NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except per share data)
1. Summary of Significant Accounting Policies
Business Description
WEX Inc. (Company) is a provider of corporate card payment solutions. The Company provides products and services that meet the needs of businesses in various geographic regions including North
and South America, Asia Pacific and Europe. The Companys Fleet Payment Solutions and Other Payment Solutions segments provide its customers with security and control for complex payments across a wide spectrum of business sectors. The Company
markets its products and services directly, as well as through strategic relationships which include major oil companies, fuel retailers and vehicle maintenance providers. In October 2012, Wright Express Corporation changed its name to WEX Inc.
and Wright Express Financial Services Corporation, the Companys wholly-owned subsidiary, changed its name to WEX Bank.
Basis of Presentation
The accompanying consolidated financial statements of WEX Inc. for the years ended December 31, 2012, 2011 and 2010, include the accounts of WEX Inc. and its subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue
and expenses during the period. Actual results could differ from those estimates and those differences may be material.
Cash and Cash Equivalents
Highly liquid investments with remaining maturities at the time of purchase of three months or less (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost,
which approximates market value. Cash equivalents include federal funds sold, which are unsecured short-term investments entered into with financial institutions.
Accounts Receivable and Reserve for Credit Losses
Accounts
receivable balances are stated at net realizable value. The balance includes a reserve for credit losses which reflects managements estimate of uncollectable balances resulting from credit and fraud losses. Management has consistently
considered its portfolio of charge card receivables as a large group of smaller balance accounts that it has collectively evaluated for impairment. The reserve for credit losses is established based on the determination of the amount of expected
credit losses inherent in the accounts receivable as of the reporting date. Management reviews delinquency reports, historical collection rates, economic trends, geography and other information in order to make judgments as to probable credit
losses. Management also uses historical charge off experience to determine the amount of losses inherent in accounts receivable at the reporting date. Assumptions regarding probable credit losses are reviewed periodically and may be impacted by
actual performance of accounts receivable and changes in any of the factors discussed above.
Available-for-sale
Securities
The Company records certain of its investments as available-for-sale securities. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net of tax, reported on the consolidated balance sheet in accumulated other comprehensive income (loss). Realized gains and losses and declines in fair
58
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
value judged to be other-than-temporary on available-for-sale securities are included in non-operating revenues and expenses. The cost basis of securities is based on the specific identification
method. Interest and dividends earned on securities classified as available-for-sale are included in other revenues. Available-for-sale securities held by the Company were purchased and are held by WEX Bank in order to meet the requirements of the
Community Reinvestment Act.
Derivatives
The Company uses derivative instruments as part of its overall strategy to manage its exposure to fluctuations in fuel prices and to
reduce the impact of interest rate volatility. All derivatives are recorded at fair value on the consolidated balance sheet
.
The Companys fuel price derivative instruments do not qualify for hedge accounting treatment
.
Gains or losses related to fuel price derivative instruments, both realized and unrealized, are
recognized currently in earnings. These instruments are presented on the consolidated balance sheet as fuel price derivatives, at fair value. For the purposes of cash flow presentation, realized gains or losses are included in operating cash flows,
as they are intended to hedge operating cash flows.
The Companys interest rate derivatives are designated as cash flow
hedges and, accordingly, the change in fair value associated with the effective portion of these derivative instruments that qualify for hedge accounting treatment is recorded as a component of other comprehensive income (loss) and the ineffective
portion, if any, is reported currently in earnings. Amounts included in other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged item affects earnings. These instruments are presented as either
other assets or accrued expenses on the consolidated balance sheet.
The Company assesses the hedge effectiveness of the
interest rate swaps in accordance with the requirements outlined in the accounting standards. For these hedges, management documents, both at inception and over the life of the hedge, at least quarterly, its analysis of actual and expected hedge
effectiveness. For those hedging relationships in which the critical terms of the entire debt instrument and the derivative are identical, and the creditworthiness of the counterparty to the hedging instrument remains sound, there is no hedge
ineffectiveness so long as those conditions continue to be met. As of December 31, 2012, the Company does not have any interest rate swaps outstanding.
Property and Equipment
Property and equipment are stated at cost
less accumulated depreciation. Replacements, renewals and improvements are capitalized and costs for repair and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives shown
below. Leasehold improvements are depreciated using the straight-line method over the lesser of the useful life of the asset or remaining lease term.
|
|
|
|
|
|
|
|
|
Estimated Useful Lives
|
|
|
|
Furniture, fixtures and equipment
|
|
|
5 to 7 years
|
|
Computer software
|
|
|
18 months to 7 years
|
|
Leasehold improvements
|
|
|
5 to 15 years
|
|
Capitalized Software
The Company develops software that is used in providing processing and information management services to customers. A significant
portion of the Companys capital expenditures is devoted to the development of such internal-use computer software. Software development costs are capitalized once technological feasibility
59
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has
completed all planning, designing, coding and testing activities that are necessary to determine that the software can be produced to meet its design specifications, including functions, features and technical performance requirements.
Capitalization of costs ceases when the software is ready for its intended use. Software development costs are amortized using the straight-line method over the estimated useful life of the software. Amounts capitalized for software were $14,069 in
2012, $16,726 in 2011 and $19,637 in 2010. Amortization for software totaled $20,694 in 2012, $18,690 in 2011 and $16,348 in 2010.
Goodwill and Other Intangible Assets
The Company classifies
intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company tests intangible assets
with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include a reduction in operating cash flow or a dramatic change in the manner in which the asset is intended to be
used. The Company would record an impairment charge when the carrying value of the definite-lived intangible asset is not recoverable from the undiscounted cash flows generated from the use of the asset.
Intangible assets with indefinite lives and goodwill are not amortized. The Company tests these intangible assets and goodwill for
impairment at least annually or more frequently if facts or circumstances indicate that such intangible assets or goodwill might be impaired. All goodwill and intangible assets are assigned to reporting units, which are one level below the
Companys operating segments. The Company performs its impairment tests at its reporting unit level. Such impairment tests include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. The
Company uses a variety of methodologies to estimate fair value, but primarily relies on discounted cash flow analyses. Such analyses are corroborated using market analytics. Certain assumptions are used in determining the fair value, including
assumptions about future cash flows and terminal values. When appropriate, the Company considers the assumptions that it believes hypothetical marketplace participants would use in estimating future cash flows. In addition, an appropriate discount
rate is used, based on the Companys cost of capital or reporting unit-specific economic factors. When the fair value is less than the carrying value of the intangible assets or the reporting unit, the Company records an impairment charge to
reduce the carrying value of the assets to fair value. Impairment charges are recorded in depreciation and amortization expense on the consolidated statements of income. On September 30, 2012, the Company impaired $16,171 of goodwill associated
with Wright Express Australia Prepaid. The Companys annual goodwill and intangible assets impairment test, performed as of October 1, 2012, identified an impairment of $1,337 of goodwill associated with the acquisition of Financial
Automation Limited, acquired in August of 2008.
The Company determines the useful lives of its identifiable intangible assets
after considering the specific facts and circumstances related to each intangible asset. Factors management considers when determining useful lives include the contractual term of any agreement, the history of the asset, the Companys long-term
strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have
definite lives are amortized over their useful lives, which is the period of time that the asset is expected to contribute directly or indirectly to future cash flows. An evaluation of the remaining useful lives of the definite-lived intangible
assets is performed periodically to determine if any change is warranted.
Impairment and Disposals of Long-lived Assets
Long-lived assets are tested for impairment whenever facts or circumstances, such as a reduction in operating cash
flow or a dramatic change in the manner the asset is intended to be used, indicate the carrying
60
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
amount of the asset may not be recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows associated with these assets or operations to their carrying
value to determine if a write-down to fair value (normally measured by the expected present value technique) is required. The Company recognized an expense of $8,903 during the year ended December 31, 2012. This expense is a consequence of the
Companys decision to utilize the software acquired with the acquisition of Fleet One, during the fourth quarter of 2012, as the processing platform for its over-the-road product. The Company also recognized approximately $600 in impairments
and disposals of various other long-lived assets during the year, some of which were related to the Fleet One acquisition. The Company did not recognize any significant impairment expense on the Companys long-lived assets during the years
ended December 31, 2011 and 2010. Write-offs due to the acquisition of Fleet One are recorded in depreciation, amortizations and impairments in the consolidated statements of income. Disposals over the ordinary course of business are recorded
in occupancy and equipment in the consolidated statements of income.
Other Assets
The Company has an investment in the stock of the Federal Home Loan Bank totaling $1,534 for the year ended December 31, 2012. For
all other years presented, the investment was $1,562. The investment is carried at cost and not considered a readily marketable security. This investment is included in other assets on the consolidated balance sheets. As of December 31, 2012,
the Company has concluded that the investment is not impaired.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other liabilities
approximate their respective fair values due to the short-term nature of such instruments. The carrying values of certificates of deposit, interest-bearing money market deposits, borrowed federal funds and credit agreement borrowings, approximate
their respective fair values as the interest rates on these financial instruments are variable. All other financial instruments are reflected at fair value on the consolidated balance sheet.
Revenue Recognition
The majority of the Companys revenues are comprised of transaction-based fees, which generally are calculated based on measures such as (i) percentage of dollar value of volume processed;
(ii) number of transactions processed; or (iii) some combination thereof. The Company has entered into agreements with major oil companies, fuel retailers and vehicle maintenance providers which provide products and/or services to the
Companys customers. These agreements specify that a transaction is deemed to be captured when the Company has validated that the transaction has no errors and has accepted and posted the data to the Companys records. The Company
recognizes revenues when persuasive evidence of an arrangement exists, the products and services have been provided to the client, the sales price is fixed or determinable and collectability is reasonably assured.
A description of the major components of revenue is as follows:
Payment Processing Revenue
. Revenue consists of transaction fees assessed to major oil companies, fuel retailers and vehicle maintenance providers. The fee charged is
generally based upon a percentage of the total transaction amount; however, it may also be based on a fixed amount charged per transaction or, on a combination of both measures. The fee is deducted from the Companys payment to the major oil
company, fuel retailer or vehicle maintenance provider and recorded as revenue at the time the transaction is captured.
61
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Interchange income is earned by the Companys corporate purchase card and payroll
card products and is included in payment processing revenue. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network. Interchange fees are set by the credit card providers. The Company recognizes
interchange income as earned.
With regard to payment processing revenue, the Company is generally responsible for the
collection of the total transaction amount and the payment to the merchant of their sales amount, net of the payment processing revenue earned by the Company. As a consequence the Companys accounts receivable and accounts payable related to
its payment processing revenues are reflective of the total transaction amount processed by the Company not the Companys revenue.
Transaction Processing Revenue
. The Company earns transaction fees, which are principally based on the number of transactions processed; however, the fees may be a percentage
of the total transaction amount. These fees are recognized at the time the transaction is captured.
Account Servicing
Revenue
. Revenue is primarily comprised of monthly fees based on vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports. Account servicing revenue is recognized monthly, as the
Company fulfills its contractual service obligations. We also recognize service fees related to rapid! PayCard services for card fees charged to the cardholder.
Finance Fees
. The Company earns revenue by assessing monthly finance fees on accounts with overdue balances. These fees are recognized as revenue at the time the fees are
assessed. The finance fee is calculated using a stated late fee rate based on the entire balance outstanding from the customer. On occasion, these fees are waived. The Companys established reserve for such waived amounts is estimated and
offset against the late fee revenue recognized. These waived fees amounted to $3,905 in 2012 and $3,845 in 2011. The Companys subsidiary, Fleet One, engages in factoring, the purchase of accounts receivable from a third party at a discount.
Revenue earned in this transaction is recorded in finance fees. We also recognize fees for interest associated with the Companys fuel desk product and interest earned on the Companys foreign paycard product.
Other
. The Company assesses fees for providing ancillary services, such as information products and
services, professional services and marketing services. Other revenues also include cross-border fees, fees for overnight shipping, certain customized electronic reporting and customer contact services provided on behalf of certain of the
Companys customers. Service related revenues are recognized in the period that the work is performed.
Interest and
dividends earned on investments in available-for-sale securities also are included in other revenues. Such income is recognized in the period that it is earned.
The Company sells telematics devices as part of its
WEXSmart
TM
telematics program. In addition, the Company sells assorted
equipment to its Pacific Pride franchisees. The Company recognizes revenue from these sales when the customer has accepted delivery of the product and collectability of the sales amount is reasonably assured.
From time to time the Company enters into contracts that provide for rebates and/or incentives to certain customers and selected
strategic relationships in order to induce them to use the Companys payment processing or transaction processing services. The revenues described above are net of rebates and incentives provided to customers. Rebates are recorded in the period
in which the underlying transactions are recorded. Incentives are recognized, to extent they are earned, on a pro rata basis over the period earned.
62
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Stock-Based Compensation
The Company sponsors restricted stock award plans and stock option plans. The Company recognizes compensation expense related to employee
stock-based compensation over their vesting periods based upon the fair value of the award on the date of grant. In instances where vesting is dependent upon the realization of certain performance goals, compensation is estimated and amortized over
the vesting period.
Advertising Costs
Advertising and marketing costs are expensed in the period the advertising occurs.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The realizability of deferred tax assets must also be assessed. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which the associated temporary differences became deductible. A valuation allowance must be established for deferred tax assets which are not believed to more likely than not be realized in
the future. Deferred taxes are not provided for the undistributed earnings of the Companys foreign subsidiaries that are considered to be indefinitely reinvested outside of the United States.
Current accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition.
Penalties and interest related to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and
reflected as a reduction of the overall income tax position.
Earnings per Common Share
When diluted earnings per common share is calculated, weighted-average outstanding shares are adjusted for the dilutive effect of shares
issuable upon the assumed conversion of the Companys convertible, redeemable preferred stock and common stock equivalents, which consist of outstanding stock options and unvested restricted stock units. The dividends expensed on convertible,
redeemable preferred stock are added back to net income as the related common stock equivalents are included in the denominator of diluted earnings per common share. In 2010, the preferred stock was converted to common stock. Holders of unvested
restricted stock units are not entitled to participate in dividends, should they be declared.
63
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Income available for common stockholders used to calculate earnings per share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Net earnings attributable to WEX Inc. available for common stockholders Basic
|
|
$
|
96,922
|
|
|
$
|
133,622
|
|
|
$
|
87,629
|
|
Convertible, redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
Net earnings attributable to WEX Inc. available for common stockholders
Diluted
|
|
$
|
96,922
|
|
|
$
|
133,622
|
|
|
$
|
87,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used to calculate earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Weighted average common shares outstanding Basic
|
|
|
38,840
|
|
|
|
38,686
|
|
|
|
38,486
|
|
Unvested restricted stock units
|
|
|
138
|
|
|
|
128
|
|
|
|
209
|
|
Stock options
|
|
|
114
|
|
|
|
184
|
|
|
|
255
|
|
Convertible, redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
Weighted average common shares outstanding Diluted
|
|
|
39,092
|
|
|
|
38,998
|
|
|
|
39,052
|
|
Foreign Currency Movement
The financial statements of the Companys foreign subsidiaries, whose functional currencies are other than the U.S. dollar, are
translated to U.S. dollars as prescribed by the accounting literature. Assets and liabilities are translated at the year-end spot exchange rate, revenue and expenses at average exchange rates and equity transactions at historical exchange rates.
Exchange differences arising on translation are recorded as a component of accumulated other comprehensive income (loss).
Realized and unrealized gains and losses on foreign currency transactions are recorded directly in the statements of income except when
such gains or losses result from intercompany transactions where repayment is not anticipated for the foreseeable future. In these situations, the gains or losses are deferred and included as a component of accumulated other comprehensive income
(loss).
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes unrealized gains and losses on available-for-sale securities, the changes in fair
values of derivative instruments designated as hedges of future cash flows related to interest rate variability and foreign currency translation adjustments pertaining to the net investment in foreign operations. Amounts are recognized net of tax to
the extent applicable. Realized gains or losses on securities transactions are classified as non-operating in the Consolidated Statements of Income.
Recently Adopted Accounting Standards
On June 16, 2011, the
FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). The amendments in ASU 2011-05 require entities to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two
64
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
separate but consecutive statements. Additionally, the amendments in ASU 2011-05 require an entity to present on the face of the financial statements reclassification adjustments for items that
are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. ASU 2011-05 is effective for interim and annual periods beginning
after December 15, 2011. On December 23, 2011, the FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 to defer the new requirement to present components of reclassifications of other comprehensive income on the face of the financial statements. Companies
are still required to adopt the other requirements contained in ASU 2011-05. The Company adopted ASU 2011-05 and has provided the required disclosures in two consecutive statements.
2. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Interest paid
|
|
$
|
13,916
|
|
|
$
|
15,704
|
|
|
$
|
8,770
|
|
Income taxes paid
|
|
$
|
51,768
|
|
|
$
|
52,930
|
|
|
$
|
36,300
|
|
Conversion of preferred stock shares and accrued preferred dividends to common stock shares
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Non-cash Transactions
The purchase price for the Companys acquisition of UNIK included $991 of contingent consideration for future performance milestones
(discussed further in Note 3). On December 31, 2012, the Company estimates approximately $313 will be paid during the first quarter of 2013 based on current performance milestones. The purchase price for the Companys acquisition of rapid!
Financial Services included $10,000 of contingent consideration for future performance milestones (discussed further in Note 3). On December 31, 2011, the Company estimated approximately $9,325 as the amount to be paid based on projected
performance milestones. During the second quarter of 2012, the Company lowered the estimate to $8,486 and settled the contingent consideration. There were no significant non-cash transactions during 2010.
3. Business Acquisitions and Other Intangible Assets Acquisitions
Acquisition of CorporatePay
On May 11, 2012, the Company acquired all of the stock of CorporatePay, a provider of corporate prepaid solutions to the travel industry in the United Kingdom for approximately GBP 17,000 (US $27,800
at the time of acquisition), net of cash acquired. The Company purchased CorporatePay to expand its Other Payment Solution segment. During the second quarter of 2012, the Company allocated the purchase price of the acquisition based upon a
preliminary estimate of the fair values of the assets acquired and liabilities assumed. The valuations of intangible assets have not been finalized as the Company is still reviewing statutory net operating losses prior to acquisition. The goodwill
is not expected to be deductible for income tax purposes. The results of operations of CorporatePay are reflected in the Other Payment Solutions segment from the date of acquisition.
65
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following is a summary of the preliminary allocation of the purchase price to the
assets and liabilities acquired:
|
|
|
|
|
|
|
December 31,
2012
|
|
|
|
Consideration paid (net of cash)
|
|
$
|
27,783
|
|
Less:
|
|
|
|
|
Accounts receivable
|
|
|
1,077
|
|
Accounts payable
|
|
|
(629
|
)
|
Other tangible liabilities, net
|
|
|
(3,639
|
)
|
Acquired software
(a)
|
|
|
7,760
|
|
Customer relationships
(b)
|
|
|
2,000
|
|
Trademarks and trade name
(
c
)
|
|
|
1,400
|
|
|
|
Recorded goodwill
|
|
$
|
19,814
|
|
|
|
|
|
|
|
|
(a)
|
Weighted average life 6.2 years.
|
(b)
|
Weighted average life 6.3 years.
|
(c)
|
Weighted average life 5.3 years.
|
No pro forma information has been included in these financial statements as the operations of CorporatePay for the period that they were not part of the Company are not material to the Companys
revenues, net income and earnings per share.
Acquisition of UNIK
On August 30, 2012, the Company acquired a 51 percent ownership interest in UNIK S.A. (UNIK), a privately-held provider
of payroll cards in Brazil. The Company purchased its interest in UNIK to expand its Other Payment Solutions segment. UNIK is a provider of payroll cards, private label and processing services in Brazil specializing in the retail, government and
transportation sectors.
The investment was consummated through the purchase of newly issued shares of UNIK for approximately
R$44,800 (approximately US$22,800). The purchase agreement also includes a potential contingent consideration component based on performance milestones. Although the contingent consideration is not capped, the Company has estimated the amount
of the liability, at the time of acquisition, to be approximately R$2,000 (approximately US$1,000). On December 31, 2012, the Company revised the estimate based on current performance milestones to be approximately $313, to be paid during
the first quarter of 2013. The agreement further provides the Company with a call option which would enable it to acquire the remaining shares at specific times over a three-year period. Additionally the purchase agreement provides the
noncontrolling shares with the right to put their interest back to the Company at specific times. The put options are exercisable at specific dates subject to the achievement of performance hurdles. Pricing for both the call and put options are
based upon multiples of UNIKs trailing twelve month EBITDA. Subsequent to the acquisition of UNIK, UNIK paid down approximately $19,600 of existing financing debt. As of December 31, 2012, UNIK has approximately $10,500 of financing debt,
classified in other liabilities on the Companys consolidated balance sheets.
Based on its ownership position the
Company has concluded that it has acquired a controlling interest in UNIK. During the third quarter of 2012, the Company allocated the purchase price of the acquisition based upon a preliminary estimate of the fair values of the assets acquired and
liabilities assumed, which have not been finalized as the Company is still reviewing statutory net operating losses prior to acquisition, as well as other non-income tax matters. Goodwill associated with the transaction is not expected to be
deductible for income tax
66
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
purposes. In addition, the Company has recognized and measured a redeemable noncontrolling interest. The redeemable noncontrolling interest represents the portion of UNIKs net assets owned
by the noncontrolling shareholders and is presented in the mezzanine section on the Companys consolidated balance sheets. The results of operations of UNIK are reflected in the Other Payment Solutions segment.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired:
|
|
|
|
|
|
|
December 31,
2012
|
|
|
|
Total UNIK value
|
|
$
|
44,701
|
|
Less: Redeemable noncontrolling interest
|
|
|
21,904
|
|
Total purchase price (includes estimated earn out of $991)
|
|
$
|
22,797
|
|
Less:
|
|
|
|
|
Cash
|
|
|
1,566
|
|
Accounts receivable
|
|
|
11,726
|
|
Accounts payable
|
|
|
(12,640
|
)
|
Other tangible liabilities, net
|
|
|
(32,511
|
)
|
Acquired software
(a)
|
|
|
14,193
|
|
Customer relationships
(b)
|
|
|
15,171
|
|
Trademarks and trade name
(
c
)
|
|
|
1,272
|
|
|
|
Recorded goodwill
|
|
$
|
24,020
|
|
|
|
|
|
|
|
|
(a)
|
Weighted average life 6.2 years.
|
(b)
|
Weighted average life 5.9 years.
|
(c)
|
Weighted average life 5.5 years.
|
No pro forma information has been included in these financial statements as the operations of UNIK for the period that they were not part
of the Company are not material to the Companys revenues, net income and earnings per share.
Acquisition of Fleet
One
On October 4, 2012, the Company acquired certain assets of Fleet One a privately-held provider of
value-based business payment processing and information management solutions. The Company purchased Fleet One to expand its fuel card and fleet management information services, as well as accelerate its presence in the over the road market.
Fleet One was purchased from the private equity firms of LLR Partners and FTV Capital for approximately $376,258, net of cash
acquired. During the fourth quarter of 2012, the Company allocated the purchase price of the acquisition based upon a preliminary estimate of the fair values of the assets acquired and liabilities assumed. These valuations of intangible assets are
still based on a preliminary assessment as of December 31, 2012, as the Company is currently reviewing the allocation of intangible assets. The operations at Fleet One contributed net revenues of approximately $14,200 and net earnings of
approximately $1,400 from October 4, 2012, through December 31, 2012.The goodwill is expected to be deductible for tax purposes. Operations from Fleet One are reflected in the Fleet Payment Solutions segment from the date of acquisition.
67
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following is a summary of the allocation of the purchase price to the assets and
liabilities acquired:
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
|
Consideration paid (net of cash)
|
|
$
|
376,258
|
|
|
|
Less:
|
|
|
|
|
Accounts receivable
|
|
|
152,574
|
|
Accounts payable
|
|
|
(151,647
|
)
|
Other tangible liabilities, net
|
|
|
(1,147
|
)
|
Acquired software
(a)
|
|
|
35,000
|
|
Customer relationships
(b)
|
|
|
74,000
|
|
Trademarks and trade name
(
c
)
|
|
|
4,000
|
|
|
|
Recorded goodwill
|
|
$
|
263,478
|
|
|
|
|
|
|
|
|
(a)
|
Weighted average life 6.7 years.
|
(b)
|
Weighted average life 5.5 years.
|
(c)
|
Weighted average life 5.5 years.
|
The following represents unaudited pro forma operational results as if Fleet One had been included in the Companys consolidated statements of operations as of the beginning of the fiscal years:
|
|
|
|
|
|
|
|
|
$ USD
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Net revenue
|
|
$
|
668,548
|
|
|
$
|
603,904
|
|
Net income
|
|
$
|
91,065
|
|
|
$
|
123,940
|
|
|
|
|
Pro forma net income per common share:
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
2.34
|
|
|
$
|
3.20
|
|
Net income per share diluted
|
|
$
|
2.33
|
|
|
$
|
3.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pro forma financial information assumes the companies were combined as of January 1, 2012 and
2011, and includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, interest expense for debt incurred in the acquisition and net income tax effects. The pro forma results
of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by the Company to integrate. The pro forma information as presented above is for
informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2012 or 2011.
Acquisition of rapid! Financial Services LLC
On March 31, 2011, the Company acquired certain assets of rapid! Financial Services LLC (rapid! PayCard) for approximately $18,000 including an estimate of contingent consideration for
future performance milestones of $10,000. rapid! PayCard is a provider of payroll prepaid cards, e-paystubs and e-W2s, and is focused on small and medium sized businesses. The Company purchased rapid! PayCard to expand its Other Payment Solutions
segment. During the first quarter of 2011, the Company allocated the purchase price of the acquisition based upon a preliminary estimate of the fair values of the assets acquired and liabilities assumed. During the first quarter of 2012, the Company
revised the intangible assets associated with the trade name. These valuations of intangible assets have been finalized. The goodwill is expected to be deductible for tax purposes.
68
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
A contingent consideration agreement was entered into in connection with the purchase of
rapid! PayCard. Under the terms of the agreement the former owners of rapid! PayCard were entitled to receive additional consideration based upon the achievement of certain performance criteria, measured over the twelve-month period from the date of
purchase. The payment was made during the second quarter of 2012. During the fourth quarter of 2011, the Company revised the estimate of contingent consideration to approximately $9,325. The resulting impact of this adjustment ($675) was an offset
to other operating expense in our Other Payment Solutions segment. During the second quarter of 2012, the Company lowered the estimate to $8,486 and settled the contingent consideration.
The following is a summary of the preliminary allocation of the purchase price to the acquired assets and liabilities assumed:
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
|
Consideration (including estimated $10,000, contingent consideration)
|
|
$
|
18,081
|
|
Less:
|
|
|
|
|
Accounts receivable
|
|
|
75
|
|
Accounts payable
|
|
|
(85
|
)
|
Other tangible assets, net
|
|
|
105
|
|
Customer relationships
(a)
|
|
|
4,600
|
|
Trade name
(a)
|
|
|
1,600
|
|
|
|
Recorded goodwill
|
|
$
|
11,786
|
|
|
|
(a)
Weighted average life - 4.7 years.
|
|
|
|
|
No pro forma information for 2010 has been included in these financial statements as the operations of
rapid! PayCard for the period that they were not part of the Company are not material to the Companys revenues, net income and earnings per share.
Acquisition of RD Card Holdings Australia Pty Ltd
. On September 14, 2010, the Company, through its wholly-owned subsidiary, Wright Express Australia Holdings Pty Ltd,
completed its acquisition of all of the outstanding shares of RD Card Holdings Australia Pty Ltd. from RD Card Holdings Limited and an intra-group note receivable from RD Card Holdings Limited (the ReD Transaction). This acquisition
extends the Companys international presence and provides global revenue diversification. Consideration paid for the transaction was $363,000 Australian Dollars (AUD) (which was equivalent to approximately US$340,000 at the time of
closing). This consideration included $11,000 AUD the Company paid pursuant to preliminary working capital adjustments. The purchase price and related allocations for the ReD Transaction have been finalized. The goodwill is not expected to be
deductible for tax purposes.
69
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following is a summary of the final allocation of the purchase price to the acquired
assets and liabilities assumed:
|
|
|
|
|
|
|
|
|
USD
|
|
|
|
Consideration paid (net of cash)
|
|
$
|
336,260
|
|
Less:
|
|
|
|
|
Accounts receivable
|
|
|
91,394
|
|
Accounts payable
|
|
|
(50,816
|
)
|
Other tangible assets, net
|
|
|
768
|
|
Software
(a)
|
|
|
11,526
|
|
Patent
(b)
|
|
|
3,086
|
|
Customer relationships
(c)
|
|
|
70,723
|
|
Brand name
(d)
|
|
|
5,470
|
|
|
|
Recorded goodwill
|
|
$
|
204,109
|
|
|
|
|
|
|
|
|
(a)
|
Weighted average life 3.9 years.
|
(b)
|
Weighted average life 4.6 years.
|
(c)
|
Weighted average life 4.5 years.
|
(d)
|
Indefinite-lived intangible asset. Due to the strength and wide acceptance
of the brands within Australia, management does not forsee economic, competitive or other factors that would limit the useful life of the brands.
|
The weighted average life of the combined definite-lived intangible assets is 4.5 years.
The following represents unaudited pro forma operational results as if Wright Express Australia had been included in the Companys consolidated statements of operations as of the beginning of fiscal
2010:
|
|
|
|
|
$ USD
|
|
|
|
|
|
2010
|
|
|
|
Net revenue
|
|
$
|
430,261
|
|
Net income
|
|
$
|
88,171
|
|
|
|
Pro forma net income per common share:
|
|
|
|
|
Net income per share basic
|
|
$
|
2.29
|
|
Net income per share diluted
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
The pro forma financial information assumes the companies were combined as of January 1, 2010, and
includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, interest expense for debt incurred in the acquisition and net income tax effects. The pro forma results of
operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by the Company to integrate Wright Express Australia. The pro forma information as presented
above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2010.
Acquisition of Other Intangible Assets
.
On October 31, 2011, the Company purchased the SunTrak Fleet Card Program from Sunoco, Inc., which resulted in customer relationship
intangible assets of $3,344. This intangible is being amortized over seven years. With this purchase, the Company retains a long term relationship with Sunoco customers.
70
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
See Note 7 for further discussion of the goodwill and intangible balances that arose as
a result of the above transactions.
4. Reserves for Credit Losses
In general, the terms of the Companys trade receivables provide for payment terms of 30 days or less. The
Company does not extend revolving credit to its customers with respect to these receivables. The portfolio of receivables is considered to be a large group of smaller balance homogeneous amounts that are collectively evaluated for impairment.
The following table presents the Companys aging of accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Financing Receivables, Gross as of
December 31, 2012, and 2011
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
90 Days
Past Due
|
|
|
Total
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
$
|
1,505,113
|
|
|
$
|
46,158
|
|
|
$
|
7,767
|
|
|
$
|
8,485
|
|
|
$
|
1,567,523
|
|
|
|
|
|
|
|
Percent of total
|
|
|
96.0
|
%
|
|
|
3.0
|
%
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
$
|
1,289,752
|
|
|
$
|
30,030
|
|
|
$
|
7,430
|
|
|
$
|
8,229
|
|
|
$
|
1,335,441
|
|
|
|
|
|
|
|
Percent of total
|
|
|
96.6
|
%
|
|
|
2.2
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
|
|
|
|
The following table presents changes in reserves for credit losses related to accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
11,526
|
|
|
$
|
10,237
|
|
|
$
|
10,960
|
|
Provision for credit losses
|
|
|
22,539
|
|
|
|
27,527
|
|
|
|
19,838
|
|
Charge-offs
|
|
|
(27,961
|
)
|
|
|
(31,578
|
)
|
|
|
(24,685
|
)
|
Recoveries of amounts previously charged-off
|
|
|
5,605
|
|
|
|
5,340
|
|
|
|
4,124
|
|
Balance, end of period
|
|
$
|
11,709
|
|
|
$
|
11,526
|
|
|
$
|
10,237
|
|
71
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
5. Investments
Available-for-sale Securities
The Companys available-for-sale securities as of December 31 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,780
|
|
|
$
|
79
|
|
|
$
|
20
|
|
|
$
|
1,839
|
|
Asset-backed securities
|
|
|
1,652
|
|
|
|
3
|
|
|
|
|
|
|
|
1,655
|
|
Municipal bonds
|
|
|
630
|
|
|
|
13
|
|
|
|
2
|
|
|
|
641
|
|
Equity securities
(a)
|
|
|
11,974
|
|
|
|
241
|
|
|
|
|
|
|
|
12,215
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
16,036
|
|
|
$
|
336
|
|
|
$
|
22
|
|
|
$
|
16,350
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
3,046
|
|
|
$
|
164
|
|
|
$
|
13
|
|
|
$
|
3,197
|
|
Asset-backed securities
|
|
|
1,927
|
|
|
|
3
|
|
|
|
|
|
|
|
1,930
|
|
Municipal bonds
|
|
|
140
|
|
|
|
9
|
|
|
|
|
|
|
|
149
|
|
Equity securities
(a)
|
|
|
11,611
|
|
|
|
157
|
|
|
|
|
|
|
|
11,768
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
16,724
|
|
|
$
|
333
|
|
|
$
|
13
|
|
|
$
|
17,044
|
|
(a)
|
These securities exclude $2,921 in equity securities designated as trading as of December 31, 2012, and $2,218 as of December 31, 2011,
included in other assets on the consolidated balance sheets. See Note 16 for additional information about the securities designated as trading.
|
The Companys management has determined that the gross unrealized losses on its investment securities at December 31, 2012 and 2011 are temporary in nature. The Company reviews its investments
to identify and evaluate investments that have indications of possible impairment. The Companys techniques used to measure the fair value of its investments are in Note 16. Fair Value. Factors considered in determining whether a loss is
temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Companys intent and ability to hold the investment for a period of
time sufficient to allow for any anticipated recovery in market value. Substantially all of the Companys fixed income securities are rated investment grade or better.
The Company had maturities of available-for-sale securities of $1,551 for the year ended December 31, 2012, $841 for the year ended December 31, 2011, and $1,654 for the year ended
December 31, 2010.
The maturity dates of the Companys available-for-sale securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Due after 1 year through year 5
|
|
|
348
|
|
|
|
348
|
|
|
|
417
|
|
|
|
417
|
|
Due after 5 years through year 10
|
|
|
543
|
|
|
|
543
|
|
|
|
695
|
|
|
|
696
|
|
Due after 10 years
|
|
|
1,391
|
|
|
|
1,404
|
|
|
|
955
|
|
|
|
966
|
|
Mortgage-backed securities with original maturities of 30 years
|
|
|
1,780
|
|
|
|
1,839
|
|
|
|
3,046
|
|
|
|
3,197
|
|
Equity securities with no maturity dates
|
|
|
11,974
|
|
|
|
12,216
|
|
|
|
11,611
|
|
|
|
11,768
|
|
|
|
|
|
|
Total
|
|
$
|
16,036
|
|
|
$
|
16,350
|
|
|
$
|
16,724
|
|
|
$
|
17,044
|
|
72
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
6. Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Furniture, fixtures and equipment
|
|
$
|
32,923
|
|
|
$
|
22,437
|
|
Computer software
|
|
|
142,021
|
|
|
|
139,689
|
|
Software under development
|
|
|
5,740
|
|
|
|
5,673
|
|
Leasehold improvements
|
|
|
5,072
|
|
|
|
3,412
|
|
|
|
|
Total
|
|
|
185,756
|
|
|
|
171,211
|
|
Less accumulated depreciation and amortization
|
|
|
(125,659
|
)
|
|
|
(109,133
|
)
|
|
|
|
Total property, equipment and capitalized software, net
|
|
$
|
60,097
|
|
|
$
|
62,078
|
|
The Company wrote-off $8,903 of software and software under development related to the over-the-road line of business. The write-off was
a consequence of the Companys decision to utilize the software acquired with the acquisition of Fleet One, during the fourth quarter of 2012, as the processing platform for its over-the-road product. This charge has been included in occupancy
and equipment expense on the consolidated statement of income. The Company did not incur impairment charges during 2011. Depreciation expense was $25,384, $22,957 and $18,617 in 2012, 2011 and 2010, respectively.
7. Goodwill and Other Intangible Assets
The changes in goodwill during the period January 1 to December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Payment
Solutions
Segment
|
|
|
Other
Payment
Solutions
Segment
|
|
|
Total
|
|
|
|
|
|
Gross goodwill, beginning of period
|
|
$
|
512,184
|
|
|
$
|
37,320
|
|
|
$
|
549,504
|
|
Impact of foreign currency translation
|
|
|
4,399
|
|
|
|
(22
|
)
|
|
|
4,377
|
|
rapid! Purchase adjustment
|
|
|
|
|
|
|
600
|
|
|
|
600
|
|
Acquisition of UNIK
|
|
|
|
|
|
|
24,020
|
|
|
|
24,020
|
|
Acquisition of CorporatePay
|
|
|
|
|
|
|
19,814
|
|
|
|
19,814
|
|
Acquisition of Fleet One
|
|
|
263,478
|
|
|
|
|
|
|
|
263,478
|
|
|
|
|
|
Gross goodwill, end of period
|
|
|
780,061
|
|
|
|
81,732
|
|
|
|
861,793
|
|
|
|
|
|
Accumulated impairment, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charge during period
|
|
|
(1,337
|
)
|
|
|
(16,171
|
)
|
|
|
(17,508
|
)
|
|
|
|
|
Accumulated impairment, end of period
|
|
|
(1,337
|
)
|
|
|
(16,171
|
)
|
|
|
(17,508
|
)
|
|
|
|
|
Net goodwill, end of period
|
|
$
|
778,724
|
|
|
$
|
65,561
|
|
|
$
|
844,285
|
|
73
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The changes in goodwill during the period January 1 to December 31, 2011 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Payment
Solutions
Segment
|
|
|
Other
Payment
Solutions
Segment
|
|
|
Total
|
|
|
|
|
|
Gross goodwill, beginning of period
|
|
$
|
510,396
|
|
|
$
|
26,659
|
|
|
$
|
537,055
|
|
RD Card Holdings Australia Pty Ltd. final purchase price allocation
|
|
|
1,408
|
|
|
|
(1,051
|
)
|
|
|
357
|
|
Acquisition of rapid! PayCard
|
|
|
|
|
|
|
11,786
|
|
|
|
11,786
|
|
Impact of foreign currency translation
|
|
|
380
|
|
|
|
(74
|
)
|
|
|
306
|
|
|
|
|
|
Gross goodwill, end of period
|
|
$
|
512,184
|
|
|
$
|
37,320
|
|
|
$
|
549,504
|
|
During the third quarter of 2012, the Company determined that pricing pressure in the prepaid giftcard product in Australia would result
in lower future earnings than forecasted at the time of the purchase of Wright Express Prepaid Australia. On September 30, 2012, the Company recorded an estimated goodwill impairment loss of $16,171 related to the purchase of Wright Express
Prepaid Australia. The Company used a discounted cash flow model of the projected earnings of Wright Express Prepaid Australia, which is a level 3 fair value measurement, to determine the amount of goodwill impairment. This amount was finalized
during the fourth quarter of 2012. During the fourth quarter of 2012, the Company recorded a goodwill impairment loss of $1,337, which is a level 3 fair value measurement, related to the purchase of Financial Automation Limited, acquired in August
of 2008.
The changes in intangible assets during the period January 1 to December 31, 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
Amount,
Beginning of
Period
|
|
|
Acquisition
|
|
|
Purchase Price
Adjustment
|
|
|
Amortization
|
|
|
Impacts of
Foreign
Currency
Translation
|
|
|
Net Carrying
Amount,
End of
Period
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired software
|
|
$
|
19,034
|
|
|
|
56,953
|
|
|
|
|
|
|
|
(4,745)
|
|
|
|
(372
|
)
|
|
|
70,870
|
|
Customer relationships
|
|
|
75,827
|
|
|
|
91,171
|
|
|
|
|
|
|
|
(18,023)
|
|
|
|
1,701
|
|
|
|
150,676
|
|
Patent
|
|
|
2,766
|
|
|
|
|
|
|
|
|
|
|
|
(349)
|
|
|
|
(52
|
)
|
|
|
2,365
|
|
Trade name
|
|
|
1,600
|
|
|
|
6,672
|
|
|
|
(600)
|
|
|
|
(351)
|
|
|
|
33
|
|
|
|
7,354
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, trade names and brand names
|
|
|
10,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
10,545
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,656
|
|
|
$
|
154,796
|
|
|
|
(600)
|
|
|
|
(23,468)
|
|
|
|
1,426
|
|
|
|
241,810
|
|
74
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The changes in intangible assets during the period January 1 to December 31,
2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
Amount,
Beginning of
Period
|
|
|
Acquisition
|
|
|
Purchase Price
Adjustment
|
|
|
Amortization
|
|
|
Impacts of
Foreign
Currency
Translation
|
|
|
Net Carrying
Amount, End
of Period
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired software
|
|
$
|
22,640
|
|
|
|
|
|
|
$
|
540
|
|
|
$
|
(4,650
|
)
|
|
$
|
504
|
|
|
$
|
19,034
|
|
Customer relationships
|
|
|
88,788
|
|
|
|
7,944
|
|
|
|
(3,216
|
)
|
|
|
(17,421
|
)
|
|
|
(268
|
)
|
|
|
75,827
|
|
Patent
|
|
|
2,982
|
|
|
|
|
|
|
|
217
|
|
|
|
(341
|
)
|
|
|
(92
|
)
|
|
|
2,766
|
|
Trade name
|
|
|
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, trade names and brand names
|
|
|
10,317
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
16
|
|
|
|
10,429
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,727
|
|
|
$
|
9,544
|
|
|
$
|
(2,363
|
)
|
|
$
|
(22,412
|
)
|
|
$
|
160
|
|
|
$
|
109,656
|
|
The Company expects amortization expense related to the definite-lived intangible assets above as follows: $33,857 for 2013; $32,403
for 2014; $29,498 for 2015; $25,443 for 2016 and $21,784 for 2017.
Other intangible assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired software
|
|
$
|
86,054
|
|
|
$
|
(15,184
|
)
|
|
$
|
70,870
|
|
|
$
|
28,867
|
|
|
$
|
(9,833
|
)
|
|
$
|
19,034
|
|
Non-compete agreement
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
|
|
Customer relationships
|
|
|
202,447
|
|
|
|
(51,771
|
)
|
|
|
150,676
|
|
|
|
109,772
|
|
|
|
(33,945
|
)
|
|
|
75,827
|
|
Patent
|
|
|
3,430
|
|
|
|
(1,065
|
)
|
|
|
2,365
|
|
|
|
3,365
|
|
|
|
(599
|
)
|
|
|
2,766
|
|
Trade name
|
|
|
7,774
|
|
|
|
(420
|
)
|
|
|
7,354
|
|
|
|
1,700
|
|
|
|
(100
|
)
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
$
|
299,805
|
|
|
$
|
(68,540
|
)
|
|
|
231,265
|
|
|
$
|
143,804
|
|
|
$
|
(44,577
|
)
|
|
|
99,227
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, trade names and brand names
|
|
|
|
|
|
|
|
|
|
|
10,545
|
|
|
|
|
|
|
|
|
|
|
|
10,429
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
241,810
|
|
|
|
|
|
|
|
|
|
|
$
|
109,656
|
|
75
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
8. Accounts Payable
Accounts payable consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Merchants payable
|
|
$
|
500,723
|
|
|
$
|
388,129
|
|
Other payables
|
|
|
27,115
|
|
|
|
21,097
|
|
|
|
|
Total accounts payable
|
|
$
|
527,838
|
|
|
$
|
409,226
|
|
9. Deposits and Borrowed Federal Funds
The following table presents information about deposits:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Certificates of deposit with maturities within 1 year
|
|
$
|
441,100
|
|
|
$
|
490,929
|
|
Certificates of deposit with maturities greater than 1 year and less than 5 years
|
|
|
48,343
|
|
|
|
89,260
|
|
Interest-bearing money market deposits
|
|
|
123,614
|
|
|
|
103,072
|
|
Negotiable order of withdrawal deposits
|
|
|
261,126
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
16,162
|
|
|
|
10,393
|
|
|
|
|
Total deposits
|
|
$
|
890,345
|
|
|
$
|
693,654
|
|
|
|
|
Weighted average cost of funds on certificates of deposit outstanding
|
|
|
0.57
|
%
|
|
|
0.68
|
%
|
Weighted average cost of interest-bearing money market deposits
|
|
|
0.39
|
%
|
|
|
0.69
|
%
|
Weighted average cost of negotiable order of withdrawal deposits
|
|
|
|
|
|
|
|
|
WEX Bank has issued certificates of deposit in various maturities ranging between one month and two years and with fixed interest rates
ranging from 0.26 percent to 1.15 percent as of December 31, 2012. WEX Bank may issue certificates of deposit without limitation on the balance outstanding. However, WEX Bank must maintain minimum financial ratios, which include
risk-based asset and capital requirements, as prescribed by the FDIC. As of December 31, 2012, certificates of deposit were in denominations of $250 or less.
The Company requires non-interest bearing deposits for certain customers as collateral for credit that has been extended.
The Company also had federal funds lines-of-credit totaling $140,000 at December 31, 2012, and December 31, 2011. There was $48,400 in outstanding borrowings against these lines-of-credit at
December 31, 2012 and $6,900 in outstanding borrowings against these lines-of-credit at December 31, 2011. The average rate on the outstanding borrowings under lines-of-credit was 0.375 percent at December 31, 2012.
Interest-bearing money market deposits are issued in denominations of $250 or less, and pay interest at variable rates based on LIBOR or
the Federal Funds rate. Money market deposits may be withdrawn by the holder
76
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
at any time, although notification may be required and monthly number of transactions is limited. As of December 31, 2012, the weighted average interest rate on interest-bearing money
market deposits was 0.39 percent.
On January 11, 2012, the Company entered into an agreement with Higher One, Inc.
(Higher One), a technology and payment services company focused on higher education, to offer negotiable order of withdrawal (NOW) accounts to a portion of Higher Ones customers. Higher One will provide processing and
other administrative services while the Company, through its bank subsidiary WEX Bank (formerly Wright Express Financial Services Corporation), will establish and maintain the NOW accounts. During the second and third quarters of 2012, the Company
received non-interest bearing NOW account deposits. As of December 31, 2012, the Company has $261,126 of non-interest bearing NOW account deposits outstanding.
The following table presents the average interest rates for deposits and borrowed federal funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Average interest rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
0.65
|
%
|
|
|
0.81
|
%
|
|
|
1.04
|
%
|
Borrowed federal funds
|
|
|
0.42
|
%
|
|
|
0.44
|
%
|
|
|
0.48
|
%
|
Negotiable order of withdrawal deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing money market deposits
|
|
|
0.49
|
%
|
|
|
0.55
|
%
|
|
|
0.58
|
%
|
|
|
|
|
Average deposits and borrowed federal funds balance
|
|
$
|
888,135
|
|
|
$
|
695,765
|
|
|
$
|
527,345
|
|
10. Derivative Instruments
Fuel Price Derivatives
Derivatives Not Designated as Hedging Instruments-Fuel Price Derivatives
For derivative instruments that are not designated as hedging instruments, the gain or loss on the derivative is recognized in current earnings.
As of December 31, 2012, the Company had the following put and call option contracts which settle on a monthly basis which do not
have formal hedging designations:
|
|
|
|
|
|
|
|
|
Aggregate
Notional
Amount
(gallons)
(a)
|
|
|
|
Fuel price derivative instruments unleaded fuel
|
|
|
|
|
Put and call option contracts settling January 2013 June 2014
|
|
|
35,752
|
|
|
|
Fuel price derivative instruments diesel
|
|
|
|
|
Put and call option contracts settling January 2013 June 2014
|
|
|
16,063
|
|
|
|
Total fuel price derivative instruments
|
|
|
51,815
|
|
(a)
|
The settlement of the put and call option contracts (in all instances, notional amount of puts and calls are equal; strike prices are different) is
based upon the New York Mercantile Exchanges New York Harbor Reformulated Gasoline Blendstock for Oxygen Blending and the U.S. Department of Energys weekly retail on-highway diesel fuel price for the month.
|
77
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
As of December 31, 2011, the Company had the following put and call option
contracts which settle on a monthly basis and do not have formal hedging designations:
|
|
|
|
|
|
|
Aggregate
Notional
Amount
(gallons)
(a)
|
|
|
|
Fuel price derivative instruments unleaded fuel
|
|
|
|
|
Put and call option contracts settling January 2012 June 2013
|
|
|
36,210
|
|
|
|
Fuel price derivative instruments diesel
|
|
|
|
|
Put and call option contracts settling January 2012 June 2013
|
|
|
16,268
|
|
|
|
Total fuel price derivative instruments
|
|
|
52,478
|
|
(a)
|
The settlement of the put and call option contracts (in all instances, notional amount of puts and calls are equal; strike prices are different) is
based upon the New York Mercantile Exchanges New York Harbor Reformulated Gasoline Blendstock for Oxygen Blending and the U.S. Department of Energys weekly retail on-highway diesel fuel price for the month.
|
Derivatives Designated as Hedging Instruments - Interest Rate Swaps
In September 2010, the Company entered into an interest rate swap arrangement for $150,000. These interest rate swap arrangements were
designated as cash flow hedges intended to reduce a portion of the variability of the future interest payments on the Companys borrowings under its credit agreement. The interest rate swap expired in March of 2012.
The following table presents information about the Companys interest rate swap arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Weighted-
Average
Base Rate
|
|
|
Aggregate
Notional
|
|
|
Fair Value
|
|
|
Weighted-
Average
Base Rate
|
|
|
Aggregate
Notional
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
September 2010 Swap
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.56
|
%
|
|
$
|
150,000
|
|
|
$
|
(95
|
)
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
0.56
|
%
|
|
$
|
150,000
|
|
|
$
|
(95
|
)
|
78
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following table presents information on the location and amounts of derivative fair
values in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Balance
Sheet
Location
|
|
|
Fair
Value
|
|
|
Balance
Sheet
Location
|
|
|
Fair
Value
|
|
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as
hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
Other assets
|
|
|
|
$
|
|
|
|
Other assets
|
|
|
|
$
|
|
|
|
|
Accrued
expenses
|
|
|
$
|
|
|
Accrued
expenses
|
|
|
$95
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
Fuel price
derivatives,
at fair value
|
|
|
|
|
|
|
|
Fuel price
derivatives,
at fair value
|
|
|
|
410
|
|
|
|
|
Fuel price
derivatives,
at fair value
|
|
|
1,729
|
|
|
Fuel price
derivatives,
at fair value
|
|
|
415
|
|
Total derivatives
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
410
|
|
|
|
|
|
|
$
|
1,729
|
|
|
|
|
$
|
510
|
|
The following table presents information on the location and amounts of derivative gains and losses in the condensed consolidated
statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Designated as
Hedging Instruments
|
|
Amount of Gain or
(Loss) Recognized in
OCI on
Derivative
(Effective Portion)
(a)
|
|
|
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
|
|
Amount of Gain
or (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective
Portion)
|
|
|
Location of Gain or
(Loss) Recognized in
Income on Derivative
(Ineffective
Portion
and Amount Excluded
from Effectiveness
Testing)
(b)
|
|
Amount of Gain or
(Loss)
Recognized in
Income
on Derivative
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
(b)
|
|
|
For
the period ended
December 31,
|
|
|
|
For the period
ended
December 31,
|
|
|
|
For the period ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
60
|
|
|
$
|
308
|
|
|
Financing interest
expense
|
|
|
$ (109
|
)
|
|
|
$ (830
|
)
|
|
Financing interest
expense
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Designated as
Hedging Instruments
|
|
Location of
Gain or (Loss)
Recognized in
Income on
Derivative
|
|
Amount of Gain or
(Loss) Recognized in
Income on Derivative
|
|
|
|
For the period ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Commodity contracts
|
|
Net realized and
unrealized (losses)
gains on fuel price
derivatives
|
|
$
|
(12,365
|
)
|
|
$
|
(11,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The amount of gain or (loss) recognized in OCI on the Companys interest rate swap arrangements has been recorded net of tax impacts of $35 in
2012 and $179 in 2011.
|
(b)
|
No ineffectiveness was reclassified into earnings nor was any amount excluded from effectiveness testing.
|
79
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
For the Companys North America operations, the Company uses derivative instruments
to manage the impact of volatility in fuel prices. The Company enters into put and call option contracts (Options) based on the wholesale price of unleaded gasoline and retail price of diesel fuel, which settle on a monthly basis through
the second quarter of 2014. The Options are intended to lock in a range of prices during any given quarter on a portion of the Companys forecasted earnings subject to fuel price variations. The Companys fuel price risk management program
is designed to purchase derivative instruments to manage its fuel price-related earnings exposure. The fair value of these instruments is recorded in fuel price derivative instruments, at fair value on the consolidated balance sheets.
The following table presents information about the Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Put Strike
Price of
Underlying
Option
(per gallon)
(a)
|
|
|
Call Strike
Price of
Underlying
Option
(per gallon)
(a)
|
|
|
Aggregate
Notional
Amount
(gallons)
(b)
|
|
|
Fair
Value
|
|
|
Aggregate
Notional
Amount
(gallons)
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Fuel price derivative instruments unleaded fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options settling October 2013 June 2014
|
|
$
|
2.485
|
|
|
$
|
2.545
|
|
|
|
6,269
|
|
|
$
|
(514
|
)
|
|
|
|
|
|
$
|
|
|
Options settling July 2013 March 2014
|
|
$
|
2.633
|
|
|
$
|
2.693
|
|
|
|
4,643
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
Options settling April 2013 December 2013
|
|
$
|
2.670
|
|
|
$
|
2.730
|
|
|
|
10,436
|
|
|
|
(398
|
)
|
|
|
|
|
|
|
|
|
Options settling January 2013 September 2013
|
|
$
|
2.843
|
|
|
$
|
3.903
|
|
|
|
7,291
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
Options settling October 2012 June 2013
|
|
$
|
2.540
|
|
|
$
|
2.600
|
|
|
|
4,803
|
|
|
|
(1,161
|
)
|
|
|
6,857
|
|
|
|
280
|
|
Options settling July 2012 March 2013
|
|
$
|
2.605
|
|
|
$
|
2.665
|
|
|
|
2,310
|
|
|
|
(314
|
)
|
|
|
7,108
|
|
|
|
573
|
|
Options settling April 2012 December 2012
|
|
$
|
2.932
|
|
|
$
|
2.992
|
|
|
|
|
|
|
|
|
|
|
|
7,666
|
|
|
|
2,437
|
|
Options settling January 2012 September 2012
|
|
$
|
2.608
|
|
|
$
|
2.668
|
|
|
|
|
|
|
|
|
|
|
|
7,816
|
|
|
|
(407
|
)
|
Options settling October 2011 June 2012
|
|
$
|
2.247
|
|
|
$
|
2.307
|
|
|
|
|
|
|
|
|
|
|
|
4,573
|
|
|
|
(1,893
|
)
|
Options settling July 2011 March 2012
|
|
$
|
2.176
|
|
|
$
|
2.236
|
|
|
|
|
|
|
|
|
|
|
|
2,190
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
Total fuel price derivative instruments unleaded fuel
|
|
|
|
|
|
|
|
35,752
|
|
|
$
|
(1,622
|
)
|
|
|
36,210
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
Fuel price derivative instruments diesel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options settling October 2013 June 2014
|
|
$
|
3.713
|
|
|
$
|
3.773
|
|
|
|
2,816
|
|
|
$
|
(224
|
)
|
|
|
|
|
|
$
|
|
|
Options settling July 2013 March 2014
|
|
$
|
3.878
|
|
|
$
|
3.938
|
|
|
|
2,086
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
Options settling April 2013 December 2013
|
|
$
|
3.823
|
|
|
$
|
3.883
|
|
|
|
4,689
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
Options settling January 2013 September 2013
|
|
$
|
3.990
|
|
|
$
|
4.050
|
|
|
|
3,276
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
Options settling October 2012 June 2013
|
|
$
|
3.835
|
|
|
$
|
3.895
|
|
|
|
2,158
|
|
|
|
(89
|
)
|
|
|
3,081
|
|
|
|
413
|
|
Options settling July 2012 March 2013
|
|
$
|
3.792
|
|
|
$
|
3.852
|
|
|
|
1,038
|
|
|
|
(103
|
)
|
|
|
3,193
|
|
|
|
134
|
|
Options settling April 2012 December 2012
|
|
$
|
4.061
|
|
|
$
|
4.121
|
|
|
|
|
|
|
|
|
|
|
|
3,444
|
|
|
|
1,093
|
|
Options settling January 2012 September 2012
|
|
$
|
3.695
|
|
|
$
|
3.755
|
|
|
|
|
|
|
|
|
|
|
|
3,511
|
|
|
|
(238
|
)
|
Options settling October 2011 June 2012
|
|
$
|
3.293
|
|
|
$
|
3.353
|
|
|
|
|
|
|
|
|
|
|
|
2,055
|
|
|
|
(927
|
)
|
Options settling July 2011 March 2012
|
|
$
|
3.239
|
|
|
$
|
3.299
|
|
|
|
|
|
|
|
|
|
|
|
984
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
Total fuel price derivative instruments diesel
|
|
|
|
|
|
|
|
16,063
|
|
|
$
|
(107
|
)
|
|
|
16,268
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
Total fuel price derivative instruments
|
|
|
|
|
|
|
|
|
|
|
51,815
|
|
|
$
|
(1,729
|
)
|
|
|
52,478
|
|
|
|
(5
|
)
|
(a)
|
The settlement of the Options is based upon the New York Mercantile Exchanges New York Harbor Reformulated Gasoline Blendstock for Oxygen
Blending and the U.S. Department of Energys weekly retail on-highway diesel fuel price for the month.
|
(b)
|
The Options settle on a monthly basis.
|
80
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following table summarizes the changes in fair value of the fuel price derivatives
which have been recorded in net realized and unrealized gains (losses) on derivative instruments on the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Realized (losses) gains
|
|
$
|
(10,641
|
)
|
|
$
|
(22,741
|
)
|
|
$
|
9,785
|
|
Unrealized gains (losses)
|
|
|
(1,724
|
)
|
|
|
10,872
|
|
|
|
(17,029
|
)
|
|
|
|
|
Net realized and unrealized (losses) gains on derivative instruments
|
|
$
|
(12,365
|
)
|
|
$
|
(11,869
|
)
|
|
$
|
(7,244
|
)
|
11. Financing Debt
2007 Revolving Credit Facility and 2010 Term Loan Note
On May 22, 2007, the Company entered into a revolving credit facility (the 2007 Revolver) with a lending syndicate. The
2007 Revolver initially provided for a five-year $350,000 unsecured revolving line-of-credit. In connection with the 2007 Revolver, the Company paid loan origination fees of $998. These fees were recorded as other assets on the consolidated
balance sheet and were amortized on a straight-line basis (which approximates the effective interest rate method) over the term of the 2007 Revolver. On May 29, 2008, the Company entered into an incremental amendment agreement (the
Incremental Amendment Agreement) of the 2007 Revolver to increase the aggregate unsecured revolving line-of-credit from $350,000 to $450,000. The Company incurred $1,556 in loan origination fees in conjunction with entering into the
Incremental Amendment Agreement. These fees have been recorded as other assets on the consolidated balance sheet and were amortized over the remaining term of the 2007 Revolver.
On July 25, 2010, the Company entered into a $75,000 term credit facility (2010 term loan). The rate on the 2010 term
loan was 250 basis points above LIBOR. In connection with the 2010 term loan, the Company paid loan origination fees of $2,269. The agreement did not change any of the Companys existing financial covenants.
The 2007 Revolver and the 2010 term loan were refinanced in 2011 as described below.
2011 Credit Agreement
On May 23, 2011, the Company entered into a credit agreement (the 2011 Credit Agreement), by and among the Company and certain of its subsidiaries, as borrowers, and Wright Express Card
Holdings Australia Pty Ltd, as specified designated borrower, with a lending syndicate. The 2011 Credit Agreement was secured by pledges of the stock of the Companys foreign subsidiaries. The 2011 Credit Agreement provided for a five-year
$200,000 amortizing term loan facility and a five-year $700,000 revolving credit facility with a $100,000 sub-limit for letters of credit and a $20,000 sub-limit for swingline loans. Term loan payments in the amount of $2,500 per quarter began on
June 30, 2011, and are scheduled to continue on the last day of each September, December, March and June thereafter, through and including March 31, 2016. On the maturity date for the term agreement, May 23, 2016, the remaining
outstanding principal amount of $150,000 is due.
As of December 31, 2012, the Company had $621,000 of loans outstanding
under the 2011 Credit Agreement (including $182,500 under the term loan and $438,500 under the revolving credit facility). As of December 31, 2012, the Company has posted approximately $2,350 letters of credit as collateral for fuel
81
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
derivatives and lease agreements. Accordingly, at December 31, 2012, the Company had $264,150 of availability under the 2011 Credit Agreement, subject to the covenants as described below.
The Company capitalized approximately $6,200 in loan origination fees in association with this borrowing and wrote-off approximately $700 of previous issuance costs in the second quarter of 2011.
Proceeds from the 2011 Credit Agreement were used to refinance the Companys existing indebtedness under its 2007 Revolver, and its
existing indebtedness under its 2010 term loan. The 2011 Credit Agreement was available for working capital purposes, acquisitions, payment of dividends and other restricted payments, refinancing of indebtedness, and other general corporate
purposes.
Amounts outstanding under the 2011 Credit Agreement bore interest at a rate equal to, at the Companys option,
(a) the Eurocurrency Rate, as defined, plus a margin of 1.25 percent to 2.25 percent based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA or (b) the highest of (i) the
Federal Funds Rate plus 0.50 percent, (ii) the prime rate announced by lead lender, or (iii) the Eurocurrency Rate plus 1.00 percent, in each case plus a margin of 0.25 percent to 1.25 percent based on the ratio of
consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA. In addition, the Company has agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.20 percent to 0.40 percent of the daily unused
portion of the credit facility. Any outstanding loans under the 2011 Credit Agreement mature on May 23, 2016, unless extended pursuant to the terms of the 2011 Credit Agreement. As of December 31, 2012, the interest rate for the borrowings
under the 2011 Credit Agreement was 1.81 percent.
The following table presents information about the outstanding borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Outstanding balance on revolving line-of-credit and term loan with interest based on LIBOR
|
|
$
|
592,500
|
|
|
$
|
267,500
|
|
Outstanding balance on revolving line-of-credit with interest based on the prime
rate
|
|
|
28,500
|
|
|
|
27,800
|
|
|
|
|
Total outstanding balance on revolving line-of-credit facility and term
loan
|
|
$
|
621,000
|
|
|
$
|
295,300
|
|
|
|
|
Weighted average rate based on LIBOR (including impact of interest rate swaps)
|
|
|
1.71
|
%
|
|
|
1.99
|
%
|
Rate based on the prime rate
|
|
|
3.75
|
%
|
|
|
3.68
|
%
|
82
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Financing Interest
The following table presents the components of financing interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
2007 Revolver:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense based on LIBOR
|
|
$
|
|
|
|
$
|
1,084
|
|
|
$
|
1,621
|
|
Interest expense based on the prime rate
|
|
|
|
|
|
|
270
|
|
|
|
470
|
|
Fees
|
|
|
|
|
|
|
100
|
|
|
|
324
|
|
Amortization of loan origination fees
|
|
|
|
|
|
|
249
|
|
|
|
628
|
|
|
|
$
|
|
|
|
$
|
1,703
|
|
|
$
|
3,043
|
|
|
|
|
|
$75 Million 2010 Term Loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense based on LIBOR
|
|
$
|
|
|
|
$
|
911
|
|
|
$
|
741
|
|
Amortization of loan origination fees
|
|
|
|
|
|
|
863
|
|
|
|
748
|
|
|
|
$
|
|
|
|
$
|
1,774
|
|
|
$
|
1,489
|
|
2011 Credit Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$700 Million Revolver:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense based on LIBOR
|
|
$
|
3,103
|
|
|
$
|
1,758
|
|
|
$
|
|
|
Interest expense based on the prime rate
|
|
|
1,083
|
|
|
|
566
|
|
|
|
|
|
Fees
|
|
|
1,369
|
|
|
|
1,047
|
|
|
|
|
|
Amortization of loan origination fees
|
|
|
1,100
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
$200 Million Term Loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense based on LIBOR
|
|
|
3,339
|
|
|
|
2,330
|
|
|
|
|
|
Amortization of loan origination fees
|
|
|
297
|
|
|
|
208
|
|
|
|
|
|
|
|
$
|
10,291
|
|
|
$
|
6,576
|
|
|
$
|
|
|
|
|
|
|
Realized losses on interest rate swaps (Note 10)
|
|
$
|
109
|
|
|
$
|
830
|
|
|
$
|
663
|
|
Dividends on preferred stock (Note 12)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Other
|
|
|
33
|
|
|
|
793
|
|
|
|
79
|
|
|
|
|
|
Total financing interest expense
|
|
$
|
10,433
|
|
|
$
|
11,676
|
|
|
$
|
5,314
|
|
|
|
|
|
Average interest rate (including impact of interest rate swaps):
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on LIBOR
|
|
|
1.79
|
%
|
|
|
1.91
|
%
|
|
|
1.33
|
%
|
Based on prime
|
|
|
3.75
|
%
|
|
|
3.68
|
%
|
|
|
3.25
|
%
|
|
|
|
|
Average debt balance at LIBOR
|
|
$
|
366,387
|
|
|
$
|
362,014
|
|
|
$
|
228,370
|
|
Average debt balance at prime
|
|
$
|
28,885
|
|
|
$
|
22,615
|
|
|
$
|
18,390
|
|
Debt Covenants
The 2011 Credit Agreement contains various financial covenants requiring the Company to maintain certain financial ratios. In addition, the 2011 Credit Agreement contains various customary restrictive
covenants that limit the Companys ability to pay dividends, sell or transfer all or substantially all of its property or assets, incur more indebtedness or make guarantees, grant or incur liens on its assets, make investments, loans, advances
or acquisitions, engage in mergers, consolidations, liquidations or dissolutions, enter into sales or leasebacks or change its accounting policies or reporting practices. WEX Bank is not subject to certain of these restrictions.
Other
As of December 31, 2012, WEX Bank pledged approximately $544,289 of fleet receivables held by WEX Bank to the Federal Reserve Bank as collateral for potential borrowings. WEX Bank has a line of
credit through
83
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
the Federal Reserve Bank Discount Window. Amounts that can be borrowed are based on the amount of collateral pledged to the Federal Reserve Bank and were approximately $321,130 as of
December 31, 2012. As of December 31, 2012, WEX Bank had no borrowings on this line of credit through the Federal Reserve Bank Discount Window.
Subsequent to the acquisition of UNIK, UNIK paid approximately $19,600 of UNIKs existing financing debt. As of December 31, 2012, UNIK has approximately $10,500 of financing debt, classified in
other liabilities on the Companys consolidated balance sheets.
In January 2013, the Company entered into an
Amended and Restated Credit Agreement and completed a $400,000 note offering. See Note 22. Subsequent Event.
12. Preferred Stock
On March 6, 2010, the Company initiated redemption of the outstanding shares of Series A non-voting
convertible, redeemable preferred stock for $101 per share, plus all accrued but unpaid dividends. Each holder elected to exercise its right to convert its holdings into common stock. As a consequence of these elections, the Company issued 445
shares of its common stock and retired 0.1 shares of preferred stock.
There were 0.1 shares of Series A non-voting
convertible, redeemable preferred stock issued and outstanding at December 31, 2009, with a par value of $0.01 per share and a purchase price per share and liquidation value per share of $100,000. Given its specific features, the Company
treated the preferred stock as a liability. Accordingly, dividends were recorded as financing interest expense on the consolidated statements of income.
13. Income Taxes
Income before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
United States
|
|
$
|
224,029
|
|
|
$
|
224,448
|
|
|
$
|
153,958
|
|
Foreign
|
|
|
(17,846
|
)
|
|
|
(15,843
|
)
|
|
|
(8,876
|
)
|
|
|
|
|
Total
|
|
$
|
206,183
|
|
|
$
|
208,605
|
|
|
$
|
145,082
|
|
Income tax expense (benefit) from continuing operations consisted of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
State
and Local
|
|
|
Foreign
|
|
|
Total
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
48,632
|
|
|
$
|
3,460
|
|
|
$
|
18,681
|
|
|
$
|
70,773
|
|
Deferred
|
|
$
|
22,560
|
|
|
$
|
(1,301
|
)
|
|
$
|
17,442
|
|
|
$
|
38,701
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
43,886
|
|
|
$
|
6,697
|
|
|
$
|
1,050
|
|
|
$
|
51,633
|
|
Deferred
|
|
$
|
25,875
|
|
|
$
|
299
|
|
|
$
|
(2,824
|
)
|
|
$
|
23,350
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
31,811
|
|
|
$
|
4,916
|
|
|
$
|
(886
|
)
|
|
$
|
35,841
|
|
Deferred
|
|
$
|
19,723
|
|
|
$
|
960
|
|
|
$
|
929
|
|
|
$
|
21,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The reconciliation between the income tax computed by applying the U.S. federal
statutory rate and the reported effective tax rate on income from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes (net of federal income tax benefit)
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
4.0
|
|
Foreign income tax rate differential
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
Revaluation of deferred tax assets for tax rate changes and blending differences, net
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.8
|
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
|
|
|
|
Effective tax rate
|
|
|
53.1
|
%
|
|
|
35.9
|
%
|
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences in the recognition of income and expense for tax and financial
reporting purposes that give rise to significant portions of the deferred tax assets and the deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Deferred assets related to:
|
|
|
|
|
|
|
|
|
Reserve for credit losses
|
|
$
|
4,935
|
|
|
$
|
4,346
|
|
Foreign tax credit
|
|
|
2,862
|
|
|
|
1,603
|
|
Stock-based compensation, net
|
|
|
10,304
|
|
|
|
7,872
|
|
Net operating loss carry forwards
|
|
|
8,894
|
|
|
|
3,443
|
|
Other assets
|
|
|
3,375
|
|
|
|
3,954
|
|
Derivatives
|
|
|
|
|
|
|
2
|
|
Intangibles, primarily goodwill
|
|
|
107,207
|
|
|
|
133,394
|
|
|
|
|
|
|
|
137,577
|
|
|
|
154,614
|
|
|
|
|
Deferred tax liabilities related to:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
194
|
|
|
|
|
|
Other assets
|
|
|
1,299
|
|
|
|
190
|
|
Property, equipment and capitalized software
|
|
|
8,430
|
|
|
|
10,900
|
|
Foreign intangibles
|
|
|
27,179
|
|
|
|
|
|
|
|
|
|
|
|
37,102
|
|
|
|
11,090
|
|
|
|
|
Valuation allowance on net operating loss carryfowards
|
|
|
347
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
100,128
|
|
|
$
|
143,524
|
|
|
|
|
|
|
|
|
|
|
85
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Net deferred tax assets by jurisdiction are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
United States
|
|
$
|
118,535
|
|
|
$
|
138,001
|
|
Australia
|
|
|
(13,053
|
)
|
|
|
5,354
|
|
New Zealand
|
|
|
48
|
|
|
|
105
|
|
The Netherlands
|
|
|
73
|
|
|
|
64
|
|
United Kingdom
|
|
|
(2,337
|
)
|
|
|
|
|
Brazil
|
|
|
(3,138
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,128
|
|
|
$
|
143,524
|
|
|
|
|
|
|
|
|
|
|
The deferred tax assets and deferred tax liabilities are included in deferred income taxes, net on the
consolidated balance sheet.
The Companys primary tax jurisdictions are the United States and Australia. The Company had
approximately $462,396 of state and $22,183 of foreign net operating loss carry forwards at December 31, 2012 and approximately $394,899 of state and $6,504 of foreign net operating loss carry forwards at December 31, 2011. These U.S.
losses expire at various times through 2030. Foreign losses in Brazil and the U.K. have indefinite carry forward periods. A valuation allowance in the amount of $347 was established through purchase accounting for acquired net operating losses of
CorporatePay Limited, as the Company believes that it is not more likely than not the losses will be utilized. No valuation allowances have been established for all other deferred assets as the Company believes it is more likely than not that its
deferred tax assets will be utilized within the carry forward periods.
Undistributed earnings of certain foreign subsidiaries
of the Company amounted to $1,756 at December 31, 2012, and $5,991 at December 31, 2011. These earnings are considered to be indefinitely reinvested, and accordingly, no U.S. federal and state income taxes have been provided thereon. Upon
distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.
Current accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and
transition.
The Company files a consolidated federal income tax return in the United States, as well as consolidated and
separate income tax returns in various states. The Company also files consolidated and separate income tax returns in various non-U.S. jurisdictions. In the normal course of business, the Company is no longer subject to income tax examination for
the years prior to 2009. The Company is currently being audited for its Australian return for the tax years 2007 through 2009.
86
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
A reconciliation of the beginning and ending amount of unrecognized tax benefits
excluding interest and penalties is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Beginning balance
|
|
$
|
6,059
|
|
|
$
|
|
|
|
$
|
|
|
Increases related to prior year tax position
|
|
|
117
|
|
|
|
6,059
|
|
|
|
|
|
Decreases related to prior year tax positions
|
|
|
|
|
|
|
|
|
|
|
|
|
Increased related to current year tax positions
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of statute
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,176
|
|
|
$
|
6,059
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012, the Company had $7,489 of net unrecognized tax benefits. If recognized, $7,489
would reduce the Companys effective tax rate. The Company does not anticipate settling any unrecognized tax benefit within the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company has accrued $1,313 as of December 31, 2012, and $500 as of December 31, 2011
for penalties and interest related to uncertain tax positions. As of December 31, 2010, the Company has no uncertain tax positions subject to penalties and interest.
On June 29, 2012, tax legislation was enacted in Australia that affected the tax deductibility of certain intangible assets acquired as part of the 2010 acquisition of Wright Express Australia. The
Company performed a review of the legislation to determine which of these intangible assets would be impacted. Based upon this review the Company recorded a tax charge of $31,432 in June of 2012 to reflect these impacts. The Company wrote-off an
associated refund claim payable to the former shareholder of RD Card Holding Australia for $9,750, included in non-operating income. This payable was contingent on the receipt of the tax refunds generated by tax deductions associated with the
amortization of above mentioned intangible assets.
During 2012 the Company recorded an impairment charge related to goodwill
in the amount of $17,508. This charge did not result in any tax provision benefit. Also the Company recorded a tax charge of approximately $2,400 due to the impact of a retroactive tax legislation enacted on September 8, 2012, in Australia.
This legislation impacted the potential deductibility of intercompany interest expense allowable in past and future tax years and hence resulted in a discrete charge in our recorded tax expense in the current year and a higher Australian effective
tax rate in future periods.
14. Tax Receivable Agreement
As a consequence of the Companys separation from its former parent company, the tax basis of the Companys
net tangible and intangible assets increased (the Tax Basis Increase). The Tax Basis Increase reduced the amount of tax that the Company would pay in the future to the extent the Company generated taxable income in sufficient amounts.
The Company was contractually obligated, pursuant to its 2005 Tax Receivable Agreement with the Companys former parent company (Cendant Corporation), to remit 85 percent of any such cash savings. The estimated total payments owed to
Cendant Corporation based on facts available at that time, was reflected as a liability titled Amounts due under tax receivable agreement.
The amount of these estimated future payments is dependent upon future statutory tax rates and the Companys ability to generate sufficient taxable income adequate to cover the tax depreciation,
amortization and interest expense associated with the Tax Basis Increase. The Company regularly reviews its estimated blended
87
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
tax rates and projections of future taxable earnings to determine whether changes in the estimated liability are required. Any changes to the estimated future payments due to changes in estimated
blended tax rates are recorded in the income statement as changes in amounts due under tax receivable agreement.
Pursuant to
the Separation and Distribution Agreement dated as of July 27, 2006, by and among Cendant Corporation (now known as Avis Budget Group, Inc. or Avis), Realogy Corporation (Realogy), Wyndham Worldwide Corporation
(Wyndham) and Travelport Inc., Realogy acquired from Cendant the right to receive 62.5 percent of the payments by WEX Inc. to Cendant and Wyndham acquired from Cendant the right to receive 37.5 percent of the payments by WEX
Inc. to Cendant under the 2005 Tax Receivable Agreement.
On June 26, 2009, the Company entered into a Tax Receivable
Prepayment Agreement with Realogy, pursuant to which the Company paid Realogy $51,000, including bank fees and legal expenses, as prepayment in full to settle the remaining obligations to Realogy under the 2005 Tax Receivable Agreement. These
obligations were previously recorded at $187,485 and this transaction resulted in a gain of $136,485 in the second quarter of 2009. In connection with the Tax Receivable Prepayment Agreement with Realogy, the Company entered into a Ratification
Agreement on June 26, 2009, (the Ratification Agreement) with Avis, Realogy and Wyndham which amended the 2005 Tax Receivable Agreement to require the Company to pay 31.875 (which is 85 percent of the original benefit of
37.5 percent) percent of the future tax savings related to the Tax Basis Increase to Wyndham.
For each year presented,
there had been reassessment of the blended tax rates that are projected into the future. The net future benefits increased, which increased the associated liability to Wyndham, resulting in a $2,089, $714 and $214 charge to non-operating expense for
the years ended December 31, 2012, 2011 and 2010, respectively.
15. Employee Benefit Plans
The Company sponsors a 401(k) retirement and savings plan. Employees are eligible to participate in the plan
immediately. The Companys employees who are at least 18 years of age, have worked at least 1,000 hours in the past year, and have completed one year of service are eligible for Company matching contributions in this plan. The Company
matches 100 percent of each employees contributions up to a maximum of 6 percent of each employees eligible compensation. All contributions vest immediately. WEX Inc. has the right to discontinue this plan at any time.
Contributions to the plan are voluntary. The Company contributed $2,295, $2,094 and $1,921 for the years ended December 31, 2012, 2011 and 2010, respectively.
The Company also sponsors a defined contribution plan for certain employees designated by the Company. Participants may elect to defer receipt of designated percentages or amounts of their compensation.
The Company maintains a grantors trust to hold the assets under the Companys defined contribution plan. The obligation related to the defined contribution plan totaled $2,921 at December 31, 2012, and $2,218 at December 31,
2011. These amounts are included in other liabilities on the consolidated balance sheet. The assets held in trust are designated as trading securities and, as such, these trading securities are to be recorded at fair value with any changes recorded
currently to earnings. The aggregate market value of the securities within the trust was $2,921 at December 31, 2012, and $2,218 at December 31, 2011. Such amounts are included in other assets on the consolidated balance sheet.
16. Fair Value
The Company holds mortgage-backed and other asset-backed securities, fixed income and equity securities, derivatives
and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such
88
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
as model pricing, when market quotes are not readily accessible or available. The Company carries certain of its liabilities at fair value, including its derivative liabilities. In determining
the fair value of the Companys obligations, various factors are considered including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for
equivalent instruments; the Companys own-credit standing; and counterparty credit risk.
These valuation techniques may
be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions. These two types of inputs create the following fair
value hierarchy:
|
|
|
Level 1 Quoted prices for identical instruments in active markets.
|
|
|
|
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not
active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
|
|
|
|
Level 3 Instruments whose significant value drivers are unobservable.
|
The following table presents the Companys assets and liabilities that are measured at fair value and the related hierarchy levels
for 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date
Using
|
|
|
|
December 31,
2012
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,839
|
|
|
$
|
|
|
|
$
|
1,839
|
|
|
$
|
|
|
Asset-backed securities
|
|
|
1,654
|
|
|
|
|
|
|
|
1,654
|
|
|
|
|
|
Municipal bonds
|
|
|
641
|
|
|
|
|
|
|
|
641
|
|
|
|
|
|
Equity securities
|
|
|
12,216
|
|
|
|
12,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
16,350
|
|
|
$
|
12,216
|
|
|
$
|
4,134
|
|
|
$
|
|
|
|
|
|
|
|
Executive deferred compensation plan trust
(a)
|
|
$
|
2,921
|
|
|
$
|
2,921
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel price derivatives unleaded fuel
(b
)
|
|
$
|
1,622
|
|
|
$
|
|
|
|
$
|
1,622
|
|
|
$
|
|
|
|
|
|
|
|
Fuel price derivatives diesel
(
b
)
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
Total fuel price derivatives
|
|
$
|
1,729
|
|
|
$
|
|
|
|
$
|
1,622
|
|
|
$
|
107
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
313
|
|
|
|
|
|
|
|
|
|
|
$
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The fair value of these instruments is recorded in other assets.
|
(b)
|
The balance sheet presentation combines unleaded fuel and diesel fuel positions.
|
89
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The following table presents the Companys assets and liabilities that are measured
at fair value and the related hierarchy levels for 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date
Using
|
|
|
|
December 31,
2011
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
3,197
|
|
|
$
|
|
|
|
$
|
3,197
|
|
|
$
|
|
|
Asset-backed securities
|
|
|
1,930
|
|
|
|
|
|
|
|
1,930
|
|
|
|
|
|
Municipal bonds
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
Equity securities
|
|
|
11,768
|
|
|
|
11,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
17,044
|
|
|
$
|
11,768
|
|
|
$
|
5,276
|
|
|
$
|
|
|
|
|
|
|
|
Executive deferred compensation plan trust
(a)
|
|
$
|
2,218
|
|
|
$
|
2,218
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
Fuel price derivatives unleaded fuel
(c
)
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel price derivatives diesel
(c)
|
|
$
|
25
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25
|
|
|
|
|
|
|
September 2010 interest rate swap arrangement with a base rate of 0.56% and an aggregate
notional amount of $150,000
(b)
|
|
$
|
95
|
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
9,325
|
|
|
|
|
|
|
|
|
|
|
$
|
9,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The fair value of these instruments is recorded in other assets.
|
(b)
|
The fair value of these instruments is recorded in accrued expenses.
|
(c)
|
The balance sheet presentation combines unleaded fuel and diesel fuel positions.
|
The following table presents a reconciliation of the beginning and ending balances for assets (liabilities) measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
Consideration
|
|
|
Fuel Price
Derivatives
Diesel
|
|
|
|
|
Beginning balance
|
|
$
|
(9,325
|
)
|
|
$
|
(25
|
)
|
Total gains or (losses) realized/unrealized
|
|
|
|
|
|
|
|
|
Included in earnings
(a)
(b)
|
|
|
1,517
|
|
|
|
(82
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
7,495
|
|
|
|
|
|
Transfers in/(out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(313
|
)
|
|
$
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
90
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
(a)
|
Gain and losses on the change of estimate on the contingent consideration are included in other expense.
|
(
b
)
|
Gains and losses (realized and unrealized) included in earnings for the year ended December 31, 2012, are reported in net realized and unrealized
gain and (losses) on fuel price derivatives on the consolidated statements of income.
|
The following table
presents a reconciliation of the beginning and ending balances for assets (liabilities) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
Consideration
|
|
|
Fuel Price
Derivatives
Diesel
|
|
|
|
|
Beginning balance
|
|
$
|
|
|
|
$
|
(3,643
|
)
|
Total gains or (losses) realized/unrealized
|
|
|
|
|
|
|
|
|
Included in earnings
(a)
(b)
|
|
|
675
|
|
|
|
3,618
|
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(10,000
|
)
|
|
|
|
|
Transfers in/(out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(9,325
|
)
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
(a)
|
Gain and losses on the change of estimate on the contingent consideration
are included in other expense.
|
(
b
)
|
Gains and losses (realized and unrealized) included in earnings for the year ended December 31, 2011, are reported in net realized and unrealized
gain and (losses) on fuel price derivatives on the consolidated statements of income.
|
Available-for-sale securities and executive deferred compensation plan trust
When available, the Company uses quoted market prices to determine the fair value of available-for-sale securities; such items are
classified in Level 1 of the fair-value hierarchy. These securities primarily consist of exchange-traded equity securities.
For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of
assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. The obligations related to the deferred compensation plan trust are classified as
Level 1 of the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets.
Fuel price derivatives and interest rate swap arrangements
The
majority of derivatives entered into by the Company are executed over the counter and so are valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of
derivative and the nature of the underlying instrument. The principal technique used to value these instruments is a comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Companys assumptions
of volatility and present value, where appropriate. The fair values of derivative contracts reflect the expected cash the Company will pay or receive upon settlement of the respective contracts.
The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, the
spot price of the underlying instrument, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and items with longer tenures are generally
less observable.
91
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Fuel price derivatives diesel.
The assumptions used in the valuation of
the diesel fuel price derivatives use both observable and unobservable inputs. With respect to forward prices for diesel fuel, there is a lack of price transparency. Such unobservable inputs are significant to the diesel fuel derivative contact
valuation methodology.
Quantitative Information About Level 3 Fair Value Measurements.
The significant
unobservable inputs used in the fair value measurement of the Companys diesel fuel price derivative instruments designated as Level 3 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
December 31, 2012
|
|
|
Valuation
Technique
|
|
|
Unobservable Input
|
|
Range $
per gallon
|
|
Fuel price derivatives diesel
|
|
$
|
107
|
|
|
|
Option model
|
|
|
Future retail price of diesel
fuel after December 31,
2012
|
|
$
|
3.71 4.05
|
|
Sensitivity To Changes In Significant Unobservable Inputs
. As presented in the table above, the significant unobservable
inputs used in the fair value measurement of the Companys diesel fuel price derivative instruments are the future retail price of diesel fuel from the first quarter of 2013 through the second quarter of 2014. Significant changes in these
unobservable inputs in isolation would result in a significant change in the fair value measurement.
Contingent
consideration
The Company has classified its liability for contingent consideration related to its acquisition of
UNIK within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include the projected revenues of UNIK over a four month period.
The Company has classified its liability for contingent consideration related to its acquisition of rapid! PayCard within Level 3 of the
fair value hierarchy because the fair value is determined using significant unobservable inputs, which include the projected revenues of rapid! PayCard over a twelve month period.
17. Redeemable noncontrolling interest
On August 30, 2012, the Company acquired a 51 percent ownership interest in UNIK, a provider of payroll cards in
Brazil. Redeemable noncontrolling interest is measured at fair value at the date of acquisition. The redeemable noncontrolling interest is reported on the Companys consolidated balance sheets as Redeemable noncontrolling
interest.
A reconciliation of redeemable noncontrolling interests for the year December 31, 2012 and 2011, is
as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
Acquisition of subsidiary at fair value
|
|
|
21,904
|
|
Net loss attributable to noncontrolling interest
|
|
|
(213
|
)
|
Currency translation adjustment
|
|
|
(29
|
)
|
|
|
Ending balance
|
|
$
|
21,662
|
|
|
|
|
|
|
92
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
18. Commitments and Contingencies
Litigation
The Company is involved in pending litigation in the ordinary course of business. In the opinion of management, such litigation will not have a material effect on the Companys consolidated financial
position, results of operations or cash flows.
Extension of Credit to Customers
The Company had aggregate commitments of approximately $4,665,000 at December 31, 2012, and $4,114,000 at December 31, 2011,
related to payment processing services, primarily related to commitments to extend credit to customers and customers of strategic relationships as part of the Companys established lending product agreements. Many of these commitments are not
expected to be used; therefore, total unused credit available to customers and customers of strategic relationships does not represent future cash requirements. The Company can increase or decrease its customers credit lines at its discretion
at any time. These amounts are not recorded on the consolidated balance sheet.
Operating Leases
The Company leases office space, equipment, and vehicles under non-cancelable operating leases that expire at various dates through 2019.
In addition, the Company rents office equipment under agreements that may be canceled at any time. Rental expense related to office space, equipment, and vehicle leases amounted to $5,601 for the year ended December 31, 2012, $4,794 for the
year ended December 31, 2011 and $3,583 for the year ended December 31, 2010. These amounts were included in occupancy and equipment on the consolidated statements of income. The Company leases information technology hardware and software
under agreements that may be terminated by the Company at any time. Lease expense related to information technology hardware and software leases totaled $6,959 for the year ended December 31, 2012, $5,342 for the year ended December 31,
2011, and $3,164 for the year ended December 31, 2010. These amounts were included in technology leasing and support on the consolidated statements of income.
Future minimum lease payments under non-cancelable operating leases are as follows:
|
|
|
|
|
|
|
|
|
Payment
|
|
2013
|
|
$
|
7,657
|
|
2014
|
|
|
6,552
|
|
2015
|
|
|
5,804
|
|
2016
|
|
|
3,239
|
|
2017
|
|
|
2,640
|
|
2018 and thereafter
|
|
|
3,054
|
|
|
|
Total
|
|
$
|
28,946
|
|
|
|
|
|
|
19. Cash and Dividend Restrictions
Cash
WEX Bank is required to maintain reserves against certain customer deposits by keeping cash on hand or balances with the Federal Reserve Bank. The required amount of those reserves at December 31,
2102 and 2011 was $26,246 and $0, respectively.
93
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Dividends
The Company has certain restrictions on the dividends it may pay under its revolving credit agreement. If the Companys leverage
ratio is higher than 1.75, the Company may pay no more than $25,000 per annum for restricted payments, including dividends.
Dividends paid by WEX Bank have provided a substantial part of the Companys operating funds and for the foreseeable future it is
anticipated that dividends paid by WEX Bank to the Company will continue to be the Companys principal source of operating funds. Capital adequacy requirements serve to limit the amount of dividends that may be paid by WEX Bank. WEX Bank is
chartered under the laws of the State of Utah and the FDIC insures its deposits. Under Utah law, WEX Bank may only pay a dividend out of net profits after it has (i) provided for all expenses, losses, interest and taxes accrued or due from
WEX Bank and (ii) transferred to a surplus fund 10 percent of its net profits before dividends for the period covered by the dividend, until the surplus reaches 100 percent of its capital stock. For purposes of these Utah
dividend limitations, WEX Banks capital stock is $5,250 and its capital surplus exceeds 100 percent of capital stock.
Under FDIC regulations, WEX Bank may not pay any dividend if, following the payment of the dividend, WEX Bank would be undercapitalized, as defined under the Federal Deposit Insurance Act and
applicable regulations. The FDIC also has the authority to prohibit WEX Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on the financial condition of WEX Bank, could include the payment of
dividends.
WEX Bank complied with the aforementioned dividend restrictions for the years ended December 31, 2012, 2011,
and 2010.
20. Stock-Based Compensation
In April of 2010, the Company adopted the Wright Express Corporation 2010 Equity Incentive Plan (the
Plan). This Plan replaced the Companys 2005 Equity and Incentive Plan. The Plan, which is stockholder-approved, permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and other
stock-based or cash-based awards to non-employee directors, officers, employees, advisors or consultants for up to 3,800 shares of common stock. The Company believes that such awards increase efforts on behalf of the Company and promote the
success of the Companys business. On December 31, 2012, the Company had four stock-based compensation programs, which are described below. The compensation cost that has been charged against income for these programs totals $11,016 for
2012, $9,367 for 2011, and $7,425 for 2010.
Restricted Stock Units
The Company awards restricted stock units (RSU) to non-employee directors and certain employees periodically under the Plan.
An RSU is a right granted to receive stock at the end of a specified period. RSU awards generally vest evenly over a period of three or four years. The awards provide for accelerated vesting if there is a change of control (as defined in the Plan).
The fair value of each RSU award is based on the closing market price of the Companys stock one business day prior to the grant date as reported by the New York Stock Exchange (NYSE).
94
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
A summary of the status of the Companys RSUs as of December 31, 2012, and
changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
Weighted-
Average
Grant-
Date Fair
Value
|
|
Restricted Stock Units
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
|
204
|
|
|
$
|
32.25
|
|
Granted
|
|
|
140
|
|
|
$
|
55.76
|
|
Vested shares issued
|
|
|
(104
|
)
|
|
$
|
30.58
|
|
Vested shares deferred
(a)
|
|
|
(4
|
)
|
|
$
|
26.57
|
|
Forfeited
|
|
|
(3
|
)
|
|
$
|
50.15
|
|
Withheld for taxes
(b)
|
|
|
(48
|
)
|
|
$
|
31.23
|
|
|
|
|
Balance at December 31, 2012
|
|
|
185
|
|
|
$
|
51.08
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company issued fully vested and non-forfeitable restricted stock units to certain non-employee directors and certain employees that are payable in
shares of the Companys common stock at a later date as specified by the award (deferred stock units or DSUs).
|
(b)
|
The Company has elected to pay cash equal to the minimum amount required to be withheld for income tax purposes instead of issuing the shares of common
stock. The cash is remitted to the appropriate taxing authority.
|
As of December 31, 2012, there was
$4,743 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted as RSUs. That cost is expected to be recognized over a weighted-average period of 1.1 years. The total grant-date fair value of
shares granted was $7,830 during 2012, $4,107 during 2011, and $2,777 during 2010. The total fair value of shares vested (issued) was $6,347 during 2012, $5,435 during 2011, and $3,136 during 2010.
Deferred Stock Units
Under the Plan, the Company also grants deferred stock units (DSU) to non-employee directors. A DSU is a fully vested right to receive stock at a certain point in time in the future. DSUs do
not require any future service or performance obligations to be met. DSUs may be granted immediately or may initially be granted as RSUs which become DSUs once a previously determined service obligation has been met. The fair value of each granted
DSU award is based on the closing market price of the Companys stock on the grant date as reported by the NYSE.
A
summary of the status of the Companys DSUs as of December 31, 2012, and changes during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
|
|
Deferred Stock Units
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
|
84
|
|
|
$
|
24.70
|
|
Awards
|
|
|
1
|
|
|
$
|
63.32
|
|
Converted from RSUs
|
|
|
4
|
|
|
$
|
26.57
|
|
|
|
|
Balance at December 31, 2012
|
|
|
89
|
|
|
$
|
25.16
|
|
95
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
There is no unrecognized compensation cost related to awards granted as, or converted
to, DSUs. The Company has determined that the award was earned when granted and it is expensed at that time. The total fair value of shares granted and vested was $150 during 2012, $173 during 2011, and $331 during 2010.
Performance Based Restricted Stock Units
The Company also awards performance based restricted stock units (PBRSUs) to employees periodically under the Plan. A PBRSU is a right granted to receive stock at the end of a specified
period. In a PBRSU, the number of shares earned varies based upon meeting certain corporate-wide performance goals, including revenue and earnings in excess of targets. PBRSU awards generally have performance goals tracking a one to four year
period, depending on the nature of the performance goal. The fair value of each PBRSU award is based on the closing market price of the Companys stock one business day prior to the grant date as reported by the NYSE.
A summary of the status of certain of the Companys PBRSUs at threshold and target performance as of December 31, 2012, and
changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units at
Threshold
|
|
|
Units at
Target
|
|
|
Units at
Maximum
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
Performance Based Restricted Stock Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
|
110
|
|
|
|
221
|
|
|
|
440
|
|
|
$
|
37.76
|
|
Granted
|
|
|
34
|
|
|
|
67
|
|
|
|
134
|
|
|
$
|
64.34
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
(11
|
)
|
|
|
(21
|
)
|
|
$
|
49.05
|
|
Cancelled
|
|
|
(33
|
)
|
|
|
(66
|
)
|
|
|
(131
|
)
|
|
$
|
51.41
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
106
|
|
|
|
211
|
|
|
|
422
|
|
|
$
|
41.39
|
|
The range of unrecognized compensation cost related to the awards is from $1,178 at threshold
(50 percent below targeted performance), $2,356 at target (100 percent of targeted performance) and up to $4,713 at maximum (200 percent of targeted performance), as of December 31, 2012, depending whether certain performance
conditions are met. The total grant-date fair value of shares granted at target was $4,308 during 2012, $4,157 during 2011, and $4,929 during 2010. The total grant-date fair value of shares vested was $1,382 during 2012, $327 during 2011, and $0
during 2010.
Stock Options
The fair value of each option award is estimated on the grant date using a Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table. The expected term of the
options represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on implied volatilities from traded options on the Companys stock, historical volatility of the Companys stock,
and other factors. The risk-free interest rate for the period matching the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is the calculated yield on the Companys
stock at the time of the grant.
96
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The table below summarizes the assumptions used to calculate the fair value:
|
|
|
|
|
|
|
March 3,
2010
|
|
Weighted average expected life (in years)
|
|
|
6.00
|
|
Weighted average exercise price
|
|
$
|
30.06
|
|
Weighted average volatility
|
|
|
46.00
|
%
|
Weighted average risk-free rate
|
|
|
2.70
|
%
|
Weighted average dividend yield
|
|
|
0.00
|
%
|
Weighted average fair value
|
|
$
|
14.15
|
|
The stock options granted under the plan related to the Companys employees consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2012
|
|
|
353
|
|
|
$
|
19.72
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(234
|
)
|
|
$
|
19.76
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
119
|
|
|
$
|
19.65
|
|
|
|
4.5
|
|
|
$
|
6,641
|
|
Exercisable on December 31, 2012
|
|
|
75
|
|
|
$
|
13.59
|
|
|
|
4.2
|
|
|
$
|
4,655
|
|
Vested and expected to vest at December 31, 2012
|
|
|
119
|
|
|
$
|
19.65
|
|
|
|
4.5
|
|
|
$
|
6,641
|
|
The total intrinsic value of options exercised during the years ended December 31, 2012,
December 31, 2011 and 2010 was $10,555, $7,829 and $3,592, respectively. No options have been granted since March of 2010.
21. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is its Chief Executive Officer. The operating segments are
reviewed separately because each operating segment represents a strategic business unit that generally offers different products and serves different markets.
The Companys chief operating decision maker evaluates the operating results of the Companys reportable segments based upon revenues and adjusted net income, which is defined by the
Company as net income adjusted for fair value changes of derivative instruments, the amortization of purchased intangibles, the net impact of tax rate changes on the Companys deferred tax asset and related changes in the tax-receivable
agreement, non-cash asset impairment charges and the gains on the extinguishment of a portion of the tax receivable agreement. These adjustments are reflected net of the tax impact.
The Company operates in two reportable segments, Fleet Payment Solutions and Other Payment Solutions. The Fleet Payment Solutions segment
provides customers with payment and transaction processing services specifically designed for the needs of vehicle fleet customers. This segment also provides information management services to these fleet customers. The Other Payment Solutions
segment provides customers with a
97
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
payment processing solution for their corporate purchasing and transaction monitoring needs. Revenue in this segment is derived from our corporate purchase cards, single use accounts and prepaid
card products. The corporate purchase card products are used by businesses to facilitate purchases of products and utilize the Companys information management capabilities.
The accounting policies of the reportable segments are generally the same as those described in the summary of significant accounting
policies.
Financing interest expense and net realized and unrealized losses on derivative instruments are not allocated to
the Other Payment Solutions segment in the computation of segment results for internal evaluation purposes. Total assets are not allocated to the segments.
The following table presents the Companys reportable segment results for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
Operating
Interest
Expense
|
|
|
Depreciation
and
Amortization
|
|
|
Provision for
Income
Taxes
|
|
|
Adjusted Net
Income
|
|
|
|
|
|
|
|
Year ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Payment Solutions
|
|
$
|
470,591
|
|
|
$
|
3,377
|
|
|
$
|
23,721
|
|
|
$
|
75,404
|
|
|
$
|
128,259
|
|
Other Payment Solutions
|
|
|
152,560
|
|
|
|
1,613
|
|
|
|
1,663
|
|
|
|
17,752
|
|
|
|
30,265
|
|
|
|
|
|
|
|
Total
|
|
$
|
623,151
|
|
|
$
|
4,990
|
|
|
$
|
25,384
|
|
|
$
|
93,156
|
|
|
$
|
158,524
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Payment Solutions
|
|
$
|
436,704
|
|
|
$
|
4,488
|
|
|
$
|
21,331
|
|
|
$
|
62,913
|
|
|
$
|
112,668
|
|
Other Payment Solutions
|
|
|
116,372
|
|
|
|
965
|
|
|
|
1,626
|
|
|
|
16,155
|
|
|
|
29,124
|
|
Total
|
|
$
|
553,076
|
|
|
$
|
5,453
|
|
|
$
|
22,957
|
|
|
$
|
79,068
|
|
|
$
|
141,792
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Payment Solutions
|
|
$
|
329,239
|
|
|
$
|
4,494
|
|
|
$
|
17,982
|
|
|
$
|
57,154
|
|
|
$
|
92,499
|
|
Other Payment Solutions
|
|
|
61,167
|
|
|
|
876
|
|
|
|
635
|
|
|
|
9,146
|
|
|
|
14,802
|
|
|
|
|
|
|
|
Total
|
|
$
|
390,406
|
|
|
$
|
5,370
|
|
|
$
|
18,617
|
|
|
$
|
66,300
|
|
|
$
|
107,301
|
|
The following table reconciles adjusted net income to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Total adjusted net income WEX Inc.
|
|
$
|
158,524
|
|
|
$
|
141,792
|
|
|
$
|
107,301
|
|
Unrealized gains (losses) on derivative instruments
|
|
|
(1,724
|
)
|
|
|
10,872
|
|
|
|
(17,029
|
)
|
Amortization of acquired intangible assets
|
|
|
(23,468
|
)
|
|
|
(22,412
|
)
|
|
|
(11,276
|
)
|
Goodwill impairment
|
|
|
(17,508
|
)
|
|
|
|
|
|
|
|
|
Change in tax refund due to former shareholders of RD Card Holdings Australia
|
|
|
9,750
|
|
|
|
|
|
|
|
|
|
Non-cash adjustments related to tax receivable agreement
|
|
|
(2,089
|
)
|
|
|
(715
|
)
|
|
|
(214
|
)
|
Write-off and other charges related to Fleet One acquisition
|
|
|
(10,550
|
)
|
|
|
|
|
|
|
|
|
Net earnings attributable to noncontrolling interest
|
|
|
305
|
|
|
|
|
|
|
|
|
|
Tax impact
|
|
|
(16,318
|
)
|
|
|
4,085
|
|
|
|
8,847
|
|
|
|
|
|
Net earnings attributable to WEX Inc.
|
|
$
|
96,922
|
|
|
$
|
133,622
|
|
|
$
|
87,629
|
|
98
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
The tax impact of the foregoing adjustments is the difference between the Companys
GAAP tax provision and a pro forma tax provision based upon the Companys adjusted net income before taxes. The methodology utilized for calculating the Companys adjusted net income tax provision is the same methodology utilized in
calculating the Companys GAAP tax provision.
Geographic Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
541,404
|
|
|
$
|
482,536
|
|
|
$
|
368,922
|
|
International
|
|
|
81,747
|
|
|
|
70,540
|
|
|
|
21,484
|
|
Total revenues
|
|
$
|
623,151
|
|
|
$
|
553,076
|
|
|
$
|
390,406
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
589,726
|
|
|
$
|
325,647
|
|
|
$
|
313,853
|
|
International
|
|
|
254,559
|
|
|
|
223,857
|
|
|
|
223,202
|
|
|
|
|
|
Total goodwill
|
|
$
|
844,285
|
|
|
$
|
549,504
|
|
|
$
|
537,055
|
|
|
|
|
|
Other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
135,386
|
|
|
$
|
29,204
|
|
|
$
|
23,564
|
|
International
|
|
|
106,424
|
|
|
|
80,452
|
|
|
|
101,163
|
|
|
|
|
|
Total other intangibles assets, net
|
|
$
|
241,810
|
|
|
$
|
109,656
|
|
|
$
|
124,727
|
|
22. Subsequent Event
On January 18, 2013, the Company entered into an Amended and Restated Credit Agreement (the 2013 Credit
Agreement), among the Company, as borrower, Wright Express Card Holdings Australia Pty Ltd, a wholly-owned subsidiary of the Company, as specified designated borrower (Card Holdings Australia, and, together with the Company, the
Borrowers), Bank of America, N.A., as administrative agent, swing line lender and L/C issuer (Bank of America), and the other lenders party thereto (the Lenders). The 2013 Credit Agreement provides for a five-year
$300,000 term loan facility, and a five-year $800,000 secured revolving credit facility with a $150,000 sub-limit for letters of credit and a $20,000 sub-limit for swingline loans. The indebtedness covenant under the 2013 Credit Agreement requires
that the Company reduce the revolving commitments under the 2013 Credit Agreement on a dollar-for-dollar basis to the extent that the Company issues more than $300,000 in principal amount of senior or senior subordinated notes of the Company.
Subject to certain conditions, including obtaining relevant commitments, the Company has the option to increase the facility by up to an additional $100,000.
The 2013 Credit Agreement amends, restates and substitutes for the 2011 Credit Agreement, dated as of May 23, 2011 (the 2011 Credit Agreement), among the Company, Card Holdings Australia,
Bank of America, as administrative agent, the joint lead arrangers and other agents named therein, and a syndicate of lenders. The 2013 Credit Agreement increases the outstanding amount of the term loan from $185,000 to $300,000 and increases the
amount of the revolving loan from $700,000 to $800,000. A portion of the indebtedness owing under the 2013 Credit Agreement is the same indebtedness as formerly evidenced by the 2011 Credit Agreement.
On January 30, 2013, the Company, completed a $400,000 offering in aggregate principal amount of 4.750 percent senior notes due 2023
(the Notes) at an issue price of 100.0 percent of the principal amount, plus accrued interest, if any, from January 30, 2013, in a private placement to qualified institutional buyers as
99
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
defined in Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and in offshore transactions pursuant to Regulation S under the Securities Act. The Notes were
issued pursuant to an indenture dated as of January 30, 2013 (the Indenture) among the Company, the guarantors listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee).
The Notes will mature on February 1, 2023, and interest will accrue at the rate of 4.750 percent per annum. Interest is
payable semiannually in arrears on February 1 and August 1 of each year, commencing on August 1, 2013.
The
Notes are guaranteed on a senior unsecured basis by each of the Companys restricted subsidiaries and each of the Companys regulated subsidiaries that guarantees the Companys 2013 Credit Agreement, which, as of the issue date,
consist of four of the Companys restricted subsidiaries. Certain of the guarantees by these subsidiaries are expected to be released after the issue date. WEX Bank, which represents a substantial amount of the Companys operations, is not
a guarantor and is not be subject to many of the restrictive covenants in the indenture governing the Notes.
The Notes and
guarantees described above are general senior unsecured obligations ranking equally with the Companys existing and future senior debt, senior in right of payment to all of the Companys subordinated debt, and effectively junior in right
of payment to all of the Companys existing and future secured debt, including the Companys 2013 Credit Agreement, to the extent of the value of the collateral securing such debt. In addition, the Notes and the guarantees are structurally
subordinated to all liabilities of the Companys subsidiaries that are not guarantors, including WEX Bank.
At any time
on or after February 1, 2018, the Company may redeem the Notes, in whole or in part, at any time at the following redemption prices (expressed as a percentage of principal amount of the Notes) if redeemed during the twelve month period
beginning on February 1 of the following years: (i) 102.375 percent in 2018, (ii) 101.583 percent in 2019, (iii) 100.792 percent in 2020, and (iv) 100.0 percent in 2021 and thereafter; plus, in each case, accrued and unpaid
interest, if any, to, but excluding, the date of redemption. At any time prior to February 1, 2018, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100.0 percent of the principal amount of such Notes
redeemed plus a make-whole premium (as described in the Indenture), together with any accrued and unpaid interest, if any, to, but excluding, the date of redemption.
In addition, at any time prior to February 1, 2016, the Company may, subject to certain conditions, redeem up to 35 percent of the
Notes from the proceeds of certain equity offerings at a redemption price of 104.75 percent of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
Upon the occurrence of a change of control of the Company (as described in the Indenture), the Company must offer to repurchase the Notes
at 101 percent of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
The Indenture contains covenants that, among other things, limit the Companys ability and the ability of its restricted subsidiaries and, in certain limited circumstances, WEX Bank and the
Companys other regulated subsidiaries, to (i) incur additional debt, (ii) pay dividends or make other distributions on, redeem or repurchase capital stock, or make investments or other restricted payments, (iii) enter into
transactions with affiliates, (iv) dispose of assets or issue stock of restricted subsidiaries or regulated subsidiaries; (v) create liens on assets, or (vi) effect a consolidation or merger or sell all, or substantially all, of the
Companys assets. These covenants are subject to important exceptions and qualifications. At any time that the Notes are rated investment grade (which is not currently the case), which is not currently the case, and subject to certain
conditions, certain covenants will be suspended with respect to the Notes. WEX Bank and the Companys other regulated subsidiaries will not be subject to some of the restrictive covenants in the Indenture that place limitations on the
100
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands,
except per share data)
Company and its restricted subsidiaries actions, and where WEX Bank and the Companys regulated subsidiaries are subject to covenants, there are significant exceptions and limitations
on the application of those covenants to WEX Bank and the Companys regulated subsidiaries.
Under the terms of the 2013
Credit Agreement, the $800,000 secured revolving credit facility was reduced to $700,000 as a result of the $400,000 Notes offering.
The Company used the net proceeds of this offering to repay the outstanding amount under the revolving portion of its 2013 Credit Agreement and to pay related fees and expenses and for general corporate
purposes.
23. Quarterly Financial Results (Unaudited)
Summarized quarterly results for the years ended December 31, 2012 and 2011, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
140,122
|
|
|
$
|
153,064
|
|
|
$
|
160,967
|
|
|
$
|
168,998
|
|
Operating income
|
|
$
|
57,963
|
|
|
$
|
62,880
|
|
|
$
|
51,277
|
|
|
$
|
49,499
|
|
Net income
|
|
$
|
23,236
|
|
|
$
|
30,335
|
|
|
$
|
14,298
|
|
|
$
|
29,053
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
$
|
0.78
|
|
|
$
|
0.37
|
|
|
$
|
0.75
|
|
Diluted
|
|
$
|
0.59
|
|
|
$
|
0.78
|
|
|
$
|
0.37
|
|
|
$
|
0.74
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
120,090
|
|
|
$
|
141,272
|
|
|
$
|
151,878
|
|
|
$
|
139,836
|
|
Operating income
|
|
$
|
46,172
|
|
|
$
|
61,175
|
|
|
$
|
65,244
|
|
|
$
|
60,733
|
|
Net income
|
|
$
|
12,115
|
|
|
$
|
40,615
|
|
|
$
|
48,100
|
|
|
$
|
32,792
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
1.05
|
|
|
$
|
1.24
|
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
1.04
|
|
|
$
|
1.23
|
|
|
$
|
0.84
|
|
101