UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-35004
FleetCor Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 72-1074903 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
5445 Triangle Parkway, Norcross, Georgia | 30092 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (770) 449-0479
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding at July 31, 2013 | |
Common Stock, $0.001 par value | 81,835,613 |
FLEETCOR TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarterly Period Ended June 30, 2013
2
FleetCor Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
June 30, 2013 |
December 31, 2012 |
|||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 292,905 | $ | 283,649 | ||||
Restricted cash |
48,474 | 53,674 | ||||||
Accounts receivable (less allowance for doubtful accounts of $20,240 and $19,463, respectively) |
627,675 | 525,441 | ||||||
Securitized accounts receivablerestricted for securitization investors |
402,000 | 298,000 | ||||||
Prepaid expenses and other current assets |
27,122 | 28,126 | ||||||
Deferred income taxes |
7,642 | 6,464 | ||||||
|
|
|
|
|||||
Total current assets |
1,405,818 | 1,195,354 | ||||||
|
|
|
|
|||||
Property and equipment |
101,373 | 93,902 | ||||||
Less accumulated depreciation and amortization |
(54,719 | ) | (48,706 | ) | ||||
|
|
|
|
|||||
Net property and equipment |
46,654 | 45,196 | ||||||
Goodwill |
994,648 | 926,609 | ||||||
Other intangibles, net |
515,702 | 463,864 | ||||||
Other assets |
50,267 | 90,847 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,013,089 | $ | 2,721,870 | ||||
|
|
|
|
|||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 528,161 | $ | 418,609 | ||||
Accrued expenses |
65,865 | 75,812 | ||||||
Customer deposits |
158,459 | 187,627 | ||||||
Securitization facility |
402,000 | 298,000 | ||||||
Current portion of notes payable and other obligations |
146,091 | 162,174 | ||||||
|
|
|
|
|||||
Total current liabilities |
1,300,576 | 1,142,222 | ||||||
|
|
|
|
|||||
Notes payable and other obligations, less current portion |
485,997 | 485,217 | ||||||
Deferred income taxes |
176,502 | 180,609 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
662,499 | 665,826 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 11) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.001 par value; 475,000,000 shares authorized, 117,444,296 shares issued and 81,709,804 shares outstanding at June 30, 2013; and 475,000,000 shares authorized, 116,772,324 shares issued and 81,037,832 shares outstanding at December 31, 2012 |
117 | 116 | ||||||
Additional paid-in capital |
574,602 | 542,018 | ||||||
Retained earnings |
888,458 | 750,697 | ||||||
Accumulated other comprehensive loss |
(37,500 | ) | (3,346 | ) | ||||
Less treasury stock (35,734,492 shares at June 30, 2013 and December 31, 2012) |
(375,663 | ) | (375,663 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
1,050,014 | 913,822 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 3,013,089 | $ | 2,721,870 | ||||
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
3
FleetCor Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues, net |
$ | 220,869 | $ | 171,820 | $ | 414,520 | $ | 317,985 | ||||||||
Expenses: |
||||||||||||||||
Merchant commissions |
19,555 | 17,651 | 33,416 | 28,044 | ||||||||||||
Processing |
32,010 | 27,014 | 61,953 | 52,593 | ||||||||||||
Selling |
13,386 | 10,274 | 25,090 | 20,449 | ||||||||||||
General and administrative |
30,954 | 23,824 | 60,215 | 47,647 | ||||||||||||
Depreciation and amortization |
15,890 | 11,609 | 30,519 | 23,329 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
109,074 | 81,448 | 203,327 | 145,923 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other (income) expense, net |
(6 | ) | (66 | ) | 286 | 522 | ||||||||||
Interest expense, net |
3,756 | 2,818 | 7,204 | 6,381 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expense |
3,750 | 2,752 | 7,490 | 6,903 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before taxes |
105,324 | 78,696 | 195,837 | 139,020 | ||||||||||||
Provision for income taxes |
32,225 | 24,295 | 58,076 | 42,540 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 73,099 | $ | 54,401 | $ | 137,761 | $ | 96,480 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share: |
||||||||||||||||
Basic earnings per share |
$ | 0.90 | $ | 0.65 | $ | 1.69 | $ | 1.16 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share |
$ | 0.87 | $ | 0.63 | $ | 1.64 | $ | 1.13 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic weighted average shares outstanding |
81,573 | 83,294 | 81,398 | 82,929 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted average shares outstanding |
84,461 | 85,737 | 84,212 | 85,451 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
4
FleetCor Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income |
$ | 73,099 | $ | 54,401 | $ | 137,761 | $ | 96,480 | ||||||||
Other comprehensive income: |
||||||||||||||||
Foreign currency translation adjustment loss, net of tax |
(23,422 | ) | (9,197 | ) | (34,154 | ) | (125 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other comprehensive loss |
(23,422 | ) | (9,197 | ) | (34,154 | ) | (125 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income |
$ | 49,677 | $ | 45,204 | $ | 103,607 | $ | 96,355 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
FleetCor Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
Six months ended June 30, | ||||||||
2013 | 2012 | |||||||
Operating activities |
||||||||
Net income |
$ | 137,761 | $ | 96,480 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation |
8,054 | 6,288 | ||||||
Stock-based compensation |
8,059 | 7,793 | ||||||
Provision for losses on accounts receivable |
9,199 | 10,953 | ||||||
Amortization of deferred financing costs |
1,593 | 1,051 | ||||||
Amortization of intangible assets |
19,239 | 14,357 | ||||||
Amortization of premium on receivables |
1,632 | 1,633 | ||||||
Deferred income taxes |
(2,598 | ) | (167 | ) | ||||
Changes in operating assets and liabilities (net of acquisitions): |
||||||||
Restricted cash |
5,199 | 5,635 | ||||||
Accounts receivable |
(190,998 | ) | (117,325 | ) | ||||
Prepaid expenses and other current assets |
1,392 | 2,808 | ||||||
Other assets |
39,322 | (42,268 | ) | |||||
Excess tax benefits related to stock-based compensation |
(12,016 | ) | (14,750 | ) | ||||
Accounts payable, accrued expenses and customer deposits |
56,874 | (9,286 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
82,712 | (36,798 | ) | |||||
|
|
|
|
|||||
Investing activities |
||||||||
Acquisitions, net of cash acquired |
(156,956 | ) | (35,490 | ) | ||||
Purchases of property and equipment |
(10,108 | ) | (8,431 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(167,064 | ) | (43,921 | ) | ||||
|
|
|
|
|||||
Financing activities |
||||||||
Excess tax benefits related to stock-based compensation |
12,016 | 14,750 | ||||||
Proceeds from issuance of common stock |
12,511 | 11,584 | ||||||
Borrowings on securitization facility, net |
104,000 | 45,000 | ||||||
Deferred financing costs paid |
(1,967 | ) | (795 | ) | ||||
Principal payments on notes payable |
(14,375 | ) | (7,500 | ) | ||||
Payments on US revolver |
(70,000 | ) | (185,000 | ) | ||||
Borrowings from US revolver |
55,000 | 145,000 | ||||||
Borrowings from swing line of credit, net |
| 26,862 | ||||||
Borrowings from foreign revolver |
26,895 | | ||||||
Payments on foreign revolver, net |
(13,821 | ) | | |||||
Other |
(175 | ) | | |||||
|
|
|
|
|||||
Net cash provided by financing activities |
110,084 | 49,901 | ||||||
|
|
|
|
|||||
Effect of foreign currency exchange rates on cash |
(16,476 | ) | 1,238 | |||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
9,256 | (29,580 | ) | |||||
Cash and cash equivalents, beginning of period |
283,649 | 285,159 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 292,905 | $ | 255,579 | ||||
|
|
|
|
|||||
Supplemental cash flow information |
||||||||
Cash paid for interest |
$ | 8,262 | $ | 7,209 | ||||
|
|
|
|
|||||
Cash paid for income taxes |
$ | 60,120 | $ | 24,164 | ||||
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
FleetCor Technologies, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
1. Summary of Significant Accounting Policies
Basis of Presentation
Throughout this report, the terms our, we, us, and the Company refers to FleetCor Technologies, Inc. and its subsidiaries. The Company prepared the accompanying interim consolidated financial statements in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP). The unaudited consolidated financial statements reflect all adjustments considered necessary for fair presentation. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may differ from these estimates. Operating results for the three month and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
The unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are made directly to accumulated other comprehensive income. Income and expenses are translated at the average monthly rates of exchange in effect during the period. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized foreign exchange gains of $20,000 and $168,000 for the three months ended June 30, 2013 and 2012, respectively. The Company recognized foreign exchange losses of $125,000 and $6,000 for the six months ended June 30, 2013 and 2012, respectively, which are classified within other income, net in the Unaudited Consolidated Statements of Income.
Adoption of New Accounting Standards
Qualitative Impairment Test for Indefinite-Lived Intangibles
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-02, IntangiblesGoodwill and Other, which gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite lived intangible asset is impaired. The proposed guidance is similar to ASU 2011-08 for goodwill. Companies would consider relevant events and circumstances that may affect the significant inputs used in determining the fair value of an indefinite-lived intangible asset. A company that concludes that it is more likely than not that the fair value of such an asset exceeds its carrying amount would not need to calculate the fair value of the asset in the current year. However, if a company concludes that it is more likely than not that the asset is impaired; it must calculate the fair value of the asset and compare that value with its carrying amount, as is required by current guidance. ASU 2012-02 will be applied prospectively for annual and interim impairment tests performed. ASU 2012-02 was effective for and adopted by the Company beginning January 1, 2013. The Companys adoption of this ASU did not affect the Companys results of operations, financial condition, or cash flows.
Accumulated Other Comprehensive Income
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI) (ASU 2013-02). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 was effective for and adopted by the Company beginning January 1, 2013. The Company has not reclassified any items out of AOCI to the income statement during the three and six months ended June 30, 2013.
Disclosures about Offsetting Assets and Liabilities
In December 2011, the FASB issued FASB ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entitys financial position. The amendments require enhanced disclosures about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. This standard will become effective for us beginning October 2013. In January 2013, the FASB issued Accounting Standards Update 2013-01, Scope Clarification of Disclosures about Offsetting Assets and Liabilities, to limit the scope of the new balance sheet offsetting disclosure
7
requirements to derivatives (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions. As we are not party to any derivatives, repurchase agreements, reverse repurchase agreements, securities borrowing and lending transactions we do not expect the adoption of these standards will have a material impact on the presentation of or disclosures within our financial statements.
Pending Adoption of Recently Issued Accounting Standards
Foreign Currency
In March 2013, the FASB issued ASU 2013-05 Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which indicates that the entire amount of a cumulative translation adjustment (CTA) related to an entitys investment in a foreign entity should be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated) or step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity). The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. This ASU is effective for the Company for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2013. The Companys adoption of this ASU is not expected to affect the Companys results of operations, financial condition, or cash flows unless transactions within the scope of the ASU occur.
2. Accounts Receivable
The Company maintains a $500 million revolving trade accounts receivable Securitization Facility. Pursuant to the terms of the Securitization Facility, the Company transfers certain of its domestic receivables, on a revolving basis, to FleetCor Funding LLC (Funding) a wholly-owned bankruptcy remote subsidiary. In turn, Funding sells, without recourse, on a revolving basis, up to $500 million of undivided ownership interests in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold to the Conduit. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.
The Company utilizes proceeds from the sale of its accounts receivable as an alternative to other forms of debt, effectively reducing its overall borrowing costs. The Company has agreed to continue servicing the sold receivables for the financial institution at market rates, which approximates the Companys cost of servicing. The Company retains a residual interest in the accounts receivable sold as a form of credit enhancement. The residual interests 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.
On February 4, 2013, the Company extended the term of its asset Securitization Facility to February 3, 2014. The Company capitalized $0.6 million in deferred financing fees in connection with this extension.
The Companys accounts receivable and securitized accounts receivable include the following at June 30, 2013 and December 31, 2012 (in thousands):
June 30, 2013 |
December 31, 2012 |
|||||||
Gross domestic accounts receivable |
$ | 142,452 | $ | 96,964 | ||||
Gross domestic securitized accounts receivable |
402,000 | 298,000 | ||||||
Gross foreign receivables |
505,463 | 447,940 | ||||||
|
|
|
|
|||||
Total gross receivables |
1,049,915 | 842,904 | ||||||
Less allowance for doubtful accounts |
(20,240 | ) | (19,463 | ) | ||||
|
|
|
|
|||||
Net accounts and securitized accounts receivable |
$ | 1,029,675 | $ | 823,441 | ||||
|
|
|
|
All foreign receivables are Company owned receivables and are not included in the Companys accounts receivable securitization program. At June 30, 2013 and December 31, 2012, there was $402 million and $298 million, respectively, of short-term debt outstanding under the Companys accounts receivable Securitization Facility.
8
A rollforward of the Companys allowance for doubtful accounts related to accounts receivable for six months ended June 30 is as follows (in thousands):
2013 | 2012 | |||||||
Allowance for doubtful accounts beginning of period |
$ | 19,463 | $ | 15,315 | ||||
Add: |
||||||||
Provision for bad debts |
9,199 | 10,953 | ||||||
Less: |
||||||||
Write-offs |
(8,422 | ) | (8,309 | ) | ||||
|
|
|
|
|||||
Allowance for doubtful accounts end of period |
$ | 20,240 | $ | 17,959 | ||||
|
|
|
|
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. The carrying value of the Companys 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 Companys debt obligations approximates fair value as the interest rates on the debt are variable market based interest rates that reset on a quarterly basis.
The Companys nonfinancial assets which are measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill and other intangible assets. As necessary, the Company generally uses projected cash flows, discounted as appropriate under the relevant guidance, to estimate the fair values of the assets using key inputs such as managements projections of cash flows on a held-and-used basis (if applicable), managements projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are measured at fair value on a nonrecurring basis as part of the Companys annual impairment assessments and if interim impairment indicators exist.
Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions.
As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
| Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets. |
| Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
| Level 3: Unobservable inputs that reflect the reporting entitys own assumptions. |
Level 2 fair value determinations are derived from directly or indirectly observable (market based) information. The Company has certain cash and cash equivalents that are invested on an overnight basis in repurchase agreements. The value of overnight repurchase agreements is determined based upon the quoted market prices for the treasury securities associated with the repurchase agreements. Certificates of deposit are valued at cost, plus interest accrued. Given the short term nature of these instruments (less than 90 days), the carrying value approximates fair value.
Level 3 fair value determinations are derived from the Companys estimate of recovery based on historical collection trends. There were no Level 3 assets or liabilities which required fair value determinations at June 30, 2013 and December 31, 2012.
The following table presents the Companys financial assets and liabilities which are measured at fair values on a recurring basis and that are subject to the disclosure requirements as of June 30, 2013 and December 31, 2012 (in thousands).
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
June 30, 2013 |
||||||||||||||||
Assets: |
||||||||||||||||
Overnight repurchase agreements |
$ | 128,809 | $ | | $ | 128,809 | $ | | ||||||||
Certificates of deposit |
3,202 | | 3,202 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 132,011 | $ | | $ | 132,011 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2012 |
||||||||||||||||
Assets: |
||||||||||||||||
Overnight repurchase agreements |
$ | 128,269 | $ | | $ | 128,269 | $ | | ||||||||
Certificates of deposit |
11,849 | | 11,849 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 140,118 | $ | | $ | 140,118 | $ | | ||||||||
|
|
|
|
|
|
|
|
9
4. Share Based Compensation
The Company has Stock Incentive Plans (the Plans) pursuant to which the Companys board of directors may grant stock options or restricted stock to employees. The Company is authorized to issue grants of restricted stock and stock options to purchase up to 26,963,150 shares as of June 30, 2013 and December 31, 2012. There were 771,714 additional shares remaining available for grant under the Plans at June 30, 2013.
The table below summarizes the expense recognized related to share-based payments recognized for the three and six month periods ended June 30 (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Stock options |
$ | 2,631 | $ | 2,349 | $ | 5,502 | $ | 4,626 | ||||||||
Restricted stock |
1,266 | 1,611 | 2,557 | 3,167 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stock-based compensation |
$ | 3,897 | $ | 3,960 | $ | 8,059 | $ | 7,793 | ||||||||
|
|
|
|
|
|
|
|
The tax benefits recorded on stock based compensation were $1.4 million and $1.2 million for the three month periods ended June 30, 2013 and 2012, respectively. The tax benefits recorded on stock based compensation were $2.7 million and $2.4 million for the six month periods ended June 30, 2013 and 2012, respectively.
The following table summarizes the Companys total unrecognized compensation cost related to stock-based compensation as of June 30, 2013 (in thousands):
Unrecognized Compensation Cost |
Weighted Average Period of Expense Recognition (in Years) |
|||||||
Stock options |
$ | 25,140 | 2.02 | |||||
Restricted stock |
4,947 | 0.94 | ||||||
|
|
|||||||
Total |
$ | 30,087 | ||||||
|
|
Stock Options
Stock options are granted with an exercise price estimated to be equal to the fair market value on the date of grant as authorized by the Companys board of directors. Options granted have vesting provisions ranging from one to six years. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting.
The following summarizes the changes in the number of shares of common stock under option for the six month period ended June 30, 2013 (shares and aggregate intrinsic value in thousands):
Shares | Weighted Average Exercise Price |
Options Exercisable at End of Period |
Weighted Average Exercise Price of Exercisable Options |
Weighted Average Fair Value of Options Granted During the Period |
Aggregate Intrinsic Value |
|||||||||||||||||||
Outstanding at December 31, 2012 |
6,565 | $ | 22.17 | 2,666 | $ | 14.71 | $ | 206,636 | ||||||||||||||||
Granted |
150 | 68.22 | $ | 19.25 | ||||||||||||||||||||
Exercised |
(661 | ) | 18.44 | 41,550 | ||||||||||||||||||||
Forfeited |
(79 | ) | 23.00 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Outstanding at June 30, 2013 |
5,975 | $ | 23.74 | 2,459 | $ | 16.07 | $ | 343,967 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Expected to vest as of June 30, 2013 |
5,975 | $ | 23.74 | |||||||||||||||||||||
|
|
|
|
The aggregate intrinsic value of stock options exercisable at June 30, 2013 was $160.4 million. The weighted average contractual term of options exercisable at June 30, 2013 was 5.9 years.
10
The fair value of stock option awards granted was estimated using the Black-Scholes option pricing model during the six months ended June 30, 2013, with the following weighted-average assumptions for grants during the period.
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
Risk-free interest rate |
0.55 | % | 0.64 | % | ||||
Dividend yield |
| | ||||||
Expected volatility |
35.05 | % | 34.31 | % | ||||
Expected life (in years) |
4.0 | 4.0 |
The Company considered the retirement and forfeiture provisions of the options and utilized its historical experience to estimate the expected life of the options.
Prior to June 30, 2012, the Company estimated the volatility of the share price of the Companys common stock by considering the historical volatility of the stock of similar public entities. In determining the appropriateness of the public entities included in the volatility assumption the Company considered a number of factors, including the entitys life cycle stage, size, financial leverage, and products offered. Beginning July 1, 2012, the Company began utilizing the volatility of the share price of the Companys common stock to estimate the volatility assumption for the Black-Scholes option pricing model.
The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant.
The weighted-average remaining contractual life for options outstanding was 7.1 and 7.4 years at June 30, 2013 and December 31, 2012, respectively.
Restricted Stock
Awards of restricted stock and restricted stock units are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to vesting. The vesting of the restricted stock and restricted stock units granted is generally based on the passage of time, performance or market conditions. Shares vesting based on the passage of time have vesting provisions ranging from one to four years.
The fair value of restricted stock granted based on market conditions was estimated using the Monte Carlo option pricing model at the grant date. The risk-free interest rate and volatility assumptions for restricted stock shares granted with market conditions were calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the stock option awards. No such awards were granted during the six months ended June 30, 2013.
The following table summarizes the changes in the number of shares of restricted stock and restricted stock units for the six months ended June 30, 2013 (shares in thousands):
Shares | Weighted Average Grant Date Fair Value |
|||||||
Unvested at December 31, 2012 |
472 | $ | 28.98 | |||||
Granted |
36 | 58.02 | ||||||
Vested |
(21 | ) | 30.02 | |||||
Cancelled |
(25 | ) | 29.99 | |||||
|
|
|
|
|||||
Unvested at June 30, 2013 |
462 | $ | 33.39 | |||||
|
|
|
|
5. Acquisition
2013 Acquisitions
During the six months ended June 30, 2013, the Company completed acquisitions with an aggregate purchase price of $159.6 million, net of cash acquired, which includes a deferred payment of $1.3 million and a contingent earn out payment of $1.4 million.
Fleet Card
On March 25, 2013, the Company acquired certain fuel card assets from GE Capital Australias Custom Fleet leasing business. The consideration for the transaction was paid using the Companys existing cash and credit facilities. GE Capitals Fleet Card is a
11
multi-branded fuel card product with acceptance in over 6,000 fuel outlets and over 7,000 automotive service and repair centers across Australia. Through this transaction, the Company acquired the Fleet Card product, brand, acceptance network contracts, supplier contracts, and approximately one-third of the customer relationships with regards to fuel cards. The remaining customer relationships will be retained by Custom Fleet, and are comprised of companies which have commercial relationships with Custom Fleet beyond fueling, such as fleet management and leasing. Results from the acquired business have been reported in the Companys International segment since the date of acquisition. The purpose of this acquisition was to establish the Companys presence in the Australian marketplace. This business acquisition was not material to the Companys consolidated financial statements.
Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and the Australian fuel card company. The goodwill related to this acquisition is not deductible for tax purposes. The purchase price allocation related to this acquisition is preliminary.
CardLink
On April 29, 2013, the Company acquired all of the outstanding stock of CardLink. The consideration for the transaction was paid using the Companys existing cash and credit facilities. CardLink provides a proprietary fuel card program with acceptance at retail fueling stations across New Zealand. CardLink markets its fuel cards directly to mostly small-to-midsized businesses, and provides processing and outsourcing services to oil companies and other partners. With this transaction, the Company entered into a 12.0 million New Zealand dollar ($11.0 million) revolving line of credit, which will be used to fund the working capital needs of the CardLink business. Results from the acquired business have been reported in the Companys International segment since the date of acquisition. The purpose of this acquisition was to expand the Companys growing presence in the Australia and Asian regions and follows the Companys recent purchase of GE Capitals Fleet Card business in Australia. This business acquisition was not material to the Companys consolidated financial statements.
Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and CardLink. The goodwill related to this acquisition is not deductible for tax purposes. The purchase price allocation related to this acquisition is preliminary.
2013 Totals
The following table summarizes the preliminary allocation of the purchase price for all acquisitions during the six months ended June 30, 2013 (in thousands):
Trade and other receivables |
$ | 24,434 | ||
Prepaid expenses and other |
559 | |||
Property and equipment |
321 | |||
Goodwill |
77,944 | |||
Other intangible assets |
79,661 | |||
Notes and other liabilities assumed |
(15,191 | ) | ||
Deferred tax liabilities |
(8,092 | ) | ||
|
|
|||
Aggregate purchase price |
$ | 159,636 | ||
|
|
Intangible assets allocated in connection with the purchase price allocations consisted of the following (in thousands):
Weighted Average Useful Lives (in Years) |
Value | |||||||
Customer relationships |
3 20 | $ | 70,631 | |||||
Trade names and trademarksindefinite |
N/A | 2,900 | ||||||
Trade names and trademarks |
15 | 200 | ||||||
Merchant network |
10 | 4,900 | ||||||
Software |
3 10 | 1,030 | ||||||
|
|
|||||||
$ | 79,661 | |||||||
|
|
12
2012 Acquisitions
During 2012, the Company completed several foreign acquisitions with an aggregate purchase price of $207.4 million, net of cash acquired, which includes a deferred payment of $11.3 million and contingent earn-out payments of $4.9 million. The Company made a first payment of $1.3 million related to this earn-out in December 2012.
Russian Fuel Card Company
On June 15, 2012, the Company acquired all of the outstanding stock of a leading Russian fuel card company. The consideration for the transaction was paid using the Companys existing cash and credit facilities. The acquired company is a Russian leader in fuel card systems and serves major oil clients and hundreds of independent fuel card issuers. Its technology allows issuers to share their retail network, thereby expanding the reach of their networks. Results from the acquired business have been reported in the Companys International segment since the date of acquisition. The purpose of this acquisition was to further expand the Companys presence in the Russian fuel card marketplace. This business acquisition was not material to the Companys consolidated financial statements. Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and the Russian fuel card company. The goodwill acquired with this business is not deductible for tax purposes.
CTF Technologies, Inc.
On July 3, 2012, the Company acquired all of the outstanding stock of CTF Technologies, Inc. (CTF), a British Columbia organization, for $156 million. The consideration for the transaction was paid using the Companys existing cash and credit facilities. CTF Technologies Do Brasil Ltda and certain of the Companys other subsidiaries are wholly-owned entities of CTF. The acquisition was carried out pursuant to a plan of arrangement under the Business Corporations Act (British Columbia) and was approved by final order of the Supreme Court of British Columbia. Results from the acquired business have been reported in the Companys International segment since the date of acquisition.The purpose of the transaction was to establish the Companys presence in the Brazilian marketplace.
CTF provides fuel payment processing services for over-the-road fleets, ships, mining equipment, and railroads in Brazil. CTFs payment platform links together fleet operators, banks, and oil companies. CTF earns revenue primarily from a recurring transaction fee paid by the oil companies who purchase services for their fleet customers under multi-year customer contracts. Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and CTF. The goodwill acquired with this business is not deductible for tax purposes.
2012 Totals
The following table summarizes the preliminary allocation of the purchase price for all acquisitions during 2012, net of cash acquired (in thousands):
Trade and other receivables |
$ | 13,196 | ||
Prepaid expenses and other |
6,185 | |||
Property and equipment |
6,701 | |||
Goodwill |
165,398 | |||
Other intangible assets |
109,758 | |||
Notes and other liabilities assumed |
(42,912 | ) | ||
Deferred tax liabilities |
(50,936 | ) | ||
|
|
|||
Aggregate purchase prices |
$ | 207,390 | ||
|
|
The purchase price is net of cash and cash equivalents acquired, totaling $1.9 million, and also includes a deferred payment of $11.3 million and contingent earn-out payments of $4.9 million.
Intangible assets allocated in connection with the preliminary purchase price allocations consisted of the following (in thousands):
Weighted Average Useful Lives (in Years) |
Value | |||||||
Customer relationships |
1020 | $ | 77,654 | |||||
Trade names and trademarksindefinite |
N/A | 16,900 | ||||||
Merchant network |
10 | 4,604 | ||||||
Software |
3-10 | 9,800 | ||||||
Non-compete |
2-6 | 800 | ||||||
|
|
|||||||
$ | 109,758 | |||||||
|
|
13
At June 30, 2013, approximately $243 million of the Companys goodwill is deductible for tax purposes. The Company incurred acquisition related costs of $3.4 million and $1.0 million in the six months ended June 30, 2013 and 2012, which are included within general and administrative expenses in the Consolidated Statements of Income. These acquisitions did not materially affect revenues and earnings during 2012.
6. Goodwill and Other Intangible Assets
A summary of changes in the Companys goodwill by reportable business segment is as follows (in thousands):
December 31, 2012 |
Acquisitions | Purchase Accounting Adjustments |
Foreign Currency |
June 30, 2013 |
||||||||||||||||
Segment |
||||||||||||||||||||
North America |
$ | 276,714 | $ | 5,000 | $ | | $ | | $ | 281,714 | ||||||||||
International |
649,895 | 72,944 | 80 | (9,985 | ) | 712,934 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 926,609 | 77,944 | 80 | $ | (9,985 | ) | $ | 994,648 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013 and December 31, 2012 other intangible assets consisted of the following (in thousands):
June 30, 2013 | December 31, 2012 | |||||||||||||||||||||||||
Useful Lives (Years) |
Gross Carrying Amounts |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amounts |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||||||||||
Customer and vendor agreements |
3 to 20 | $ | 555,078 | $ | (108,662 | ) | $ | 446,416 | $ | 487,718 | $ | (90,920 | ) | $ | 396,798 | |||||||||||
Trade names and trademarksindefinite lived |
N/A | 56,532 | | 56,532 | 53,926 | | 53,926 | |||||||||||||||||||
Trade names and trademarksother |
3 to 15 | 3,340 | (1,528 | ) | 1,812 | 3,160 | (1,420 | ) | 1,740 | |||||||||||||||||
Software |
3 to 10 | 16,261 | (6,271 | ) | 9,990 | 15,330 | (5,208 | ) | 10,122 | |||||||||||||||||
Non-compete agreements |
2 to 6 | 3,271 | (2,319 | ) | 952 | 3,271 | (1,993 | ) | 1,278 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other intangibles |
$ | 634,482 | $ | (118,780 | ) | 515,702 | $ | 563,405 | $ | (99,541 | ) | $ | 463,864 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments recorded during the six months ended June 30, 2013 relate to purchase price adjustments related to our Russian business acquisitions completed in 2012. Amortization expense related to intangible assets for the six month periods ended June 30, 2013 and 2012 was $19.2 million and $14.4 million, respectively. Changes in foreign currency exchange rates reduced intangible assets by $8.6 million in the six months ended June 30, 2013.
7. Debt
The Companys debt instruments are as follows (in thousands):
June 30, 2013 |
December 31, 2012 |
|||||||
Term note payabledomestic(a) |
$ | 510,625 | $ | 525,000 | ||||
Revolving line of credit A Facilitydomestic(a) |
85,000 | 100,000 | ||||||
Revolving line of credit B Facility foreign (a) |
12,347 | | ||||||
Revolving line of creditNew Zealand (c) |
| | ||||||
Other debt (d) |
24,116 | 22,391 | ||||||
|
|
|
|
|||||
Total notes payable and other obligations |
632,088 | 647,391 | ||||||
Securitization Facility(b) |
402,000 | 298,000 | ||||||
|
|
|
|
|||||
Total notes payable, credit agreements and Securitization Facility |
$ | 1,034,088 | $ | 945,391 | ||||
|
|
|
|
|||||
Current portion |
$ | 548,091 | $ | 460,174 | ||||
Long-term portion |
485,997 | 485,217 | ||||||
|
|
|
|
|||||
Total notes payable, credit agreements and Securitization Facility |
$ | 1,034,088 | $ | 945,391 | ||||
|
|
|
|
14
(a) | The Company entered into a Credit Agreement on June 22, 2011. On March 13, 2012, the Company 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, the Company entered into a second 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. As amended, the Credit Agreement provides for a $550 million term loan facility and an $850 million revolving credit facility. On March 20, 2013, the Company entered into a third amendment to the Credit Agreement to extend the term of the facility for an additional five years from the amendment date, with a new maturity date of March 20, 2018, separated the revolver into two tranches (a $815 million Revolving A facility and a $35 million Revolving B facility), added a designated borrower in Australia and another in New Zealand with the ability to borrow in local currency and 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. |
Interest ranges from the sum of the Base Rate plus 0.25% to 1.25% or the Eurodollar Rate plus 1.25% to 2.25%. The term note is payable in quarterly installments and is 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 six months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than ten business days after such loan is made. This facility is referred to as the Credit Facility. Principal payments of $14.4 million were made on the term loan during the six months ended June 30, 2013. This facility includes a foreign currency swing line of credit on which the Company borrowed funds during the periods presented. The Company did not have an outstanding unpaid balance on the foreign currency swing line of credit at June 30, 2013.
(b) | The Company is party to a $500 million receivables purchase agreement (Securitization Facility). The Securitization Facility was amended for the eighth time on February 4, 2013 to extend the facility termination date to February 3, 2014. There is a program fee equal to the Commercial Paper Rate of 0.24% plus 0.75% and 0.21% plus 0.675% as of December 31, 2012 and June 30, 2013, respectively. The unused facility fee is payable at a rate of 0.35% per annum as of December 31, 2012 and 0.30% per annum as of June 30, 2013. 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. |
(c) | In connection with the companys acquisition in New Zealand, the Company entered into a $12 million New Zealand dollar ($11.0 million) facility that is used for local working capital needs. This facility is a one year facility that matures on April 30, 2014. A line of credit charge of 0.025% times the facility limit is charged each month plus interest on outstanding borrowings is charged at the Bank Bill Mid-Market (BKBM) settlement rate plus a margin of 1.0%. The Company did not have an outstanding unpaid balance on this facility at June 30, 2013. |
(d) | In connection with the purchase of two of our businesses, there are final payments of $11.3 million and $1.3 million due on December 15, 2013 and April 2, 2014, respectively. The Company also is party to two acquisition agreements that include remaining contingent earn-out payments totaling $4.9 million, which are payable in October 2013, November 2013, April 2015, May 2016 and September 2017. Other debt also includes deferred liabilities (other than taxes) associated with certain of our businesses. |
The Company was in compliance with all financial and non-financial covenants at June 30, 2013.
The Company has deferred debt issuance costs associated with its new Credit Facility of $8.1 million as of June 30, 2013, which is classified in Other Assets within the Companys unaudited Consolidated Balance Sheet.
8. Income Taxes
The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 35% to income before income taxes for the three months ended June 30, 2013 and 2012 due to the following (in thousands):
2013 | 2012 | |||||||||||||||
Income tax expense at federal statutory rate |
$ | 36,863 | 35.0 | % | $ | 27,544 | 35.0 | % | ||||||||
Changes resulting from: |
||||||||||||||||
Foreign income tax differential |
(4,082 | ) | (3.9 | ) | (2,155 | ) | (2.7 | ) | ||||||||
State taxes, net of federal benefit |
1,337 | 1.3 | 653 | 0.8 | ||||||||||||
Foreign-sourced nontaxable income |
(2,785 | ) | (2.6 | ) | (2,729 | ) | (3.5 | ) | ||||||||
Other |
892 | 0.8 | 982 | 1.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Provision for income taxes |
$ | 32,225 | 30.6 | % | $ | 24,295 | 30.9 | % | ||||||||
|
|
|
|
|
|
|
|
15
At June 30, 2013 and December 31, 2012, notes payable and other obligationsnoncurrent, included liabilities for unrecognized income tax benefits of $7.8 million and $7.1 million, respectively. During the six months ended June 30, 2013 and 2012 the Company recognized additional liabilities of $0.7 million and $0.7 million, respectively. During the six months ended June 30, 2013 and 2012, amounts recorded for accrued interest and penalties expense related to the unrecognized income tax benefits were not significant.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations has expired for years prior to 2009 for the Companys U.S. federal income tax returns, 2011 for the Companys U.K. income tax returns, 2009 for the Companys Czech Republic income tax returns, 2010 for the Companys Russian income tax returns, 2007 for the Companys Mexican income tax returns, 2008 for the Companys Brazilian income tax returns, 2008 for the Companys Luxembourg income tax returns and 2009 for the Companys New Zealand income tax returns.
9. 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 if-converted and treasury stock method.
The calculation and reconciliation of basic and diluted earnings per share for the three and six months ended June 30 (in thousands, except per share data):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income |
$ | 73,099 | $ | 54,401 | $ | 137,761 | $ | 96,480 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator for basic and diluted earnings per share: |
||||||||||||||||
Weighted-average shares outstanding |
81,111 | 82,430 | 80,912 | 82,054 | ||||||||||||
Share-based payment awards classified as participating securities |
462 | 864 | 486 | 875 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator for basic earnings per share |
81,573 | 83,294 | 81,398 | 82,929 | ||||||||||||
Dilutive securities |
2,888 | 2,443 | 2,814 | 2,522 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator for diluted earnings per share |
84,461 | 85,737 | 84,212 | 85,451 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share |
$ | 0.90 | $ | 0.65 | $ | 1.69 | $ | 1.16 | ||||||||
Diluted earnings per share |
$ | 0.87 | $ | 0.63 | $ | 1.64 | $ | 1.13 |
Diluted earnings per share for the three month periods ended June 30, 2012 excludes the effect of 0.2 million shares of common stock, respectively, that may be issued upon the exercise of employee stock options because such effect would be antidilutive. There were no antidilutive shares for the three months ended June 30, 2013.
10. Segments
The Companys reportable segments represent components of the business for which separate financial information is evaluated regularly by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company operates in two reportable segments, North America and International. The Company has identified these segments due to commonality of the products in each of their business lines having similar economic characteristics, services, customers and processes. There were no significant inter-segment sales.
The results from the Companys Russian fuel card business acquired during the second quarter of 2012, CTF Technologies, Inc. acquired during the third quarter of 2012, Fleet Card acquired during the first quarter of 2013 and CardLink acquired during the second quarter of 2013 are reported in the Companys International segment.
16
The Companys segment results are as follows as of and for the three and six month periods ended June 30 (in thousands):
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues, net: |
||||||||||||||||
North America |
$ | 119,486 | $ | 107,286 | $ | 220,080 | $ | 190,098 | ||||||||
International |
101,383 | 64,534 | 194,440 | 127,887 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 220,869 | $ | 171,820 | $ | 414,520 | $ | 317,985 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income: |
||||||||||||||||
North America |
$ | 60,103 | $ | 53,598 | $ | 109,529 | $ | 91,711 | ||||||||
International |
48,971 | 27,850 | 93,798 | 54,212 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 109,074 | $ | 81,448 | $ | 203,327 | $ | 145,923 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization: |
||||||||||||||||
North America |
$ | 5,267 | $ | 5,024 | $ | 10,439 | $ | 10,018 | ||||||||
International |
10,623 | 6,585 | 20,080 | 13,311 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 15,890 | $ | 11,609 | $ | 30,519 | $ | 23,329 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Capital expenditures: |
||||||||||||||||
North America |
$ | 1,292 | $ | 2,501 | $ | 2,356 | $ | 4,596 | ||||||||
International |
4,054 | 2,367 | 7,752 | 3,835 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,346 | $ | 4,868 | $ | 10,108 | $ | 8,431 | |||||||||
|
|
|
|
|
|
|
|
11. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various pending or threatened legal actions. The Company has recorded reserves for certain legal proceedings. The amounts recorded are estimated and as additional information becomes available, the Company will reassess the potential liability related to its pending litigation and revise its estimate in the period that information becomes known. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a material adverse effect on the Companys consolidated financial position, results of operations, or liquidity.
Since 2010, the Company has been involved in an investigation by the Office of Fair Trading in the United Kingdom, relating to its Keyfuels product line. This product line consists of the Companys proprietary payment card and associated site network in the United Kingdom. A competitor alleged the Company was dominant in a relevant market with its Keyfuels product. The Office of Fair trading has investigated the allegations and following an extensive enquiry process, the Company was advised in April 2013 that the Office of Fair Trading has reached the provisional conclusion to close the case on the basis that there are no grounds for action. The Company was further advised to expect a provisional reasoned closure decision in the summer of 2013. The provisional opinion will be open to interested third parties to make representations before any final decision is made. A final decision is expected in late 2013.
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from managements 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 for the year ended December 31, 2012. All foreign currency amounts that have been converted into U.S. dollars in this discussion are based on the exchange rate as reported by Oanda for the applicable periods.
This managements discussion and analysis should also be read in conjunction with the managements discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Overview
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. In 2012, we processed approximately 304 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 sell these products and services directly and indirectly through partners with whom we have strategic relationships, such as major oil companies and petroleum marketers. We refer to these major oil companies and petroleum marketers as our partners. We provide our customers with various card products that typically function like a charge card to purchase fuel, lodging, food and related products and services at participating locations. Our payment programs enable businesses 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.
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 fleet operating costs.
Our segments, sources of revenue and expenses
Segments
We operate in two segments, which we refer to as our North America and International segments. The results from our Russian business acquired during the second quarter of 2012, CTF Technologies, Inc. acquired during the third quarter of 2012, our Australian Fleet Card business acquired during the first quarter of 2013 and New Zealand CardLink acquired during the second quarter of 2013 are reported in our International segment. Our revenue is reported net of the wholesale cost for underlying products and services. In this report, we refer to this net revenue as revenue. For the three and six months ended June 30, 2013 and 2012, our North America and International segments generated the following revenue:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||
(dollars in millions) | Revenue | % of total revenue |
Revenue | % of total revenue |
Revenue | % of total revenue |
Revenue | % of total revenue |
||||||||||||||||||||||||
North America |
$ | 119.5 | 54.1 | % | $ | 107.3 | 62.4 | % | $ | 220.1 | 53.1 | % | $ | 190.1 | 59.8 | % | ||||||||||||||||
International |
101.4 | 45.9 | % | 64.5 | 37.6 | % | 194.4 | 46.9 | % | 127.9 | 40.2 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 220.9 | 100.0 | % | $ | 171.8 | 100.0 | % | $ | 414.5 | 100.0 | % | $ | 318.0 | 100.0 | % | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Sources of Revenue
Transactions In both of our segments, we derive revenue from transactions and the related revenue per transaction. As illustrated in the diagram below, a transaction is defined as a purchase by a customer. Our customers include holders of our cards and payment products and those of our partners, for whom we manage card programs. 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, products, food or lodging services to our customers. We also earn revenue from our customers and partners through program fees and charges, which can be fixed fees, cost plus a mark-up or based on a percentage discount from retail prices. The following diagram illustrates a typical transaction flow.
Illustrative Transaction Flow
From our merchant and network relationships, we mostly derive revenue 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 illustrated in the table below, the price paid to a merchant or network may be calculated as (i) the merchants wholesale cost of fuel plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit. The difference between the price we pay to a merchant and the merchants wholesale cost for the underlying products and services is considered a merchant commission and is recognized as an expense. Approximately 49.1% and 61.5% of our revenue was derived from our merchant and network relationships during the three months ended June 30, 2013 and 2012, respectively. Approximately 48.9% and 56.6% of our revenue was derived from our merchant and network relationships during the six months ended June 30, 2013 and 2012, respectively.
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 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 | ||||||||||||||||||||
|
|
From our customers and partners, we derive revenue from a variety of program fees such as transaction fees, card fees, network fees and report fees. Our payment programs include other fees and charges associated with late payments and based on customer credit risk. Approximately 50.9% and 38.5% of our revenue was derived from customer and partner program fees and charges during the three months ended June 30, 2013 and 2012, respectively. Approximately 51.1% and 43.4% of our revenue was derived from customer and partner program fees and charges during the six months ended June 30, 2013 and 2012, respectively.
19
Key operating metrics
Transaction volume and revenue per transaction Set forth below is revenue per transaction information for the three and six months ended June 30, 2013 and 2012:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Transactions (in millions) |
||||||||||||||||
North America |
41.2 | 39.3 | 79.4 | 76.0 | ||||||||||||
International |
37.8 | 34.9 | 73.7 | 70.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total transactions |
79.0 | 74.2 | 153.1 | 146.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue per transaction |
||||||||||||||||
North America |
$ | 2.90 | $ | 2.73 | $ | 2.77 | $ | 2.50 | ||||||||
International |
2.68 | 1.85 | 2.64 | 1.82 | ||||||||||||
Consolidated revenue per transaction |
2.80 | 2.31 | 2.71 | 2.18 | ||||||||||||
Adjusted revenue per transaction |
||||||||||||||||
Consolidated adjusted revenue per transaction |
$ | 2.55 | $ | 2.08 | $ | 2.49 | $ | 1.98 |
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 change and as adjustments are made to merchant and customer rates.
Revenue per transaction can vary based on geography, the relevant merchant and customer relationship, the payment product utilized and the types of products or services purchased, a mix of which will be influenced by our acquisitions, organic growth in the business and fluctuations in the macroeconomic environment. When we talk about the macroeconomic environment, we are referring to the impact of market spread margins, fuel prices, foreign exchange rates and the economy in general can have on our business. In June and July 2012, we acquired a Russian business and CTF Technologies, Inc. (CTF), respectively, and in March and April 2013 we acquired FleetCard and CardLink, respectively, which each have higher revenue per transaction products in comparison to our other businesses.
Total transactions increased from 74.2 million in the three months ended June 30, 2012 to 79.0 million in the comparable period in 2013, an increase of 4.8 million transactions or 6.4%.Total transactions increased from 146.1 million in the six months ended June 30, 2012 to 153.1 million in the comparable period in 2013, an increase of 7.0 million transactions or 4.8%. We experienced an increase in transactions in our North American and International segments due to organic growth in certain of our payment programs and the impact of acquisitions completed in 2012 and 2013.
Sources of Revenue Set forth below is information on our sources of revenue for the three and six months ended June 30, 2013 and 2012 expressed as a percentage of consolidated revenues:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue from customers and partners |
50.9 | % | 38.5 | % | 51.1 | % | 43.4 | % | ||||||||
Revenue from merchants and networks |
49.1 | % | 61.5 | % | 48.9 | % | 56.6 | % | ||||||||
Revenue tied to fuel-price spreads |
18.7 | % | 23.5 | % | 17.4 | % | 19.7 | % | ||||||||
Revenue influenced by the absolute price of fuel |
19.6 | % | 21.5 | % | 20.1 | % | 20.4 | % | ||||||||
Revenue from program fees, late fees, interest and other |
61.7 | % | 55.0 | % | 62.5 | % | 59.9 | % |
20
Adjusted Revenues, EBITDA, Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted revenues, EBITDA, adjusted net income and diluted adjusted net income per share for the three and six months ended June 30, 2013 and 2012.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Adjusted revenues |
$ | 201,314 | $ | 154,169 | $ | 381,104 | $ | 289,941 | ||||||||
EBITDA |
$ | 124,964 | $ | 93,057 | $ | 233,846 | $ | 169,252 | ||||||||
Adjusted net income |
$ | 84,039 | $ | 62,972 | $ | 159,232 | $ | 113,715 | ||||||||
Adjusted net income per diluted share |
$ | 1.00 | $ | 0.73 | $ | 1.89 | $ | 1.33 |
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. Thus, we believe this is a more effective way to evaluate our revenue performance on a consistent basis. We use EBITDA, calculated as earnings before interest, taxes, depreciation and amortization 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, EBITDA, adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled Managements Use of Non-GAAP Financial Measures.
Factors and trends impacting our business
We believe that the following factors and trends are important in understanding our financial performance:
| Fuel prices Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customers total purchase. We believe that approximately 19.6% and 21.5% of our consolidated revenue during the three months ended June 30, 2013 and 2012, respectively, and 20.1% and 20.4% of our consolidated revenue during the six months ended June 30, 2013 and 2012, respectively, was directly influenced by the absolute price of fuel. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. |
| 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 merchants 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 merchants 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 merchants wholesale cost of fuel. Approximately 18.7% and 23.5% of our consolidated revenue during the three months ended June 30, 2013 and 2012, respectively, and 17.4% and 19.7% of our consolidated revenue during the six months ended June 30, 2013 and 2012, respectively, was derived from transactions where our revenue is tied to fuel-price spreads. |
| AcquisitionsSince 2002, we have completed over 55 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 ratesOur 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 downturnOur 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 American and International segments. |
| Foreign currency changes Our results of operations are impacted by changes in foreign currency rates; namely, by movements of the British pound, Czech koruna, Russian ruble, Canadian dollar, Euro, Brazilian real, Mexican peso, Australian dollar and New Zealand dollar relative to the U.S. dollar. Approximately 54.0% and 62.4% of our revenue during the three months ended June 30, 2013 and 2012, respectively, and 53.0% and 59.7% of our revenue during the six months ended June 30, 2013 and 2012, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. |
| 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
Results of Operations
Three months ended June 30, 2013 compared to the three months ended June 30, 2012
The following table sets forth selected consolidated statement of income data for the three months ended June 30, 2013 and 2012 (in thousands).
Three months ended June 30, 2013 |
% of total revenue |
Three months ended June 30, 2012 |
% of total revenue |
Increase (decrease) |
% Change | |||||||||||||||||||
Revenues, net: |
||||||||||||||||||||||||
North America |
$ | 119,486 | 54.1 | % | $ | 107,286 | 62.4 | % | $ | 12,200 | 11.4 | % | ||||||||||||
International |
101,383 | 45.9 | % | 64,534 | 37.6 | % | 36,849 | 57.1 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues, net |
220,869 | 100.0 | % | 171,820 | 100.0 | % | 49,049 | 28.5 | % | |||||||||||||||
Consolidated operating expenses: |
||||||||||||||||||||||||
Merchant commissions |
19,555 | 8.9 | % | 17,651 | 10.3 | % | 1,904 | 10.8 | % | |||||||||||||||
Processing |
32,010 | 14.5 | % | 27,014 | 15.7 | % | 4,996 | 18.5 | % | |||||||||||||||
Selling |
13,386 | 6.1 | % | 10,274 | 6.0 | % | 3,112 | 30.3 | % | |||||||||||||||
General and administrative |
30,954 | 14.0 | % | 23,824 | 13.9 | % | 7,130 | 29.9 | % | |||||||||||||||
Depreciation and amortization |
15,890 | 7.2 | % | 11,609 | 6.8 | % | 4,281 | 36.9 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income |
109,074 | 49.4 | % | 81,448 | 47.4 | % | 27,626 | 33.9 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income, net |
(6 | ) | 0.0 | % | (66 | ) | 0.0 | % | 60 | (90.9 | )% | |||||||||||||
Interest expense, net |
3,756 | 1.7 | % | 2,818 | 1.6 | % | 938 | 33.3 | % | |||||||||||||||
Provision for income taxes |
32,225 | 14.6 | % | 24,295 | 14.1 | % | 7,930 | 32.6 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 73,099 | 33.1 | % | $ | 54,401 | 31.7 | % | $ | 18,698 | 34.4 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income for segments: |
||||||||||||||||||||||||
North America |
$ | 60,103 | $ | 53,598 | $ | 6,505 | 12.1 | % | ||||||||||||||||
International |
48,971 | 27,850 | 21,121 | 75.8 | % | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating income |
$ | 109,074 | $ | 81,448 | $ | 27,626 | 33.9 | % | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating margin for segments: |
||||||||||||||||||||||||
North America |
50.3 | % | 50.0 | % | 0.3 | % | ||||||||||||||||||
International |
48.3 | % | 43.2 | % | 5.1 | % | ||||||||||||||||||
Total |
49.4 | % | 47.4 | % | 2.0 | % |
Revenues and revenue per transaction
Our consolidated revenues increased from $171.8 million in the three months ended June 30, 2012 to $220.9 million in the three months ended June 30, 2013, an increase of $49.1 million, or 28.5%. The increase in our consolidated revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction; and |
| the full period impact of acquisitions completed in 2012 as well as acquisitions completed in 2013, which contributed approximately $23 million in additional revenue in the three months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly negative impact on our consolidated revenue for the three months ended June 30, 2013 over the comparable period in 2012. The macroeconomic environment was primarily impacted by lower fuel spread margins and lower fuel prices in the three months ended June 30, 2013 over the comparable period in 2012. Changes in foreign exchange rates were mixed and had a slightly unfavorable impact on our business of approximately $0.7 million during the three months ended June 30, 2013 over the comparable period in 2012. |
22
Consolidated revenue per transaction increased from $2.31 in the three months ended June 30, 2012 to $2.80 in the three months ended June 30, 2013, an increase of $0.49 or 21.2%. This increase is primarily due to organic growth in certain of our payment programs and the full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, the majority of which have higher revenue per transaction products in comparison to our other businesses.
North America segment revenues and revenue per transaction
North America revenues increased from $107.3 million in the three months ended June 30, 2012 to $119.5 million in the three months ended June 30, 2013, an increase of $12.2 million, or 11.4%. The increase in our North America segment revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction; and |
| the impact of an acquisition completed in 2013, which contributed approximately $3 million in additional revenue in the three months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly negative impact on our North American segment revenue for the three months ended June 30, 2013 over the comparable period in 2012, primarily due to the impact of lower fuel spread margins and slightly lower fuel prices. |
North America segment revenue per transaction increased from $2.73 in the three months ended June 30, 2012 to $2.90 in the three months ended June 30, 2013, an increase of $0.17 or 6.2%. North America revenue per transaction was impacted by the reasons discussed above.
International segment revenues and revenue per transaction
International segment revenues increased from $64.5 million in the three months ended June 30, 2012 to $101.4 million in the three months ended June 30, 2013, an increase of $36.9 million, or 57.1%. The increase in our International segment revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction; and |
| the full period impact of acquisitions completed in 2012 as well as acquisitions completed in 2013, which contributed approximately $20 million in additional revenue in the three months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly negative impact on our International segment revenue for the three months ended June 30, 2013 over the comparable period in 2012, due to the impact of lower fuel spread margins, lower fuel prices internationally and impact of changes in foreign exchange rates of approximately $0.7 million, each of which had a slightly unfavorable impact on our business during the three months ended June 30, 2013 over the comparable period in 2012. |
International segment revenue per transaction increased from $1.85 in the three months ended June 30, 2012 to $2.68 in the three months ended June 30, 2013, an increase of $0.83 or 44.9%. This increase is primarily due to organic growth in certain of our payment programs and the full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, the majority of which have higher revenue per transaction products in comparison to our other businesses.
Consolidated operating expenses
Merchant commissions Merchant commissions increased from $17.7 million in the three months ended June 30, 2012 to $19.6 million in the three months ended June 30, 2013, an increase of $1.9 million, or 10.8%. This increase was due primarily to the impact of higher volumes in revenue streams where merchant commissions are paid, primarily in the North American segment.
Processing Processing expenses increased from $27.0 million in the three months ended June 30, 2012 to $32.0 million in the three months ended June 30, 2013, an increase of $5.0 million, or 18.5%. Our processing expenses primarily increased due to the impact of acquisitions completed in 2012 and 2013.
Selling Selling expenses increased from $10.3 million in the three months ended June 30, 2012 to $13.4 million in the three months ended June 30, 2013, an increase of $3.1 million, or 30.3%. Our selling expenses primarily increased due to the impact of acquisitions completed in 2012 and 2013, as well as additional sales and marketing spending in certain markets.
23
General and administrative General and administrative expenses increased from $23.8 million in the three months ended June 30, 2012 to $31.0 million in the three months ended June 30, 2013, an increase of $7.2 million, or 29.9%. Our general and administrative expenses increased primarily due to the impact of acquisitions completed in 2012 and 2013, as well as approximately $1.8 million of additional one-time deal related costs.
Depreciation and amortization Depreciation and amortization increased from $11.6 million in the three months ended June 30, 2012 to $15.9 million in the three months ended June 30, 2013, an increase of $4.3 million, or 36.9%. The increase in our depreciation and amortization expense is primarily due to acquisitions completed during 2012 and 2013, which resulted in an increase of $3.4 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software, as well as acquired fixed assets and development related to our Global FleetNet (GFN) application.
Operating income and operating margin
Consolidated operating income
Operating income increased from $81.4 million in the three months ended June 30, 2012 to $109.1 million in the three months ended June 30, 2013, an increase of $27.7 million, or 33.9%. Our operating margin was 47.4% and 49.4% for the three months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin is due primarily to the impact of acquisitions completed during 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transaction, as well as synergies gained in certain of our acquired businesses. The macroeconomic environment had a slightly negative impact on consolidated operating income.
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 $53.6 million in the three months ended June 30, 2012 to $60.1 million in the three months ended June 30, 2013, an increase of $6.5 million, or 12.1%. North America operating margin was 50.0% and 50.3% for the three months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin is due primarily to organic growth in the business driven by increases in volume and revenue per transaction. The macroeconomic environment had a slightly negative impact on North American operating income.
International segment operating income
International operating income increased from $27.9 million in the three months ended June 30, 2012 to $49.0 million in the three months ended June 30, 2013, an increase of $21.1 million, or 75.8%. International operating margin was 43.2% and 48.3% for the three months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin is due primarily to the impact of acquisitions completed in 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transaction, as well as synergies gained in certain of our acquired businesses. The macroeconomic environment had a slightly negative effect on International segment operating income.
Other income, net
Other income, net decreased from $0.1 million in the three months ended June 30, 2012 to $0.0 million in the three months ended June 30, 2013, a negligible change.
Interest expense, net
Interest expense increased from $2.8 million in the three months ended June 30, 2012 to $3.8 million in the three months ended June 30, 2013, an increase of $1.0 million, or 33.3%. The increase is due to increased borrowings and slightly higher interest rates in the three months ended June 30, 2013 over the comparable period in 2012. The average interest rate paid on borrowings on the term loan and domestic Revolver A under our Credit Facility (including the unused credit facility fee) was 2.09% and 1.99% in the three months ended June 30, 2013 and 2012, respectively. The average interest rate paid on borrowings on the foreign Revolver B under our Credit Facility (including the unused credit facility fee) was 4.81% in the three months ended June 30, 2013. The average interest rate paid on borrowings under our foreign swing line of credit was 2.05% in the three months ended June 30, 2012. There were no borrowings under this line of credit in the three months ended June 30, 2013.
Provision for income taxes
The provision for income taxes increased from $24.3 million in the three months ended June 30, 2012 to $32.2 million in the three months ended June 30, 2013, an increase of $7.9 million, or 32.6%. 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
24
period they occur. Our effective tax rate decreased from 30.9% for three months ended June 30, 2012 to 30.6% for the three months ended June 30, 2013. The decrease in our effective tax rate is primarily due to a shift in the mix of earnings to foreign jurisdictions with lower tax rates.
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 $54.4 million in the three months ended June 30, 2012 to $73.1 million in the three months ended June 30, 2013, an increase of $18.7 million, or 34.4%.
Six months ended June 30, 2013 compared to the six months ended June 30, 2012
The following table sets forth selected consolidated statement of income data for the six months ended June 30, 2013 and 2012 (in thousands).
Six months ended June 30, 2013 |
% of total revenue |
Six months ended June 30, 2012 |
% of total revenue |
Increase (decrease) |
% Change | |||||||||||||||||||
Revenues, net: |
||||||||||||||||||||||||
North America |
$ | 220,080 | 53.1 | % | $ | 190,098 | 59.8 | % | $ | 29,982 | 15.8 | % | ||||||||||||
International |
194,440 | 46.9 | % | 127,887 | 40.2 | % | 66,553 | 52.0 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues, net |
414,520 | 100.0 | % | 317,985 | 100.0 | % | 96,535 | 30.4 | % | |||||||||||||||
Consolidated operating expenses: |
||||||||||||||||||||||||
Merchant commissions |
33,416 | 8.1 | % | 28,044 | 8.8 | % | 5,372 | 19.2 | % | |||||||||||||||
Processing |
61,953 | 14.9 | % | 52,593 | 16.5 | % | 9,360 | 17.8 | % | |||||||||||||||
Selling |
25,090 | 6.1 | % | 20,449 | 6.4 | % | 4,641 | 22.7 | % | |||||||||||||||
General and administrative |
60,215 | 14.5 | % | 47,647 | 15.0 | % | 12,568 | 26.4 | % | |||||||||||||||
Depreciation and amortization |
30,519 | 7.4 | % | 23,329 | 7.3 | % | 7,190 | 30.8 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income |
203,327 | 49.1 | % | 145,923 | 45.9 | % | 57,404 | 39.3 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
286 | 0.1 | % | 522 | 0.2 | % | (236 | ) | (45.2 | )% | ||||||||||||||
Interest expense, net |
7,204 | 1.7 | % | 6,381 | 2.0 | % | 823 | 12.9 | % | |||||||||||||||
Provision for income taxes |
58,076 | 14.0 | % | 42,540 | 13.4 | % | 15,536 | 36.5 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 137,761 | 33.2 | % | $ | 96,480 | 30.3 | % | $ | 41,281 | 42.8 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income for segments: |
||||||||||||||||||||||||
North America |
$ | 109,529 | $ | 91,711 | $ | 17,818 | 19.4 | % | ||||||||||||||||
International |
93,798 | 54,212 | 39,586 | 73.0 | % | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating income |
$ | 203,327 | $ | 145,923 | $ | 57,404 | 39.3 | % | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating margin for segments: |
||||||||||||||||||||||||
North America |
49.8 | % | 48.2 | % | 1.6 | % | ||||||||||||||||||
International |
48.2 | % | 42.4 | % | 5.8 | % | ||||||||||||||||||
Total |
49.1 | % | 45.9 | % | 3.2 | % |
Revenues and revenue per transaction
Our consolidated revenues increased from $318.0 million in the six months ended June 30, 2012 to $414.5 million in the six months ended June 30, 2013, an increase of $96.5 million, or 30.4%. The increase in our consolidated revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction; and |
| the full period impact of acquisitions completed in 2012 as well as acquisitions completed in 2013, which contributed approximately $37 million in additional revenue in the six months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly positive impact on our consolidated revenue for the six months ended June 30, 2013 over the comparable period in 2012. |
25
The macroeconomic environment was primarily impacted by higher fuel spread margins in the six months ended June 30, 2013 over the comparable period in 2012. The positive impact of higher fuel spread margins was partially offset by the unfavorable impact of foreign exchange rates of approximately $1.1 million and lower fuel prices, during the six months ended June 30, 2013 over the comparable period in 2012. |
Consolidated revenue per transaction increased from $2.18 in the six months ended June 30, 2012 to $2.71 in the six months ended June 30, 2013, an increase of $0.53 or 24.3%. This increase is primarily due to organic growth in certain of our payment programs and the full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, the majority of which have higher revenue per transaction products in comparison to our other businesses.
North America segment revenues and revenue per transaction
North America revenues increased from $190.1 million in the six months ended June 30, 2012 to $220.1 million in the six months ended June 30, 2013, an increase of $30.0 million, or 15.8%. The increase in our North America segment revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction. |
| the impact of an acquisition completed in 2013, which contributed approximately $3 million in additional revenue in the six months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it positively impacted our North American segment revenue for the six months ended June 30, 2013 over the comparable period in 2012, primarily due to the impact of higher fuel spread margins, partially offset by the impact of lower fuel prices in the US. |
North America segment revenue per transaction increased from $2.50 in the six months ended June 30, 2012 to $2.77 in the six months ended June 30, 2013, an increase of $0.27 or 10.8%. North America revenue per transaction was impacted by the reasons discussed above.
International segment revenues and revenue per transaction
International segment revenues increased from $127.9 million in the six months ended June 30, 2012 to $194.4 million in the six months ended June 30, 2013, an increase of $66.5 million, or 52.0%. The increase in our International segment revenue was primarily due to:
| organic growth in certain of our payment programs driven primarily by increases in both volume and revenue per transaction; and |
| the full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, which contributed approximately $34 million in additional revenue in the six months ended June 30, 2013 over the comparable period in 2012. |
| Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a slightly negative impact on our International segment revenue for the six months ended June 30, 2013 over the comparable period in 2012, primarily due to lower fuel prices internationally and changes in foreign exchange rates. Changes in foreign exchange rates had a slightly unfavorable impact on revenues of approximately $1.1 million in the six months ended June 30, 2013 over the comparable period in 2012. We believe that fuel spread margins had a minimal impact on revenues. |
International segment revenue per transaction increased from $1.82 in the six months ended June 30, 2012 to $2.64 in the six months ended June 30, 2013, an increase of $0.82 or 45.1%. This increase is primarily due to organic growth in certain of our payment programs and the full period impact of acquisitions completed in 2012, as well as acquisitions completed in 2013, the majority of which have higher revenue per transaction products in comparison to our other businesses.
Consolidated operating expenses
Merchant commissions Merchant commissions increased from $28.0 million in the six months ended June 30, 2012 to $33.4 million in the six months ended June 30, 2013, an increase of $5.4 million, or 19.2%. This increase was due primarily to the impact of higher volumes in revenue streams where merchant commissions are paid, primarily in the North American segment.
Processing Processing expenses increased from $52.6 million in the six months ended June 30, 2012 to $62.0 million in the six months ended June 30, 2013, an increase of $9.4 million, or 17.8%. Our processing expenses primarily increased due to acquisitions completed in 2012 and 2013, partially offset by efficiencies gained in certain of more recently acquired businesses.
26
Selling Selling expenses increased from $20.4 million in the six months ended June 30, 2012 to $25.1 million in the six months ended June 30, 2013, an increase of $4.7 million, or 22.7%. Our selling expenses primarily increased due to acquisitions completed in 2012 and 2013, as well as additional sales and marketing spending in certain markets.
General and administrative General and administrative expenses increased from $47.6 million in the six months ended June 30, 2012 to $60.2 million in the six months ended June 30, 2013, an increase of $12.6 million, or 26.4%. Our general and administrative expenses primarily increased due to acquisitions completed in 2012 and 2013, as well as approximately $3.6 million in additional one-time deal related costs.
Depreciation and amortization Depreciation and amortization increased from $23.3 million in the six months ended June 30, 2012 to $30.5 million in the six months ended June 30, 2013, an increase of $7.2 million, or 30.8%. The increase in our depreciation and amortization expense is primarily due to acquisitions completed during 2012 and 2013, which resulted in an increase of $5.7 million related to the amortization of acquired intangible assets for customer and vendor relationships, trade names and trademarks, non-compete agreements and software, as well as acquired fixed assets and development related to our GFN application.
Operating income and operating margin
Consolidated operating income
Operating income increased from $145.9 million in the six months ended June 30, 2012 to $203.3 million in the six months ended June 30, 2013, an increase of $57.4 million, or 39.3%. Our operating margin was 45.9% and 49.1% for the six months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin was due primarily to the impact of acquisitions completed during 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transaction, the slightly positive effect of the macroeconomic environment, driven by the impact of higher fuel spreads, as well as synergies gained in certain of our acquired businesses. The impact of changes in foreign exchange rates and changes in fuel prices on consolidated operating income was slightly negative.
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 $91.7 million in the six months ended June 30, 2012 to $109.5 million in the six months ended June 30, 2013, an increase of $17.8 million, or 19.4%. North America operating margin was 48.2% and 49.8% for the six months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin was due primarily to organic growth in the business driven by increases in volume and revenue per transaction, as well as the impact of the positive macroeconomic environment, driven by the impact of higher fuel spread margins. The impact of changes in fuel prices on North American segment operating income was mostly neutral.
International segment operating income
International operating income increased from $54.2 million in the six months ended June 30, 2012 to $93.8 million in the six months ended June 30, 2013, an increase of $39.6 million, or 73.0%. International operating margin was 42.4% and 48.2% for the six months ended June 30, 2012 and 2013, respectively. The increase in operating income and operating margin was due primarily to the impact of acquisitions completed in 2012 and 2013, organic growth in the business driven by increases in volume and revenue per transaction, as well as synergies gained in certain of our acquired businesses. The macroeconomic environment had a slightly negative effect on International segment operating income.
Other expense, net
Other expense, net decreased from $0.5 million in the six months ended June 30, 2012 to $0.3 million in the six months ended June 30, 2013, a decrease of $0.2 million, a negligible change.
Interest expense, net
Interest expense increased from $6.4 million in the six months ended June 30, 2012 to $7.2 million in the six months ended June 30, 2013, an increase of $0.8 million, or 12.9%. The increase is due to an increase in borrowings and slightly higher interest rates in the six months ended June 30, 2013 over the comparable period in 2012. The average interest rate paid on borrowings on the term loan and domestic Revolver A under our Credit Facility (including the unused credit facility fee) was 2.03% and 2.00% during the six months ended June 30, 2013 and 2012, respectively. The average interest rate paid on borrowings on the foreign Revolver B under our Credit Facility (including the unused credit facility fee) was 4.81% in the six months ended June 30, 2013. The average interest rate paid on borrowings under our foreign swing line of credit was 1.98% and 2.05% in the six months ended June 30, 2013 and 2012, respectively.
27
Provision for income taxes
The provision for income taxes increased from $42.5 million in the six months ended June 30, 2012 to $58.1 million in the six months ended June 30, 2013, an increase of $15.6 million, or 36.5%. 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 decreased from 30.6% for six months ended June 30, 2012 to 29.7% for the six months ended June 30, 2013. The decrease in our effective tax rate was primarily due to the first quarter reversal of $1.9 million of tax booked in the fourth quarter of 2012 related to the controlled foreign corporation look-through exclusion expiring for us on December 1, 2012. The exclusion was retroactively extended in January 2013, resulting in the reversal of the additional taxes recorded in 2012 prior to extension. The decrease is also driven by a shift in the mix of earnings to foreign jurisdictions with lower tax rates.
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 $96.5 million in the six months ended June 30, 2012 to $137.8 million in the six months ended June 30, 2013, an increase of $41.3 million, or 42.8%.
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, 2013, our unrestricted cash and cash equivalent balance totaled $292.9 million. Our restricted cash balance at June 30, 2013 totaled $48.5 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, 2013, cash and cash equivalents held in foreign subsidiaries where we have determined such cash and cash equivalents are permanently reinvested is $255.2 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 the best interests of the Company to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto or the ultimate impact any such action may have on our results of operations or financial condition.
We utilize an accounts receivable Securitization Facility to finance a majority of our domestic fuel card receivables, to lower our cost of funds and more efficiently use capital. We generate and record accounts receivable when a customer makes a purchase from a merchant using one of our card products and generally pay merchants within seven days of receiving the merchant billing. As a result, we utilize the asset Securitization Facility as a source of liquidity to provide the cash flow required to fund merchant payments prior to collecting 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, 2013, we had approximately $753 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, absent any major acquisition opportunities that might arise. 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.
28
Cash flows
The following table summarizes our cash flows for the six months ended June 30, 2013 and 2012.
Six months ended June 30, | ||||||||
(in millions) | 2013 | 2012 | ||||||
Net cash provided by (used in) operating activities |
$ | 82.7 | $ | (36.8 | ) | |||
Net cash used in investing activities |
(167.1 | ) | (43.9 | ) | ||||
Net cash provided by financing activities |
110.1 | 49.9 |
Operating activities Net cash provided by operating activities increased from a cash usage of $36.8 million in the six months ended June 30, 2012 to cash provided by operating activities of $82.7 million in the six months ended June 30, 2013. The increase is primarily due to a liability acquired with the Allstar acquisition of $108 million and customer deposit of $43 million, each of which were paid during the first six months of 2012. The remaining fluctuation is due to changes in working capital, as well as additional net income during the six months ended June 30, 2013 over the comparable period in 2012.
Investing activities Net cash used in investing activities increased from $43.9 million in the six months ended June 30, 2012 to $167.1 million in the six months ended June 30, 2013. This increase is primarily due to the increase in cash paid for acquisitions in the six months ended June 30, 2013.
Financing activities Net cash provided by financing activities increased from $49.9 million in the six months ended June 30, 2012 to $110.1 million in the six months ended June 30, 2013. The increase is primarily due to increased net borrowings of $59 million on our Securitization Facility in the six months ended June 30, 2013 over the comparable period in 2012.
Capital spending summary
Our capital expenditures increased from $8.4 million in the six months ended June 30, 2012 to $10.1 million in the six months ended June 30, 2013, an increase of $1.7 million, or 19.9%. The increase was primarily related to additional investments to continue to enhance our existing processing systems and continued development of our European processing system GFN. We anticipate our capital expenditures for all of 2013 to be approximately $23 million as we continue to enhance our existing processing systems.
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 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 a designated borrower in Australia and another in New Zealand, 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.
At June 30, 2013, we had $510.6 million in outstanding term loans, $85.0 million in borrowings outstanding on the domestic revolving A facility and $12.3 million in borrowings outstanding on the foreign revolving B 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 at our option, the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio. Interest is payable quarterly in arrears. In addition, we have agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.20% to 0.40% of the daily unused portion of the credit facility. At June 30, 2013, the interest rate on the term loan and domestic revolving A facility was 1.70% plus an unused credit facility fee of 0.25% and the interest rate on the foreign revolving B facility was 4.36% plus an unused credit facility fee of 0.25%.
29
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 six months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than ten business days after such loan is made.
During the six months ended June 30, 2013, we made principal payments of $14.4 million on the term loan, $70.0 million on the domestic revolving A facility and $13.8 million on the foreign revolving B facility. As of June 30, 2013, 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 million New Zealand dollar ($11.0 million) facility with Westpac Bank in New Zealand (New Zealand Facility). This facility is for purposes of funding the working capital needs of our recently acquired business, CardLink, in New Zealand. This facility matures on April 30, 2014. 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, 2013. As of June 30, 2013, we were in compliance with each of the covenants under the New Zealand Facility.
Other Debt
In connection with the purchase of two of our businesses, there are final payments of $11.3 million and $1.3 million due on December 15, 2013 and April 2, 2014, respectively. We are also party to two acquisition agreements that include contingent earn-out payments of $4.9 million, which are payable in October 2013, November 2013, April 2015, May 2016 and September 2017. Other debt also includes deferred liabilities (other than taxes) associated with certain of our businesses.
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 in this report. The facility was amended for the eighth time on February 4, 2013 to extend the facility termination date to February 3, 2014. There is a program fee equal to the commercial paper rate of 0.21%, plus 0.675% as of June 30, 2013. The unused facility fee is payable at a rate of 0.30% per annum as of June 30, 2013.
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 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, 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.
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.
30
Accounting estimates necessarily require subjective determinations about future events and conditions. During the six months ended June 30, 2013, 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, 2012. For critical accounting policies, refer to the Critical Accounting Estimates in Item 7 Managements 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, 2012 and our summary of significant accounting policies in Note 1 of our notes to the unaudited consolidated financial statements in this Form 10-Q.
Managements Use of Non-GAAP Financial Measures
We have included in the discussion under the caption Adjusted Revenues, 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, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues, net |
$ | 220,869 | $ | 171,820 | $ | 414,520 | $ | 317,985 | ||||||||
Merchant commissions |
19,555 | 17,651 | 33,416 | 28,044 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total adjusted revenues |
$ | 201,314 | $ | 154,169 | $ | 381,104 | $ | 289,941 | ||||||||
|
|
|
|
|
|
|
|
EBITDA
We have defined the non-GAAP measure EBITDA, as net income as reflected in our income statement, adjusted to eliminate (a) interest expense, (b) tax expense, (c) depreciation of long-lived assets, (d) amortization of intangible assets and (e) other (income) expense, net.
We use EBITDA as a basis to evaluate our operating performance net of the impact of certain non-core items during the period. We believe that EBITDA may be useful to investors to understanding our operating performance on a consistent basis. 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 EBITDA to the most directly comparable GAAP measure, net income (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income |
$ | 73,099 | $ | 54,401 | $ | 137,761 | $ | 96,480 | ||||||||
Provision for income taxes |
32,225 | 24,295 | 58,076 | 42,540 | ||||||||||||
Interest expense, net |
3,756 | 2,818 | 7,204 | 6,381 | ||||||||||||
Depreciation and amortization |
15,890 | 11,609 | 30,519 | 23,329 | ||||||||||||
Other (income) expense, net |
(6 | ) | (66 | ) | 286 | 522 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
EBITDA |
$ | 124,964 | $ | 93,057 | $ | 233,846 | $ | 169,252 | ||||||||
|
|
|
|
|
|
|
|
31
Adjusted net income and adjusted net income per diluted share
We have defined the non-GAAP measure adjusted net income as net income as reflected in our income statement, adjusted to eliminate (a) non-cash stock based compensation expense related share-based compensation awards, (b) amortization of deferred financing costs and intangible assets and (c) amortization of the premium recognized on the purchase of receivable. 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 income statement.
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, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income |
$ | 73,099 | $ | 54,401 | $ | 137,761 | $ | 96,480 | ||||||||
Net income per diluted share |
$ | 0.87 | $ | 0.63 | $ | 1.64 | $ | 1.13 | ||||||||
Stock based compensation |
3,897 | 3,960 | 8,059 | 7,793 | ||||||||||||
Amortization of intangible assets |
10,217 | 7,081 | 19,239 | 14,357 | ||||||||||||
Amortization of premium on receivables |
816 | 817 | 1,632 | 1,633 | ||||||||||||
Amortization of deferred financing costs |
833 | 541 | 1,593 | 1,051 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total pre-tax adjustments |
15,763 | 12,399 | 30,523 | 24,834 | ||||||||||||
Income tax impact of pre-tax adjustments at the effective tax rate |
(4,823 | ) | (3,828 | ) | (9,052 | ) | (7,599 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net income |
$ | 84,039 | $ | 62,972 | $ | 159,232 | $ | 113,715 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net income per diluted share |
$ | 1.00 | $ | 0.73 | $ | 1.89 | $ | 1.33 | ||||||||
Diluted shares |
84,461 | 85,737 | 84,212 | 85,451 |
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, 2012. 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.
32
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2013 there have been no material changes to our market risk from that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.
Item 4. Controls and Procedures
As of June 30, 2013, management carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
As of the date of this filing, we are not currently party to any legal proceedings or governmental inquiries or investigations that we consider to be material, except as described below, and we were not involved in any material legal proceedings that terminated during the fourth quarter. We are and may become, however, subject to lawsuits from time to time in the ordinary course of our business. Since 2010, we have been involved in an investigation by the Office of Fair Trading in the United Kingdom, relating to our Keyfuels product line. This product line consists of our proprietary payment card and associated site network in the United Kingdom. A competitor alleged we were dominant in a relevant market with our Keyfuels product. The Office of Fair trading has investigated the allegations and following an extensive enquiry process, we were advised in April 2013, that the Office of Fair Trading has reached the provisional conclusion to close the case on the basis that there are no grounds for action. We are further advised to expect a provisional reasoned closure decision in the summer of 2013. The provisional opinion will be open to interested third parties to make representations before any final decision is made. A final decision is expected in late 2013.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
34
Exhibit No. |
||
3.1 | Amended and Restated Certificate of Incorporation of FleetCor Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on Form 10-K, File No. 001-35004, filed with the Securities and Exchange Commission (the SEC) on March 25, 2011) | |
3.2 | Amended and Restated Bylaws of FleetCor Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K, File No. 001-35004, filed with the SEC on March 25, 2011) | |
4.1 | Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Registrants Registration Statement on Form S-1, File No. 333-166092, filed with the SEC on June 29, 2010) | |
10.1 | FleetCor Technologies, Inc. 2010 Equity Compensation Plan, as amended and restated effective May 30, 2013 (incorporated by reference from Appendix A to the Proxy Statement filed on April 24, 2013) | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001 | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001 | |
101 | The following financial information for the Registrant formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income; (iv) the Unaudited Consolidated Statements of Cash Flows and (v) the Notes to Unaudited Consolidated Financial Statements |
35
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in their capacities indicated on August 7, 2013.
FleetCor Technologies, Inc. | ||||
(Registrant) | ||||
Signature |
Title | |||
/s/Ronald F. Clarke |
President, Chief Executive Officer and Chairman of the Board of Directors | |||
Ronald F. Clarke | (Duly Authorized Officer and Principal Executive Officer) | |||
/s/ Eric R. Dey |
Chief Financial Officer | |||
Eric R. Dey | (Principal Financial Officer and Principal Accounting Officer) |
36