmental factors.

Revenue

The Company provides payment solutions to our business, merchant, consumer and payment network customers. Our payment solutions are primarily focused on specific commercial spend categories, including Fuel, Corporate Payments, Tolls, Lodging, as well as Gift solutions (stored value cards and e-cards). The Company provides solutions that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. The Company also provides other payment solutions for fleet maintenance, employee benefits and long haul transportation-related services. Revenues from contracts with customers, within the scope of ASC 606, "Revenue Recognition", represent approximately 75% of total consolidated revenues, net, for the three and nine months ended September 30, 2022. The Company accounts for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada in accordance with ASC 310, "Receivables". Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided. In addition, in its cross-border payments business, the Company writes foreign currency forward and option contracts for its customers to facilitate future payments in foreign currencies. Our revenue is generally reported net of the cost for underlying products and services purchased through our payment solutions. In this report, we refer to this net revenue as "revenue".

Disaggregation of Revenues

The Company provides its services to customers across different payment solutions and geographies. Revenue by solution (in millions) for the three and nine months ended September 30, was as follows:


Revenues, net by Solution*	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		%		2021		%		2022		%		2021		%
Fuel	$	361.8	41	%	$	306.8	41	%	$	1,027.2	40	%	$	863.8	43	%
Corporate Payments	196.9		22	%	168.7		22	%	570.4		22	%	425.5		21	%
Tolls	88.6		10	%	79.0		10	%	264.7		10	%	219.4		11	%
Lodging	126.0		14	%	85.2		11	%	337.4		13	%	206.5		10	%
Gift	52.0		6	%	48.6		6	%	147.2		6	%	124.3		6	%
Other	67.7		8	%	67.2		9	%	196.6		8	%	192.1		9	%
Consolidated revenues, net	$	893.0	100	%	$	755.5	100	%	$	2,543.5	100	%	$	2,031.5	100	%


*Columns may not calculate due to rounding.

Revenue by geography (in millions) for the three and nine months ended September 30, was as follows:


Revenues, net by Geography*	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		%		2021		%		2022		%		2021		%
United States	$	558.3	63	%	$	488.2	65	%	$	1,557.7	61	%	$	1,271.5	63	%
Brazil	108.6		12	%	94.9		13	%	322.9		13	%	262.5		13	%
United Kingdom	90.4		10	%	81.9		11	%	278.4		11	%	241.0		12	%
Other	135.8		15	%	90.5		12	%	384.5		15	%	256.5		13	%
Consolidated revenues, net	$	893.0	100	%	$	755.5	100	%	$	2,543.5	100	%	$	2,031.5	100	%


*Columns may not calculate due to rounding.

Contract Liabilities

Deferred revenue contract liabilities for customers subject to ASC 606 were $56.1 million and $73.7 million as of September 30, 2022 and December 31, 2021, respectively. We expect to recognize approximately $34.2 million of these amounts in revenues within 12 months and the remaining $21.9 million over the next five years as of September 30, 2022. Revenue recognized in the nine months ended September 30, 2022 that was included in the deferred revenue contract liability as of December 31, 2021 was approximately $38.0 million.

Spot Trade Offsetting

The Company uses spot trades to facilitate cross-currency corporate payments in its cross-border payments business. The Company applies offsetting to spot trade assets and liabilities associated with contracts that include master netting agreements, as a right of setoff exists, which the Company believes to be enforceable. As such, the Company has netted spot trade liabilities against spot trade receivables at the counter-party level. The Company recognizes all spot trade assets, net in accounts receivable and all spot trade liabilities, net in accounts payable, each net at the customer level, in its Consolidated Balance Sheets at their fair value. The following table presents the Company’s spot trade assets and liabilities at their fair value at September 30, 2022 and December 31, 2021 (in millions):


	September 30, 2022						December 31, 2021
	Gross		Offset on the Balance Sheet		Net		Gross		Offset on the Balance Sheet		Net
Assets
Accounts Receivable	$	3,789.6	$	(3,615.6)	$	174.0	$	1,185.9	$	(1,057.7)	$	128.2


Liabilities
Accounts Payable	$	3,697.1	$	(3,615.6)	$	81.5	$	1,199.5	$	(1,057.7)	$	141.8

Reclassifications and Adjustments

During 2021, the Company identified and corrected an immaterial error in the presentation of deferred income taxes and changes in accounts payable, accrued expenses and customer deposits, both presented within net cash provided by operating activities, in our prior year Consolidated Statement of Cash Flows. The impact of this correction for the nine months ended September 30, 2021 was a decrease to the adjustment to reconcile net income to net cash provided by operating activities related to deferred income taxes of $6.2 million, with a corresponding increase to changes in accounts payable, accrued expenses and customer deposits in operating activities of $6.2 million. There was no impact to net cash provided by operating activities in the Unaudited Consolidated Statement of Cash Flows.

Additionally, certain disclosures for prior periods have been reclassified to conform with current year presentation.

Adoption of New Accounting Standards

Reference Rate Reform

In March 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-04). The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company's adoption of this ASU 2020-04 on January 1, 2022 did not have a material impact on the Company's consolidated financial statements. The Company transitioned from LIBOR to the Sterling Overnight Index Average Reference Rate ("SONIA") plus a SONIA adjustment of 0.0326% for sterling borrowings, the Euro Interbank Offered Rate ("EURIBOR") for term euro borrowings, the Euro Short Term Rate ("ESTR") plus an ESTR adjustment of 0.085% for swingline euro borrowings, and the Tokyo Interbank Offered Rate ("TIBOR") for yen borrowings. In addition, the Company transitioned from LIBOR to the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 0.10% for USD borrowings under the Securitization Facility (as defined below), revolving credit facility and the term loan A. The Company has availed itself of available benefits arising from changes in the reference rate related to our debt and interest rate swaps. Cross currency derivatives are not impacted by this ASU.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)" (ASU 2021-08), which requires an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired contracts. This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. Adoption during an interim period requires retrospective application to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application. The Company's adoption of this ASU on January 1, 2022 did not have a material impact on the Company's consolidated financial statements.

2. Accounts and Other Receivables

The Company's accounts and securitized accounts receivable include the following at September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022		December 31, 2021
Gross domestic accounts receivable	$	1,004,713	$	994,063
Gross domestic securitized accounts receivable	1,482,000		1,118,000
Gross foreign receivables	1,313,943		897,930
Total gross receivables	3,800,656		3,009,993
Less allowance for credit losses	(134,027)		(98,719)
Net accounts and securitized accounts receivable	$	3,666,629	$	2,911,274

The Company maintains a $1.7 billion revolving trade accounts receivable securitization facility (as amended from time to time, the "Securitization Facility"). Accounts receivable collateralized within our Securitization Facility primarily relate to trade receivables resulting from charge card activity in the U.S. Pursuant to the terms of the Securitization Facility, the Company transfers certain of its domestic receivables, on a revolving basis, to 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 multi-seller banks and asset-backed commercial paper conduits (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.

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

The Company’s Consolidated Balance 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. On August 18, 2022, the Company entered into the eleventh amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from $1.6 billion to $1.7 billion, reduced the program fee margin and extended the maturity of the Securitization Facility to August 18, 2025.

A rollforward of the Company’s allowance for credit losses related to accounts receivable for the nine months ended September 30, 2022 and 2021 is as follows (in thousands):


	2022		2021
Allowance for credit losses beginning of period	$	98,719	$	86,886
Provision for credit losses	89,976		19,419
Write-offs	(58,284)		(24,563)
Recoveries	5,329		11,519
Impact of foreign currency	(1,713)		(2,537)
Allowance for credit losses end of period	$	134,027	$	90,724

3. Fair Value Measurements

A three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table presents the Company’s financial assets and liabilities which are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):


	Fair Value		Level 1		Level 2		Level 3
September 30, 2022
Assets:
Repurchase agreements	$	93,152	$	—	$	93,152	$	—
Money market	242,717		—		242,717		—
Certificates of deposit	30,468		—		30,468		—
Interest Rate Swaps	12,932		—		12,932		—

Foreign exchange contracts	484,748		—		484,748		—
Total assets	$	864,017	$	—	$	864,017	$	—
Cash collateral for foreign exchange contracts	$	112,529	$	—	$	—	$	—
Liabilities:

Foreign exchange contracts	464,576		—		464,576		—
Total liabilities	$	464,576	$	—	$	464,576	$	—
Cash collateral obligation for foreign exchange contracts	$	142,263	$	—	$	—	$	—

December 31, 2021
Assets:
Repurchase agreements	$	477,069	$	—	$	477,069	$	—
Money market	43,023		—		43,023		—
Certificates of deposit	958		—		958		—

Foreign exchange contracts	120,859		—		120,859		—
Total assets	$	641,909	$	—	$	641,908	$	—
Cash collateral for foreign exchange contracts	$	25,881	$	—	$	—	$	—
Liabilities:
Interest rate swaps1	$	30,733	$	—	$	30,733	$	—
Foreign exchange contracts	89,925		—		89,925		—
Total liabilities	$	120,658	$	—	$	120,658	$	—
Cash collateral obligation for foreign exchange contracts	$	24,803	$	—	$	—	$	—

1During 2022, the Company identified and corrected an immaterial error in the presentation of the December 31, 2021 interest rate swap liabilities in the table above. Such amount was incorrectly bracketed, which has since been corrected. The liability was correctly presented and classified in the Company's Consolidated Balance Sheet at December 31, 2021.

The Company has highly-liquid investments classified as cash equivalents, with original maturities of 90 days or less, included in our Consolidated Balance Sheets. The Company utilizes Level 2 fair value determinations derived from directly or indirectly observable (market based) information to determine the fair value of these highly liquid investments. The Company has certain cash and cash equivalents that are invested in highly liquid investments, such as, repurchase agreements, money markets and certificates of deposit, with maturities ranging from overnight to 90 days or less. The value of overnight repurchase agreements is determined based upon the quoted market prices for the securities associated with the repurchase agreements. The value of money market instruments is determined based upon the financial institutions' month-end statement, as these instruments are not tradable and must be settled directly by us with the respective financial institution. Certificates of deposit are valued at cost, plus interest accrued. Given the short-term nature of these instruments, the carrying value approximates fair value. Foreign exchange derivative contracts are carried at fair value, with changes in fair value recognized in the Consolidated Statements of Income. The fair value of the Company's derivatives is derived with reference to a valuation from a derivatives dealer operating in an active market, which approximates the fair value of these instruments. The fair value represents the net settlement if the contracts were terminated as of the reporting date. Cash collateral received for foreign exchange derivatives is recorded within customer deposits in our Consolidated Balance Sheet at September 30, 2022 and December 31, 2021. Cash collateral deposited for foreign exchange derivatives is recorded within restricted cash in our Consolidated Balance Sheet at September 30, 2022 and December 31, 2021.

The level within the fair value hierarchy and the measurement technique are reviewed quarterly. Transfers between levels are deemed to have occurred at the end of the quarter. There were no transfers between fair value levels during the periods presented for September 30, 2022 and December 31, 2021.

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

The Company determines the fair values of its derivatives based on quoted market prices or pricing models using current market rates. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, commodity rates or other financial indices. The Company's derivatives are over-the-counter instruments with liquid markets.

The Company regularly evaluates the carrying value of its investments. The carrying amount of investments without readily determinable fair values was $74.3 million at September 30, 2022.

The Company typically reviews long-lived assets and goodwill for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or if an indicator of impairment exists. The recent military conflict between Russia and Ukraine has created significant uncertainty and risk in the economic environment in which the Russia reporting unit operates. As such, the Company completed an analysis during the period, which resulted in no impairment. The Company continues to monitor the economic uncertainty, while assessing the financial impact and outlook for the Russia reporting unit.

The fair value of the Company’s cash, accounts receivable, securitized accounts receivable and related facility, prepaid expenses and other current assets, accounts payable, accrued expenses, customer deposits and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The carrying value of the Company’s debt obligations approximates fair value as the interest rates on the debt are variable market based interest rates that reset on a quarterly basis. These are each Level 2 fair value measurements, except for cash, which is a Level 1 fair value measurement.

4. Stockholders' Equity

The Company's Board of Directors (the "Board") has approved a stock repurchase program (as updated from time to time, the "Program") authorizing the Company to repurchase its common stock from time to time until February 1, 2024. On January 25, 2022, the Board increased the aggregate size of the Program by $1.0 billion, to $6.1 billion. Since the beginning of the Program through September 30, 2022, 25,699,551 shares have been repurchased for an aggregate purchase price of $5.7 billion, leaving the Company up to $0.4 billion of remaining authorization available under the Program for future repurchases in shares of its common stock.

On October 25, 2022, the Board increased the aggregate size of the Program by $1.0 billion to an aggregate of $7.1 billion, with approximately $1.4 billion remaining.

5. Stock-Based Compensation

The following table summarizes the expense recognized within general and administrative expenses in the Unaudited Consolidated Statements of Income related to share-based payments recognized in the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Stock options	$	17,434	$	3,792	$	53,558	$	13,394
Restricted stock	16,747		12,661		47,270		38,691
Stock-based compensation	$	34,181	$	16,453	$	100,828	$	52,085

The tax benefits recorded on stock-based compensation and upon the exercises of options were $23.9 million and $33.2 million for the nine months ended September 30, 2022 and 2021, respectively.

The following table summarizes the Company’s total unrecognized compensation cost related to stock based compensation as of September 30, 2022 (cost in thousands):


	Unrecognized Compensation Cost		Weighted Average Period of Expense Recognition (in Years)
Stock options	$	64,530	1.90
Restricted stock	61,015		0.95
Total	$	125,545

Stock Options

The following summarizes the changes in the number of shares of common stock under option for the nine months ended September 30, 2022 (shares/options and aggregate intrinsic value in thousands):


	Shares	Weighted Average Exercise Price		Options Exercisable at End of Period	Weighted Average Exercise Price of Exercisable Options		Weighted Average Fair Value of Options Granted During the Period		Aggregate Intrinsic Value
Outstanding at December 31, 2021	5,447	$	176.52	3,798	$	145.18			$	257,707
Granted	612	226.23					$	65.85
Exercised	(333)	64.34							54,752
Forfeited	(51)	244.77
Outstanding at September 30, 2022	5,675	$	187.86	4,085	$	167.60			$	99,121
Expected to vest as of September 30, 2022	1,589	$	239.94

The aggregate intrinsic value of stock options exercisable at September 30, 2022 was $99.1 million. The weighted average remaining contractual term of options exercisable at September 30, 2022 was 3.9 years.

Restricted Stock

The following table summarizes the changes in the number of shares of restricted stock and restricted stock units for the nine months ended September 30, 2022 (shares in thousands):


	Shares	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021	278	$	278.57
Granted	382	229.05
Vested	(146)	267.56
Canceled or forfeited	(45)	322.07
Outstanding at September 30, 2022	469	$	237.61

6. Acquisitions

2022 Acquisitions

Levarti, Accrualify, and Plugsurfing

During 2022, the Company acquired Levarti, an airline software platform company reported in the Lodging segment, Accrualify, an accounts payable (AP) automation software company reported in the Corporate Payments segment, and Plugsurfing, a European electric vehicle (EV) software and network provider reported in the Fleet segment. The aggregate purchase price of these acquisitions was approximately $140.7 million, net of cash. The Company financed the acquisitions using a combination of available cash and borrowings under its existing credit facility. In connection with one of these acquisitions, the Company signed noncompete agreements with certain parties affiliated with the business for which the Company is still completing the valuation. These noncompete agreements were accounted for separately from the business acquisition.

Acquisition accounting is preliminary as the Company is still completing the valuation for goodwill, intangible assets, income taxes, working capital, and contingencies.

The following table summarizes the preliminary acquisition accounting, in aggregate, for the business acquisitions noted above (in thousands):


Trade and other receivables	$	5,547
Prepaid expenses and other current assets	14,810

Other long term assets	4,598
Goodwill	104,377
Intangibles	52,364
Other current liabilities	(18,006)
Other noncurrent liabilities	(22,919)

Aggregate purchase price	$	140,771

Roomex (Subsequent to September 30, 2022)

On November 1, 2002, the Company completed the acquisition of Roomex, a European workforce lodging provider serving the U.K. and German markets for approximately $60 million. The Company is in the process of performing the acquisition accounting for the assets acquired and liabilities assumed in the transaction.

Other

In February 2022, the Company also made investments of $7.8 million in an electric vehicle charging payments business and $5.0 million in an electric vehicle data analytics business. In September 2022, the Company made an investment of $6.1 million in a U.K. based electric vehicle search and pay mapping service.

2021 Acquisitions

ALE

On September 1, 2021, the Company completed the acquisition of ALE Solutions, Inc. (ALE), a leader in lodging solutions to the insurance industry, for a net purchase price of $421.8 million. The purpose of this acquisition is to expand the Company's lodging business into the insurance vertical. The Company financed the acquisition using a combination of available cash and borrowings under its existing credit facility. The results from the acquisition are reported in the Lodging segment.

In connection with this acquisition, the Company signed noncompete agreements with certain parties affiliated with the business with an estimated fair value of $18.3 million. These noncompete agreements were accounted for separately from the business acquisition.

The following table summarizes the final acquisition accounting for ALE (in thousands):


Trade and other receivables	$	178,396
Prepaid expenses and other current assets	2,555

Other long term assets	10,121
Goodwill	136,471
Intangibles	175,800
Accounts payable and accrued expenses	(31,048)
Other current liabilities	(38,866)

Other noncurrent liabilities	(11,596)





Aggregate purchase price	$	421,833

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


	Useful Lives (in Years)	Value
Trade Names and Trademarks	Indefinite	$	14,500
Proprietary Technology	4	14,400
Lodging Network	20	800
Customer Relationships	15	146,100



		$	175,800

AFEX

On June 1, 2021, the Company completed the acquisition of Associated Foreign Exchange (AFEX), a U.S. based, cross-border payment solutions provider, for $459.1 million. This includes $210.3 million of cash and cash equivalents and $178.7 million of restricted cash, resulting in a net purchase price of $70.1 million. The purpose of this acquisition is to further expand the Company's cross border payment solutions. The Company financed the acquisition using a combination of available cash and borrowings under its existing credit facility. The results from the acquisition are reported in the Corporate Payments segment.

In connection with this acquisition, the Company signed noncompete agreements with certain parties affiliated with the business with an estimated fair value of $4.1 million. These noncompete agreements were accounted for separately from the business acquisition.

The following table summarizes the final acquisition accounting for AFEX (in thousands):


Trade and other receivables	$	8,159
Prepaid expenses and other current assets	108,402
Property, plant and equipment	1,723
Other long term assets	51,074
Goodwill	257,332
Intangibles	237,900
Accounts payable and accrued expenses	(40,164)
Other current liabilities	(81,430)
Customer deposits	(375,049)
Other noncurrent liabilities	(97,855)
Aggregate purchase price	$	70,092

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


	Useful Lives (in Years)	Value
Trade Names and Trademarks	2	$	5,400
Proprietary Technology	4	11,800
Banking Relationships	20	1,800
Licenses	20	2,600
Customer Relationships	10	216,300


		$	237,900

Roger

On January 13, 2021, the Company completed the acquisition of Roger, rebranded Corpay One, a global accounts payable (AP) cloud software platform for small businesses, for $39.0 million, net of cash acquired. The Company financed the acquisition using a combination of available cash and borrowings under its existing credit facility. The results from the acquisition are reported in the Corporate Payments segment.

The following table summarizes the final acquisition accounting for Roger (in thousands):


Accounts and other receivables	$	110
Prepaid expenses and other current assets	37

Other assets	28
Goodwill	34,359
Other intangibles	5,400
Current liabilities	(925)

Deferred income taxes	(6)
Aggregate purchase price	$	39,003

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


	Useful Lives (in Years)	Value
Proprietary Technology	10	$	4,800


Customer Relationships	13	600


		$	5,400

Other

On December 15, 2021, the Company acquired a mobile fuel payments solution in Russia for a net purchase price of $5.0 million. Acquisition accounting for this acquisition is preliminary as the Company is still completing the valuation of certain goodwill, intangible assets, income taxes and working capital adjustments. The results from the acquisition are reported in the Fleet segment. During 2021, the Company made an investment of $37.8 million in a joint venture with CAIXA, a leading bank in Brazil. The Company also made investments in other businesses of $6.8 million. The Company financed all of these investments and acquisitions using a combination of available cash and borrowings under its existing credit facility.

7. Goodwill and Other Intangibles

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


	December 31, 2021		Acquisitions		Acquisition Accounting Adjustments		Foreign Currency		September 30, 2022






Goodwill	$	5,078,978	$	104,377	$	8,849	$	(123,250)	$	5,068,954

As of September 30, 2022 and December 31, 2021, other intangibles consisted of the following (in thousands):


		September 30, 2022						December 31, 2021
	Weighted- Avg Useful Lives (Years)	Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amount
Customer and vendor relationships	16.5	$	2,886,386	$	(1,264,559)	$	1,621,827	$	2,925,719	$	(1,167,218)	$	1,758,501
Trade names and trademarks—indefinite lived	N/A	456,239		—		456,239		466,327		—		466,327
Trade names and trademarks—other	6.8	11,644		(7,214)		4,430		12,093		(5,235)		6,858
Software	5.9	273,822		(210,644)		63,178		272,461		(198,628)		73,833
Non-compete agreements	4.3	79,543		(55,985)		23,558		78,145		(48,279)		29,866
Total other intangibles		$	3,707,634	$	(1,538,402)	$	2,169,232	$	3,754,745	$	(1,419,360)	$	2,335,385

Changes in foreign exchange rates resulted in a $45.8 million decrease to the net carrying values of other intangibles in the nine months ended September 30, 2022. Amortization expense related to intangible assets for the nine months ended September 30, 2022 and 2021 was $163.1 million and $151.2 million, respectively.

8. Debt

The Company is party to a $6.4 billion Credit Agreement (the "Credit Agreement"), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and a syndicate of financial institutions (the "Lenders"). The Credit Agreement includes term loan A, term loan B, and a revolving credit facility. As noted in footnote 2, the Company is also party to a Securitization Facility.

The balances of the Company’s debt instruments under the Credit Agreement and the Securitization Facility are as follows (in thousands):


	September 30, 2022		December 31, 2021
Term Loan A note payable, net of discounts and issuance costs	$	2,974,412	$	2,763,162
Term Loan B note payable, net of discounts and issuance costs	1,859,798		1,871,505
Revolving line of credit facilities	905,000		225,000




Total notes payable and credit agreements	5,739,210		4,859,667
Securitization Facility	1,482,000		1,118,000
Total notes payable, credit agreements and Securitization Facility	$	7,221,210	$	5,977,667
Current portion	$	2,476,088	$	1,517,628
Long-term portion	4,745,122		4,460,039
Total notes payable, credit agreements and Securitization Facility	$	7,221,210	$	5,977,667

On June 24, 2022, the Company entered into the twelfth amendment to the Credit Agreement. The amendment replaced the existing term loan A with a new $3 billion term loan A and the revolving credit facility with a new $1.5 billion revolving credit facility, resulting in net increases of $273 million and $215 million, respectively. The amendment also replaced LIBOR on the term loan A and revolving credit facility with the Secured Overnight Financing Rate ("SOFR"), plus a SOFR adjustment of 0.10% and extended the maturity date for the term loan A and revolving credit facility to June 24, 2027.

On August 18, 2022, the Company entered into the eleventh amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from $1.6 billion to $1.7 billion, reduced the program fee margin and extended the maturity of the Securitization Facility to August 18, 2025. The Company has unamortized debt issuance costs of $3.5 million and $2.5 million related to the Securitization Facility as of September 30, 2022 and December 31, 2021, respectively, recorded within other assets in the Consolidated Balance Sheets.

The Company was in compliance with all financial and non-financial covenants under the Credit Agreement and Securitization Facility at September 30, 2022.

9. Income Taxes

The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 21% for 2022 and 2021 to income before income taxes for the three months ended September 30, 2022 and 2021 due to the following (in thousands):


	2022				2021
Computed expected tax expense	$	71,379	21.0	%	$	64,706	21.0	%
Changes resulting from:
Foreign income tax differential	(717)		(0.2)	%	(2,692)		(0.9)	%
Excess tax benefit related to stock-based compensation	(12)		—	%	(5,044)		(1.6)	%
State taxes net of federal benefits	5,588		1.6	%	4,927		1.6	%
Foreign withholding	3,653		1.1	%	3,304		1.1	%

GILTI, net of foreign tax credits	1,196		0.4	%	1,907		0.6	%
Foreign sourced non taxable income	88		—	%	81		—	%
Stock-based compensation	1,614		0.5	%	1,043		0.3	%
Sub-part F Income	3,382		1.0	%	2,139		0.7	%


Other	4,842		1.4	%	3,746		1.3	%
Provision for income taxes	$	91,013	26.8	%	$	74,115	24.1	%

10. Earnings Per Share

The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to shareholders of the Company by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share reflect the potential dilution related to equity-based incentives using the treasury stock method. The calculation and reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	248,885	$	234,007	$	729,008	$	614,493
Denominator for basic earnings per share	74,461		81,836		76,311		82,811
Dilutive securities	1,097		1,880		1,376		2,106
Denominator for diluted earnings per share	75,558		83,716		77,687		84,917
Basic earnings per share	$	3.34	$	2.86	$	9.55	$	7.42
Diluted earnings per share	$	3.29	$	2.80	$	9.38	$	7.24

Diluted earnings per share for the three months ended September 30, 2022 and 2021 excludes the effect of 2.5 million and 0.2 million, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be anti-dilutive. Diluted earnings per share also excludes the effect of an immaterial amount and 0.2 million shares of performance-based restricted stock for which the performance criteria have not yet been achieved for the three month periods ended September 30, 2022 and 2021, respectively.

11. Segments

The Company reports information about its operating segments in accordance with the authoritative guidance related to segments. In the second quarter of 2022, in order to align with recent changes in the organizational structure and management reporting, the Company updated its segments structure into Fleet, Corporate Payments, Lodging, Brazil and Other, which includes our Gift and Paycard businesses. We manage and report our operating results through these five reportable segments which aligns with how the Chief Operating Decision Maker (CODM) allocates resources, assesses performance and reviews financial information. The presentation of segment information has been recast for the prior periods to align with this segment presentation for the three and nine months ended September 30, 2022.

The Company’s segment results are as follows for the three and nine month periods ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	20221		2021		20221		2021
Revenues, net:
Fleet	$	395,203	$	343,194	$	1,124,157	$	971,258
Corporate Payments	196,941		168,684		570,408		425,466
Lodging	125,961		85,214		337,438		206,498
Brazil	108,583		94,888		322,945		262,481
Other2	66,312		63,497		188,571		165,778
	$	893,000	$	755,477	$	2,543,519	$	2,031,481
Operating income:
Fleet	$	192,598	$	181,787	$	547,233	$	501,406
Corporate Payments	69,669		53,512		193,735		146,526
Lodging	63,463		44,027		161,802		98,801
Brazil	44,646		39,943		123,591		105,499
Other2	18,794		19,418		51,010		50,032
	$	389,170	$	338,687	$	1,077,371	$	902,264
Depreciation and amortization:
Fleet	$	34,897	$	36,378	$	104,531	$	109,417
Corporate Payments	15,864		15,526		48,936		37,079
Lodging	10,474		7,301		31,329		17,685
Brazil	13,756		12,910		41,164		38,091
Other2	2,222		2,122		6,529		6,912
	$	77,213	$	74,237	$	232,489	$	209,184

1Results from Levarti acquired in the first quarter of 2022 are reported in our Lodging segment. Results from Accrualify and Plugsurfing acquired in the third quarter of 2022 are reported in our Corporate Payments and Fleet segments, respectively.

2Other includes gift and payroll card components.

12. Commitments and Contingencies

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

Derivative Lawsuits

On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia ("Federal Derivative Action") seeking recovery from the Company. The Federal Derivative Action alleges that the defendants issued a false and misleading proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedly false and misleading public statements concerning the Company’s fee charges and financial and business prospects; and that certain defendants breached their fiduciary duties through allegedly improper sales of stock. The complaint seeks unspecified monetary damages from the Company, corporate governance reforms, disgorgement of profits, benefits and compensation by the defendants, restitution, costs, and attorneys’ and experts’ fees. On September 20, 2018, the court entered an order deferring the Federal Derivative Action pending a ruling on motions for summary judgment in the then-pending shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed to by the parties. After preliminary approval of the proposed settlement of the shareholder class action was granted, the stay on the Federal Derivative Action was lifted. Plaintiffs amended their complaint on February 22, 2020. FLEETCOR filed a motion to dismiss the amended complaint in the Federal Derivative Action on April 17, 2020, which the Court granted without leave to

amend on October 21, 2020. Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Eleventh Circuit on November 18, 2020. The Eleventh Circuit affirmed the district court’s ruling dismissing the case in an order issued on July 27, 2022.

On January 9, 2019, a similar shareholder derivative complaint was filed in the Superior Court of Gwinnett County, Georgia ("State Derivative Action"), which was stayed pending a ruling on motions for summary judgment in the shareholder class action, notice a settlement has been reached in the shareholder class action, or until otherwise agreed by the parties. On October 31, 2022, the Court granted the Company’s motion to dismiss the State Derivative Action after the Eleventh Circuit affirmed the dismissal of the Federal Derivative Action.

FTC Investigation

In October 2017, the Federal Trade Commission ("FTC") issued a Notice of Civil Investigative Demand to the Company for the production of documentation and a request for responses to written interrogatories. After discussions with the Company, the FTC proposed in October 2019 to resolve potential claims relating to the Company’s advertising and marketing practices, principally in its U.S. direct fuel card business within its North American Fuel Card business. The parties reached impasse primarily related to what the Company believes are unreasonable demands for redress made by the FTC.

On December 20, 2019, the FTC filed a lawsuit in the Northern District of Georgia against the Company and Ron Clarke. See FTC v. FLEETCOR and Ronald F. Clarke, No. 19-cv-05727 (N.D. Ga.). The complaint alleges the Company and Clarke violated the FTC Act’s prohibitions on unfair and deceptive acts and practices. The complaint seeks among other things injunctive relief, consumer redress, and costs of suit. The Company continues to believe that the FTC’s claims are without merit. On April 17, 2021, the FTC filed a motion for summary judgment. On April 22, 2021, the United States Supreme Court held unanimously in AMG Capital Management v. FTC that the FTC does not have authority under current law to seek monetary redress by means of Section 13(b) of the FTC Act, which is the means by which the FTC has sought such redress in this case. FLEETCOR cross-moved for summary judgment regarding the FTC’s ability to seek monetary or injunctive relief on May 17, 2021. On August 13, 2021, the FTC filed a motion to stay or to voluntarily dismiss without prejudice the case pending in the Northern District of Georgia in favor of a parallel administrative action under Section 5 of the FTC Act that it filed on August 11, 2021 in the FTC’s administrative process. Apart from the jurisdiction and statutory change, the FTC’s administrative complaint makes the same factual allegations as the FTC’s original complaint filed in December 2019. The Company opposed the FTC’s motion for a stay or to voluntarily dismiss, and the court denied the FTC’s motion on February 7, 2022. In the meantime, the FTC’s administrative action is stayed. On August 9, 2022, the District Court for the Northern District of Georgia granted the FTC's motion for summary judgment as to liability for the Company and Ron Clarke, but granted the Company's motion for summary judgment as to the FTC's claim for monetary relief as to both the Company and Ron Clarke. The Company intends to appeal this decision after final judgment is issued. On October 20-21, 2022, the court held a hearing on the scope of injunctive relief. At the conclusion of the hearing, the Court did not enter either the FTC’s proposed order or the Company’s proposed order, and instead suggested that the parties enter mediation. The Company is exploring mediation with the FTC. The Company has incurred and continues to incur legal and other fees related to this complaint. Any settlement of this matter, or defense against the lawsuit, could involve costs to the Company, including legal fees, redress, penalties, and remediation expenses. At this time, in view of the complexity and ongoing nature of the matter, we are unable to estimate a reasonably possible loss or range of loss that we may incur to settle this matter or defend against the lawsuit brought by the FTC.

13. Derivative Financial Instruments and Hedging Activities

Foreign Currency Derivatives

The Company uses derivatives to facilitate cross-currency corporate payments by writing derivatives to customers within its cross-border solution. The Company writes derivatives, primarily foreign currency forward contracts, option contracts, and swaps, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity.

Derivative transactions associated with the Company's cross-border solution include:

Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash.
Option contracts, which give the purchaser the right, but not the obligation, to buy or sell within a specified time a currency at a contracted price that may be settled in cash.
Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis.

The credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. Concentrations of credit and performance risk may exist with counterparties, which includes customers and banking partners, as we are engaged in similar activities with similar economic characteristics related to fluctuations in foreign currency rates. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual

counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, if the counterparty does not perform under the term of the contract, the contract may be terminated. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815, "Derivatives and Hedging".

The aggregate equivalent U.S. dollar notional amount of foreign exchange derivative customer contracts held by the Company as of September 30, 2022 and December 31, 2021 (in millions) is presented in the following table.


	Notional
	September 30, 2022		December 31, 2021
Foreign exchange contracts:
Swaps	$	1,088.3	$	2,670.4
Futures, forwards and spot	13,881.0		7,818.3
Written options	14,365.2		11,221.9
Purchased options	12,867.2		10,614.0
Total	$	42,201.7	$	32,324.5

The majority of customer foreign exchange contracts are written in currencies such as the U.S. dollar, Canadian dollar, British pound, euro and Australian dollar.

The following table summarizes the fair value of derivatives reported in the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (in millions):


	September 30, 2022
	Fair Value, Gross				Fair Value, Net
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Derivatives - undesignated:
Foreign exchange contracts	$	1,007.9	$	987.8	$	484.7	$	464.6
Cash collateral	112.5		142.3		112.5		142.3
Total net of cash collateral	$	895.4	$	845.5	$	372.2	$	322.3


	December 31, 2021
	Fair Value, Gross				Fair Value, Net
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Derivatives - undesignated:
Foreign exchange contracts	$	338.8	$	307.8	$	120.9	$	89.9
Cash collateral	25.9		24.8		25.9		24.8
Total net of cash collateral	$	312.9	$	283.0	$	95.0	$	65.1

The fair values of derivative assets and liabilities associated with contracts, which include netting terms that the Company believes to be enforceable, have been recorded net within the Consolidated Balance Sheets. The Company receives cash from customers as collateral for trade exposures, which is recorded within cash and cash equivalents and customer deposits in the Consolidated Balance Sheets. The customer has the right to recall their collateral in the event exposures move in their favor, they perform on all outstanding contracts and have no outstanding amounts due to the Company, or they cease to do business with the Company. The Company has trading lines with several banks, most of which require collateral to be posted if certain mark-to-market (MTM) thresholds are exceeded. Cash collateral posted with banks is recorded within restricted cash and can be recalled in the event that exposures move in the Company’s favor or move below the collateral posting thresholds. The Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. The following table presents the fair value of the Company’s derivative assets and liabilities, as well as their classification on the accompanying Consolidated Balance Sheets, as of September 30, 2022 and December 31, 2021 (in millions).


		September 30, 2022		December 31, 2021
	Balance Sheet Classification	Fair Value

Derivative Assets	Prepaid expenses and other current assets	$	369.1	$	94.0
Derivative Assets	Other assets	$	115.6	$	26.9
Derivative Liabilities	Other current liabilities	$	357.0	$	66.9
Derivative Liabilities	Other noncurrent liabilities	$	107.6	$	23.0

Cash Flow Hedges

On January 22, 2019, the Company entered into three interest rate swap cash flow contracts (the "swap contracts"). One contract (which matured in January 2022) had a notional value of $1.0 billion, while the two remaining contracts each have a notional value of $500 million. 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. At inception, the Company designated these contracts as hedging instruments in accordance with ASC 815, "Derivatives and Hedging".

For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposures. Any ineffective portion of a financial instrument's change in fair value is immediately recognized in earnings.

As of September 30, 2022, the Company had the following outstanding interest rate derivatives that qualify as hedging instruments and are designated as cash flow hedges of interest rate risk (in millions):


	Notional Amount as of September 30, 2022		Fixed Rates	Maturity Date
Interest Rate Derivative:
Interest Rate Swap	$	500	2.56%	1/31/2023
Interest Rate Swap	$	500	2.55%	12/19/2023

For each of these swap contracts, the Company pays a fixed monthly rate and receives one month LIBOR.

The following table presents the fair value of the Company’s interest rate swap contracts, as well as their classification on the accompanying Consolidated Balance Sheets, as of September 30, 2022 and December 31, 2021 (in millions). See Note 3 for additional information on the fair value of the Company’s swap contracts.


		September 30, 2022		December 31, 2021
	Balance Sheet Classification	Fair Value
Derivatives designated as cash flow hedges:
Swap contracts	Prepaid expenses and other current assets	$	11.3	$	—
Swap contracts	Other assets	$	1.6	$	—
Swap contracts	Other current liabilities	$	—	$	23.4
Swap contracts	Other noncurrent liabilities	$	—	$	7.3

The estimated net amount of the existing gains expected to be reclassified into earnings within the next 12 months is approximately $11.3 million at September 30, 2022.

14. Accumulated Other Comprehensive Loss (AOCL)

The changes in the components of AOCL for the nine months ended September 30, 2022 and 2021 are as follows (in thousands):


	September 30, 2022
	Cumulative Foreign Currency Translation		Unrealized (Losses) Gains on Derivative Instruments		Total Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2021	$	(1,441,505)	$	(23,111)	$	(1,464,616)
Other comprehensive (loss) income before reclassifications	(228,666)		30,084		(198,582)
Amounts reclassified from AOCL	—		13,582		13,582
Tax effect	—		(10,829)		(10,829)
Other comprehensive (loss) income	(228,666)		32,837		(195,829)
Balance at September 30, 2022	$	(1,670,171)	$	9,726	$	(1,660,445)


	September 30, 2021
	Cumulative Foreign Currency Translation		Unrealized (Losses) Gains on Derivative Instruments		Total Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2020	$	(1,296,962)	$	(66,196)	$	(1,363,158)
Other comprehensive (loss) income before reclassifications	(102,191)		1,689		(100,502)
Amounts reclassified from AOCL	—		37,128		37,128
Tax effect	—		(9,512)		(9,512)
Other comprehensive (loss) income	(102,191)		29,305		(72,886)
Balance at September 30, 2021	$	(1,399,153)	$	(36,891)	$	(1,436,044)

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations