News Column

FLEETCOR TECHNOLOGIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 6, 2014

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described in Part I, Item 1A "Risk Factors" appearing in our Annual Report on Form 10-K. 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 Corporation for the applicable periods.



This management's discussion and analysis should also be read in conjunction with the management's discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

General Business

FleetCor is a leading independent global provider of fuel cards and workforce payment products and services to businesses, commercial fleets, major oil companies, petroleum marketers and government entities in countries throughout North America, Latin America, Europe, Australia and New Zealand. Our payment programs enable our customers to better manage and control employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. We also provide a suite of fleet related and workforce payment solution products, including telematics services, fleet maintenance management and employee benefit and transportation related payments. In 2013, we processed approximately 328 million transactions on our proprietary networks and third-party networks. We believe that our size and scale, geographic reach, advanced technology and our expansive suite of products, services, brands and proprietary networks contribute to our leading industry position. We provide our payment products and services in a variety of combinations to create customized payment solutions for our customers and partners. We collectively refer to our suite of product offerings as workforce productivity enhancement products for commercial businesses. We sell a range of customized fleet and lodging payment programs directly and indirectly to our customers through partners, such as major oil companies, hotels, leasing companies and petroleum marketers. We refer to these major oil companies, leasing companies and petroleum markets as "partners". We provide our customers with various card products that typically function like a charge card or prepaid card to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations. In order to deliver our payment programs and services and process transactions, we own and operate proprietary "closed-loop" networks through which we electronically connect to merchants and capture, analyze and report customized information. We also use third-party networks to deliver our payment programs and services in order to broaden our card acceptance and use. To support our payment products, we also provide a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionality and data. Our customers can use this data to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and lower overall workforce and fleet operating costs. Executive Overview Segments We operate in two segments, which we refer to as our North America and International segments. Our revenue is reported net of the wholesale cost for underlying products and services. In this report, we refer to this net revenue as "revenue." See "Results of Operations" for additional segment information.



For the three and six months ended June 30, 2014 and 2013, our North America and International segments generated the following revenue:

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 % of % of % of % of total total total total



(dollars in millions) Revenue revenue Revenue revenue

Revenue revenue Revenue revenue North America $ 138.9 50.8 % $ 119.5 54.1 % $ 265.2 50.3 % $ 220.1 53.1 % International 134.6 49.2 % 101.4 45.9 % 262.2 49.7 % 194.4 46.9 % $ 273.5 100.0 % $ 220.9 100.0 % $ 527.4 100.0 % $ 414.5 100.0 % 17



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Sources of Revenue

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



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

Illustrative Transaction Flow [[Image Removed: LOGO]] From our customers and partners, we derive revenue from a variety of program fees, including transaction fees, card fees, network fees and charges, which can be fixed fees, cost plus a mark-up or based on a percentage discount from retail prices. Our programs include other fees and charges associated with late payments and based on customer credit risk. From our merchant and network relationships, we derive revenue mostly from the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction, as well as network fees and charges in certain businesses. As illustrated in the table below, the price paid to a merchant or network may be calculated as (i) the merchant's wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit. The following table presents an illustrative revenue model for transactions with the merchant, which is primarily applicable to fuel based product transactions, but may also be applied to our vehicle maintenance, lodging and food, fuel, toll and transportation card and voucher products, substituting transactions for gallons. This representative model may not include all of our businesses. Illustrative Revenue Model for Fuel Purchases (unit of one gallon) Illustrative Revenue Model Merchant Payment Methods Retail Price $ 3.00 i) Cost Plus Mark-up: ii) Percentage Discount: iii) Fixed Fee: Wholesale Cost (2.86 ) Wholesale Cost $ 2.86 Retail Price $ 3.00 Retail Price $ 3.00 Mark-up 0.05 Discount (3%) (0.09 ) Fixed Fee (0.09 ) FleetCor Revenue $ 0.14 Merchant Commission $ (0.05 ) Price Paid to Merchant $ 2.91 Price Paid to Merchant $ 2.91 Price Paid to Merchant $ 2.91 Price Paid to Merchant $ 2.91 18



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Set forth below are our sources of revenue for the three and six months ended June 30, 2014 and 2013, expressed as a percentage of consolidated revenues:

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Revenue from customers and partners 55.1 % 50.9 % 55.6 % 51.1 % Revenue from merchants and networks 44.9 % 49.1 % 44.4 % 48.9 % Revenue tied to fuel-price spreads1 14.5 % 18.7 % 14.2 % 17.4 % Revenue influenced by the absolute price of fuel1 18.7 % 19.6 % 18.4 % 20.1 % Revenue from program fees, late fees, interest and other 66.7 % 61.7 % 67.5 % 62.5 %



1 Although we cannot precisely calculate the impact of fuel price spreads and

the absolute price of fuel on our consolidated revenues, we believe these

percentages approximate their relative impacts.

Revenue per transaction. Set forth below is revenue per transaction information for the three and six months ended June 30, 2014 and 2013:

Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Transactions (in millions) North America 42.7 41.2 83.1 79.4 International 47.5 37.8 94.3 73.7 Total transactions 90.2 79.0 177.4 153.1 Revenue per transaction North America $ 3.25$ 2.90$ 3.19$ 2.77 International 2.83 2.68 2.78 2.64 Consolidated revenue per transaction 3.03 2.80 2.97 2.71 Adjusted revenue per transaction1 Consolidated adjusted revenue per transaction1 $ 2.81$ 2.55$ 2.76$ 2.49



1 Adjusted revenues is a non-GAAP financial measure defined as revenues, net

less merchant commissions. We believe this measure is a more effective way to

evaluate our revenue performance. We use adjusted revenues as a basis to

evaluate our revenues, net of the commissions that are paid to merchants to

participate in our card programs. Adjusted revenues is a supplemental

non-GAAP financial measure of operating performance. See the heading entitled

"Management's Use of Non-GAAP Financial Measures."

Revenue per transaction is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates. Revenue per transaction per customer changes as the level of services we provide to a customer increases or decreases, as macroeconomic factors changes and as adjustments are made to merchant and customer rates. When we discuss the macroeconomic environment, we are referring to the impact of market spread margins, fuel prices, foreign exchanges rates and the economy in general can have on our business. See "Results of Operations" for further discussion of transaction volumes and revenue per transaction. Total transactions increased from 79.0 million for the three months ended June 30, 2013 to 90.2 million for the three months ended June 30, 2014, an increase of 11.2 million or 14.3%. Total transactions increased from 153.1 million for the six months ended June 30, 2013 to 177.4 million for the three months ended June 30, 2014, an increase of 24.3 million or 15.9%. We experienced an increase in transactions in our North America and International segments primarily due to the impact of the acquisitions completed in 2013 and organic growth in certain payment programs. In 2013, we acquired several businesses in our international segment; FleetCard in Australia, CardLink in New Zealand, VB Servicos (VB) and DB Trans S.A. (DB) in Brazil and Epyx in the U.K. Certain of these international acquisitions have higher revenue per transaction products in comparison to our other international businesses, which contributes to the increase in transaction volumes and revenue per transaction in our International segment in 2014 over 2013, in addition to organic growth. We also acquired NexTraq in the U.S in 2013, which has a higher revenue per transaction in comparison to our other North American businesses. This added to higher transaction volumes and revenue per transaction in our North American segment in 2014 over 2013, in addition to organic growth. 19



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Sources of Expenses

We incur expenses in the following categories:

Merchant commissions-In certain of our card programs, we incur merchant

commissions expense when we reimburse merchants with whom we have direct,

contractual relationships for specific transactions where a customer

purchases products or services from the merchant. In the card programs

where it is paid, merchant commissions equal the difference between the

price paid by us to the merchant and the merchant's wholesale cost of the

underlying products or services. Processing-Our processing expense consists of expenses related to



processing transactions, servicing our customers and merchants, bad debt

expense and cost of goods sold related to our hardware sales in certain

businesses.



Selling-Our selling expenses consist primarily of wages, benefits, sales

commissions (other than merchant commissions) and related expenses for our

sales, marketing and account management personnel and activities.



General and administrative-Our general and administrative expenses include

compensation and related expenses (including stock-based compensation) for

our executive, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are



facilities expenses, third-party professional services fees, travel and

entertainment expenses, and other corporate-level expenses. Depreciation and amortization-Our depreciation and amortization expenses



include depreciation of property and equipment, consisting of computer

hardware and software (including proprietary software development

amortization expense), card-reading equipment, furniture, fixtures,

vehicles and buildings and leasehold improvements related to office space.

Our amortization expenses include intangible assets related to customer

and vendor relationships, trade names and trademarks and non-compete

agreements. We are amortizing intangible assets related to business

acquisitions and certain private label contracts associated with the purchase of accounts receivable.



Other income, net-Other income, net includes foreign currency transaction

gains or losses, proceeds/costs from the sale of assets and other miscellaneous operating costs and revenue.



Interest expense, net-Interest expense, net includes interest income on

our cash balances and interest expense on our outstanding debt and on our

securitization facility. We have historically invested our cash primarily

in short-term money market funds. Provision for income taxes-The provision for income taxes consists



primarily of corporate income taxes related to profits resulting from the

sale of our products and services in the United States and

internationally. Our worldwide effective tax rate is lower than the U.S.

statutory rate of 35%, due primarily to lower rates in foreign

jurisdictions and foreign-sourced non-taxable income.

Adjusted Revenues, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted revenues, earnings before interest, taxes, depreciation and amortization and equity method investment (adjusted EBITDA), adjusted net income and adjusted net income per diluted share for the three and six months ended June 30, 2014 and 2013. Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 (in thousands, except per share amounts) Adjusted revenues $ 253,175$ 201,314$ 489,460$ 381,104 Adjusted EBITDA $ 158,913$ 124,964$ 297,467$ 233,846 Adjusted net income $ 108,890 $



84,039 $ 204,989$ 159,232 Adjusted net income per diluted share $ 1.27 $ 1.00 $ 2.39$ 1.89

We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants that participate in certain of our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. Thus, we believe this is a more effective way to evaluate our revenue performance on a consistent basis. We use adjusted EBITDA, calculated as earnings before interest, taxes, depreciation and amortization, other income and equity method investment to eliminate the impact of certain non-core items during the period. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures." 20



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Factors and Trends Impacting our Business

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

Fuel prices-Our fleet customers use our products and services primarily in

connection with the purchase of fuel. Accordingly, our revenue is affected

by fuel prices, which are subject to significant volatility. A change in

retail fuel prices could cause a decrease or increase in our revenue from

several sources, including fees paid to us based on a percentage of each

customer's total purchase. Changes in the absolute price of fuel may also

impact unpaid account balances and the late fees and charges based on

these amounts. See "Sources of Revenue" above for further information

related to the absolute price of fuel. Fuel-price spread volatility-A portion of our revenue involves



transactions where we derive revenue from fuel-price spreads, which is the

difference between the price charged to a fleet customer for a transaction

and the price paid to the merchant for the same transaction. In these

transactions, the price paid to the merchant is based on the wholesale

cost of fuel. The merchant's wholesale cost of fuel is dependent on several factors including, among others, the factors described above



affecting fuel prices. The fuel price that we charge to our customer is

dependent on several factors including, among others, the fuel price paid

to the merchant, posted retail fuel prices and competitive fuel prices. We

experience fuel-price spread contraction when the merchant's wholesale

cost of fuel increases at a faster rate than the fuel price we charge to

our customers, or the fuel price we charge to our customers decreases at a

faster rate than the merchant's wholesale cost of fuel. See "Sources of

Revenue" above for further information related to fuel-price spreads. Acquisitions-Since 2002, we have completed over 60 acquisitions of



companies and commercial account portfolios. Acquisitions have been an

important part of our growth strategy, and it is our intention to continue

to seek opportunities to increase our customer base and diversify our

service offering through further strategic acquisitions. The impact of

acquisitions has, and may continue to have, a significant impact on our

results of operations and may make it difficult to compare our results

between periods.



Interest rates-Our results of operations are affected by interest rates.

We are exposed to market risk changes in interest rates on our cash investments and debt.



Global economic downturn-Our results of operations are materially affected

by conditions in the economy generally, both in North America and

internationally. Factors affected by the economy include our transaction

volumes and the credit risk of our customers. These factors affected our

businesses in both our North America and International segments.



Foreign currency changes-Our results of operations are increasingly

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 51.0% and 54.0% of our revenue during

the three months ended June 30, 2014 and 2013, respectively, and 50.5% and

53.0% of our revenue during the six months ended June 30, 2014 and 2013, respectively, was derived in U.S. dollars and was not affected by foreign



currency exchange rates. See "Results of Operations" for information

related to foreign currency impact on our total revenue, net.



Expenses-Over the long term, we expect that our general and administrative

expense will decrease as a percentage of revenue as our revenue increases.

To support our expected revenue growth, we plan to continue to incur

additional sales and marketing expense by investing in our direct

marketing, third-party agents, internet marketing, telemarketing and field

sales force. 21



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Results of Operations

Three months ended June 30, 2014 compared to the three months ended June 30, 2013

The following table sets forth selected consolidated statement of income data for the three months ended June 30, 2014 and 2013 (in thousands).

Three months ended % of total Three months ended % of total Increase June 30, 2014 revenue June 30, 2013 revenue (decrease)

% Change Revenues, net: North America $ 138,861 50.8 % $ 119,486 54.1 % $ 19,375 16.2 % International 134,641 49.2 % 101,383 45.9 % 33,258 32.8 % Total revenues, net 273,502 100.0 % 220,869 100.0 % 52,633 23.8 % Consolidated operating expenses: Merchant commissions 20,327 7.4 % 19,555 8.9 % 772 3.9 % Processing 38,845 14.2 % 32,010 14.5 % 6,835 21.4 % Selling 17,521 6.4 % 13,386 6.1 % 4,135 30.9 % General and administrative 37,896 13.9 % 30,954 14.0 % 6,942 22.4 % Depreciation and amortization 24,429 8.9 % 15,890 7.2 % 8,539 53.7 % Operating income 134,484 49.2 % 109,074 49.4 % 25,410 23.3 % Other income, net (268 ) (0.1 )% (6 ) 0.0 % (262 ) NM Interest expense, net 5,308 1.9 % 3,756 1.7 % 1,552 41.3 % Equity method investment loss 1,489 0.5 % - - 1,489 NM Provision for income taxes 39,406 14.4 % 32,225 14.6 % 7,181 22.3 % Net income $ 88,549 32.4 % $ 73,099 33.1 % $ 15,450 21.1 % Operating income for segments: North America $ 68,317 $ 60,103 $ 8,214 13.7 % International 66,167 48,971 17,196 35.1 % Operating income $ 134,484 $ 109,074 $ 25,410 23.3 % Operating margin for segments: North America 49.2 % 50.3 % (1.1 )% International 49.1 % 48.3 % 0.8 % Total 49.2 % 49.4 % (0.2 )% NM = Not Meaningful Three months ended June 30, 2014 2013 Transactions (in millions) North America 42.7 41.2 International 47.5 37.8 Total transactions 90.2 79.0 Revenue per transaction North America $ 3.25$ 2.90 International 2.83 2.68 Consolidated revenue per transaction 3.03 2.80



Revenues and revenue per transaction

Our consolidated revenues increased from $220.9 million in the three months ended June 30, 2013 to $273.5 million in the three months ended June 30, 2014, an increase of $52.6 million, or 23.8%. The increase in our consolidated revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $37 million in additional revenue in the three months ended

June 30, 2014 over the comparable period in 2013. 22



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Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction.



Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a negative impact on

our consolidated revenue for the three months ended June 30, 2014 over the

comparable period in 2013. The macroeconomic environment was primarily

impacted by lower fuel spread margins, which were partially offset by the

slightly favorable impact of changes in foreign exchange rates. Changes in

foreign exchange rates had a favorable impact on revenues of approximately

$1.4 million, due primarily to favorable fluctuations in the British Pound, which was mostly offset by unfavorable fluctuations in the Russian Ruble and Brazilian Real, in the three months ended June 30, 2014 over 2013. We believe that changes in fuel price had a minimal impact on revenues. Consolidated revenue per transaction increased from $2.80 in the three months ended June 30, 2013 to $3.03 in the three months ended June 30, 2014, an increase of $0.23 or 8.4%. This increase is primarily due to the impact of acquisitions completed in 2013, which have higher revenue per transaction products in comparison to our other businesses, as well as the reasons discussed above.



North America segment revenues and revenue per transaction

North America revenues increased from $119.5 million in the three months ended June 30, 2013 to $138.9 million in the three months ended June 30, 2014, an increase of $19.4 million, or 16.2%. The increase in our North America segment revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $9 million in additional revenue in the three months ended June 30, 2014 over the comparable period in 2013.



Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction.



Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a negative impact on

our North America segment revenue for the three months ended June 30, 2014

over the comparable period in 2013, primarily due to the impact of lower fuel spread margins. North America segment revenue per transaction increased from $2.90 in the three months ended June 30, 2013 to $3.25 in the three months ended June 30, 2014, an increase of $0.35 or 11.9%. We experienced an increase in transactions in our North America segment primarily due to organic growth in certain payment programs and the impact of acquisitions completed in 2013, in addition to the reasons discussed above.



International segment revenues and revenue per transaction

International segment revenues increased from $101.4 million in the three months ended June 30, 2013 to $134.6 million in the three months ended June 30, 2014, an increase of $33.2 million, or 32.8%. The increase in our International segment revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $28 million in additional revenue in the three months ended

June 30, 2014 over the comparable period in 2013.



Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction.



Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a slightly positive

impact on our International segment revenue for the three months ended June 30, 2014 over the comparable period in 2013, primarily due to the



slightly favorable impact of changes in foreign exchange rates. Changes in

foreign exchange rates had a favorable impact on revenues of approximately

$1.4 million, due primarily to favorable fluctuations in the British Pound, which was mostly offset by unfavorable fluctuations in the Russian Ruble and Brazilian Real, in the three months ended June 30, 2014 over 2013. We believe that changes in fuel price and fuel spreads had a minimal impact on revenues. International segment revenue per transaction increased from $2.68 in the three months ended June 30, 2013 to $2.83 in the three months ended June 30, 2014, an increase of $0.15 per transaction or 5.7%. This increase is primarily due to the impact of acquisitions completed in 2013, some of which have higher revenue per transaction products in comparison to our other businesses, and organic growth in certain of our payment programs. We experienced an increase in transactions in our International segment primarily due to the impact of acquisitions completed in 2013. 23



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Consolidated operating expenses

Merchant commissions Merchant commissions increased from $19.6 million in the three months ended June 30, 2013 to $20.3 million in the three months ended June 30, 2014, an increase of $0.7 million, or 3.9%. This increase was due primarily to the fluctuation of the margin between the wholesale cost and retail price of fuel, which impacted merchant commissions in certain card programs, as well as the impact of higher volume in revenue streams where merchant commission are paid. Processing Processing expenses increased from $32.0 million in the three months ended June 30, 2013 to $38.8 million in the three months ended June 30, 2014, an increase of $6.8 million, or 21.4%. Our processing expenses increased primarily due to increased transaction volumes associated with acquisitions completed in 2013 and organic growth in transaction volume, as well as increased bad debt expense in certain of our businesses.



Selling Selling expenses increased from $13.4 million in the three months ended June 30, 2013 to $17.5 million in the three months ended June 30, 2014, an increase of $4.1 million, or 30.9%. The increase was primarily due to acquisitions completed in 2013, as well as additional sales and marketing spending in certain markets.

General and administrative General and administrative expenses increased from $31.0 million in the three months ended June 30, 2013 to $37.9 million in the three months ended June 30, 2014, an increase of $6.9 million, or 22.4%. The increase was primarily due to the impact of acquisitions completed in 2013 and incremental stock based compensation of $3.8 million. Depreciation and amortization Depreciation and amortization increased from $15.9 million in the three months ended June 30, 2013 to $24.4 million in the three months ended June 30, 2014, an increase of $8.5 million, or 53.7%. The increase was primarily due to acquisitions completed during 2013, which resulted in an increase of $8.7 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software and increased depreciation expense.



Operating income and operating margin

Consolidated operating income

Operating income increased from $109.1 million in the three months ended June 30, 2013 to $134.5 million in the three months ended June 30, 2014, an increase of $25.4 million, or 23.3%. Our operating margin was 49.4% and 49.2% for the three months ended June 30, 2013 and 2014, respectively. The increase in operating income was due primarily to the impact of acquisitions completed in 2013 and organic growth in the business driven by increases in volume and revenue per transaction. These positive drivers of consolidated results were partially offset by the negative impact of the macroeconomic environment, primarily due to lower fuel spread margins, as well as incremental stock based compensation expense and increased bad debt expense in certain of our businesses. For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Similarly, segment operating margin is calculated by dividing segment operating income by segment revenue.



North America segment operating income

North America operating income increased from $60.1 million in the three months ended June 30, 2013 to $68.3 million in the three months ended June 30, 2014, an increase of $8.2 million, or 13.7%. North America operating margin was 50.3% and 49.2% for the three months ended June 30, 2013 and 2014, respectively. The increase in operating income was due primarily to organic growth in the business driven by increases in volume and revenue per transaction and the impact of acquisitions completed in 2013, partially offset by the negative impact of the macroeconomic environment primarily due to lower fuel spread margins. The decrease in operating margin was due primarily to the impact of increased stock based compensation expense, the majority of which is recorded in our North American segment, as well as the impact of lower fuel spread margins.



International segment operating income

International operating income increased from $49.0 million in the three months ended June 30, 2013 to $66.2 million in the three months ended June 30, 2014, an increase of $17.2 million, or 35.1%. International operating margin was 48.3% and 49.1% for the three months ended June 30, 2013 and 2014, respectively. The increase in operating income and operating margin was due primarily to the impact of acquisitions completed in 2013 and organic growth in the business driven by increases in volume. These positive drivers of results were partially offset by increased bad debt expense in certain of our businesses. 24



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Interest expense, net

Interest expense increased from $3.8 million in the three months ended June 30, 2013 to $5.3 million in the three months ended June 30, 2014, an increase of $1.6 million, or 41.3%. The increase is due to an increase in borrowings in 2014 over 2013, primarily due to funding the purchase price for acquisitions. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, to include our term loan, domestic Revolver A, foreign Revolver B and foreign swing line of credit, as well as the relevant unused credit facility fees. There were no borrowings under our foreign Revolver A in the three months ended June 30, 2013. Three months ended June 30, 2014 2013 Term loan & Domestic Revolver A 1.91 %



1.82 %

Foreign Revolver A 2.24 %



N/A

Domestic Revolver A- Unused Credit Facility Fee 0.30 %



0.27 %

Foreign Revolver B 4.45 %



4.53 %

Foreign Revolver B- Unused Credit Facility Fee 0.30 % 0.27 % Foreign swing line 2.22 % 1.98 %



Equity method investment loss

On April 28, 2014, we acquired a minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for as an equity method investment. The loss at Masternaut was driven primarily by amortization of basis differences in this investment of approximately $2.1 million in the three months ended June 30, 2014.



Provision for income taxes

The provision for income taxes increased from $32.2 million in the three months ended June 30, 2013 to $39.4 million in the three months ended June 30, 2014, an increase of $7.2 million, or 22.3%. We provide for income taxes during interim periods based on an estimate of our effective tax rate for the year. Discrete items and changes in the estimate of the annual tax rate are recorded in the period they occur. Our effective tax rate increased from 30.6% for three months ended June 30, 2013 to 30.8% for the three months ended June 30, 2014. The increase in our effective tax rate was primarily due to losses generated from investments accounted for under the equity method of accounting, which provided no tax benefit to us. We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.



Net income

For the reasons discussed above, our net income increased from $73.1 million in the three months ended June 30, 2013 to $88.5 million in the three months ended June 30, 2014, an increase of $15.4 million, or 21.1%. 25



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Six months ended June 30, 2014 compared to the six months ended June 30, 2013

The following table sets forth selected consolidated statement of income data for the six months ended June 30, 2014 and 2013 (in thousands).

Six months ended % of total Six months ended % of total Increase June 30, 2014 revenue June 30, 2013 revenue (decrease)

% Change Revenues, net: North America $ 265,236 50.3 % $ 220,080 53.1 % $ 45,156 20.5 % International 262,174 49.7 % 194,440 46.9 % 67,734 34.8 % Total revenues, net 527,410 100.0 % 414,520 100.0 % 112,890 27.2 % Consolidated operating expenses: Merchant commissions 37,950 7.2 % 33,416 8.1 % 4,534 13.6 % Processing 75,701 14.4 % 61,953 14.9 % 13,748 22.2 % Selling 34,935 6.6 % 25,090 6.1 % 9,845 39.2 % General and administrative 81,357 15.4 % 60,215 14.5 % 21,142 35.1 % Depreciation and amortization 48,847 9.3 % 30,519 7.4 % 18,328 60.1 % Operating income 248,620 47.1 % 203,327 49.1 % 45,293 22.3 % Other expense, net 276 0.1 % 286 0.1 % (10 ) (3.5 )% Interest expense, net 10,769 2.0 % 7,204 1.7 % 3,565 49.5 % Equity method investment loss 1,489 0.3 % - - 1,489



NM

Provision for income taxes 72,428 13.7 % 58,076 14.0 % 14,352 24.7 % Net income $ 163,658 31.0 % $ 137,761 33.2 % $ 25,897 18.8 % Operating income for segments: North America $ 124,514 $ 109,529 $ 14,985 13.7 % International 124,106 93,798 30,308 32.3 % Operating income $ 284,620 $ 203,327 $ 45,293 22.3 % Operating margin for segments: North America 46.9 % 49.8 % (2.9 )% International 47.3 % 48.2 % (0.9 )% Total 47.1 % 49.1 % (2.0 )% NM = Not Meaningful Six months ended June 30, 2014 2013 Transactions (in millions) North America 83.1 79.4 International 94.3 73.7 Total transactions 177.4 153.1 Revenue per transaction North America $ 3.19$ 2.77 International 2.78 2.64 Consolidated revenue per transaction 2.97 2.71



Revenues and revenue per transaction

Our consolidated revenues increased from $414.5 million in the six months ended June 30, 2013 to $527.4 million in the six months ended June 30, 2014, an increase of $112.9 million, or 27.2%. The increase in our consolidated revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $82 million in additional revenue in the six months ended June 30, 2014 over the comparable period in 2013.



Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction. 26



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Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a negative impact on

our consolidated revenue for the six months ended June 30, 2014 over the

comparable period in 2013. The macroeconomic environment was primarily

impacted by lower fuel prices, lower fuel spread margins and foreign exchange rates. Changes in foreign exchange rates had a slightly unfavorable impact on revenues of approximately $0.6 million, due primarily to unfavorable fluctuations in the Brazilian Real and Russian Ruble, which were mostly offset by favorable fluctuations in the British Pound, in the six months ended June 30, 2014 over 2013. Consolidated revenue per transaction increased from $2.71 in the six months ended June 30, 2013 to $2.97 in the six months ended June 30, 2014, an increase of $0.26 or 9.8%. This increase is primarily due to the impact of acquisitions completed in 2013, which have higher revenue per transaction products in comparison to our other businesses, as well as the reasons discussed above.



North America segment revenues and revenue per transaction

North America revenues increased from $220.1 million in the six months ended June 30, 2013 to $265.2 million in the six months ended June 30, 2014, an increase of $45.1 million, or 20.5%. The increase in our North America segment revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $21 million in additional revenue in the six months ended June 30, 2014 over the comparable period in 2013.



Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction.



Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a negative impact on

our North America segment revenue for the six months ended June 30, 2014

over the comparable period in 2013, primarily due to the impact of lower

fuel spread margins. We believe that changes in fuel price had a minimal

impact on revenues.

North America segment revenue per transaction increased from $2.77 in the six months ended June 30, 2013 to $3.19 in the six months ended June 30, 2014, an increase of $0.42 or 15.1%. We experienced an increase in transactions in our North America segment primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2013, in addition to the reasons discussed above.



International segment revenues and revenue per transaction

International segment revenues increased from $194.4 million in the six months ended June 30, 2013 to $262.2 million in the six months ended June 30, 2014, an increase of $67.8 million, or 34.8%. The increase in our International segment revenue was primarily due to:



The impact of acquisitions completed in 2013, which contributed

approximately $61 million in additional revenue in the six months ended June 30, 2014 over the comparable period in 2013.



Organic growth in certain of our payment programs driven primarily by

increases in both volume and revenue per transaction.



Included within organic growth, is the impact of the macroeconomic

environment. Although we cannot precisely measure the impact of the

macroeconomic environment, in total we believe it had a minimal impact on

our International segment revenue for the six months ended June 30, 2014

over the comparable period in 2013. Higher fuel spread margins were offset

by unfavorable changes in foreign exchange rates and the impact of lower fuel prices internationally. Changes in foreign exchange rates had a



slightly unfavorable impact on revenues of approximately $0.6 million, due

primarily to unfavorable fluctuations in the Brazilian Real and Russian

Ruble, which were mostly offset by favorable fluctuations in the British

Pound, in the six months ended June 30, 2014 over the comparable period in

2013.

International segment revenue per transaction increased from $2.64 in the six months ended June 30, 2013 to $2.78 in the six months ended June 30, 2014, an increase of $0.14 per transaction or 5.4%. This increase is primarily due to organic growth in certain of our payment programs and the impact of acquisitions completed in 2013, some of which have higher revenue per transaction products in comparison to our other businesses. We experienced an increase in transactions in our International segment primarily due to organic growth in certain payment programs and the impact of the acquisitions completed in 2013. 27



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Consolidated operating expenses

Merchant commissions Merchant commissions increased from $33.4 million in the six months ended June 30, 2013 to $38.0 million in the six months ended June 30, 2014, an increase of $4.5 million, or 13.6%. This increase was due primarily to the fluctuation of the margin between the wholesale cost and retail price of fuel, which impacted merchant commissions in certain card programs, as well as the impact of higher volume in revenue streams where merchant commission are paid. Processing Processing expenses increased from $62.0 million in the six months ended June 30, 2013 to $75.7 million in the six months ended June 30, 2014, an increase of $13.7 million, or 22.2%. Our processing expenses increased primarily due to increased transaction volumes associated with acquisitions completed in 2013 and organic growth in transaction volume, as well as increased bad debt expense in certain of our businesses.



Selling Selling expenses increased from $25.1 million in the six months ended June 30, 2013 to $34.9 million in the six months ended June 30, 2014, an increase of $9.8 million, or 39.2%. The increase was primarily due to acquisitions completed in 2013, as well as additional sales and marketing spending in certain markets.

General and administrative General and administrative expenses increased from $60.2 million in the six months ended June 30, 2013 to $81.4 million in the six months ended June 30, 2014, an increase of $21.2 million, or 35.1%. The increase was primarily due to the impact of acquisitions completed in 2013 and incremental stock based compensation of $10.2 million. Depreciation and amortization Depreciation and amortization increased from $30.5 million in the six months ended June 30, 2013 to $48.8 million in the six months ended June 30, 2014, an increase of $18.3 million, or 60.1%. The increase was primarily due to acquisitions completed during 2013, which resulted in an increase of $18.4 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software and increased depreciation expense.



Operating income and operating margin

Consolidated operating income

Operating income increased from $203.3 million in the six months ended June 30, 2013 to $284.6 million in the six months ended June 30, 2014, an increase of $45.3 million, or 22.3%. Our operating margin was 49.1% and 47.1% for the six months ended June 30, 2013 and 2014, respectively. The increase in operating income was due primarily to the impact of acquisitions completed in 2013 and organic growth in the business driven by increases in volume and revenue per transaction. These positive drivers of consolidated results were partially offset by the negative impact of the macroeconomic environment, primarily due to lower fuel spread margins and lower fuel prices, as well as incremental stock based compensation expense and increased bad debt expense in certain of our businesses, which also resulted in a decrease in operating margin. Additionally, the shift in earnings mix in our business also contributed to the decrease in operating margin. For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Similarly, segment operating margin is calculated by dividing segment operating income by segment revenue.



North America segment operating income

North America operating income increased from $109.5 million in the six months ended June 30, 2013 to $124.5 million in the six months ended June 30, 2014, an increase of $15.0 million, or 13.7%. North America operating margin was 49.8% and 46.9% for the six months ended June 30, 2013 and 2014, respectively. The increase in operating income was due primarily to organic growth in the business driven by increases in volume and revenue per transaction and the impact of acquisitions completed in 2013, partially offset by the generally negative impact of the macroeconomic environment, primarily due to lower fuel spread margins. The decrease in operating margin was due primarily to the impact of increased stock based compensation expense, the majority of which is recorded in our North American segment.



International segment operating income

International operating income increased from $93.8 million in the six months ended June 30, 2013 to $124.1 million in the six months ended June 30, 2014, an increase of $30.3 million, or 32.3%. International operating margin was 48.2% and 47.3% for the six months ended June 30, 2013 and 2014, respectively. The increase in operating income was due primarily to the impact of acquisitions completed in 2013 and organic growth in the business driven by increases in volume. The decrease in operating margin was due primarily to the shift in earnings mix in our businesses, as well as increased bad debt expense in certain of our businesses. Interest expense, net Interest expense increased from $7.2 million in the six months ended June 30, 2013 to $10.8 million in the six months ended June 30, 2014, an increase of $3.6 million, or 49.5%. The increase is due to an increase in borrowings in 2014 over 2013, primarily due to funding the purchase price for acquisitions. The following table sets forth the average interest rates paid on borrowings under our 28



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Credit Facility, to include our term loan, domestic Revolver A, foreign Revolver B and foreign swing line of credit, as well as the relevant unused credit facility fees. There were no borrowings under our foreign Revolver A in the six months ended June 30, 2013. Six months ended June 30, 2014 2013

Term loan & Domestic Revolver A 1.91 % 1.77 % Foreign Revolver A 2.24 % N/A Domestic Revolver A- Unused Credit Facility Fee 0.30 % 0.26 % Foreign Revolver B 4.43 % 4.53 % Foreign Revolver B- Unused Credit Facility Fee 0.30 % 0.27 % Foreign swing line 2.20 % 1.98 %



Equity method investment loss

On April 28, 2014, we acquired a minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for as an equity method investment. The loss at Masternaut was driven primarily by amortization of basis differences in this investment of approximately $2.1 million in the six months ended June 30, 2014.



Provision for income taxes

The provision for income taxes increased from $58.1 million in the six months ended June 30, 2013 to $72.4 million in the six months ended June 30, 2014, an increase of $14.3 million, or 24.7%. We provide for income taxes during interim periods based on an estimate of our effective tax rate for the year. Discrete items and changes in the estimate of the annual tax rate are recorded in the period they occur. Our effective tax rate increased from 29.7% for six months ended June 30, 2013 to 30.7% for the six months ended June 30, 2014. The increase in our effective tax rate was primarily due to losses generated from investments accounted for under the equity method of accounting, which provided no tax benefit to us. We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.



Net income

For the reasons discussed above, our net income increased from $137.8 million in the six months ended June 30, 2013 to $163.7 million in the six months ended June 30, 2014, an increase of $25.9 million, or 18.8%.



Liquidity and capital resources

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

Sources of liquidity

At June 30, 2014, our unrestricted cash and cash equivalent balance totaled $297.6 million. Our restricted cash balance at June 30, 2014 totaled $46.2 million. Restricted cash primarily represents customer deposits in the Czech Republic, which we are restricted from using other than to repay customer deposits.

At June 30, 2014, cash and cash equivalents held in foreign subsidiaries where we have determined we are permanently reinvested is $280.8 million. All of the cash and cash equivalents held by our foreign subsidiaries, excluding restricted cash, are available for general corporate purposes. Our current intent is to permanently reinvest these funds outside of the U.S. Our current expectation for funds held in our foreign subsidiaries is to use the funds to finance foreign organic growth, to pay for potential future foreign acquisitions and to repay any foreign borrowings that may arise from time to time. We currently believe that funds generated from our U.S. operations, along with potential borrowing capabilities in the U.S. will be sufficient to fund our U.S. operations for the foreseeable future, and therefore do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations. However, if at a future date or time these funds are needed for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto or the ultimate impact any such action may have on our results of operations or financial condition. 29



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We utilize an accounts receivable Securitization Facility to finance a majority of our domestic fuel card 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 within seven days of receiving the merchant billing. As a result, we utilize the Securitization Facility as a source of liquidity to provide the cash flow required to fund merchant payments while we collect customer balances. These balances are primarily composed of charge balances, which are typically billed to the customer on a weekly, semimonthly or monthly basis, and are generally required to be paid within 14 days of billing. We also consider the undrawn amounts under our Securitization Facility and Credit Facility as funds available for working capital purposes and acquisitions. At June 30, 2014, we had the ability to generate approximately $14.5 million of additional liquidity under our Securitization Facility. At June 30, 2014, we had approximately $295 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 six months ended June 30, 2014 and 2013. Six months ended June 30, (in millions) 2014 2013



Net cash provided by operating activities $ 157.7$ 82.7

Net cash used in investing activities (201.4 )



(167.1 )

Net cash provided by financing activities 1.8



110.1

Operating activities Net cash provided by operating activities increased from $82.7 million in the six months ended June 30, 2013 to $157.7 million in the six months ended June 30, 2014. The increase is primarily due to changes in working capital, driven by increases in amortization resulting from acquisitions completed in 2013, increases in stock based compensation expense, as well as additional net income of $25.9 million during the six months ended June 30, 2014 over the comparable period in 2013. Investing activities Net cash used in investing activities increased from $167.1 million in the six months ended June 30, 2013 to $201.4 million in the six months ended June 30, 2014. This increase is primarily due to cash paid for investments in the six months ended June 30, 2014 over the comparable period in 2013. Financing activities Net cash provided by financing activities decreased from $110.1 million in the six months ended June 30, 2013 to $1.8 million in the six months ended June 30, 2014. The change is primarily due to additional net pay downs of outstanding balances on our Credit Facility and Securitization Facility of $28.6 million and $83.3, respectively, in the six months ended June 30, 2014 over the comparable period in 2013.



Capital spending summary

Our capital expenditures increased from $10.1 million in the six months ended June 30, 2013 to $11.6 million in the six months ended June 30, 2014, an increase of $1.5 million, or 14.3%. The increase was primarily related to additional investments to continue to enhance our existing processing systems as well as integration related to recently acquired businesses. We anticipate our capital expenditures will approximate $23 million for 2014 as we continue to enhance our existing processing systems and integrate recently acquired businesses.



Credit Facility

We are party to a five-year, $1.4 billion Credit Agreement (the "Credit Agreement") with a syndicate of banks, which we originally entered into on June 22, 2011 and have amended three times since. The Credit Agreement provides for a $550 million term loan facility and an $850 million revolving credit facility, with sublimits for letters of credit, swing line loans and multicurrency borrowings. Subject to certain conditions, including obtaining commitments of lenders, we have the option to increase the facility up to an additional $250 million via an accordion feature. 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 our ability to pay dividends and make other restricted payments under certain circumstances and compliance with certain financial ratios. Proceeds from this new Credit Facility may also be used for working capital purposes, acquisitions, and other general corporate purposes. On March 13, 2012, we entered into the first amendment to the Credit Agreement. This Amendment added two United Kingdom entities as designated borrowers and added a $110 million foreign currency swing line of credit sub facility under the existing revolver, which allows for alternate currency borrowing on the swing line. On November 6, 2012, we entered into a second 30



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amendment to the Credit Agreement to add an additional term loan of $250 million and increase the borrowing limit on the revolving line of credit from $600 million to $850 million. In addition, we increased the accordion feature from $150 million to $250 million. On March 20, 2013, we entered into a third amendment to the Credit Agreement to extend the term of the facility for an additional five years from the amendment date, with a new maturity date of March 20, 2018, separated the revolver into two tranches (a $815 million Revolving A facility and a $35 million Revolving B facility), added additional designated borrowers, with the ability to borrow in local currency and US Dollars under the Revolving B facility and removed a cap to allow for additional investments in certain business relationships. The revolving line of credit contains a $20 million sublimit for letters of credit, a $20 million sublimit for swing line loans and sublimits for multicurrency borrowings in Euros, Sterling, Japanese Yen, Australian Dollars and New Zealand Dollars. On April 28, 2014, we entered into a fourth amendment to the Credit Agreement to add additional designated borrowers. At June 30, 2014, we had $483.1 million in outstanding term loans, $370.0 million in borrowings outstanding on the domestic revolving A facility, $143.2 million in borrowings outstanding on the foreign revolving A facility and $42.3 million in borrowings outstanding on the foreign swing line of credit. As of June 30, 2014, we were in compliance with each of the covenants under the Credit Facility. Interest on amounts outstanding under the Credit Agreement 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 0.5%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.0%) plus a margin based on a leverage ratio. Interest is payable quarterly in arrears. In addition, we have agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.2% to 0.4% of the daily unused portion of the credit facility. At June 30, 2014, the interest rate on the term loan and domestic revolving A facility was 1.9%, the interest rate on the foreign revolving A facility and foreign swing line of credit was 2.2%, the interest rate on the foreign revolving B facility was 4.4%. The unused credit facility was 0.3% at June 30, 2014. The stated maturity date for our term loan and revolving loans and letters of credit under the Credit Agreement is March 20, 2018. The term loan is payable in quarterly installments and are due on the last business day of each March, June, September, and December with the final principal payment due in March 2018. Borrowings on the revolving line of credit are repayable at our option of one, two, three or nine months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than ten business days after such loan is made. During the six months ended June 30, 2014, we made principal payments of $13.8 million on the term loan, $262.4 million on the revolving A facility and $7.3 million on the revolving B facility. As of June 30, 2014, we were in compliance with each of the covenants under the Credit Facility.



New Zealand Facility

On April 29, 2013, we entered into a $12 millionNew Zealand dollar ($10.6 million) facility with Westpac Bank in New Zealand ("New Zealand Facility"), which we renewed on June 13, 2014. This facility matures on April 30, 2015. This facility is for purposes of funding the working capital needs of our business in New Zealand, CardLink. A line of credit charge accrues at a rate of 0.025% times the facility limit each month. Interest accrues on outstanding borrowings at the Bank Bill Mid-Market (BKBM) settlement rate plus a margin of 1.0%. The New Zealand Facility contains representations, warranties and events of default, as well as certain affirmative and negative covenants, customary for financings of this nature. These covenants include compliance with certain financial ratios. We did not have an outstanding unpaid balance on this facility at June 30, 2014. As of June 30, 2014, we were in compliance with each of the covenants under the New Zealand Facility. Securitization Facility We are a party to a receivables purchase agreement among FleetCor Funding LLC, as seller, PNC Bank, National Association as administrator, and the various purchaser agents, conduit purchasers and related committed purchasers parties thereto, with a purchase limit of $500 million. We refer to this arrangement as the Securitization Facility. The Securitization Facility was amended for the tenth time on February 3, 2014 to extend the facility termination date to February 2, 2015. There is a program fee equal to one month LIBOR and the Commercial Paper Rate of 0.17% plus 0.65% as of June 30, 2014. The unused facility fee is payable at a rate of 0.25% per annum as of June 30, 2014. Under a related purchase and sale agreement, dated as of December 20, 2004, and most recently amended on July 7, 2008, 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 31



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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. There are no financial covenant requirements related to our Securitization Facility. Other Liabilities In connection with our acquisition of certain businesses, we owe final payments of $11.8 million. Also in connection with our acquisition of certain businesses, we have remaining contingent earn out payments to the respective sellers with estimated fair values totaling $86.7 million.



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. Accounting estimates necessarily require subjective determinations about future events and conditions. During the three months ended June 30, 2014, we have not adopted any new critical accounting policies that had a significant impact upon our consolidated financial statements, have not changed any critical accounting policies and have not changed the application of any critical accounting policies from the year ended December 31, 2013. For critical accounting policies, refer to the Critical Accounting Estimates in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013 and our summary of significant accounting policies in Note 1 of our notes to the unaudited consolidated financial statements in this Form 10-Q. 32



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Management's Use of Non-GAAP Financial Measures

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



Adjusted revenues

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

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



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

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Revenues, net $ 273,502$ 220,869$ 527,410$ 414,520 Merchant commissions 20,327 19,555 37,950 33,416 Total adjusted revenues $ 253,175$ 201,314$ 489,460$ 381,104 Adjusted EBITDA We have defined the non-GAAP measure adjusted EBITDA, as net income as reflected in our statement of income, adjusted to eliminate (a) interest expense, (b) tax expense, (c) depreciation of long-lived assets, (d) amortization of intangible assets, (e) other expense (income), net and (f) gains and losses from our equity method investment. We use adjusted EBITDA as a basis to evaluate our operating performance net of the impact of certain non-core items during the period. We believe that adjusted EBITDA may be useful to investors to understanding our operating performance on a consistent basis. Adjusted EBITDA is not intended to be a substitute for GAAP financial measures and should not be used as such.



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

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net income $ 88,549$ 73,099$ 163,658$ 137,761 Provision for income taxes 39,406 32,225 72,428 58,076 Interest expense, net 5,308 3,756 10,769 7,204 Depreciation and amortization 24,429 15,890 48,847 30,519 Other (income) expense, net (268 ) (6 ) 276 286 Equity method investment loss 1,489 - 1,489 - Adjusted EBITDA $ 158,913$ 124,964$ 297,467$ 233,846 Adjusted net income We have defined the non-GAAP measure adjusted net income as net income as reflected in our statement of income, adjusted to eliminate (a) non-cash stock based compensation expense related share-based compensation awards, (b) amortization of deferred financing costs and intangible assets, (c) amortization of the premium recognized on the purchase of receivables, (d) loss on the early extinguishment of debt and (e) our proportionate share of amortization of intangible assets from our equity method investment. 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. 33



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We use adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. We believe it is useful to exclude non-cash stock based compensation expense from adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time and stock based compensation expense is not a key measure of our core operating performance. We also believe that amortization expense can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired. Therefore, we have excluded amortization expense from adjusted net income. We believe that adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be used as such.



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

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net income $ 88,549$ 73,099$ 163,658$ 137,761 Net income per diluted share $ 1.03 $ 0.87$ 1.91$ 1.64 Stock based compensation 7,687 3,897 18,299 8,059 Amortization of intangible assets 18,210 10,217 36,482 19,239 Amortization of premium on receivables 816 816 1,630 1,632 Amortization of deferred financing costs 531 833 1,062 1,593 Amortization from equity method investment 2,149 833 2,149 1,593 Total pre-tax adjustments 29,393 15,763 59,622 30,523 Income tax impact of pre-tax adjustments at the effective tax rate (9,052 ) (4,823 ) (18,291 ) (9,052 ) Adjusted net income $ 108,890$ 84,039$ 204,989$ 159,232



Adjusted net income per diluted share $ 1.27 $ 1.00

$ 2.39$ 1.89 Diluted shares 85,817 84,461 85,757 84,212



Special Cautionary Notice Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs, expectations and future performance, are forward-looking statements. Forward-looking statements can be identified by the use of words such as "anticipate," "intend," "believe," "estimate," "plan," "seek," "project" or "expect," "may," "will," "would," "could" or "should," the negative of these terms or other comparable terminology. These forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements. We have based these forward-looking statements largely on our current expectations and projections about future events. Forward-looking statements are subject to many uncertainties and other variable circumstances, such as delays or failures associated with implementation; fuel price and spread volatility; changes in credit risk of customers and associated losses; the actions of regulators relating to payment cards or investigations; failure to maintain or renew key business relationships; failure to maintain competitive offerings; failure to maintain or renew sources of financing; failure to complete, or delays in completing, anticipated new partnership arrangements or acquisitions and the failure to successfully integrate or otherwise achieve anticipated benefits from such partnerships or acquired businesses; failure to successfully expand business internationally; the impact of foreign exchange rates on operations, revenue and income; the effects of general economic conditions on fueling patterns and the commercial activity of fleets, as well as the other risks and uncertainties identified under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013. These factors could cause our actual results and experience to differ materially from any forward-looking statement. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. 34



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