97 Darling Avenue | South Portland, Maine 04106
(207) 773-8171
newsroom@wexinc.com | www.wexinc.com
BRINGING
THE FUTURE
OF COMMERCE
TO THE
PRESENT.
2016 WEX INC.
Annual Report
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DIRECTORS
MICHAEL E. DUBYAK
Chairman of WEX Inc.
ROWLAND T. MORIARTY
Lead Director and
Vice Chairman of WEX Inc.
Chairman, CRA International, Inc.
JOHN (JEB) E. BACHMAN
Retired Partner, PwC
ERIC DUPRAT
Business Consultant
SHIKHAR GHOSH
Professor, Harvard Business School
RONALD T. MAHEU
Financial and Business Consultant
GEORGE L. MCTAVISH
Business Consultant
JAMES NEARY
Managing Director, Warburg Pincus
KIRK POND
Former Chairman, President and
CEO of Fairchild Semiconductor
International, Inc.
MELISSA D. SMITH
President and
Chief Executive Officer of WEX Inc.
REGINA O. SOMMER
Financial and Business Consultant
JACK VANWOERKOM
Operating Partner of
Highland Consumer Fund
EXECUTIVE OFFICERS
MELISSA D. SMITH
President and
Chief Executive Officer
DAVID COOPER
Chief Technology Officer
GEORGE HOGAN
Senior Vice President,
International
KENNETH W. JANOSICK
Senior Vice President and
General Manager,
Global Fleet Direct
NICOLA S. MORRIS
Senior Vice President,
Corporate Development
SCOTT PHILLIPS
Senior Vice President and
General Manager,
EFS — a WEX Company
JAMES PRATT
Senior Vice President and
General Manager,
Virtual Products
HILARY A. RAPKIN
Senior Vice President,
General Counsel and
Corporate Secretary
ROBERTO SIMON
Chief Financial Officer
JEFF YOUNG
Senior Vice President and
General Manager,
WEX Health
CORPORATE HEADQUARTERS
ATTORNEYS
INVESTOR RELATIONS
WEX Inc.
97 Darling Avenue
South Portland, ME 04106
(207) 773-8171
Email: newsroom@wexinc.com
www.wexinc.com
TRANSFER AGENT
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(866) 668-6550
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
(617) 437-2000
Wilmer Cutler Pickering Hale
and Dorr LLP
60 State Street
Boston, MA 02109
(617) 526-6000
STOCKHOLDERS’ MEETING
Date: May 12, 2017
Time: 8:00 a.m.
Location:
WEX Inc. Long Creek Campus
225 Gorham Road
South Portland, Maine
(207) 773-8171
TICKER SYMBOL
NYSE: WEX
Steve Elder
Senior Vice President, Global Investor Relations
(207) 523-7769
Steve.Elder@wexinc.com
FORM 10-K
A copy of the Company’s Form 10-K,
filed with the Securities and Exchange
Commission, is available without charge
upon written request to: WEX Inc.
Investor Relations, 97 Darling Avenue
South Portland, ME 04106; by calling
(866) 230-1633; or by emailing
investors@wexinc.com.
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ABOUT W
EX
WEX is a leading global provider of corporate payment solutions. Since
our founding as a domestic fl eet card company in 1983, we have
expanded our scope to become a diversifi ed corporate payment
solutions provider supporting customers around the world. At
WEX, our focus is to simplify the complexities of payments systems
through innovative technology, user-friendly tools and industry-
leading customer service.
Our proprietary technology allows us to harness massive amounts of
data and deliver insights that help customers make better business
decisions. Our expertise within our core Fleet, Travel, and Health verticals
is complemented by our ability to deliver solutions tailored to meet
specifi c customer needs.
Through our products and services, we provide security, control and
intelligence for the payment transactions of more than 10.5 million fl eet
vehicles, more than $23 billion of Travel and Corporate Solutions spend,
and more than 23 million healthcare customer accounts.
WEX currently operates its business in three segments: Fleet Solutions,
Travel and Corporate Solutions, and Health and Employee Benefi t
Solutions. WEX and its subsidiaries employ more than 2,700 associates
across our network of locations in the United States, Australia, New
Zealand, Brazil, the United Kingdom, Italy, France, Germany, Norway and
Singapore. The company has been publicly traded since 2005, and is
listed on the New York Stock Exchange under the ticker symbol “WEX.”
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DEAR FELL
OW SHAREHOLDERS
2016 was a transformative year in our company’s history. We
built upon the underlying strength of our payment solutions
which improved our positioning in our core verticals. Our
achievements refl ect our ability to grow organically, capture
effi ciencies, and provide market-leading product off erings
to a global customer base. Despite a challenging fuel price
environment, we delivered strong results and reinforced our
leadership position in payment technologies.
This year’s success can be attributed to a continued focus on
organic growth of our core segments, complemented by a more
diversifi ed product portfolio and an expanded geographic
presence. Our commitment to these priorities is demonstrated
by the acquisition of Electronic Funds Source (EFS), our largest
transaction to date. EFS provides access to additional mid-to-
large over-the-road fl eets, signifi cantly enhancing the scale of our
core enterprise and further expanding our product capabilities. I
am very pleased with the integration process thus far, as we have
already captured meaningful synergies. I look forward to WEX
further leveraging EFS’ full suite of capabilities.
Our Fleet segment accomplishments extend well beyond EFS. As a
testament to our value proposition, we successfully implemented
price modernization eff orts with limited customer attrition. We
also secured a key partner in Chevron, demonstrating our ability
to gain share in a competitive marketplace. We have deepened our
oil partnerships globally, and an expanded off ering in key regions
like APAC. Our continued diligence, meaningful renewals, and new
wins enabled us to achieve year-over-year payment processing
transaction growth of 18% for the fourth quarter of 2016 in our
Fleet segment despite depressed oil prices over 2015 levels.
Our non-fl eet core segments performed remarkably well this
year as well. We remain the vendor of choice for three of the
biggest online travel agencies (OTAs) in the world, and we made
signifi cant progress this year with tapping into new sources of
Virtual Card volumes. Similarly, we maintain an industry-leading
position via our Health and Employee Benefi t Solutions segment.
This segment, in particular, has made meaningful headway
in 2016 with revenue growth of 44%, having experienced
signifi cant organic growth, in addition to acquiring Benaissance.
We continue to invest in Health and Benefi ts due to the
tremendous long-term growth prospects we see in the space.
Driving innovation and advancing commerce is ingrained
in our DNA. We operate ahead of the curve by off ering
customizable, modern solutions that meet client needs not
just for today, but also the future. While we are proud of our
2016 accomplishments, fostering growth and innovation in the
years to come is our main priority. We are investing in the future
by funding strategic investments, while remaining focused on
operational effi ciency. We are building upon our momentum
in the marketplace and will continue to attract new business
partners, expand existing relationships, scale our business
overseas, and enhance our capabilities and product off erings.
Our achievements to date refl ect our unique ability to meet
our customers’ increasingly complex needs. We remain
committed to developing new and innovative solutions
for our clients by focusing on three key objectives: drive
continued growth, lead through superior technology, and
leverage our investments to create further synergies. Our
disciplined revenue management practices, coupled with
our dedication to excellence across our sales and marketing
teams will continue to drive organic growth. This approach
will be complemented by our strategic investments, which
will continue to diff erentiate our current off erings. Looking
forward, we will leverage our market-leading products,
strategic relationships, and presence in attractive geographies
to position the business for long term success.
I would like to thank our employees for their continued hard
work commitment; and you, our shareholders, for your ongoing
investment in and support of WEX. I look forward to continued
success in 2017 and beyond.
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President and Chief Executive Offi cer • March 23rd, 2017
3
FINANCIAL HIGHLIGHT
S
TOTAL REVENUE
($ in Millions)
1,018
818
855
717
623
TOTAL FUEL
TRANSACTIONS PROCESSED
(in Millions)
454
385
406
371
338
TRAVEL & CORPORATE
PURCHASE CARD
VOLUME
($ in Millions)
23,965
19,441
17,073
13,058
10,689
1 2
1 3
1 4
1 5
1 6
1 2 1 3 1 4
1 5 1 6
1 2
1 3
1 4
1 5
1 6
KEY FINANCIAL HIGHLIGHTS & RECONCILIATIONS
($ in thousands)
2016
2015
2014
Revenue
$
1,018,460
$
854,637 $
817,647
Reconciliation of Adjusted Net Income (”ANI”) to Net Earnings Attributable to WEX Inc.
Net earnings attributable to shareholders
$
60,637 $
101,904
$
202,211
Unrealized (gains) losses on derivative instruments
Net foreign currency remeasurement loss
Acquisition and divestiture related items
Stock-based compensation
Restructuring and other costs
Vendor settlement
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
Regulatory reserve
ANI adjustments attributable to non-controlling interests
Tax related items
(7,901)
7,665
148,753
19,742
13,995
15,500
12,673
563
–
(2,583)
(79,834)
35,962
5,689
50,714
12,420
9,010
–
3,097
(2,145)
1,750
4,996
(32,286)
(48,327)
13,438
20,826
13,790
–
–
2,641
1,331
–
(2,150)
2,462
Adjusted net income attributable to shareholders
$
189,210
$
191,111
$
206,222
The tax impact of the foregoing adjustments is the difference between the Company’s GAAP tax provision and a proforma tax provision based upon the Company’s adjusted net income
before taxes. The methodology utilized for calculating the Company’s adjusted net income tax provision is the same methodology utilized in calculating the Company’s GAAP tax
provision. The Company is unable to reconcile our adjusted net income guidance to the comparable GAAP measure because of the difficulty in predicting the amounts to be adjusted.
The Company’s non-GAAP adjusted net income excludes acquisition and divestiture related items, debt restructuring and debt issuance cost amortization, stock-based compensation, restructuring and other
costs, a vendor settlement, unrealized gains and losses on derivatives, net foreign currency remeasurement gains and losses, non-cash adjustments related to tax receivable agreement, reserves for regulatory
penalties, similar adjustments attributed to our non-controlling interest and certain tax related items.
Although adjusted net income is not calculated in accordance with generally accepted accounting principles (GAAP), this non-GAAP measure is integral to the Company’s reporting and planning processes and the chief operat-
ing decision maker of the Company uses pre-tax adjusted income to allocate resources. The Company considers adjusted net income integral because it excludes specifi ed items that the Company’s management excludes in
evaluating the Company’s performance. Specifi cally, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s performance on a basis that excludes the above items because:
• Exclusion of the non-cash, mark-to-market adjustments on derivative instruments, including fuel price related derivatives and interest rate swap agreements, helps management identify and assess trends in
the Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fl uctuations associated with these derivative contracts. The non-cash, mark-to-market adjustments
on derivative instruments are diffi cult to forecast accurately, making comparisons across historical and future quarters diffi cult to evaluate.
• Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, receivable and payable balances, certain intercompany notes denominated in foreign currencies and any gain or
loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fl uctuations.
• The Company considers certain acquisition-related costs, including certain fi nancing costs, ticking fees, investment banking fees, warranty and indemnity insurance, certain integration related expenses and amortization
of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested
business or the Company. In prior periods not refl ected above, the Company has adjusted for goodwill impairments and acquisition related asset impairments. In addition, the size and complexity of an acquisition, which
often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses of divestitures facilitates the compari-
son of our fi nancial results to the Company’s historical operating results and to other companies in our industry.
• Stock-based compensation is diff erent from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fi xed and unvarying cash cost. In contrast, the expense associated
with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and
underlying assumptions that may vary over time.
• Restructuring costs are related to employee termination benefi ts from certain identifi ed initiatives to further streamline the business, improve the Company’s effi ciency, create synergies, and to globalize the Com-
pany’s operations, all with an objective to improve scale and increase profi tability going forward. We exclude these items when evaluating our continuing business performance as such items are not consistently
occurring and do not refl ect expected future operating expense, nor provide insight into the fundamentals of current or past operations of our business.
• Vendor settlement represents a payment in exchange for the release of potential claims related to insourcing certain technology, and does not refl ect recurring costs that would be relevant to the continuing operations
of the Company. The Company believes that excluding this nonrecurring expense facilitates the comparison of our fi nancial results to the Company’s historical operating results and to other companies in our industry.
• Debt issuance cost amortization is a non-cash item. Additionally, both these and the costs associated with debt restructuring are unrelated to the continuing operations of the Company. Because these types of costs are
dependent upon the fi nancing method which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison to historical results as well as to other companies within our industry.
• Regulatory reserves refl ect charges related to the impact of a regulatory action which resulted in WEX paying a penalty. We have excluded this item when evaluating our continuing business performance as it is not
consistently recurring and does not refl ect an expected future operating expense, nor provide insight into the fundamentals of the current or past operations of our business.
• The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, and the non-cash adjustments related to tax receivable agreement have
no signifi cant impact on the ongoing operations of the business.
• The tax related items are the diff erence between the Company’s U.S. GAAP tax provision and a pro forma tax provision based upon the Company’s adjusted net income before taxes as well as the impact from certain discrete
tax items. The methodology utilized for calculating the Company’s adjusted net income tax provision is the same methodology utilized in calculating the Company’s U.S. GAAP tax provision.
4
For the same reasons, WEX believes that adjusted net income may also be useful to investors as one means of evaluating the Company’s performance. However, because adjusted net income is a non-GAAP measure, it should not be
considered as a substitute for, or superior to, net income, operating income or cash fl ows from operating activities as determined in accordance with GAAP. In addition, adjusted net income as used by WEX may not be comparable
to similarly titled measures employed by other companies. The Company is unable to reconcile our adjusted net income guidance to the comparable GAAP measure because of the diffi culty in predicting the amounts to be adjusted.
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PERF
ORMANCE GRAPH
The following graph assumes $100 invested December 31, 2011 and compares (a) the percentage
change in the Company’s cumulative total stockholder return on the common stock (as
measured by dividing (i) the sum of (A) the cumulative amount of dividends, assuming dividend
reinvestment, during the periods presented, and (B) the diff erence between the Company’s share
price at the end and the beginning of the periods presented by (ii) the share price at the beginning
of the periods presented) with (b) (i) the Russell 2000 Index and (ii) the S&P Data Processing &
Outsourced Services index.
Outsourced Services index.
TOTAL RETURN PERFORMANCE
E
U
L
A
V
X
E
D
N
I
280
260
240
220
200
180
160
140
120
100
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
WEX INC.
RUSSELL 2000
S&P DATA PROCESSING AND OUTSOURCED SERVICES
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W E X L E A D E R S H I P T E A M
DAVID COOPER
Chief Technology Offi cer
JEFF YOUNG
Senior Vice President
and General Manager,
WEX Health
JAMES PRATT
Senior Vice President
and General Manager,
Virtual Products
GEORGE HOGAN
Senior Vice President,
International
NICOLA S. MORRIS
Senior Vice President,
Corporate Development
Cautionary Note Regarding Forward-Looking Statements
This annual report contains forward-looking statements, including, but not limited to, those statements about: management’s plan and
goals; potential business expansion plans, including plans relating to statements about growth opportunities in Health and Benefi ts;
momentum relating to the business’s expansion; growth of organic revenue; enhancing scale; and, plans to position the business for
long term success. Any statements in this annual report that are not statements of historical facts are forward-looking statements. When
used in this annual report, the words “may,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend,” “estimate,” “believe,” “expect,” “will”
and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such
words. Forward-looking statements relate to our future plans, objectives, expectations and intentions and are not historical facts and
accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or performance
to be materially diff erent from future results or performance expressed or implied by these forward-looking statements. The following
factors, among others, could cause actual results to diff er materially from those contained in forward-looking statements made in this
annual report, in press releases and in oral statements made by our authorized offi cers: the eff ects of general economic conditions
on fueling patterns as well as payment and transaction processing activity; the impact of foreign currency exchange rates on the
Company’s operations, revenue and income; changes in interest rates; the impact of fl uctuations in fuel prices; the eff ects of the
Company’s business expansion and acquisition eff orts; potential adverse reactions or changes to business or employee relationships,
including those resulting from the completion of an acquisition; competitive responses to any acquisitions; uncertainty of the expected
fi nancial performance of the combined operations following completion of an acquisition; the ability to successfully integrate the
6
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MELISSA D. SMITH
President
and Chief Executive Offi cer
KENNETH W. JANOSICK
Senior Vice President
and General Manager,
Global Fleet Direct
HILARY A. RAPKIN
Senior Vice President,
General Counsel and
Corporate Secretary
ROBERTO SIMON
Chief Financial Offi cer
SCOTT PHILLIPS
Senior Vice President
and General Manager,
EFS - A WEX Company
Company’s acquisitions, specifi cally, Electronic Funds Source LLC’s operations and employees; the ability to realize anticipated synergies
and cost savings; unexpected costs, charges or expenses resulting from an acquisition; the Company’s failure to successfully operate
and expand ExxonMobil’s European commercial fuel card program, or Esso Card; the failure of corporate investments to result in
anticipated strategic value; the impact and size of credit losses; the impact of changes to the Company’s credit standards; breaches of
the Company’s technology systems (or those of its third party service providers) and any resulting negative impact on our reputation,
liabilities, or relationships with customers or merchants; the Company’s failure to maintain or renew key agreements; failure to expand
the Company’s technological capabilities and service off erings as rapidly as the Company’s competitors; the actions of regulatory
bodies, including banking and securities regulators, or possible changes in banking or fi nancial regulations impacting the Company’s
industrial bank, the Company as the corporate parent or other subsidiaries or affi liates; the impact of the Company’s outstanding notes
on its operations; the impact of increased leverage on the Company’s operations, results or borrowing capacity generally, and as a result
of potential acquisitions specifi cally; the incurrence of impairment charges if our assessment of the fair value of certain of our reporting
units changes; the uncertainties of litigation; as well as other risks and uncertainties identifi ed in Item 1A of the attached annual report
on Form 10-K for the year ended December 31, 2016. The Company’s forward-looking statements do not refl ect the potential future
impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date
of this presentation and undue reliance should not be placed on these statements. The Company disclaims any obligation to update any
forward-looking statements as a result of new information, future events or otherwise.
77
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to .
Commission file number 001-32426
WEX INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
97 Darling Avenue
South Portland, Maine
(Address of principal executive offices)
01-0526993
(I.R.S. Employer
Identification No.)
04106
(Zip Code)
(207) 773-8171
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
No
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for the purpose of this
calculation, but without conceding, that all directors, officers and any 10 percent or greater stockholders are affiliates of the registrant) as of June 30, 2016, the
last business day of the registrant’s most recently completed second fiscal quarter, was $3,395,699,049 (based on the closing price of the registrant’s common
stock on that date as reported on the New York Stock Exchange).
There were 42,741,195 shares of the registrant’s common stock outstanding as of March 2, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders are incorporated by reference in Part III. With the exception of
the sections of the 2017 Proxy Statement specifically incorporated herein by reference, the 2017 Proxy Statement is not deemed to be filed as part of the 10-K.
TABLE OF CONTENTS
Forward-Looking Statements
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Page
1
1
16
29
29
30
30
30
31
32
60
61
116
116
121
121
121
121
121
121
122
122
123
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Unless otherwise indicated or required by the context, the terms “we,” “us,” “our,” “WEX,” or the “Company,” in this
Annual Report on Form 10-K mean WEX Inc. and all of its subsidiaries that are consolidated under Generally Accepted Accounting
Principles in the United States.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for statements that are forward-looking
and are not statements of historical facts. This Annual Report includes forward-looking statements including, but not limited to,
statements about management’s plan and goals, the “Strategy” section of this Annual Report in Item 1 and the “Remediation
Activities” section of this Annual Report in Item 9A. Any statements in this Annual Report that are not statements of historical
facts are forward-looking statements. When used in this Annual Report, the words “may,” “could,” “anticipate,” “plan,”
“continue,” “project,” “intend,” “estimate,” “believe,” “expect” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such words. Forward-looking statements relate to our future
plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and
uncertainties and other factors that may cause the actual results or performance to be materially different from future results or
performance expressed or implied by these forward-looking statements. The following factors, among others, could cause actual
results to differ materially from those contained in forward-looking statements made in this Annual Report and in oral statements
made by our authorized officers: the effects of general economic conditions on fueling patterns as well as payment and transaction
processing activity; the impact of foreign currency exchange rates on the Company’s operations, revenue and income; changes
in interest rates; the impact of fluctuations in fuel prices; the effects of the Company’s business expansion and acquisition efforts;
potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition;
competitive responses to any acquisitions; uncertainty of the expected financial performance of the combined operations following
completion of an acquisition; the ability to successfully integrate the Company's acquisitions, including Electronic Funds Source
LLC's operations and employees; the ability to realize anticipated synergies and cost savings; unexpected costs, charges or expenses
resulting from an acquisition; the Company's failure to successfully operate and expand ExxonMobil's European and Asian
commercial fuel card programs; the failure of corporate investments to result in anticipated strategic value; the impact and size
of credit losses; the impact of changes to the Company's credit standards; breaches of the Company’s technology systems or those
of our third-party service providers and any resulting negative impact on our reputation, liabilities or relationships with customers
or merchants; the Company’s failure to maintain or renew key agreements; failure to expand the Company’s technological
capabilities and service offerings as rapidly as the Company’s competitors; the actions of regulatory bodies, including banking
and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the
Company as the corporate parent or other subsidiaries or affiliates; the impact of the Company’s outstanding notes on its operations;
the impact of increased leverage on the Company's operations, results or borrowing capacity generally, and as a result of
acquisitions specifically; the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units
changes; the uncertainties of litigation; as well as other risks and uncertainties identified in Item 1A of this Annual Report and
in connection with such forward-looking statements. Our forward-looking statements and these factors do not reflect the potential
future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only
as of the date of the initial filing of this Annual Report and undue reliance should not be placed on these statements. We disclaim
any obligation to update any forward-looking statements as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
Our Company
WEX Inc. is a leading provider of corporate payment solutions. WEX Inc. began operations in 1983 as a Maine corporation
and was acquired in February 1996 by an entity that subsequently merged with HFS Incorporated to form Cendant Corporation
in December 1997. In June 1999, our predecessor, Wright Express, was sold to Avis Group Holdings, Inc., which was acquired
by Cendant Corporation in March 2001. In anticipation of our initial public offering, the Company’s operations were transferred
to a Delaware LLC, which was converted into a Delaware corporation in 2005 in conjunction with our initial public offering on
February 16, 2005 (NYSE:WEX). Over the past 30 years, we have expanded the scope of our business from a fleet payment
provider into a multi-channel provider of corporate payment solutions.
Beginning in the fourth quarter of 2015, WEX established three business segments: Fleet Solutions, Travel and Corporate
Solutions and Health and Employee Benefit Solutions. Previously, the Company had reported two business segments, Fleet Payment
Solutions and Other Payment Solutions. Disaggregating the Other Payment Solutions segment into the Travel and Corporate
Solutions and Health and Employee Benefit Solutions segments enhanced the Company's transparency and aligned our reporting
with how we now operate our business.
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Our products and services enable us to provide exceptional payment security and control across a wide spectrum of
payment sectors.
Fleet Solutions provides customers with fleet vehicle payment processing services specifically designed for the needs of
commercial and government fleets. During the year ended December 31, 2016, Fleet Solutions revenue represented approximately
63 percent of our total revenue. As of December 31, 2016, the segment services over 10.5 million vehicles. Management estimates
that WEX fleet cards are accepted at over 90 percent of fuel locations in each of the United States and Australia. With the acquisition
of ExxonMobil’s European commercial fleet card portfolio ("Esso portfolio in Europe") in December 2014, WEX fleet cards are
accepted at all ExxonMobil stations throughout Europe.
Travel and Corporate Solutions focuses on the complex payment environment of business-to-business payments,
providing customers with payment processing solutions for their corporate payment and transaction monitoring needs. Travel and
Corporate Solutions revenue, which represented approximately 21 percent of our total revenue during the year ended December 31,
2016, is generated primarily in the online travel market. The Travel and Corporate Solutions segment has operations in North
America, Europe, South America and Asia-Pacific.
Health and Employee Benefit Solutions represented approximately 16 percent of our total revenue during the year ended
December 31, 2016. During 2015, our wholly-owned subsidiary Evolution1 acquired Benaissance, a leading provider of integrated
software-as-a-service ("SaaS") technologies and services for healthcare premium billing, payment and workflow management, to
complement our healthcare financial technology platform products and services. During 2016, we collectively rebranded Evolution1
and Benaissance as WEX Health. The Health and Employee Benefit Solutions segment also includes payroll related benefits
offered to customers in Brazil.
The Company’s U.S. operations include WEX Inc. and our wholly-owned subsidiaries WEX Bank, WEX FleetOne,
Electronic Funds Source LLC ("EFS") and WEX Health. Our international operations include our wholly-owned operations, WEX
Fuel Cards Australia, WEX Prepaid Cards Australia, WEX New Zealand, WEX Asia, WEX Europe Limited, UNIK S.A., a Brazil-
based company that we refer to as "WEX Brazil," and a majority equity position in WEX Europe Services Limited and its
subsidiaries.
WEX Bank, a Utah industrial bank incorporated in 1998, is a Federal Deposit Insurance Corporation (“FDIC”) insured
depository institution. The functions performed at WEX Bank contribute to the U.S. and Canadian operations of Fleet Solutions
and the international operations of Travel and Corporate Solutions by providing a funding mechanism, among other services. With
our ownership of WEX Bank, we have access to low-cost sources of capital. WEX Bank raises capital primarily through the
issuance of brokered deposit accounts and provides the financing and makes credit decisions that enable the Fleet Solutions and
Travel and Corporate Solutions segments to extend credit to customers. WEX Bank approves customer applications, maintains
appropriate credit lines for each customer, is the account issuer, and is the counterparty for the customer relationships for most of
our programs. Operations such as sales, marketing, merchant relations, customer service, software development and IT are
performed as a service within our organization but outside of WEX Bank. WEX Bank’s primary regulators are the Utah Department
of Financial Institutions ("Utah DFI") and the FDIC. The activities performed by WEX Bank are integrated into the operations of
our Fleet Solutions and Travel and Corporate Solutions segments.
Developments
Prior to our initial public offering in 2005, the Company’s growth had primarily been organic. Our growth in the past
several years has been supplemented by acquisitions. Our acquisitions over the last few years include:
• On July 1, 2016, we acquired EFS, a provider of customized payment solutions for fleet and corporate customers with a
focus on the large and mid-sized over-the-road fleets, in order to expand our customer footprint and utilize EFS's technology
to better serve the needs of all fleet customers.
• On November 18, 2015, our wholly-owned subsidiary Evolution1 acquired Benaissance, a leading provider of integrated
SaaS technologies and services for healthcare premium billing, payment and workflow management, to complement our
healthcare payments products and services.
• On August 31, 2015, we acquired the remaining 49 percent ownership in UNIK S.A., a majority-owned subsidiary prior
to this transaction.
• On December 1, 2014, our majority owned subsidiary, WEX Europe Services Limited, acquired the assets of ExxonMobil's
European commercial fuel card program, which includes operations, funding, pricing, sales and marketing in nine countries
in Europe.
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• On July 16, 2014, we acquired Evolution1, a leading provider of financial technology platform solutions within the
healthcare industry.
• On October 15, 2013, our majority-owned subsidiary WEX Brazil acquired FastCred, a provider of fleet cards to the
heavy truck or over-the-road segment of the fleet market in Brazil.
• On October 4, 2012, we acquired FleetOne, a provider of fleet cards and fleet-related payment solutions to the over-the-
road segment of the fleet market.
• On August 30, 2012, we acquired a 51 percent controlling interest in WEX Brazil, a provider of payroll cards, private
label and processing services in Brazil, specializing in the retail, government and transportation sectors.
• On May 11, 2012, we acquired CorporatePay Limited, located in London, England, a provider of corporate prepaid
solutions to the travel industry in the United Kingdom.
On July 29, 2014, we sold our Pacific Pride subsidiary for $49.7 million, which resulted in a pre-tax book gain of $27.5
million. The Company decided to sell the operations of Pacific Pride as it did not align with the long-term strategy of the core fleet
business. The Company entered into a multi-year agreement with the buyer that will continue to allow WEX branded card acceptance
at Pacific Pride locations.
On January 7, 2015, we sold the operations of rapid! PayCard for $20.0 million, which resulted in a pre-tax book gain of
$1.2 million. Our primary focus in the U.S. continues to be in the fleet, travel, and healthcare industries. As such, we divested the
operations of rapid! PayCard, which were not material to our annual revenue, net income or earnings per share.
Competitive Strengths
We believe the following strengths distinguish us from our competitors:
• Our proprietary closed-loop fuel networks in the U.S. and Australia are among the largest in each country. We describe
our fleet payment processing networks as “closed-loop” as we have a direct contractual relationship with both the merchant
and the fleet, and only WEX transactions can be processed on these networks. We have built networks that management
estimates to provide coverage to over 90 percent of fuel locations in the U.S. and Australia, as well as wide acceptance
in Europe, Canada and Brazil. This provides our customers with the convenience of broad acceptance.
• Our proprietary closed-loop fuel networks provide us with access to a higher level of fleet-specific information and control
as compared to what is typically available on an open-loop network. This provides high level purchase controls at the
point of sale, including the flexibility of allowing fleets to restrict purchases and receive automated alerts. Additionally,
we have the ability to refine the information reporting provided to our fleet customers and customers of our strategic
relationships.
• We offer a differentiated set of products and services, including security and purchase controls, to allow our customers
and the customers of our strategic relationships to better manage their vehicle fleets. We provide customized analysis and
reporting on the efficiency of fleet vehicles and the purchasing behavior of fleet vehicle drivers. We make this data
available to fleet customers through both traditional reporting services and sophisticated web-based data analysis tools.
• Our long-standing strategic relationships, multi-year contracts and high contract renewal rates have contributed to the
stability and recurring nature of our revenue base. We believe that we offer a compelling value to our customers relative
to our competitors given the breadth and quality of our products and services and our deep understanding of our customers’
operational needs. We have a large installed customer base, with more than 10.5 million vehicles serviced as of
December 31, 2016 and co-branded strategic relationships with five of the largest U.S. fleet management providers and
with dozens of oil companies that use our private label solutions. Our wide site acceptance, together with our private-
label portfolios and value-added product and service offerings, drive high customer satisfaction levels, with a U.S. fleet
retention rate in excess of 97 percent (based on the 2016 rate of voluntary customer attrition).
• Our capabilities in the over-the-road segment of the market enhance our ability to serve fleet customers who operate both
heavy duty trucks and cars or light duty vehicles in the U.S. and Canada as well as to blend the small fleet and private
label businesses for greater scale. The July 2016 acquisition of EFS expanded our customer footprint within the over-
the-road market segment.
• Our purchase of ExxonMobil's commercial fuel card program which uses a closed-loop network in Europe, combined
with the long term supply agreement to serve the current and future Esso portfolio in Europe, provides us with a strong
foundation in the large European fleet market.
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• Our travel and corporate payment products offer corporate customers enhanced security and control for complex payment
needs, while the recently added EFS Corporate Payment Solutions set of products expands our presence into the electronic
accounts payable segment of the market. Our strategic relationships include four of the largest online travel agencies in
the world. We continue to expand our online travel payment solution capabilities and geographies, which currently include
North America, Europe, South America and Asia-Pacific. As of December 31, 2016, we settle transactions in 21 different
currencies.
• The demand for our payment processing, account servicing and transaction processing services combined with significant
operating scale has historically driven strong revenue growth and earnings potential. We have an extensive history of
organic revenue growth driven by our various marketing channels, our extensive network of fuel and service providers,
and our growth in transaction volume. Further, we have completed a number of strategic acquisitions to expand our
product and service offerings, which have contributed to our revenue growth and diversification of our products and
services.
• WEX Health has become a leading provider of cloud-based healthcare payments technology, through the acquisition of
Evolution1 in 2014 and Benaissance in 2015. Our large partner network expands our opportunities in the growing
healthcare financial technology platform market. WEX Health benefits from both high retention rates and revenue
predictability as a result of its SaaS business model.
• We have an enterprise-wide risk management program that helps us to address inherent risks related to funding and
liquidity, our extension of credit and interest rates. Our ownership of WEX Bank provides us with access to low cost
sources of capital, which provide liquidity to fund our short-term card receivables. We have maintained a long record of
low credit losses due to the short-term, non-revolving credit issued to our customer base. Our credit risk management
program is enhanced by our proprietary scoring models, managing credit lines and early suspension policy. Interest rate
risk is managed through diversified funding sources at WEX Bank including interest bearing money market deposits and
certificates of deposit with varying maturities. Some of our merchant contracts include some ability to raise rates if interest
rates rise.
• We have an experienced and committed management team that has substantial industry knowledge and a proven track
record of financial success. The team has been successful in driving strong growth with consistent operating performance.
We believe that our management team positions us well to continue successfully implementing our growth strategy and
capturing operating efficiencies.
Strategy
Our Company’s path forward will be shaped by the following three strategic priorities:
• Drive continued growth. We continue to see significant organic growth opportunities across each of our Fleet
Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions segments. We seek to
capture this growth opportunity through our product excellence, marketing capabilities, sales force productivity,
and revenue management practices. Our acquisition strategy will complement our organic growth by both
enhancing scale and adding differentiation to our current offerings.
• Lead through superior technology. We have built and differentiate ourselves in the marketplace on a distinctive
set of technologies in our Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit
Solutions segments. As our markets continue to evolve, our ability to quickly and cost effectively innovate and
deliver superior technological solutions will set us apart from our peers.
•
Set standard for operational excellence. We stand apart in our segments by reliably delivering the best solutions
to our partners and customers. We are continually optimizing our cost structure and capturing new revenue
synergies across our lines of business. Gains in operational efficiency simplify our business, making us more
nimble to capture market opportunities as they arise.
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Overview
FLEET SOLUTIONS SEGMENT
The Fleet Solutions segment provides customers with fleet vehicle payment processing services specifically designed for
the needs of commercial and government fleets. We are a leading provider of fleet vehicle payment processing services with over
10.5 million vehicles at year end using our fleet payment solutions to purchase fuel and maintenance services. Our competitive
advantages in the fleet market include brand strength and product offerings, commitment to customer satisfaction and a unique
financing model with attractive credit terms. Our fleet products are based upon proprietary technology with closed-loop networks
in the U.S., Australia and Europe and wide site acceptance domestically and abroad.
As part of our value proposition, we deliver security through individualized driver identification and real-time transaction
updates, purchase controls and sophisticated reporting tools. We collect a broad array of information at the point of sale, including
the amount of the expenditure, the identity of the driver and vehicle, the odometer reading, the identity of the fuel or vehicle
maintenance provider and the items purchased. We use this information to provide customers with analytical tools to help them
effectively manage their vehicle fleets and control costs. We deliver value to our customers by providing customized offerings for
accepting merchants, processing payments and providing information management products and services to fleets.
Our proprietary closed-loop networks allow us to provide our customers with highly detailed, fleet-specific information
and customized controls that are not typically available on open-loop networks, such as limiting purchases to fuel only and restricting
the time of day and day of the week when fuel is purchased. Our network also enables us to avoid dependence on third-party
processors. In addition, our relationships with both fleets and merchants enable us to provide security and controls and provide
customizable reporting.
The following illustrates our proprietary closed-loop network:
Payment processing transactions represent a majority of the revenue stream in the Fleet Solutions segment. In a payment
processing transaction, we extend short-term credit to the fleet customer and pay the purchase price for the fleet customer’s
transaction, less the payment processing fees we retain, to the merchant. Revenue from our WEX Europe Services operations is
primarily generated by transactions where our revenue is derived from the difference between the negotiated price of the fuel from
the supplier and the price charged to the fleet customer. We collect the total purchase price from the fleet customer, normally within
30 days from the billing date.
5
The following illustration depicts our business process for a typical WEX direct network domestic fuel payment processing
transaction:
With the recent acquisition of EFS, we have diversified our market position in the over-the-road fleet segment. We offer
customizable over-the-road fleet payment solutions that address comprehensive business needs including:
• Real-time interactive interfaces delivering data integrity through a seamless user interface
• Alternative payment and money transfer options
• Comprehensive settlement solutions
• Real-time reports and analytics for compliance and cost-optimization
•
Fuel reconciliation and mobile optimization tools
Products and Services
Payment processing fees are based on a percentage of the aggregate dollar amount of the customer’s purchase, a fixed
amount per transaction or a combination of both. Additionally, payment processing revenue related to our WEX Europe Services
operations is specifically derived from the difference between our negotiated price of the fuel from the supplier and the agreed
upon price paid by the fleets. In 2016, we processed approximately 386 million payment processing transactions, compared to 343
million payment processing transactions in 2015. Additionally, we receive revenue from account servicing fees, factoring
receivables and finance fees.
We offer the following services:
• Customer service, account activation and account retention: We offer customer service, account activation and
account retention services to fleets and fleet management companies and the fuel and vehicle maintenance
providers on our network. Our services include promoting the adoption and use of our products and programs
and account retention programs on behalf of our customers and partners.
• Authorization and billing inquiries and account maintenance: We handle authorization and billing questions,
account changes and other issues for fleets through our dedicated customer contact centers, which are available
6
24 hours a day, seven days a week. Fleet customers also have self-service options available to them through our
websites.
• Premium fleet services: We assign designated account managers to businesses and government agencies with
large fleets. These representatives have in-depth knowledge of both our programs and the operations and
objectives of the fleets they service.
• Credit and collections services: We have developed proprietary account approval, credit management and fraud
detection programs. Our underwriting model produces a proprietary score, which we use to predict the likelihood
of an account becoming delinquent within 12 months of activation. We also use a credit maintenance model to
manage ongoing accounts, which helps us to predict the likelihood of account delinquency over an ongoing 18-
month time horizon. We have developed a collections scoring model that we use to rank and prioritize past due
accounts for collection activities. We also employ fraud specialists who monitor accounts, alert customers and
provide case management expertise to minimize losses and reduce program abuse.
• Merchant services: Our representatives work with fuel and vehicle maintenance providers to enroll these
providers in our network, test all network and terminal software and hardware, and to provide training on our
sale, transaction authorization and settlement processes.
Information Management
We provide standard and customized information to customers through monthly vehicle analysis reports, custom reports
and our websites. We also alert customers of unusual transactions or transactions that fall outside of pre-established parameters.
Customers can access their account information through our website including account history and recent transactions, and
download the related details. In addition, fleet managers can elect to be notified by email when limits are exceeded in specified
purchase categories, including limits on transactions within a time range and gallons per day.
Marketing Channels
We market our fleet products and services directly to commercial and government vehicle fleet customers with small,
medium and large fleets, and over-the-road, long haul fleets. Our product suite includes payment processing and transaction
processing services, WEX branded fleet cards in North America and Motorpass/Motorcharge-branded fleet cards in Australia. For
the fourth quarter of 2016, our direct line of business serviced approximately 3.5 million vehicles. During the same period, our
over-the-road line of business serviced approximately 1.1 million vehicles, marketed under the EFS, EFS Transportation Services,
T-Chek and Fleet One brands.
We also market our products and services indirectly through co-branded and private label relationships. With a co-branded
relationship product, we market our products and services for, and in collaboration with, both fuel providers and fleet management
companies using their brand names and our logo on a co-branded fleet card. These companies seek to offer our payment processing
and information management services as a component of their total offering to their fleet customers. During the fourth quarter of
2016, our co-branded marketing channel serviced approximately 1.8 million vehicles.
Our private label programs market our products and services for, and in collaboration with, fuel retailers, using only their
brand names. The fuel retailers with which we have formed strategic relationships offer our payment processing and information
management products and services to their fleet customers in order to establish and enhance customer loyalty. These fleets use
these products and services to purchase fuel at locations of the fuel retailer with whom we have the private label relationship.
During the fourth quarter of 2016, our private label marketing channel serviced approximately 4.1 million vehicles.
Fuel Price Derivatives
A portion of our company-wide revenue is derived from fees paid to us by fuel providers based on a negotiated percentage
of the purchase price of fuel purchased by our customers. Accordingly, this revenue is impacted by fuel prices. To address fluctuations
in fuel prices, we previously hedged a portion of our U.S. fuel-price related earnings exposure to improve the management of
potential cash flow volatility created by changes in U.S. fuel prices and to enhance the visibility and predictability of our anticipated
future cash flows.
During the fourth quarter of 2014 we suspended purchases under our fuel derivatives program due to unusually low prices
in the commodities market. We continued to hold fuel price derivative instruments through the first quarter of 2016 that were
executed in the third quarter of 2014 for approximately 20 percent of the anticipated quarterly exposure to domestic earnings based
on assumptions at time of purchase. After the first quarter of 2016, we no longer were partially hedged for changes in fuel prices.
Management continues to monitor the fuel price market and evaluate our alternatives as it relates to this hedging program.
7
These derivative instruments did not qualify for hedge accounting under accounting guidance. Accordingly, both realized
and unrealized gains and losses on our fuel price-sensitive derivative instruments affected our current period earnings.
TRAVEL AND CORPORATE SOLUTIONS SEGMENT
Overview
Our Travel and Corporate Solutions segment is comprised of our virtual and prepaid products with which we provide
innovative corporate purchasing and payment capabilities that can be integrated with our customers’ internal systems to streamline
their corporate payments, accounts payable and reconciliation processes.
Products and Services
The Travel and Corporate Solutions segment allows businesses to centralize purchasing, simplify complex supply chain
processes and eliminate the paper check writing associated with traditional purchase order programs. Our product suite includes
virtual, credit, debit and prepaid products.
Our virtual card is used for transactions where no card is presented, including, for example, transactions conducted over
the telephone, by mail, by fax or on the Internet. Our virtual card also can be used for transactions that require pre-authorization,
such as hotel reservations. Under our virtual card programs, each transaction is assigned a unique account number with a customized
credit limit and expiration date. These controls are in place to limit fraud and unauthorized spending. The unique account number
limits purchase amounts and tracks, settles and reconciles purchases more easily, creating efficiencies and cost savings for our
customers. The virtual card products offer both credit and debit options.
Our electronic accounts payable solution utilizes virtual card payments that are both broadly accepted and highly secure.
This product reduces manual processing costs and facilitates comprehensive payment terms management to maximize margin
improvement, efficiency and control.
Our prepaid and gift card products are offered through WEX Prepaid Card Australia and WEX Europe Limited to
companies throughout Australia and Europe. These products provide secure payment and financial management solutions with
single card options, access to open or closed loop redemption, load limits and variable expirations.
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The following illustration depicts our business process for a typical travel virtual card product transaction:
1 Guest books a hotel through a travel website owned by an online travel company
2 Online travel company reserves room at hotel through reservation system using a WEX virtual card number to reserve the room.
3 Upon checkout, hotel authorizes payment using the WEX virtual card number. The WEX virtual card restricts charge to predetermined
cost of room, incidental expenses are paid for by guest.
4 Online travel company pays WEX. WEX earns fee by retaining percentage of the online travel company reimbursement payment.
Marketing Channels
We market our Travel and Corporate Solutions segment products and services directly to new and existing customers.
Our products are marketed to commercial and government organizations and we use existing open-loop networks.
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HEALTH AND EMPLOYEE BENEFIT SOLUTIONS SEGMENT
Overview
Our Health and Employee Benefit Solutions segment is comprised of our healthcare payment products and SaaS platforms
with which we provide simplified payment capabilities in a complex healthcare market as well as employee benefit products in
Brazil.
Products and Services
Prior to 2016, the Health and Employee Benefit Solutions segment product suite included our 1Pay and 1Plan payment
solution products and our ExchangePoint, COBRAPoint, 1Cloud and 1Direct SaaS platforms. During 2016, we collectively
rebranded this product suite as the WEX Health Cloud.
With our healthcare payment products, we provide payments in the complex healthcare market. We partner with health
plans, third-party administrators, financial institutions, payroll companies and software providers to provide a software as a service
product to support employers' healthcare benefits programs and to administer flexible spending, health saving and reimbursement
accounts, and other healthcare related employee and dependent benefits.
We currently have approximately 500 partners with relationships with 200,000 employers, reaching 17 million consumers.
Revenue is generated primarily from SaaS based monthly fees to partners and interchange fees from spending on customer debit
cards issued under flexible spending, health savings and reimbursement accounts. Cards are branded with either Visa or MasterCard
and operate on a restricted open loop network.
Our paycard products are offered through our wholly-owned subsidiary, WEX Brazil. Employees using our paycard
products have access to salary advances payable in up to 24 monthly installments which are secured by future salary earnings.
These advances are funded by borrowings under our credit facilities in Brazil.
Health and Employee Benefit Solutions segment revenues are generated primarily from platform usage subscription fees
and interchange fees from spending on the paycard products.
Marketing Channels
We market our Health and Employee Benefit Solutions products and services to consumers through an extensive partner
network, which includes health plans, third party administrators, financial institutions, payroll providers and software providers.
Our employee benefit products are marketed to consumers through employers in Brazil.
Employees
OTHER ITEMS
As of December 31, 2016, WEX Inc. and its subsidiaries had approximately 2,600 employees, of which approximately
1,900 were located in the United States. None of our U.S.-based employees are subject to a collective bargaining agreement. In
Europe, certain employees are members of trade unions or works councils. In Brazil, certain employees are members of unions.
The Company believes that its relations with its employees, unions and work councils are generally satisfactory.
Competition
We have a strong competitive position in each of our segments. Our product features and extensive account management
services are key factors behind our position in the fleet industry. We face competition in all of our segments. Our competitors vie
with us for prospective direct fleet customers as well as for companies with which to form strategic relationships. We compete
with companies that perform payment and transaction processing or similar services. Financial institutions that issue Visa,
MasterCard and American Express credit and charge cards currently compete against us primarily in the Fleet Solutions and Travel
and Corporate Solutions segments. We also compete with other healthcare payment service providers.
The most significant competitive factors include the breadth of features offered, functionality, servicing capability and
price. For more information regarding risks related to competition, see the information in Item 1A, under the heading “Our industry
continues to become increasingly competitive, which makes it more challenging for us to maintain profit margins at historical
levels.”
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Technology
We believe that investment in technology is a crucial step in maintaining and enhancing our competitive position in the
marketplace. Our data center network and infrastructure is supported by secure data centers with redundant locations. We have
data centers in various locations in the United States including South Portland, Maine and Aurora, Colorado. We also have data
centers and infrastructure located in various locations throughout Europe, Australia, New Zealand and Brazil.
Our fleet fuel-based closed-loop proprietary platforms capture detailed information from the fuel and maintenance
locations within our network. Operating a proprietary network not only enhances our value proposition, it also enables us to limit
dependence on third-party processors and to respond rapidly to changing customer needs with system upgrades, while maintaining
a more secure environment than an open-loop network typically allows. Our virtual card open-loop network uses internally
developed software and third-party processors. Our infrastructure has been designed around industry-standard architectures to
reduce downtime in the event of outages or catastrophic occurrences. At WEX Health, we maintain an integrated multi-account
payment platform, including a mobile application. In Australia, New Zealand, Brazil and the United Kingdom, we use standalone
platforms to support operations.
Our secure networks are designed to isolate our databases from unauthorized access. We use security protocols among
all applications, and our employees access critical components on a need-only basis. As of December 31, 2016, we have not
experienced any material incidents in network, application or data security. We are continually improving our technology to enhance
customer relationships and to increase efficiency and security. We also review technologies and services provided by others in
order to maintain the high level of service expected by our customers and continue to invest in our infrastructure.
For information regarding technology related risks, see the information in Item 1A under the headings “We may not be
able to adequately protect our information systems, including the data we collect about our customers, which could subject us to
liability and damage our reputation”, “Our failure to effectively implement new technology could jeopardize our position as a
leader in our industry” and “We are dependent on technology systems and electronic communications networks managed by third
parties, which could result in our inability to prevent service disruptions.”
Seasonality
Our businesses are affected by seasonal variations. For example, fuel prices are typically higher during the summer and
online travel sales are typically higher during the third quarter. In addition, we experience seasonality in our healthcare segment,
as consumer spend is correlated with insurance deductibles, typically resulting in higher spend in the early part of the year until
employees meet their deductibles and during the fourth quarter as consumers utilize remaining annual contributions.
Intellectual Property
We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual
provisions and other similar measures to protect the proprietary information and technology used in our business. We generally
enter into confidentiality, professional services and/or license agreements with our consultants and corporate partners and control
access to and distribution of our technology, documentation and other proprietary information. Despite the efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain the use of our products or technology that we
consider proprietary and third parties may attempt to develop similar technology independently. We pursue registration and
protection of our trademarks in the U.S. and other countries in which we operate or plan to operate. We market our products and
services using the WEX, FleetOne, EFS and the WEX Health Cloud brand names in the U.S., the Motorpass and Motorcharge
brand names in Australia and the WEX Brazil brand name in Brazil.
Regulation - United States
The Company and its affiliates are subject to certain state and federal laws and regulations which govern insured depository
institutions and their affiliates as well as our operations in the healthcare market. WEX Bank is subject to supervision and
examination by both the Utah DFI and the FDIC. The Company and its affiliates are subject to certain limitations on transactions
with affiliates set forth in the Federal Reserve Act (“FRA”). The Company is subject to anti-tying provisions in the Bank Holding
Company Act. State and Federal laws and regulations limit the loans WEX Bank may make to one borrower and the types of
investments WEX Bank may make.
Below is a description of the material elements of the laws, regulations, policies and other regulatory matters affecting
the operations of WEX in the United States.
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Exemption from Certain Requirements of the Bank Holding Company Act
As an industrial bank organized under the laws of Utah that does not accept demand deposits that may be withdrawn by
check or similar means, WEX Bank meets the criteria for exemption from the definition of “bank” under the Bank Holding Company
Act. As a result, the Company is generally, except as stated above, not subject to the Bank Holding Company Act.
Restrictions on Intercompany Borrowings and Transactions
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which the Company can borrow
or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include loans
or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to
repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or
letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,” they do limit
the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the aggregate. The applicable
rules also require that the Company engage in such transactions with WEX Bank only on terms and under circumstances that are
substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for comparable transactions with
nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit by WEX Bank to the Company or
its other affiliates must be secured by collateral with a market value ranging from 100 percent to 130 percent of the amount of the
loan or extension of credit, depending on the type of collateral.
The Consumer Financial Protection Bureau
The Dodd-Frank Act established the Consumer Financial Protection Bureau ("CFPB") to regulate the offering of consumer
financial products or services under the federal consumer financial laws. In addition, the CFPB was granted general authority to
prevent covered persons or service providers from committing or engaging in unfair, deceptive or abusive acts or practices under
federal law in connection with any transaction with a consumer for a consumer financial product or service. The CFPB has broad
rulemaking authority for a wide range of consumer protection laws. The legislation also gives the state attorneys general the ability
to enforce applicable federal consumer protection laws.
Brokered Deposits
Under FDIC regulations, depending upon their capital classification, banks may be restricted in their ability to accept
brokered deposits. “Well capitalized” banks are permitted to accept brokered deposits, but banks that are not “well capitalized”
are not permitted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are “adequately capitalized”
to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound
banking practice.
Other Financial Regulatory Requirements
WEX Bank must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in
excess of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations. The USA PATRIOT
Act of 2001 substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new
compliance and due diligence obligations, identifying new crimes and penalties and expanding the extra-territorial jurisdiction of
the United States. The United States Treasury Department has proposed and, in some cases, issued a number of implementing
regulations which impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect,
prevent and report money laundering and terrorist financing and to verify the identity of their customers. Certain of those regulations
impose specific due diligence requirements on financial institutions that maintain correspondent or private banking relationships
with non-U.S. financial institutions or persons. Failure of a financial institution to maintain and implement adequate programs to
combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.
The U.S. federal government has imposed economic sanctions that affect transactions with designated foreign countries,
nationals and others. These sanctions, which are administered by the United States Treasury’s Office of Foreign Assets Control
(“OFAC”), take many different forms but generally include one or more of the following elements: (i) restrictions on trade with
or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned
country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing
investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially
designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction
(including property in the possession or control of U.S. persons). Blocked assets (for example, property and bank deposits) cannot
be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions
could have serious legal and reputational consequences.
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Under the Financial Services Modernization Act of 1999, also referred to as the “Gramm-Leach-Bliley Act" (or “GLBA”),
the Company and WEX Bank are required to maintain a comprehensive written information security program that includes
administrative, technical and physical safeguards relating to customer information. However, this requirement does not generally
apply to information about companies or about individuals who obtain financial products or services for business, commercial, or
agricultural purposes. The GLBA also requires the Company and WEX Bank to provide initial and annual privacy notices to
customers that describe in general terms their information sharing practices. If the Company and WEX Bank intend to share
nonpublic personal information about customers with affiliates and/or nonaffiliated third parties, they must provide customers
with a notice and a reasonable period of time for each consumer to “opt out” of any such disclosure. In addition to U.S. federal
privacy laws, states also have adopted statutes, regulations and other measures governing the collection and distribution of nonpublic
personal information about customers. In some cases these state measures are preempted by federal law, but if not, the Company
and WEX Bank must monitor and comply with such laws in the conduct of its business.
Escheat Laws
We are subject to unclaimed or abandoned property state laws in the United States and in certain foreign countries that
require us to transfer to certain government authorities the unclaimed property of others that we hold when that property has been
unclaimed for a certain period of time. Moreover, we are subject to audit by state and foreign regulatory authorities with regard
to our escheatment practices.
Restrictions on Dividends
WEX Bank is subject to various regulatory requirements relating to the payment of dividends, including requirements to
maintain capital above regulatory minimums. A banking regulator may determine that the payment of dividends would be
inappropriate and could prohibit payment. Further, WEX Bank may not pay a dividend if it is undercapitalized or would become
undercapitalized as a result of paying the dividend. Utah law permits WEX Bank to pay dividends out of the net profits of the
industrial bank after providing for all expenses, losses, interest, and taxes accrued or due, but if WEX Bank’s surplus account is
less than 100 percent of its capital stock, WEX Bank must transfer up to 10 percent of its net profits to the surplus account prior
to the payment of any dividends.
Company Obligations to WEX Bank
Any non-deposit obligation of WEX Bank to the Company is subordinate, in right of payment, to deposits and other
indebtedness of WEX Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank
regulatory agency to maintain the capital of WEX Bank will be assumed by the bankruptcy trustee and entitled to priority of
payment.
Restrictions on Ownership of WEX Inc. Common Stock
WEX Bank, and therefore the Company, is subject to bank regulations that impose requirements on entities that might
control WEX Bank through control of the Company. These requirements are discussed in Item 1A under the heading “If any entity
controls 10 percent or more of our common stock and such entity has caused a violation of applicable banking laws by its failure
to obtain any required approvals prior to acquiring that common stock, we have the power to, and may be required to, restrict such
entity’s ability to vote shares held by it.”
Healthcare Regulation
The federal and state governments in the U.S. continue to enact and consider many broad-based legislative and regulatory
proposals that could materially impact various aspects of our health-related business.
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively
referred to as "Health Care Reform") mandated broad changes affecting insured and self-insured health benefit plans that impact
our current business model, including our relationship with current and future customers, producers and health care providers,
products, services, processes and technology. Health Care Reform left many details to be established through regulations. While
federal agencies have published proposed and final regulations with respect to most provisions, some issues remain uncertain. The
current U.S. Administration and Congress have signaled their intent to significantly or completely repeal Health Care Reform and
the associated implementing regulations, and it is unclear what, if any, measures may be implemented to replace it. Accordingly,
there may be an extended period of uncertainty and unpredictability in the U.S. health care market, which may materially affect
the availability and cost of health coverage, the viability of health care providers and health benefit plans, the proportion of persons
in the U.S. who have health insurance; the distribution between privately funded and government funded health insurance; and
the future demand for, and profitability of, the offerings of our health-related business under our current business model.
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In connection with the processing of data, we frequently undertake or are subject to specific compliance obligations under
privacy and data security-related laws, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the
Gramm-Leach-Bliley Act, and similar state and federal laws governing the collection, use, protection and disclosure of nonpublic
personally identifiable information, including individually identifiable health information.
HIPAA and its implementing regulations, as amended by the Health Information Technology for Economic and Clinical
Health Act, or the HITECH Act, impose requirements relating to the privacy, security and transmission of individually identifiable
health information. Among other things, HIPAA, as amended by the HITECH Act, and its implementing regulations, subjects us
to regulations and contractual obligations that impose privacy and security standards and breach notification and reporting
requirements.
In addition to federal data privacy and security laws and regulations, we are subject to state laws governing confidentiality
and security of personally identifiable information and additional state-imposed breach notification and reporting requirements.
Regulation - Foreign
The conduct of our businesses and the use of our products and services outside the U.S., are subject to various foreign
laws and regulations administered by government entities and agencies in the countries and territories where we operate. It is our
policy to abide by the applicable laws and regulations in the jurisdictions around the world in which we do business.
Asia-Pacific
Australia
The Company’s Australian operations are subject to laws and regulations of the Commonwealth of Australia governing
banking and payment systems, financial services, consumer credit and money laundering. Because none of WEX Australia, WEX
Fuel Cards Australia or WEX Prepaid Cards Australia holds an Australian Financial Services License or credit license or is an
authorized deposit-taking institution, they operate within a framework of regulatory relief and exemptions afforded them on the
basis that they satisfy the requisite conditions. The Australian operations are also subject to the Privacy Act (1988) and the
Australian Privacy Principles.
Asia, including Singapore
The Company's operations in Asia are subject to the operation of the laws and regulation of the countries in which we
operate, including laws with regards to banking and payment systems, financial services, money laundering and data protection.
Europe
The Company’s European operations are subject to laws and regulations of the European Union and the countries in
which we operate including, among others, those governing payment services, data protection and information security, consumer
credit and anti-money laundering.
Brazil
The Company’s Brazilian operations are subject to laws and regulations of the Brazilian government, in particular the
Central Bank of Brazil. Brazil’s labor systems are governed by the Consolidation of Brazilian Labor Laws. Brazil is a signatory
of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights agreement. This agreement establishes
a minimum protection standard to property rights and requires signatory countries to review and adapt national laws that meet that
standard.
Segments and Geographic Information
For an analysis of financial information about our segments as well as our geographic areas, see Item 8 - Note 23 of our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Available Information
The Company’s principal executive offices are located at 97 Darling Avenue, South Portland, ME 04106. Our telephone
number is (207) 773-8171, and our Internet address is www.wexinc.com. The Company’s annual, quarterly and current reports,
proxy statements and certain other information filed with the SEC, as well as amendments thereto, may be obtained free of charge
from our website. These documents are posted to our website as soon as reasonably practicable after we have filed or furnished
these documents with the SEC. These documents are also available at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
14
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC at www.sec.gov. The Company’s Audit Committee Charter, Compensation
Committee Charter, Finance Committee Charter, Corporate Governance Committee Charter, Corporate Governance Guidelines
and Code of Business Conduct and Ethics are available without charge through the “Corporate Governance” portion of the Investor
Relations page of the Company’s website. Copies will also be provided, free of charge, to any stockholder upon written request
to Investor Relations at the address above or by telephone at (866) 230-1633.
The Company’s Internet site and the information contained on it are not incorporated into this Form 10-K and should not
be considered part of this report.
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ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any
of those risks actually occurs, our business, financial condition, results of operations and cash flows could suffer. The risks
and uncertainties discussed below also include forward-looking statements and our actual results may differ materially from
those discussed in these forward-looking statements.
Risks Relating to Our Company
A significant portion of our revenues are related to the dollar amount of fuel purchased by our customers, and, as a
result, volatility in fuel prices could have an adverse effect on our revenues.
Our customers in our Fleet Solutions segment primarily purchase fuel. Accordingly, a significant part of our revenue
is dependent on fuel prices, which are prone to volatility. As of December 31, 2016, management estimates that approximately
18 percent of our total revenues result from fees paid to us by fuel providers based on a negotiated percentage of the purchase
price of fuel purchased by our customers. We estimate that during 2016, each one cent decline in average domestic fuel prices
below average actual prices would result in approximately a $1.2 million decline in 2016 revenue. Therefore, extended declines
in the price of fuel would have a material adverse effect on our total revenues. In the fourth quarter of 2014, we suspended our
fuel price hedging program and as of the second quarter of 2016, we no longer had any remaining fuel hedging derivatives
outstanding. With the suspension of our fuel price hedging program, we are exposed to the full impact of fuel price declines
and our net income in future quarters is exposed to fuel price volatility unless the fuel price hedging program is reinstated. If
fuel prices decline, the lack of a hedge will negatively impact our revenue and income.
Fuel prices are dependent on many factors, all of which are beyond our control. These factors include, among others:
•
•
•
•
supply and demand for oil and gas, and expectations regarding supply and demand;
speculative trading;
actions by major oil exporting nations;
political conditions in other oil-producing, gas-producing or supply-route countries, including revolution,
insurgency, terrorism or war;
•
refinery capacity;
• weather;
•
•
•
•
the prices of foreign exports and the availability of alternate fuel sources;
value of the U.S. dollar versus other major currencies;
general worldwide economic conditions; and
governmental regulations, taxes and tariffs.
Another component of our revenue stream is the late fees that our customers pay on past due balances. As a result, a
decrease in the price of fuel leads to a decline in the amount of late fees we earn from customers who fail to pay us timely.
A portion of our revenue in Europe is derived from the difference between the negotiated price of the fuel from the
supplier and the price charged to the fleet customer. As a result, a contraction in these differences would reduce revenues
and could adversely affect our operating results.
Revenue from our fuel portfolio in Europe is derived from transactions where our revenue is tied to the difference
between the negotiated price of the fuel from the supplier and the price charged to the fleet customer. The merchant’s cost of
fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. We experience
fuel-price related revenue contraction when the merchant’s cost of fuel increases at a faster rate than the fuel price we charge
to our fleet customers, or the fuel-price we charge to our fleet customers decreases at a faster rate than the merchant’s cost of
fuel. Accordingly, we generate less revenue, which could adversely affect our operating results.
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Changes in interchange fees could decrease our revenue.
A portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees,
associated with transactions processed using our cards. Interchange fee amounts associated with cards are affected by a
number of factors, including regulatory limits and fee changes. In addition, interchange fees are the subject of intense legal
and regulatory scrutiny and competitive pressures in the electronic payments industry. These factors could result in lower
interchange fees generally in the future. Temporary or permanent decreases in the interchange fees associated with our card
transactions, could adversely affect our business and operating results.
If we fail to adequately assess and monitor credit risks posed by our customers, we could experience an increase in
credit loss.
We are subject to credit risk posed by our customers, many of which are small-to mid-sized businesses. Because we
often fund a customer's entire receivable while our revenue is generated from only a small percentage of that amount, our risk
of loss is amplified by the customer's failure to pay. We use various formulas and models to screen potential customers and
establish appropriate credit limits, but these formulas and models cannot eliminate all potential credit risks and may not prevent
us from approving applications that are fraudulently completed. Moreover, businesses that are good credit risks at the time of
application may deteriorate over time and we may fail to detect such changes. In addition, changes to our policies on the types
and profiles of businesses to which we extend credit could also have an adverse impact on our credit losses. In times of economic
slowdown, the number of our customers who default on payments owed to us tends to increase. If we fail to adequately manage
our credit risks, our provision for credit losses on the income statement could be significantly higher.
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S.
dollar. Such currencies include, but are not limited to, the Australian dollar, the Euro, British Pound sterling, New Zealand
dollar and Brazilian Real. Because our consolidated financial statements are presented in U.S. dollars, we must translate
revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the
end of each reporting period. Realized and unrealized gains and losses on foreign currency transactions as well as the re-
measurement of our cash, receivable and payable balances that are denominated in foreign currencies, are recorded directly in
the consolidated statements of income. In addition, gains and losses associated with the Company's foreign currency exchange
derivatives are recorded on the consolidated statements of income.
Therefore, increases or decreases in the value of the U.S. dollar against other major currencies that we use to conduct
our business will affect our revenues, operating income and the value of balance sheet items denominated in those currencies.
Fluctuations in foreign currency exchange rates, particularly fluctuations in the U.S. dollar against other currencies, may
materially affect our financial results.
Our exposure to counterparty risk could create an adverse effect on our financial condition.
We engage in a number of transactions where counterparty risk is a relevant factor, including transactions with
customers, derivatives counterparties and those businesses we work with to provide services, among others. These risks are
dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived weakness
of any of our counterparties has the potential to expose us to risk of loss in certain situations. Certain contracts and arrangements
that we enter into with counterparties may provide us with indemnification clauses to protect us from financial loss. If the
counterparty fails to, or is unable to fulfill these indemnification clauses, we may incur losses as well as harm to our reputation.
We have substantial indebtedness, which may materially and adversely affect our financial flexibility and our ability
to meet our debt service obligations.
Our 2016 Credit Agreement provides for a tranche A term facility in an amount equal to $455 million that matures on
July 1, 2021, a tranche B term loan facility in an amount equal to $1,200 million that matures on July 1, 2023 and a $470
million secured revolving credit facility, with a $250 million sublimit for letters of credit and a $20 million sublimit for swingline
loans, that terminates on July 1, 2021. In addition to the 2016 Credit Agreement, our indebtedness consists of our 4.750 percent
senior notes due 2023 (the “Notes”), deposits issued by WEX Bank and other liabilities outstanding. Our indebtedness could,
among other things:
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• require us to dedicate a substantial portion of our cash flow to repaying our indebtedness, thus reducing the amount
of funds available for other general corporate purposes;
• limit our ability to borrow additional funds necessary for working capital, capital expenditures or other general
corporate purposes;
• increase our vulnerability to adverse general economic or industry conditions; and
• limit our flexibility in planning for, or reacting to changes in, our business.
There can be no assurance that we will be able to meet our indebtedness obligations, including any of our obligations
under the Notes. In addition, we may need to incur substantial additional indebtedness in the future to fund our operations or
certain strategic objectives. However, we may not be able to obtain the additional financing necessary for these purposes.
In addition, under the 2016 Credit Agreement, unless otherwise agreed by the requisite lenders under the revolving
credit facility, we are required to remain in compliance with a consolidated EBITDA to consolidated interest charge ratio,
measured quarterly, of no less than 3.25 to 1.00; and a consolidated funded indebtedness (excluding up to $350 million of
consolidated funded indebtedness due to permitted securitization transactions and excluding the amount of consolidated funded
indebtedness constituting the non-recourse portion of permitted factoring transactions) to consolidated EBITDA ratio, measured
quarterly, of no more than 5.40 to 1.00, which ratio shall step down to 5.25 to 1.00 at December 31, 2016, 5.00 to 1.00 at
December 31, 2017, 4.25 to 1.00 at December 31, 2018 and 4.00 to 1.00 at December 31, 2019. The 2016 Credit Agreement
also contains various affirmative and negative covenants that, subject to certain customary exceptions, restrict our ability to,
among other things, create liens over our property, incur additional indebtedness, enter into sale and lease-back transactions,
make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other
distributions with respect to equity interests, change the nature of our business, enter into certain agreements which restrict our
ability to pay dividends or other distributions or create liens on our property, transact business with affiliates and/or merge or
consolidate with any other person. Our ability to comply with these provisions may be affected by events beyond our control.
Failure to comply with the financial covenants or any other non-financial or restrictive covenant in our 2016 Credit Agreement
could create a default. Upon a default, our lenders could accelerate the indebtedness under the facilities (except only the requisite
lenders under the revolving credit facility may accelerate the revolving credit facility due to a breach of the financial covenants),
foreclose against their collateral or seek other remedies, which could trigger a default under the Notes and would jeopardize
our ability to continue our current operations.
Despite our substantial indebtedness, we may still be able to incur more debt, intensifying the risks described above.
Subject to restrictions in our 2016 Credit Agreement, we may incur additional indebtedness, which could increase the
risks associated with our already substantial indebtedness. Subject to certain limitations, including compliance with the
covenants in our 2016 Credit Agreement, we have the ability to borrow additional funds under our 2016 Credit Agreement.
This indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing business
and economic conditions and increasing interest expense.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures,
acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on,
among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond
our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable
to us or at all.
Volatility in the financial markets may negatively impact our ability to access credit and the terms at which we would
access such credit.
Adverse conditions in the credit market may limit our ability to access credit at a time when we would like or need
to do so. Our senior secured revolving credit facility under the 2016 Credit Agreement expires in July 2021 when the outstanding
balance of the revolving credit facility and the tranche A term loan will be due, and in 2023 the tranche B term loan and the
Notes will be due. Any limitation on the availability of funds or credit facilities could have an impact on our ability to refinance
the maturing debt or react to changing economic and business conditions which could adversely impact us.
Volatility in the financial markets may negatively impact WEX Bank’s ability to attract and retain deposits.
Adverse conditions in the credit market may limit WEX Bank’s ability to attract deposits at a time when it would like
or need to do so. A significant credit ratings downgrade, material capital market disruptions, significant withdrawals by
depositors at WEX Bank, or adverse changes to its industrial bank charter could impact our ability to maintain adequate liquidity
18
and impact our ability to provide competitive offerings to our customers. Any limitation of availability of deposits could have
an impact on our ability to finance our U.S. accounts receivable which would adversely impact us.
Our industrial bank subsidiary is subject to funding risks associated with its reliance on brokered deposits.
Under applicable regulations, if WEX Bank were no longer “well capitalized,” it would not be able to accept brokered
deposits without the approval of the FDIC. WEX Bank’s inability to accept brokered deposits, or a loss of a significant amount
of its brokered deposits, could adversely affect our liquidity. Additionally, such circumstances could require it to raise deposit
rates in an attempt to attract new deposits, or to obtain funds through other sources at higher rates, which would adversely
affect our results of operations.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, and to fund capital expenditures, acquisitions and
research and development efforts will depend on our ability to generate cash. This, to a certain extent, is subject to economic,
financial, competitive, legislative, regulatory and other factors that are beyond our control.
We have substantially increased indebtedness following completion of the acquisition of EFS, which has increased
our interest expense. We also incurred various costs and expenses associated with the financing. The additional indebtedness
incurred in connection with the EFS acquisition has increased the amount of cash flows required to fund the interest expense
associated with our indebtedness. In addition, certain obligations under the 2016 Credit Agreement bear interest at variable
interest rates. On November 3, the Company entered into three forward-fixed interest rate swap agreements to effectively fix
the future interest payments associated with $800 million of our variable-rate borrowings. However, interest rate increases
still could result in larger debt service requirements on the remaining portion of borrowings. Such an increase in our debt
service obligations would adversely affect our cash flows.
We cannot assure you that our business will generate sufficient cash flows from operations, that anticipated cost
savings and operating improvements will be realized on schedule or at all, that future borrowings will be available to us under
our 2016 Credit Agreement or any subsequent credit agreement, or that we can obtain alternative financing proceeds in an
amount sufficient to enable us to pay our indebtedness, including the Notes, or to fund our other liquidity needs. We may need
to refinance all or a portion of our indebtedness, including the Notes, at or before maturity. We cannot assure you that we will
be able to refinance any of our indebtedness on commercially reasonable terms or at all.
The increased debt service obligations under our 2016 Credit Agreement could also reduce funds available for working
capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages
relative to other companies with lower debt levels. The 2016 Credit Agreement was used in part to finance the acquisition of
EFS. If we do not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the
combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.
In an environment of increasing interest rates, interest expense on the variable rate portion of our borrowings would
increase and we may not be able to replace our maturing debt with new debt that carries the same interest rates. We
may be adversely affected by significant changes in the brokered deposit market.
Under our 2016 Credit Agreement and Notes, we had $2,037.6 million of fixed and variable interest rate indebtedness
outstanding at December 31, 2016, consisting of $400.0 million of borrowings under our bond facility at a fixed rate of 4.750
percent and $1,637.6 million of borrowings under our 2016 Credit Agreement that bore interest at floating rates, subject to the
partial hedging arrangement described above. An increase in interest rates would increase the cost of borrowing under our 2016
Credit Agreement.
Our industrial bank subsidiary, WEX Bank, uses collectively brokered deposits, including certificates of deposit and
interest-bearing money-market deposits, to finance payments to major oil companies. Certificates of deposit carry fixed interest
rates from issuance to maturity, which vary and are relatively short term in duration. The interest-bearing money market deposits
carry variable rates. Upon maturity, the deposits will likely be replaced by issuing new deposits to the extent that they are
needed. In a rising interest rate environment, WEX Bank would not be able to replace maturing deposits with deposits that
carry the same or lower interest rates. Therefore, rising interest rates would result in reduced net income to the extent that
certificates of deposit and money market deposits mature and are replaced. At December 31, 2016, WEX Bank had outstanding
$517.5 million in certificates of deposit maturing within one year, $208.0 million in certificates of deposit maturing within one
to three years, and $325.5 million in interest-bearing money market deposits.
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The Dodd-Frank Act may have a significant impact on our business, results of operation and financial condition.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act,
was enacted into law. The Dodd-Frank Act, among other things, when fully implemented, will result in substantial changes in
the regulation of derivatives and capital market activities. The impact of the Dodd-Frank Act is difficult to assess because many
provisions are being phased in over time and because the new Presidential administration has indicated it may make or propose
changes to provisions of the Dodd-Frank Act. In particular, the Dodd-Frank Act establishes federal oversight and regulation
of the over-the-counter derivatives market and entities that participate in that market. For example, the Dodd-Frank Act provides
the Commodity Futures Trading Commission, or CFTC, with broad authority to adopt combined position limits for futures
contracts and over-the-counter derivatives, and on November 5, 2013 the CFTC proposed rules addressing such limits. The
rules, if enacted in their proposed form, may require us to change to any fuel price hedging practices we may then use to comply
with new regulatory requirements. Potential changes include clearing and execution methodology of our derivatives
transactions. The Dodd-Frank Act also requires many counterparties to derivatives instruments to spin off some of their
derivatives activities to a separate entity. These new entities may not be as creditworthy as the current counterparty. Presently,
we cannot assess the capital or margin requirements which might apply to our over-the-counter transactions. Once implemented,
these changes could result in increased transaction costs. In summary, the Dodd-Frank Act and any new regulations could
increase the cost of derivative contracts or modify the way in which we conduct those transactions.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau, or the CFPB, to regulate the offering
of consumer financial products or services under the federal consumer financial laws. The CFPB assumed rulemaking authority
under the existing federal consumer financial protection laws, and enforces those laws against and examines certain non-
depository institutions and insured depository institutions with total assets greater than $10 billion and their affiliates. In addition,
the CFPB was granted general authority to prevent covered persons or service providers from committing or engaging in unfair,
deceptive or abusive acts or practices under federal law in connection with any transaction with a consumer for a consumer
financial product or service, or the offering of a consumer financial product or service. The CFPB also has broad rulemaking
authority for a wide range of consumer protection laws. It is unclear what changes will be promulgated by the CFPB and what
effect, if any, such changes would have on our business and operations.
As required under the Dodd-Frank Act, the Government Accountability Office issued its study on the implications of
any elimination of the exemption to the definition of “bank” for industrial banks under the Bank Holding Company Act. The
study did not make a recommendation regarding the elimination of this exemption. However, if this exemption were eliminated
without any grandfathering or accommodations for existing institutions, we could be required to become a bank holding
company which could require us to either cease certain activities or divest WEX Bank.
The current U.S. Administration and Congress have signaled their intent to significantly or completely repeal the
Dodd-Frank Act and the associated implementing regulations, and it is unclear what, if any, measures may be implemented to
replace it. Accordingly, there may be an extended period of uncertainty and unpredictability regarding the provisions of federal
law and regulations that affect our business and operations.
The Dodd-Frank Act and any related legislation or regulations, or any repeal or replacement of such legislation or
regulations, may have a material impact on our business, results of operations and financial condition. The full impact of the
Dodd-Frank Act will not be known until all of the regulations implementing the statute are adopted and implemented. However,
compliance with these new laws and regulations may require us to make changes to our business, and, there is a significant
possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden and compliance costs. We may
be required to invest significant management time and resources to address the various provisions of the Dodd-Frank Act and
the numerous regulations that are required to be issued under it, or to address the changed business environment resulting from
a repeal of all or part of the Dodd Frank Act and any related legislation or regulation.
Decreased demand for fuel and other vehicle products and services could harm our business and results of operations.
Demand for fuel and other vehicle products and services may be reduced by factors that are beyond our control, such
as the implementation of fuel efficiency standards and the development by vehicle manufacturers and adoption by our fleet
customers of vehicles with greater fuel efficiency or alternative fuel sources. To the extent that our customers require less fuel,
that decline in purchase volume could reduce our revenues, limiting our profitability and preventing us from taking on other
initiatives.
Our business is dependent on several key strategic relationships, the loss of which could adversely affect our results of
operations.
Revenue we received from services we provided to our top five customers and strategic relationships accounted for
approximately 14 percent of our total revenues in 2016. Accordingly, we are dependent on maintaining our strategic relationships
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and our results of operations would be lower in the event that any of relationships cease to exist. Likewise, we have agreements
with the major oil companies, fuel retailers and truck stop merchants whose locations accept our payment processing services.
The termination of any of these agreements would reduce the number of locations where our payment processing services are
accepted; therefore, we could lose our competitive advantage and our operating results could be adversely affected. While we
regularly monitor these relationships, there can be no guarantee that we will be able to maintain them in the future.
If the technology we use in operating our business and interacting with our customers fails, is unavailable, or does not
operate to expectations, our business and results of operation could be adversely impacted.
We utilize a combination of proprietary and third-party technology to operate our business and interact with our
customers. This includes technology that we have developed, have contracted with others to develop or obtained through third-
parties by way of service agreements. We use this technology to conduct our business and interact with our customers, partners
and suppliers, among others. To the extent that our third-party providers’ technology does not work as agreed to or as expected,
or if we experience outages or unavailability resulting from their operations and the services they provide to us, our ability to
efficiently and effectively deliver services to and interact with our customers and partners could be adversely impacted and
our business and results of operations could be adversely affected. Similarly, any failure by our customers or partners to access
the technology that we develop internally could have an adverse effect on our business, results of operations and financial
condition. Although we make substantial investments in our internally developed technology, there is no guarantee that it will
function as intended once it is placed into operation.
We may never realize the anticipated benefits of acquisitions we have completed or may undertake.
We have acquired and may attempt to acquire businesses, technologies, services, products or licenses in technologies
that we believe are a strategic fit with our business. The process of integrating any acquired business, technology, service or
product may result in unforeseen redundancies, operating difficulties, and expenditures and may divert significant management
attention from our ongoing business operations. As a result, we may incur a variety of costs in connection with acquisitions
and may never realize the anticipated benefits.
During July 2016 we acquired EFS in order to expand our customer footprint in the over-the-road fleet market and
utilize their technology to better serve the needs of all fleet customers. We have never integrated another company of comparable
scale to EFS, and doing so presents significant challenges and opportunities.
We are exposed to risks associated with operations outside of the United States, which could harm both our U.S. and
international operations.
We conduct operations in North America, South America, Asia Pacific and Europe. As part of our business strategy
and growth plan, we plan to further expand internationally. Expansion of our international operations could impose substantial
burdens on our resources, divert management’s attention from U.S. operations and otherwise harm our business. In addition,
there are many barriers to competing successfully in the international market, including:
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fluctuation in foreign currencies;
changes in the relations between the United States and foreign countries;
actions of foreign or United States governmental authorities affecting trade and foreign investment;
increased infrastructure costs including complex legal, tax, accounting and information technology laws and treaties;
interpretation and application of local laws and regulations including, among others, those impacting anti-money
laundering, bribery, financial transaction reporting and positive balance or prepaid cards;
enforceability of intellectual property and contract rights;
potentially adverse tax consequences due to, but not limited to, the repatriation of cash and negative consequences
from changes in or interpretations of tax laws
competitive pressure on products and services from companies based outside the U.S. that can leverage lower costs
of operations; and
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local labor conditions and regulations.
We cannot assure you that our investments outside the United States will produce desired levels of revenue or costs,
or that one or more of the factors listed above will not harm our business.
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New laws, regulations and enforcement activities could negatively impact our business and the markets we presently
operate in or could limit our expansion opportunities.
Our industry is subject to substantial regulation both domestically and internationally. There are often new regulatory
efforts which could result in significant constraints and may impact our operations. These existing and emerging regulations
can make the expansion of our business very difficult and negatively impact our revenue. Among the regulations that impact
us or could impact us are those governing: interchange rates; interest rate and fee restrictions; credit access and disclosure
requirements; collection and pricing regulations; compliance obligations; data security and data breach requirements; identity
theft avoidance programs; health care mandates; and anti-money laundering compliance programs. We also often must obtain
permission to conduct business in new locations from government regulators. Changes to these regulations, including expansion
of consumer-oriented regulation to business-to-business transactions, could negatively impact our operations and financial
condition and results of operations and further increase compliance costs and limit our ability to expand to new markets.
We also conduct business with other highly regulated businesses such as banks, payment card issuers and health
insurance providers. There continue to be significant potential reforms that could negatively affect these businesses, their ability
to maintain or expand their products and services, and the costs associated with doing so. These developments could also
negatively impact our business.
Laws or regulations developed in one jurisdiction or for one product could result in new laws or regulations in other
jurisdictions or for other products.
Regulators often monitor other approaches to the governance of the payment industry. As a result, a law or regulation
enacted in one jurisdiction could result in similar developments in another. In addition, law and regulation involving one product
could influence the extension of regulations to other product offerings.
The expansion of certain regulations could negatively impact our business in other geographies or for other products.
Rules and regulations concerning interchange and business operations regulations, for example, may differ from country to
country which adds complexity and expense to our operations.
These varying and increasingly complex regulations could limit our ability to globalize our products and negatively
impact our business. These factors could significantly and adversely affect our business, financial condition and results of
operations.
Regulations and industry standards intended to protect or limit access to personal information could adversely affect
our ability to effectively provide our services.
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and
regulations restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the
United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial
information. In connection with providing services to our clients, we are required by regulations and arrangements with payment
networks and certain clients to provide assurances regarding the confidentiality and security of non-public consumer
information. These arrangements require periodic audits by independent companies regarding our compliance with industry
standards such as payment card industry, or PCI, standards and also allow for similar audits regarding best practices established
by regulatory guidelines. The compliance standards relate to our infrastructure and operational procedures designed to safeguard
the confidentiality and security of non-public consumer personal information received from our customers. Our ability to
maintain compliance with these standards and satisfy these audits will affect our ability to attract and maintain business in the
future. If we fail to comply with these regulations, we could be exposed to suits for breach of contract or to governmental
proceedings. In addition, our client relationships and reputation could be harmed, and we could be inhibited in our ability to
obtain new clients. If more restrictive privacy laws or rules are adopted by authorities in the future on the federal or state level,
our compliance costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational
harm and our potential liability for security breaches may increase, all of which could have a material adverse effect on our
business, financial condition and results of operations.
Changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities
could affect our future results.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Our future effective tax rates could be affected
by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets
and liabilities, or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our
profitability. We are also subject to the examination of our income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy
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of our provision for taxes. There can be no assurance that the outcomes from these examinations will not materially adversely
affect our financial condition and operating results.
The healthcare industry changes often and technology-enabled services used by consumers are relatively new and
unproven. If our platform is not successfully implemented, our growth may be limited.
The market for technology-enabled services for healthcare consumers changes rapidly and new products and services
are consistently being introduced. Opportunities to gain market share are challenging due to the significant resources of our
existing and potential competitors. It is uncertain whether or how fast this market will continue to grow. In order to remain
competitive, we are continually involved in a number of projects to develop new services or compete with these new market
entrants, including the development of mobile versions of our proprietary technology platform. These projects carry risks, such
as cost overruns, delays in delivery, performance problems and lack of acceptance by our customers.
Based on our experience, consumers are still learning about health savings accounts, which are often referred to as
HSAs, and other similar tax-advantaged healthcare savings arrangements. The willingness of consumers to increase their use
of technology platforms to manage their healthcare saving and spending tax advantaged benefits will impact our operating
results.
We may incur impairment charges on goodwill or other intangible assets.
We account for goodwill in accordance with Financial Accounting Standards Board, which is often referred to as
FASB, Accounting Standard Codification Topic 350, Intangibles—Goodwill and Other. Our reporting units and related
indefinite-lived intangible assets are tested annually during the fourth fiscal quarter of each year in order to determine whether
their carrying value exceeds their fair value. In addition, they are tested on an interim basis if an event occurs or circumstances
change between annual tests that would more likely than not reduce their fair value below carrying value. If we determine the
fair value of the goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of the tests, an
impairment loss is recognized. Any such write-down would adversely affect our results of operations.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically
from downturns in customer demand and other factors, the high level of competition existing within our industry, and the level
of overall economic activity. Individual reporting units may be relatively more impacted by these factors than the Company
as a whole. As a result, demand for the services of one or more of the reporting units could decline which could adversely affect
our operations and cash flow, and could result in an impairment of goodwill or intangible assets. As a result of our annual
impairment analyses during the fourth quarter of fiscal 2016, we have determined that the fair value of the goodwill and other
indefinite-lived intangible assets are greater than their carrying values, thus no impairment charge was recorded. For all reporting
units, we use a discounted cash flow model of the projected earnings of reporting units to determine the amount of goodwill
impairment. While we currently believe that the fair value of all of our intangibles substantially exceeds carrying value and
that those intangibles so classified will contribute indefinitely to the cash flows of the Company, materially different assumptions
regarding future performance of our reporting units or the weighted-average cost of capital used in the valuations could result
in impairment losses and/or additional amortization expense.
If our industrial bank subsidiary fails to meet certain criteria, we may become subject to regulation under the Bank
Holding Company Act, which could force us to cease all of our non-banking activities and thus could have an adverse
effect on our revenue and business.
WEX Bank meets the criteria for exemption of an industrial bank from the definition of “bank” under the Bank Holding
Company Act. WEX Bank’s failure to qualify for this exemption would cause us to become subject to regulation under the
Bank Holding Company Act. This would require us to divest WEX Bank or become a Bank Holding Company and to possibly
cease certain activities which may be impermissible for a Bank Holding Company. Failure to qualify for this exemption could
thus have an adverse effect on our revenue and business.
The loss or suspension of the charter for our Utah industrial bank or changes in regulatory requirements could be
disruptive to operations and increase costs.
The regulatory status of WEX Bank enables it to issue certificates of deposit, accept money market deposits and
borrow on a federal funds rate basis from other banks. These funds are used to support our payment processing operations,
which require the Company to make payments, as well as for our virtual card and paycard products. WEX Bank operates under
a uniform set of state lending laws, and its operations are subject to extensive state and federal regulation. WEX Bank, a Utah
industrial bank incorporated in 1998, is an FDIC-insured depository institution. The bank’s primary regulators are the Utah
DFI and the FDIC. Continued licensing and federal deposit insurance are subject to ongoing satisfaction of compliance and
safety and soundness requirements. If WEX Bank were to lose its bank charter, we would either outsource our credit support
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activities or perform these activities ourselves, which would subject us to the credit laws of each individual state in which we
conduct business. Furthermore, we could not be a MasterCard issuer and would have to work with another financial institution
to issue the product or sell the portfolio. Any such change would be disruptive to our operations and could result in significant
incremental costs. In addition, changes in the bank regulatory environment, including the implementation of new or varying
measures or interpretations by the State of Utah or the federal government, may significantly affect or restrict the manner in
which we conduct business in the future.
We are subject to extensive supervision and regulation that could restrict our activities and impose financial requirements
or limitations on the conduct of our business and limit our ability to generate income.
We are subject to extensive federal and state regulation and supervision, including that of the FDIC, the CFPB, and
the Utah DFI. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the
banking system as a whole, not shareholders or noteholders. These regulations affect our payment operations, capital structure,
investment practices, dividend policy and growth, among other things. Failure to comply with laws, regulations or policies
could result in sanctions by regulatory agencies, damages, civil money penalties or reputational damage, which could have a
material adverse effect on our business, financial condition and results of operations. While we have policies and procedures
designed to prevent any such violations, there can be no assurance that such violations will not occur. The U.S. Congress and
federal regulatory agencies frequently revise banking and securities laws, regulations and policies. We cannot predict whether
or in what form any other proposed regulations or statutes will be adopted or the extent to which our business may be affected
by any new regulation or statute. Such changes could subject our business to additional costs, limit the types of financial services
and products we may offer and increase the ability of non-banks to offer competing financial services and products, among
other things.
Our industrial bank subsidiary is subject to regulatory capital requirements that may require us to make capital
contributions to this subsidiary, and that may restrict the ability of the subsidiary to make cash available to us.
WEX Bank must maintain minimum amounts of regulatory capital. If WEX Bank does not meet these capital
requirements, its regulators have broad discretion to institute a number of corrective actions that could have a direct material
effect on our financial condition. WEX Bank, as an institution insured by the FDIC, must maintain certain capital ratios, paid-
in capital minimums and adequate allowances for loan losses. Under the Dodd-Frank Act, we are also required to serve as a
source of financial strength for WEX Bank. If WEX Bank were to fail to meet any of the capital requirements to which it is
subject, or if required under Dodd-Frank’s source of strength requirements, we may be forced to provide WEX Bank with
additional capital, which could impair our ability to service our indebtedness. To pay any dividend, WEX Bank must maintain
adequate capital above regulatory guidelines. Accordingly, WEX Bank may be unable to make any of its cash or other assets
available to us, including to service our indebtedness.
We are subject to limitations on transactions with our industrial bank subsidiary, which may limit our ability to engage
in transactions with and obtain credit from our industrial bank.
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which the Company can borrow
or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include
loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an
agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee,
acceptance, or letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,”
they do limit the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the
aggregate. The applicable rules also require that the Company engage in such transactions with WEX Bank only on terms and
under circumstances that are substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for
comparable transactions with nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit
by WEX Bank to the Company or its other affiliates must be secured by collateral with a market value ranging from 100 percent
to 130 percent of the amount of the loan or extension of credit, depending on the type of collateral. Accordingly, WEX Bank
may be unable to provide credit or engage in transactions with us, including transactions intended to help us service our
indebtedness.
Our business is subject to cyberattacks and security and privacy breaches and we may not be able to adequately protect
our information systems, including the data we collect about our customers, which could subject us to liability and
damage our reputation.
We collect and store data about our customers and their fleets, including bank account information and spending data.
Our customers expect us to keep this information in our confidence. In certain instances, the information we collect includes
social security numbers. As a result of applicable laws, we are required to take commercially reasonable measures to prevent
and mitigate the impact of cyber-attack, as well as the unauthorized access, acquisition, release and use of “personally identifiable
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information," such as social security numbers. While social security numbers constitute a very small part of the data we keep,
in the event of a security breach we would be required to determine the types of information comprised and determine corrective
actions and next steps under applicable laws, which would require us to expend capital and other resources to address the
security breach and protect against future breaches. An increasing number of organizations, including large on-line and off-
line merchants and businesses, large Internet companies, financial institutions, and government institutions, have disclosed
breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including
on portions of their websites or infrastructure.
The techniques that could be used to obtain unauthorized, improper or illegal access to our systems, our data or our
customers' data, disable, to degrade service, or to sabotage our systems are constantly evolving, may be difficult to detect
quickly, and often are not recognized until launched against a target. Unauthorized parties may attempt to gain access to our
systems or facilities through various means, including, among others, hacking into the systems or facilities of us or our third-
party vendors or customers, or attempting to fraudulently induce our employees, partners, customers or others into disclosing
user names, passwords, payment card information, or other sensitive information, which may in turn be used to access our
information technology systems. Certain efforts may be state-sponsored and supported by significant financial and technological
resources, making them even more difficult to detect. We believe that we are a potential target for such breaches and attacks.
Although we have developed systems and processes that are designed to protect our data and customer data and to prevent data
loss and other security breaches, and expect to expend significant additional resources to bolster these protections, these security
measures cannot provide absolute security. Our information technology and infrastructure may be vulnerable to cyberattacks
or security breaches, and third parties may be able to access our customers’ personal or proprietary information and data that
are stored on or accessible through those systems. Our security measures may also be breached due to employee error,
malfeasance, system errors or vulnerabilities, or other irregularities. Any actual or perceived breach of our security could
interrupt our operations; result in our systems or services being unavailable; result in improper disclosure of data; materially
harm our reputation and brand; result in significant legal and financial exposure; lead to loss of customer confidence in, or
decreased use of, our products and services; and adversely affect our business and results of operations. Any breaches of network
or data security at our partners or customers could have similar effects. In addition, our customers could have vulnerabilities
on their own computer systems that are entirely unrelated to our systems, but could mistakenly attribute their own vulnerabilities
to us.
Furthermore, as we have increased the number of platforms as well as the size of our networks and information systems,
our reliance on these technologies have become increasingly important to our operating activities. The potential negative impact
that a platform, network or information system shutdown may have on our operating activities has increased. Shutdowns may
be caused by unexpected catastrophic events such as natural disasters or other unforeseen events, such as software or hardware
defects or cyber-attacks by groups or individuals.
Under the Financial Services Modernization Act of 1999, also referred to as the “Gramm-Leach-Bliley Act" or GLBA,
and some state laws, we and WEX Bank are required to maintain a comprehensive written information security program that
includes administrative, technical and physical safeguards relating to consumer information. This requirement generally does
not extend to information about companies or about individuals who obtain financial products or services for business,
commercial, or agricultural purposes.
The GLBA also requires us and WEX Bank to provide initial and annual privacy notices to customers that describe
in general terms our information sharing practices. If we or WEX Bank intend to share nonpublic personal information about
consumers with affiliates and/or nonaffiliated third parties, we and WEX Bank must provide customers with a notice and a
reasonable period of time for each customer to “opt out” of any such disclosure. In addition to U.S. federal privacy laws with
which we must comply, states also have adopted statutes, regulations and other measures governing the collection and
distribution of nonpublic personal information about customers. In some cases these state measures are preempted by federal
law, but if not, we and WEX Bank must monitor and seek to comply with individual state privacy laws in the conduct of our
businesses.
When we handle individually identifiable health information, regulations issued under Health Insurance Portability
and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or
HITECH, our contracts with our customers, and supplemental state laws require us to implement privacy and data security
measures and to comply with breach notification requirements. We may be subject to contractual damages and civil or criminal
penalties if we are found to violate these privacy, security and breach notification requirements.
Our efforts to comply with existing and future health and financial data laws and regulations, both in the U.S. and
abroad, is costly and time-consuming. Incidents involving our handling of this protected and sensitive information may consume
significant financial and managerial resources and may damage our reputation, which may discourage customers from using,
renewing, or expanding their use of our services.
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Any security breach, inadvertent transmission of information about our customers, failure to comply with applicable
breach notification and reporting requirements, or any violation of international, federal or state privacy laws could expose us
to liability in excess of any applicable insurance policies, litigation, regulatory scrutiny, and/or cause damage to our reputation.
We may also be required to expend significant resources to implement additional data protection measures or to modify the
features and functionality of our system offerings in a way that is less attractive to customers.
Our failure to effectively implement new technology could jeopardize our position as a leader in our industry.
As a provider of information management and payment processing services, we must constantly adapt and respond
to the technological advances offered by our competitors and the informational requirements of our customers, including those
related to the Internet, in order to maintain and improve upon our competitive position. We may not be able to expand our
technological capabilities and service offerings as rapidly as our competitors, which could jeopardize our position as a leader
in our industry.
We are dependent on technology systems and electronic communications networks managed by third parties, which
could result in our inability to prevent service disruptions.
Our ability to process and authorize transactions electronically depends on our ability to electronically communicate
with our fuel and vehicle maintenance providers through point-of-sale devices and electronic networks that are owned and
operated by third parties. The electronic communications networks upon which we depend are often subject to disruptions of
various magnitudes and durations. Any severe disruption of one or more of these networks could impair our ability to authorize
transactions or collect information about such transactions, which, in turn, could harm our reputation for dependable service
and adversely affect our results of operations. In addition, our ability to collect enhanced data relating to our customers’ purchases
may be limited by the use of older point-of-sale devices by fuel and vehicle maintenance providers. To the extent that fuel and
vehicle maintenance providers within our network are slow to adopt advanced point-of-sale devices, we may not be able to
offer the latest services and capabilities that our customers demand.
Our industry continues to become increasingly competitive, which makes it more challenging for us to maintain profit
margins at historical levels.
We face and expect to continue to face competition in each category of the overall industry from several companies
that seek to offer competing capabilities and services. Historically, we have been able to provide customers with a wide spectrum
of services and capabilities and, therefore, we have not considered price to be the exclusive or even the primary basis on which
we compete. As our competitors have continued to develop their service offerings, it has become increasingly more challenging
for us to compete solely on the basis of superior capabilities or service. In some areas of our business we have been forced to
respond to competitive pressures by reducing our fees. We have seen erosion of our historical profit margins as we encourage
existing strategic relationships to sign long-term contracts. If these trends continue and if competition intensifies, our profitability
may be adversely impacted.
While we have traditionally offered our services to all categories of the fleet industry, some of our competitors have
successfully garnered significant share in particular categories of the overall industry. To the extent that our competitors are
regarded as leaders in specific categories, they may have an advantage over us as we attempt to further penetrate these categories.
We also face increased competition in our efforts to enter into new strategic relationships and renew existing strategic
relationships on similar terms.
Compliance with anti-money laundering laws and regulations creates additional compliance costs and reputational risk.
We must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in excess
of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations and other regulations. The
USA PATRIOT Act of 2001 imposes significant anti-money laundering compliance and due diligence obligations on financial
institutions, including WEX Bank. Financial regulators have issued various implementing regulations and have made
enforcement a top priority. Failure to maintain and implement adequate programs to combat money laundering and terrorist
financing, or to comply with all of the relevant laws or regulations, could result in the imposition of fines or penalties and other
serious legal and reputational consequences which may impact our financial results.
Our increased presence in foreign jurisdictions increases the possibility of foreign law violations or violation of the U.S.
Foreign Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act of 2010 (“UKBA”).
We are subject to both the FCPA and the UKBA, as we own subsidiaries organized under UK law, which serve as a
holding company for other subsidiaries. While the FCPA generally prohibits U.S. companies and their intermediaries from
making improper payments to foreign officials for the purpose of obtaining or retaining business, the UKBA is broader in its
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reach and prohibits bribery in purely commercial contexts. Any violation of the FCPA, the UKBA or similar laws and regulations
could result in significant expenses, divert management attention, and otherwise have a negative impact on us. Any determination
that we have violated the FCPA, UKBA or laws of any other jurisdiction could subject us to, among other things, penalties and
legal expenses that could harm our reputation and have a material adverse effect on our financial condition and results of
operation. The possibility of violations of the FCPA, UKBA or similar laws or regulations may increase as we expand globally
and into countries with recognized corruption problems.
We may incur substantial losses due to fraudulent use of our card products.
Under certain circumstances, when we fund customer transactions, we bear the risk of substantial losses due to
fraudulent use of our card products. Although we actively monitor use of products with sophisticated fraud prevention programs,
we cannot be certain that we will identify significant fraudulent activities before a loss has been occurred. While we maintain
insurance coverage against many types of potential business losses, we do not maintain any insurance to protect us against any
such fraudulent activities.
The failure to maintain effective systems of internal control over financial reporting and disclosure controls and
procedures could result in the inability to accurately report our financial results or prevent material misstatement due
to fraud, which could cause current and potential shareholders to lose confidence in our financial reporting, adversely
affect the trading price of our securities or harm our operating results.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to
provide reliable financial reports and effectively prevent fraud and operate successfully as a public company. Our financial
reporting and disclosure controls and procedures are reliant, in part, on information we receive from third parties that supply
information to us regarding transactions that we process. The failure to develop or maintain effective internal control over
financial reporting and disclosure controls and procedures could harm our reputation or operating results, or cause us to fail
to meet our reporting obligations. As we expand our business operations domestically and internationally, we will need to
maintain effective internal control over financial reporting and disclosure controls and procedures. If we are unable to do so,
our external auditors could issue a qualified opinion on the effectiveness of our internal control over financial reporting.
Ineffective internal control over financial reporting and disclosure controls and procedures could cause investors to
lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities
or affect our ability to access the capital markets and could result in regulatory proceedings against us by, among others, the
SEC. In addition, a material weakness in internal control over financial reporting may lead to deficiencies in the preparation
of financial statements, which in turn could lead to litigation claims against us. The defense of any such claims may cause the
diversion of management’s attention and resources, and we may be required to pay damages if any such claims or proceedings
are not resolved in our favor. Any litigation, even if resolved in our favor, could cause us to incur significant legal and other
expenses. Such events could also affect our ability to raise capital to fund future business initiatives.
We have identified a material weakness in our internal control over financial reporting, and if we are unable to remediate
such material weakness and to maintain effective internal control over financial reporting in the future, there could be
an elevated possibility of a material misstatement, and such a misstatement could cause investors to lose confidence in
our financial statements, which could have a material adverse effect on our stock price.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on the
effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm
must report on its evaluation of our internal control over financial reporting. As disclosed in Item 9A of this report, we have
identified a material weakness as of December 31, 2016 in our internal control over financial reporting because we did not
maintain effective information technology general controls in the areas of user access and program change management. As a
result of this material weakness, our external auditors have issued a qualified opinion indicting that we have not maintained
effective internal control over financial reporting as of December 31, 2016. Our management team has taken action to begin
to remediate this material weakness, but we cannot be certain when the remediation will be completed. If we fail to fully
remediate the material weakness or fail to maintain effective internal controls, it could result in a material misstatement of our
financial statements, which could cause investors to lose confidence in our financial statements or cause our stock price to
decline. This material weakness could also impact our ability to attract and retain new customers. In future periods, we may
identify additional deficiencies in our system of internal control over financial reporting during the course of our remediation
efforts that may require additional work to address. The generally manual nature of certain of our controls and our recent
acquisitions and the age of our legacy systems increase our risk of control deficiencies. In addition, future acquisitions may
present challenges in implementing appropriate and sustainable internal controls. Any future material weaknesses in internal
control over financial reporting could result in material misstatements in our financial statements. Moreover, any future
27
disclosures of additional material weaknesses, or errors as a result of those weaknesses, could result in a negative reaction in
the financial markets if there is a loss of confidence in the reliability of our financial reporting.
Our ability to attract and retain qualified employees is critical to our success and the failure to do so may materially
adversely affect our performance.
We believe our employees, including our executive management team, are our most important resource and, in our
industry and geographic area, competition for qualified personnel is intense. If we were unable to retain and attract qualified
employees, our performance could be materially adversely affected.
Risks Relating to Our Common Stock
If any entity controls 10 percent or more of our common stock and such entity has caused a violation of applicable
banking laws by its failure to obtain any required approvals prior to acquiring that common stock, we have the power
to, and may be required to, restrict such entity’s ability to vote shares held by it.
As owners of a Utah industrial bank, we are subject to Utah banking regulations that require any entity that controls
10 percent or more of our common stock to obtain the prior approval of Utah banking authorities. Federal law also prohibits
a person or group of persons from acquiring “control” of us unless the FDIC has been notified and has not objected to the
transaction. Under the FDIC’s regulations, the acquisition of 10 percent or more of a class of our voting stock would generally
create a rebuttable presumption of control. In addition, our certificate of incorporation requires that if any stockholder fails to
provide us with satisfactory evidence that any required approvals have been obtained, we may, or will if required by state or
federal regulators, restrict such stockholder’s ability to vote such shares with respect to any matter subject to a vote of our
stockholders.
As a result of these regulatory requirements, certain existing and potential stockholders may choose not to invest or
invest more in our stock. This could limit the number of potential investors and impact our ability to attract further funds.
A significant portion of our outstanding shares may be sold into the public market in the future, which could cause the
market price of our common stock to decrease.
In partial consideration for the EFS acquisition, at the closing of the transaction the Company issued 4,011,672 shares
of our common stock to funds affiliated with Warburg Pincus LLC. On the same date, the Company entered into an Investor
Rights Agreement (the “IRA”) with these funds and certain other investors party to the IRA, which provides for transfer
restrictions and customary registration rights, among other things, with respect to these shares. The IRA restricts the transfer
of the stock consideration for one hundred eighty days after the effective date of the IRA, and restricts the transfer of more
than one-third of the shares held by any individual investors for one year after the effective date of the IRA, in each case subject
to certain exceptions. Subject to these transfer restrictions, the holders may sell their shares under certain circumstances,
including pursuant to a registered underwritten public offering under the Securities Act or in accordance with Rule 144 under
the Securities Act. The Company also has the ability to waive the transfer restrictions under the IRA prior to their expiration
and may elect to do so in the future. The IRA gives these holders the right to require us to register all or a portion of their
shares at certain times, subject to certain conditions and restrictions. The sale of a substantial number of our shares by these
or other stockholders, or the market perception that the holders of a large number of shares intend to sell shares, could cause
our stock price to decrease or make it more difficult for us to raise funds through future offerings of our common stock or to
acquire other businesses using our common stock as consideration.
Provisions in our charter documents, Delaware law and applicable banking law may delay or prevent our acquisition
by a third party.
Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third
party to acquire control of us without the approval of our board of directors. These provisions include, among other things, a
classified board of directors, the elimination of stockholder action by written consent, advance notice for raising business or
making nominations at meetings of stockholders and “blank check” preferred stock. Blank check preferred stock enables our
board of directors, without stockholder approval, to designate and issue additional series of preferred stock with such special
dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations
on conversion, and rights to dividends and proceeds in a liquidation that are senior to the common stock, as our board of
directors may determine. These provisions may make it more difficult or expensive for a third party to acquire a majority of
our outstanding voting common stock. We also are subject to certain provisions of Delaware law, which could delay, deter or
prevent us from entering into an acquisition, including Section 203 of the Delaware General Corporation Law, which prohibits
a Delaware corporation from engaging in a business combination with an interested stockholder unless specific conditions are
28
met. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction
that might otherwise result in our stockholders receiving a premium over the market price for their common stock.
In addition, because we own a Utah industrial bank, any purchaser of our common stock who would own 10 percent
or more of our common stock after such purchase would be required to obtain the consent of Utah banking authorities and the
federal banking authorities prior to consummating any such acquisition. These regulatory requirements may preclude or delay
the purchase of a relatively large ownership stake by potential investors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
All of our facilities are leased. The following table presents the details of our principal leased properties as of December 31,
2016:
Property location
Square footage
Purpose of leased property
South Portland, Maine
Aurora, Colorado
Midvale, Utah
Antioch, Tennessee
Melbourne, Australia
Perth, Australia
Auckland, New Zealand
São Paulo, Brazil
Sorocaba, Brazil
Salvador, Brazil
London, England
Crewe, England
Breda, Netherlands
Hamburg, Germany
Berlin, Germany
Oslo, Norway
Aubervilliers, France
Lille, France
Rome, Italy
Fargo, North Dakota
Edina, Minnesota
St. Louis, Missouri
Simsbury, Connecticut
Omaha, Nebraska
Chanhassen, Minnesota
Indianapolis, Indiana
Memphis, Tennessee
Nashville, Tennessee
Ogden, Utah
Singapore
178,300 Corporate headquarters, operations center and warehouse
1,400 Data center
12,400 Bank operations and call center
82,700 WEX Fleet One operations
21,500 Australia Fuel operations
2,000 Australia Fuel operations
17,800
International Fuel operations
12,800
International Fuel and Paycard operations
6,000
International Fuel operations
2,400
International call center
2,800 European Virtual operations
14,700 European Fuel operations
1,000 European Fuel operations
7,500 European Fuel operations
4,500 European Fuel operations
3,600 European Fuel operations
10,400 European Fuel operations
4,000 European Fuel operations
4,300 European Fuel operations
40,000 WEX Health operations
24,000 WEX Health operations
3,600 WEX Health operations
18,000 WEX Health operations
31,000 WEX Health operations
22,350 EFS Operations
1,900 EFS Operations
14,550 EFS Operations
13,000 EFS Operations
27,900 EFS Operations
400 Travel and Corporate operations
Additional financial information about our leased facilities appears in Item 8 – Note 18 of our consolidated financial
statements.
29
ITEM 3. LEGAL PROCEEDINGS
On August 11, 2016, the Company was sued in the Circuit Court of St. Charles County, Missouri, in a putative class
action alleging the Company improperly sent unauthorized facsimile advertisements in violation of the Telephone Consumer
Protection Act, 47 U.S.C. § 227 (the “TCPA” ). The named plaintiff seeks to represent a nationwide class of recipients of unauthorized
facsimile advertisements from the Company (collectively, the "Plaintiffs") and requests statutory damages for each facsimile
advertisement. The Plaintiffs further allege that the opt-out notice of the faxes did not meet the criteria set forth in the TCPA or
its underlying regulations. The Company removed the case to the United States District Court for the Eastern District of Missouri
on September 15, 2016. On October 14, 2016, the Company filed an answer denying liability and stating the facsimile advertisement
at issue was sent by FleetOne, LLC, Company’s wholly-owned subsidiary. A mediation related to this dispute is also expected to
occur. The Company is currently conducting an internal review of the matter and intends to vigorously defend itself.
From time to time, we are subject to other legal proceedings and claims in the ordinary course of business. As of the date
of this filing, the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to the
Company's consolidated financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The principal market for the Company’s common stock is the New York Stock Exchange (“NYSE”) and our ticker symbol
is WEX. The following table sets forth, for the indicated calendar periods, the reported intraday high and low sales prices of the
common stock on the NYSE Composite Tape:
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2015
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
$
$
$
$
$
$
$
88.04
96.84
108.86
117.14
108.53
118.97
115.75
98.94
$
$
$
$
$
$
$
$
54.42
78.95
86.27
99.17
90.75
105.14
84.63
80.00
As of March 2, 2017, the closing price of our common stock was $108.89 per share, there were 42,741,195 shares of our
common stock outstanding and there were twenty-nine holders of record of our common stock. The actual number of stockholders
is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in
street name by brokers or nominees.
Dividends
The Company has not declared any dividends on its common stock since it commenced trading on the NYSE on February 16,
2005. The timing and amount of future dividends, if any, will be (i) dependent upon the Company’s results of operations, financial
condition, cash requirements and other relevant factors, (ii) subject to the discretion of the Board of Directors of the Company
and (iii) payable only out of the Company’s surplus or current net profits in accordance with the General Corporation Law of the
State of Delaware.
The Company has certain restrictions on the dividends it may pay under its revolving credit agreement, including pro
forma compliance with a ratio of consolidated funded indebtedness to consolidated EBITDA of 2.50:1.00 for the most recent
period of four fiscal quarters.
30
Share Repurchases
On September 23, 2013, we announced a share repurchase program authorizing the purchase of up to $150 million worth
of our common stock from time to time until September 30, 2017. Share repurchases are to be made on the open market and can
be commenced or suspended at any time.
We did not purchase any shares of our common stock during the year ended December 31, 2016. The approximate dollar
value of shares that were available to be purchased under our share repurchase program was $108.2 million as of December 31,
2016.
At the closing of the EFS transaction, the Company issued 4,011,672 shares of our common stock (representing
approximately 9.4% of our outstanding shares as of July 1, 2016) to funds affiliated with Warburg Pincus LLC as partial
consideration for the acquisition. On the same date, the Company entered into an investor rights agreement ("IRA"), which provides
for transfer restrictions and customary registration rights with respect to the shares, among other things. Under the IRA, the
Company is prohibited from taking any action that may cause the holders of registrable securities under the IRA, individually or
in the aggregate, to own ten percent (10%) or more of the then issued and outstanding shares of its common stock. This restriction
could impose significant limitations on our ability to make share repurchases until holders of registrable securities under the IRA
dispose of a significant portion of their shares.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our summary historical financial information for the periods ended and as of the dates
indicated. You should read the following historical financial information along with Item 7 and the consolidated financial statements
and related notes thereto contained in this Form 10-K. The financial information included in the table below is derived from audited
financial statements:
(in thousands, except per share data)
Income statement information, for the year ended
Total revenues
Total operating expenses
Financing interest expense
Net realized and unrealized gains (losses) on fuel price derivatives
Net earnings attributable to shareholders
Basic earnings per share
Diluted earnings per share
Weighted average basic shares of common stock outstanding
Weighted average diluted shares of common stock outstanding
Balance sheet information, at end of period
Total assets
Liabilities and stockholders’ equity
Total liabilities
Redeemable non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
2016
2015
2014
2013
2012
December 31,
$
$
$
$
$
$
$
$
$
1,018,460
823,332
113,418
711
60,637
1.49
1.48
40,809
40,914
5,997,097
4,491,350
—
$
$
$
$
$
$
$
$
$
854,637
625,844
46,189
5,848
101,904
2.63
2.62
38,771
38,843
3,847,909
2,752,228
—
$
$
$
$
$
$
$
$
$
817,647
511,409
36,042
46,212
202,211
5.20
5.18
38,890
39,000
4,105,379
3,011,068
16,590
1,505,747
1,095,681
1,077,721
$
$
$
$
$
$
$
$
$
717,463
440,724
29,419
$
$
$
623,151
401,532
10,433
(9,851) $
(12,365)
149,208
3.83
3.82
38,946
39,103
3,419,753
2,497,727
18,729
903,297
$
$
$
$
$
96,922
2.50
2.48
38,840
39,092
3,127,239
2,287,646
21,662
817,931
$
5,997,097
$
3,847,909
$
4,105,379
$
3,419,753
$
3,127,239
31
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion below focuses on the factors affecting our consolidated results of operations for the years ended December
31, 2016, 2015 and 2014 and financial condition at December 31, 2016 and 2015 and, where appropriate, factors that may affect
our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated
financial statements, notes to the consolidated financial statements and selected consolidated financial data.
The acronyms and abbreviations identified below are used in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as in Item 8. "Financial Statements and Supplementary Data." The following is
provided to aid the reader and provide a reference point when reviewing the consolidated financial statements.
2013 Credit Agreement
2014 Amendment
Agreement
2014 Credit Agreement
2016 Credit Agreement
Adjusted Net Income or
ANI
ASU 2014-09
ASU 2015-03
ASU 2015-16
ASU 2016-01
ASU 2016-02
ASU 2016-09
ASU 2016-13
ASU 2016-15
Australian Securitization
Subsidiary
Average expenditure per
payment processing
transaction
Benaissance
Company
EFS
Amended and restated credit agreement entered into on January 18, 2013 by and among the
Company and certain of our subsidiaries, as borrowers, and WEX Card Holdings Australia Pty Ltd,
as specified designated borrower, with a lending syndicate
Amendment and restatement agreement entered into on August 22, 2014, among the Company, the
lenders party thereto, and Bank of America, N.A., as administrative agent
Second amended and restated credit agreement entered into on August 22, 2014, by and among the
Company and certain of its subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as
designated borrower, and Bank of America, N.A., as administrative agent on behalf of consenting
lenders.
Credit agreement entered into on July 1, 2016 by and among the Company and certain of its
subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and
Bank of America, N.A., as administrative agent on behalf of the lenders
A non-GAAP measure that adjusts net earnings attributable to shareholders to exclude
acquisition and divestiture related items, debt restructuring and debt issuance cost amortization,
stock-based compensation, restructuring and other costs, a vendor settlement, unrealized gains
and losses on derivatives, net foreign currency remeasurement gains and losses, non-cash
adjustments related to tax receivable agreement, reserves for regulatory penalties, similar
adjustments attributed to our non-controlling interest and certain tax related items.
Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606)
Accounting Standards Update No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs
Accounting Standards Update No. 2015-16 Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments
Accounting Standards Update No. 2016-01 Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
Accounting Standards Update No. 2016-02 Leases (Topic 842)
Accounting Standards Update No. 2016-09 Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
Accounting Standards Update No. 2016-13 Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments
Southern Cross WEX 2015-1 Trust, a bankruptcy-remote subsidiary consolidated by the Company
Average total dollars of spend in a funded fuel transaction
Benaissance, a leading provider of integrated SaaS technologies and services for healthcare
premium billing, payment and workflow management, acquired by the Company on November
18, 2015.
WEX Inc. and all entities included in the consolidated financial statements
Electronic Funds Source, LLC, a provider of customized corporate payment solutions for fleet and
corporate customers with a focus on the large and mid-sized over-the-road fleets. On July 1, 2016,
the Company acquired WP Mustang Topco LLC, the indirect parent of Electronic Funds Source,
LLC and Warburg Pincus Private Equity XI (Lexington), LLC, an affiliated entity, from investment
funds affiliated with Warburg Pincus LLC.
32
Esso portfolio in Europe
European commercial fleet card portfolio acquired from ExxonMobil
European Securitization
Subsidiary
Evolution1
Evolution1 Plan
FASB
FDIC
FX
GAAP
Higher One
Indenture
NCI
NOL
Notes
NOW deposits
Over-the-road
Pacific Pride
Payment solutions purchase
volume
Payment processing
transactions
PPG
rapid! PayCard
SaaS
SEC
Ticking fees
Gorham Trade Finance B.V., a bankruptcy-remote subsidiary consolidated by the Company
EB Holdings Corp. and its subsidiaries which includes Evolution1, Inc., acquired by the Company
on July 16, 2014
Evolution1 401(k) Plan sponsored by Evolution1 Inc.
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Foreign exchange
Generally Accepted Accounting Principles in the United States
Higher One, Inc. a technology and payment services company focused on higher education
The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company,
the guarantors listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
Non-controlling interest
Net operating loss
$400 million notes with a 4.75% fixed rate, issued on January 30, 2013
Negotiable order of withdrawal deposits
Typically heavy trucks traveling long distances
Pacific Pride Services, LLC, previously a wholly-owned subsidiary, sold on July 29, 2014
Total amount paid by customers for transactions
Funded payment transactions where the Company maintains the receivable for total purchase
Price per gallon of fuel
rapid! PayCard, previously a line of business of the Company, sold on January 7, 2015
Software-as-a-service
Securities and Exchange Commission
A fee incurred by a borrower to compensate the lender to delay a financing arrangement and hold
a commitment of funds for the borrower for a period of time
Total fleet transactions
Total of transaction processing and payment processing transactions
Transaction processing
transactions
Unfunded payment transactions where the Company is the processor and only has receivables for
the processing fee
UNIK
WEX
WEX Europe Services
WEX Health
UNIK S.A., the Company's Brazilian subsidiary, which has been subsequently branded WEX Brazil
WEX Inc.
Consists primarily of our ESSO portfolio in Europe acquired by the Company from ExxonMobil
on December 1, 2014
Evolution1 and Benaissance, collectively
33
2016 Highlights and Year in Review
WEX is a leading provider of corporate payment solutions. Our opportunities for growth extend well beyond the fleet
fuel market, in particular to the online travel and healthcare payments markets. Building on a leading market position in our core
fleet business, we continue to expand our company.
Our strategic approach to entering new markets is focused on three steps:
•
Identify complicated markets facing complex payment challenges and inefficiencies,
• Develop products and services that address these unmet market needs, and,
• Operate with systemic efficiency through scale and cost management.
We have a proven model in the fleet space where we have developed a leading market position and a strong margin profile.
We have done the same in the online travel industry where we have become a leader in global virtual payments and continue to
grow the business and create scale on a global basis. Through the acquisitions of Evolution1 and Benaissance, WEX Health has
continued to expand into the consumer directed healthcare payments market.
The following events and accomplishments occurred during 2016:
• The Company benefited from customer acquisitions and expanded relationships across all three of the Company's
segments on our way to surpassing $1 billion in annual revenues.
• On July 1, the Company acquired all of the outstanding membership interests of EFS, a provider of customized
corporate payment solutions for fleet and corporate customers with a focus on the large and mid-sized over-the-
road fleet segments, for approximately $1.4 billion in cash and stock consideration. The acquisition will enable
the combined company to expand its customer footprint and to utilize EFS' technology to better serve the needs
of all fleet customers.
In connection with the EFS acquisition, we closed on the 2016 Credit Agreement, which increased our available
financing. The 2016 Credit Agreement provides for term loan facilities of $1.7 billion, a $470 million secured
revolving credit facility and the option for the Company to request additional loans subject to certain criteria.
• On November 3, the Company entered into three forward-fixed interest rate swap agreements to manage the
interest rate risk associated with its outstanding variable-interest rate borrowings. Commencing January 2017,
the Company will receive variable interest of 1-month LIBOR under these swaps and will pay fixed rates between
0.896% to 1.125%, reducing a portion of the variability of the future interest payments associated with $800
million of our borrowings.
Our Company's management believes the following metrics were important to our overall performance in 2016:
• Average number of vehicles serviced increased 4 percent from 2015 to approximately 10.0 million for 2016,
primarily related to the acquisition of EFS.
• Total fleet transactions processed increased 12 percent from 2015 to 454.5 million in 2016. Payment processing
transactions increased 13 percent from 2015 to 385.9 million in 2016, and transaction processing transactions
increased 9 percent from 2015 to 68.6 million in 2016. The increase in payment processing transactions resulted
from a large customer portfolio converting from a transaction processing relationship to a payment processing
relationship in the beginning of 2016, the acquisition of EFS and organic growth. The primary driver for the
increase in transaction processing transactions was due to the acquisition of EFS, partially offset by the portfolio
conversion mentioned above.
• Average expenditure per payment processing transaction in our Fleet Solutions segment decreased 8 percent to
$59.19 for 2016, from $64.59 in 2015. The average U.S. fuel price per gallon during 2016 was $2.21, a 13 percent
decrease as compared to the same period in the prior year. The average Australian fuel price per gallon during
2016 was $3.34, a 9 percent decrease as compared 2015.
• Credit loss expense in the Fleet Solutions segment was $27.3 million during 2016, as compared to $20.8 million
during 2015. Spend volume increased 3 percent in 2016 as compared to 2015. Our credit losses were
11.9 basis points of fuel expenditures for 2016, as compared to 9.4 basis points of fuel expenditures for 2015.
34
• Realized gains or losses on fuel price derivatives were $5.7 million during 2016 as compared to a realized gain
of $41.8 million for 2015. After the first quarter of 2016, the Company no longer holds fuel-price sensitive
derivative instruments.
• Our Travel and Corporate Solutions purchase volume grew to $24.0 billion in 2016, a 23 percent increase from
2015. This increase is primarily driven by organic growth in our travel product and the impact of the EFS
acquisition.
• Our foreign currency exchange exposure is primarily related to the re-measurement of our cash, receivable and
payable balances that are denominated in foreign currencies. Movements in the exchange rates associated with
our foreign held currencies resulted in a loss of $7.7 million in 2016, as compared to a loss of $5.7 million in
2015.
• Our effective tax rate was 34.0 percent for 2016 as compared to 40.7 percent for 2015. The change in our tax
rate reflects a shift in jurisdictional profitability between 2015 and 2016. Increased profits in 2016 within tax
jurisdictions with tax rates lower than the United States resulted in a reduction to our effective tax rate. Our 2016
tax rate reflects the release of certain historical foreign reserve positions in Australia, primarily driven by a lapse
of statute, as well as a reduction in our domestic production activities deduction as a result of lower taxable
income in the United States. Future tax rates may fluctuate due to changes in the mix of earnings among different
tax jurisdictions. Our tax rate fluctuates due to the impacts that rate and mix changes have on our net deferred
tax assets. We anticipate that our future GAAP effective tax rate should be within the range of our historical
rates, excluding discrete items.
Segments
Beginning in the fourth quarter of 2015, WEX began to operate in three reportable segments: Fleet Solutions, Travel and
Corporate Solutions, and Health and Employee Benefit Solutions. Previously, the Company had reported two business segments,
Fleet Payment Solutions and Other Payment Solutions. The Fleet Solutions segment provides payment, transaction processing and
information management services specifically designed for the needs of commercial and government fleets. The Travel and
Corporate Solutions segment focuses on the complex payment environment of business-to-business payments, providing customers
with payment processing solutions for their corporate payment and transaction monitoring needs. The Health and Employee Benefit
Solutions segment provides software as a service platform consumer directed healthcare payments, as well as payroll related
benefits to customers in Brazil.
35
Results of Operations
YEAR ENDED DECEMBER 31, 2016, AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2015
FLEET SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Fleet Solutions segment:
(in thousands, except per transaction and per gallon data)
2016
2015
Increase
(decrease)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Financing interest expense
Gain on foreign currency transactions
Net unrealized gains on interest rate swap agreements
Net realized and unrealized gains on domestic fuel price derivative instruments
Decrease (increase) in amount due under tax receivable agreement
Income before income taxes
Key operating statistics (a)
Payment processing revenue:
Payment processing transactions
Average expenditure per payment processing transaction
Average price per gallon of fuel - Domestic – ($USD/gal)
Average price per gallon of fuel - Australia – ($USD/gal)
Transaction processing revenue:
Transaction processing transactions
Account servicing revenue:
Average number of vehicles serviced during the year
NM - Not Meaningful
(a)
As of July 1, 2016, these key operating statistics include our domestic EFS acquisition.
Revenues
$
297,900
$
127,106
124,725
92,330
642,061
545,451
96,610
305,855
100,850
83,554
57,419
547,678
413,595
134,083
(84,279)
(31,179)
6,359
8,391
711
(563)
1,479
—
5,848
2,144
$
27,229
$
112,375
385,861
342,975
$
$
$
59.19
2.21
3.34
$
$
$
64.59
2.55
3.66
68,601
62,917
10,004
9,583
(3)%
26 %
49 %
61 %
17 %
32 %
(28)%
170 %
330 %
NM
(88)%
NM
(76)%
13 %
(8)%
(13)%
(9)%
9 %
4 %
Payment processing revenue decreased $8.0 million for 2016, as compared to 2015, due primarily to the impact of a 13%
decrease in the average domestic price per gallon of fuel in the 2016 as compared to 2015 and the unfavorable impact of FX rates.
These unfavorable factors were partly offset by a higher payment processing volume related to the acquisition of EFS, a large
customer portfolio converting from a transaction processing relationship to a payment processing relationship in the beginning of
2016 and organic growth.
Account servicing revenue increased $26.3 million for 2016, as compared to 2015, resulting from the acquisition of EFS
and organic growth from an increase in fees to certain customers as part of our price modernization efforts.
Other revenues increased $34.9 million in 2016, as compared to 2015, primarily due to the acquisition of EFS.
36
Finance fee revenue is comprised of the following components:
(in thousands)
Late fee revenue
Factoring fee revenue
Cardholder interest income
Other finance fee revenue
Total finance fee revenue
2016
2015
Increase
$
102,497
$
19,689
544
1,995
67,027
15,585
515
427
$
124,725
$
83,554
53%
26%
6%
367%
49%
Late fee revenue is primarily fees charged for payments not made within the terms of the customer agreement based upon
the outstanding customer receivable balance. Late fee revenue is earned when a customer’s receivable balance becomes delinquent
and is calculated using the greater of a minimum charge or a stated late fee rate multiplied by the outstanding balance that is subject
to a late fee charge. Changes in the absolute amount of such outstanding balances can be attributed to changes in (i) fuel prices;
(ii) customer specific transaction volume; and (iii) customer specific delinquencies. Late fee revenue can also be impacted by
changes in (i) late fee rates and (ii) increases or decreases in customer overdue balances. Late fee rates are determined and set
based primarily on the risk associated with our customers, coupled with a strategic view of standard rates within our industry.
From time-to-time, we assess the market rates associated within our industry to determine what late fee rates are appropriate. We
consider factors such as the Company’s overall financial model and strategic plan, the cost to our business from customers failing
to pay timely and the impact such late payments have on our financial results. These assessments are typically conducted at least
annually but may occur more often depending on macro-economic factors.
Late fees increased $35.5 million in 2016, as compared to 2015. The increase in late fees was primarily due to $39.1
million due to rate increases, partly offset by a decrease of $3.6 million due to the change in overdue balances. During the first
half of 2015, late fee rates ranged from 0 to 3.75 percent monthly with a minimum late fee charge of $50. For the second half of
2015, late fee rate ranges and minimum charges were 0 to 5.50 percent monthly and $75, respectively. During the second quarter
of 2016, late fee ranges were changed to 0 to 6.99 percent monthly, while minimum charges remained at $75. The weighted average
late fee rate was 4.9% and 2.9% for 2016 and 2015, respectively.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions to customers
experiencing financial difficulties during both the years ended December 31, 2016 and 2015.
The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that
we purchase. A secondary source of factoring revenue is a flat rate service fee to our customers that request a non-contractual same
day funding of the receivable balance. Factoring fee revenue increased $4.1 million in 2016, as compared to 2015. The increase
in factoring fee revenue is due to organic growth and customer demand for our services.
Other finance fee revenue increased $1.6 million primarily resulting from the EFS acquisition.
Expenses
The following table compares selected expense line items within our Fleet Solutions segment:
(in thousands)
Expense
Salary and other personnel
Restructuring
Service fees
Provision for credit losses
Technology leasing and support
Occupancy and equipment
Depreciation and amortization
Other
2016
2015
Increase
(decrease)
$
201,817
$
171,122
7,486
95,555
27,264
28,763
17,947
100,860
$
27,043
$
9,010
63,075
20,822
25,099
15,062
54,453
21,718
18 %
(17)%
51 %
31 %
15 %
19 %
85 %
25 %
37
Salary and other personnel expenses increased $30.7 million for 2016, as compared to 2015, due primarily to the acquisition
of EFS, and to a lesser extent, increases in variable compensation plans and employee benefit costs.
We recorded restructuring costs of approximately $7.5 million and $9.0 million for 2016 and 2015, respectively. The
costs primarily reflect employee termination benefits and office closing costs to be paid through 2018. These initiatives are expected
to streamline our domestic and international fleet businesses, driving acquisition synergies and creating greater efficiencies.
Service fees increased $32.5 million during 2016, as compared to 2015. The increase is due primarily to expenses associated
with the acquisition of EFS and costs to outsource certain back office technology.
Provision for credit losses increased $6.4 million for 2016, as compared to 2015. We generally measure our credit loss
performance by calculating credit losses as a percentage of total fuel expenditures on the payment processing transactions. This
metric for credit losses was 11.9 basis points of fuel expenditures for 2016, as compared to 9.4 basis points of fuel expenditures
for 2015. We generally use a roll rate methodology to calculate the amount necessary for our ending receivable reserve balance.
This methodology considers total receivable balances, recent charge off experience, recoveries on previously charged off accounts,
and the dollars that are delinquent to calculate the total reserve. In addition, management undertakes a detailed evaluation of the
receivable balances to help further ensure overall reserve adequacy. The expense we recognize in each quarter is the amount
necessary to bring the reserve to its required level based on accounts receivable aging and net charge offs.
Technology leasing and support expenses increased $3.7 million in 2016, as compared to 2015, resulting from additional
software maintenance expense, due primarily to the EFS acquisition.
Occupancy and equipment increased $2.9 million in 2016, as compared to 2015, due primarily to higher rent expense,
the majority of which resulted from the EFS acquisition.
Depreciation and amortization increased $46.4 million in 2016, as compared to 2015, due primarily to amortization of
intangibles obtained from the EFS acquisition. Additionally, the Company evaluated the estimated useful life of our existing over-
the-road payment processing technology following the EFS acquisition. As a result of this analysis, we recorded approximately
$10.1 million of accelerated amortization related to this technology during the second half of 2016 and will amortize approximately
$11.5 million of remaining net book value associated with this technology over the next six months.
Other expenses increased $5.3 million in 2016, as compared to 2015, resulting primarily from the EFS acquisition.
Foreign Currency Transactions
In 2016, we recognized foreign currency gains related to intercompany loans resulting from a strengthening of the Euro
against the British Pound Sterling, partly offset by the impact of a strengthening U.S. dollar. In both 2016 and 2015, most prominently
in the fourth quarter of each year, we experienced losses from fluctuations in exchange rates that resulted in a significant devaluation
of major currencies to which our business is exposed, including the British Pound Sterling, the Euro and the Australian dollar. Our
foreign currency exchange exposure is primarily related to the re-measurement of our cash, receivable and payable balances and
revenues that are denominated in foreign currencies. Though we do not hedge these non-U.S. revenues, our exposure is partly
offset by internationally denominated expenses, which serve as a natural partial hedge.
We initiated a partial foreign currency exchange hedging program in April 2014, which was substantially eliminated in
September 2015. The results of these hedges are included in Net foreign currency loss in our consolidated statements of income.
The fluctuations in exchange rates, combined with the results of the foreign currency exchange hedging program, resulted
in a gain of $6.4 million in 2016 compared to a gain of $1.5 million in 2015.
Financing Interest Expense
Financing interest expense increased $53.1 million in 2016, as compared to 2015. The increase is primarily due to ticking
fees incurred for the commitment of funds to finance the acquisition of EFS and higher relative borrowings and effective interest
rates under the 2016 Credit Agreement.
Fuel Price Derivatives
In the past, we have owned fuel price sensitive derivative instruments to manage the impact of volatility in domestic fuel
prices on our revenues and cash flows. These derivative instruments did not qualify for hedge accounting. Accordingly, realized
and unrealized gains and losses on these derivative instruments affected our net income. During 2016, we recorded a net gain of
$0.7 million, consisting of a reduction in the fair value in fuel derivatives of $5.0 million and a realized gain of $5.7 million. During
2015, we recorded a net gain of $5.8 million, consisting of a reduction in the fair value of fuel derivatives of $36.0 million and a
38
realized gain of $41.8 million. These gains were due to the overall change in the current and future price of fuel relative to our
hedged fuel prices. Prior to January 2015, we suspended purchases under our fuel derivatives program due to unusually low prices
in the commodities market. We held previously purchased fuel price derivative instruments through the first quarter of 2016; after
that time, we were no longer partially hedged for changes in fuel prices.
Interest Rate Swap Agreements
In November 2016, the Company entered into three forward-fixed interest rate swap agreements to manage the interest
rate risk associated with our outstanding variable-interest rate borrowings. These derivative instruments do not qualify for hedge
accounting. Accordingly, realized and unrealized gains and losses on these derivative instruments affect our net income. During
2016, we recorded an unrealized gain of $8.4 million on these interest rate swap agreements. Commencing January 2017, we will
begin to realize gains and losses on these swap agreements as we settle the fixed interest paid and variable interest with our
counterparties on a monthly basis.
TRAVEL AND CORPORATE SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Travel and Corporate
Solutions segment:
(in thousands)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Financing interest expense
Loss on foreign currency transactions
Net unrealized gains on interest rate swap agreements
Income before income taxes
Key operating statistics (a)
Payment processing revenue:
Payment solutions purchase volume
NM - Not Meaningful
2016
2015
Increase
(decrease)
$
175,762
$
151,311
1,247
643
37,595
215,247
130,817
84,430
(1,636)
(14,802)
866
1,930
326
41,852
195,419
109,101
86,318
—
(6,242)
—
$
68,858
$
80,076
16 %
(35)%
97 %
(10)%
10 %
20 %
(2)%
NM
(137)%
NM
(14)%
$ 23,965,023
$ 19,440,663
23 %
(a) As of July 1, 2016, these key operating statistics include EFS purchase volumes.
Revenues
Payment processing revenue increased approximately $24.5 million for 2016, as compared to 2015, primarily due to an
increase in corporate charge card purchase volume from our WEX travel product and the acquisition of EFS. These favorable
impacts were partly offset by the unfavorable impact of foreign currency exchange rates, and a decrease in the virtual card net
interchange rate resulting from contract renegotiations and increased volumes in 2016 from certain large customers resulting in
higher rebates. In the fourth quarter of 2016, we renegotiated our contract with one of our large customers, which will increase
the rebates we provide to them effective in the first quarter of 2017.
Other revenue decreased approximately $4.3 million, primarily due to lower rates charged on cross border transactions.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. As of and for the year ended December 31, 2016,
customer balances with such concessions totaled $16.7 million and resulted in approximately $1.3 million in waived late fees.
There were no material concessions granted during the year ended December 31, 2015.
39
Expenses
The following table compares selected expense line items within our Travel and Corporate Solutions segment:
(in thousands)
Expense
Salary and other personnel
Service fees
Provision for credit losses
Depreciation and amortization
Other
of EFS.
2016
2015
Increase
(decrease)
$
22,728
$
58,254
5,676
6,187
$
16,833
$
21,754
62,162
1,324
2,999
3,961
4 %
(6)%
329 %
106 %
325 %
Salary and other personnel expenses increased $1.0 million in 2016, as compared to 2015, due primarily to the acquisition
Service fees decreased by $3.9 million in 2016, as compared to 2015, due primarily to benefits realized from certain
contract renewals, partly offset by the acquisition of EFS.
Provision for credit losses increased $4.4 million in 2016, as compared to 2015, primarily due to reserves taken for specific
travel customers in Europe, including the bankruptcy of one of our online travel agency customers during the third quarter of 2016.
Depreciation and amortization expenses increased $3.2 million in 2016, as compared to 2015, resulting from related
amortization on acquired EFS intangible assets.
Other expense increased $12.9 million in 2016, as compared to 2015, primarily resulting from a one-time $15.5 million
vendor settlement in exchange for the release of potential claims related to insourcing certain technology.
Foreign Currency Transactions
In both 2016 and 2015, most prominently in the fourth quarter of each year, we experienced fluctuations in exchange
rates that resulted in a significant devaluation of major currencies to which our business is exposed, including the British Pound
Sterling, the Euro and the Australian dollar. Our foreign currency exchange exposure is primarily related to the re-measurement
of our cash, receivable and payable balances and revenues that are denominated in foreign currencies. Though we do not hedge
these non-U.S. revenues, our exposure is partly offset by internationally denominated expenses, which serve as a natural partial
hedge.
We initiated a partial foreign currency exchange hedging program in April 2014, which was substantially eliminated in
September 2015. The results of these hedges are included in Net foreign currency loss in our consolidated statements of income.
The fluctuations in exchange rates, combined with the results of the foreign currency exchange hedging program, resulted
in a loss of $14.8 million in 2016 as compared to a loss of $6.2 million in 2015.
40
HEALTH AND EMPLOYEE BENEFIT SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Health and Employee
Benefit Solutions segment:
(in thousands)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Finance interest expense
Gain (loss) on foreign currency transactions
Net unrealized gains on interest rate swap agreements
Loss before income taxes
NM - Not Meaningful
Revenues
2016
2015
Increase
$
46,957
$
82,660
13,572
17,963
161,152
147,063
14,089
(27,504)
778
3,651
38,703
53,912
5,113
13,812
111,540
103,148
8,392
(15,010)
(926)
—
$
(8,986) $
(7,544)
21%
53%
165%
30%
44%
43%
68%
83%
NM
NM
19%
Payment processing revenue increased approximately $8.3 million for 2016, as compared to 2015, due primarily to higher
spend volumes resulting from the growth of WEX Health interchange consumers.
Account servicing revenue increased $28.7 million for 2016, as compared to 2015. This increase was due primarily to
WEX Health new and existing customer growth, which resulted in a higher number of participants using our SaaS healthcare
offerings, and revenues from Benaissance, which was acquired in November 2015.
Finance fee revenue increased $8.5 million in 2016, as compared to 2015, due primarily to organic growth in cardholder
interest earned on our paycard product in Brazil resulting from extended payment terms selected by our customers in 2016 as
compared to the prior year.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted during
both the years ended December 31, 2016 or 2015.
Other revenue increased $4.2 million in 2016, as compared to 2015, due primarily to growth and other ancillary fees from
the Benaissance acquisition.
Expenses
The following table compares selected expense line items within our Health and Employee Benefit Solutions segment:
(in thousands)
Expense
Salary and other personnel
Service fees
Occupancy and equipment
Depreciation and amortization
2016
2015
Increase
$
$
61,753
$
19,243
6,336
34,604
$
41,688
13,607
4,455
25,625
48%
41%
42%
35%
Salary and other personnel expenses increased $20.1 million in 2016, as compared to 2015, primarily due to additional
headcount and variable compensation plan costs at WEX Health to support growth, including the impact from the acquisition of
Benaissance.
Service fees increased by $5.6 million in 2016, as compared to 2015, primarily related to higher costs resulting from
growth in WEX Health consumers and from the acquisition of Benaissance.
41
Occupancy and equipment expenses increased $1.9 million in 2016, as compared to 2015, primarily due to incremental
facility leasing costs from the acquisition of Benaissance and growth of our WEX Health facilities and related costs.
Depreciation and amortization expenses increased $9.0 million in 2016, as compared to 2015. This increase resulted from
higher amortization expense, primarily on acquired Benaissance intangibles and capitalized software development costs.
Financing Interest Expense
Financing interest expense increased $12.5 million in 2016 compared to 2015. The increase is primarily due to higher
relative borrowings under our credit facility to fund the acquisition of Benaissance and an increase in effective interest rates.
Foreign Currency Transactions
Our Health and Employee Benefit Solutions segment is exposed to fluctuations in the Brazilian Real. Throughout 2016,
we experienced a continued weakening of the U.S. dollar relative to the Real, as compared to 2015, which experienced a significant
devaluation of the Real. Our foreign currency exchange exposure is primarily related to the re-measurement of our cash, receivable
and payable balances and revenues that are denominated in foreign currencies. Though we do not hedge these non-U.S. revenues,
our exposure is partly offset by internationally denominated expenses, which serve as a natural partial hedge.
We initiated a partial foreign currency exchange hedging program in April 2014, which was substantially eliminated in
September 2015. The results of these hedges are included in Net foreign currency loss in our consolidated statements of income.
The fluctuations in exchange rates, combined with the results of the foreign currency exchange hedging program, resulted
in a gain of $0.8 million in 2016 as compared to a loss of $0.9 million in 2015.
42
YEAR ENDED DECEMBER 31, 2015, AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2014
FLEET SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Fleet Solutions segment:
(in thousands, except per transaction and per gallon data)
2015
2014
Increase
(decrease)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Financing interest expense
Gain (loss) on foreign currency transactions
Net realized and unrealized gains on domestic fuel price derivative instruments
Decrease (increase) in amount due under tax receivable agreement
Income before income taxes
Key operating statistics (a)
Payment processing revenue:
Payment processing transactions
Average expenditure per payment processing transaction
Average price per gallon of fuel - Domestic – ($USD/gal)
Average price per gallon of fuel - Australia – ($USD/gal)
Transaction processing revenue:
Transaction processing transactions
Account servicing revenue:
$
305,855
$
357,050
100,850
83,554
57,419
547,678
413,595
134,083
(31,179)
1,479
5,848
2,144
81,217
75,703
54,373
568,343
348,167
220,176
(31,213)
(4,090)
46,212
(1,331)
$
112,375
$
229,754
342,975
311,291
64.59
2.55
3.66
$
$
$
84.00
3.55
5.14
$
$
$
(14)%
24 %
10 %
6 %
(4)%
19 %
(39)%
— %
(136)%
(87)%
NM
(51)%
10 %
(23)%
(28)%
(29)%
62,917
74,092
(15)%
Average number of vehicles serviced during the year
9,583
8,045
19 %
NM - Not Meaningful
(a)
As of December 31, 2014, these key operating statistics include fuel related payment processing transactions and gallons of fuel from the Esso portfolio in Europe.
Revenues
Payment processing revenue decreased $51.2 million for 2015, as compared to 2014. This decrease is primarily due to a
28% decline in the average domestic price per gallon of fuel in 2015 as compared to 2014. This decrease is partially offset by an
increase in payment processing volume primarily related to the acquisition of the Esso portfolio in Europe in December of 2014.
Account servicing revenue increased $19.6 million in 2015, as compared to 2014. This increase was primarily a result
of the Esso portfolio in Europe acquisition in December of 2014.
Finance fee revenue is comprised of the following components:
(in thousands)
Late fee revenue
Factoring fee revenue
Cardholder interest income
Other finance fee revenue
Total finance fee revenue
2015
2014
Increase
(decrease)
$
67,027
$
15,585
515
427
62,046
12,368
485
804
$
83,554
$
75,703
8 %
26 %
6 %
(47)%
10 %
Late fees increased $5.0 million in 2015, as compared to 2014. The increase in late fees was comprised of $15.8 million
due to rate increases, partly offset by a decrease of $10.8 million due to the change in overdue balances resulting from lower fuel
43
prices. During 2014, late fee rates ranged from 0 to 2.50 percent monthly with a minimum late fee charge of $50. We enacted two
late fee increases during 2015. During the first half of 2015, late fee rates ranged from 0 to 3.75 percent monthly with a minimum
late fee charge of $50. For the second half of 2015, late fee rate ranges and minimum charges were 0 to 5.50 percent monthly and
$75, respectively. The weighted average late fee rate was 2.9% and 2.1% for 2015 and 2014, respectively.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. As of December 31, 2015 and 2014, customer
balances with such concessions totaled $0.3 million and $0.8 million, respectively, which did not result in a material amount of
late fees waived in either 2015 or 2014.
Factoring fee revenue increased $3.2 million in 2015, as compared to 2014. The increase in factoring fee revenue is due
to organic growth and customer demand for our services.
Expenses
The following table compares selected expense line items within our Fleet Solutions segment:
(in thousands)
Expense
Salary and other personnel
Restructuring
Service fees
Provision for credit losses
Technology leasing and support
Other
Gain on sale of subsidiary
NM - Not Meaningful
2015
2014
Increase
(decrease)
$
$
$
$
$
$
$
171,122
9,010
63,075
20,822
25,099
21,718
$
$
$
$
$
$
156,829
—
43,466
30,696
18,532
22,797
— $
(27,490)
9 %
NM
45 %
(32)%
35 %
(5)%
NM
•
Salary and other personnel expenses increased $14.3 million for 2015, as compared to 2014. The increase is primarily
due to an increase in headcount related to the acquisition of the Esso portfolio in Europe in December of 2014, partially
offset by lower variable compensation expense.
• We recorded restructuring costs of approximately $9.0 million in 2015 related to our global review of operations, of which
$1.4 million was paid in 2015. The costs related to this initiative are employee termination benefits and third party service
fees. These actions are expected to continue through 2017. We anticipate lower employee and facility related expenses
once the restructuring is complete.
•
•
Service fees increased $19.6 million during 2015, as compared to 2014. The increase is due to expenses associated with
the acquisition of the Esso portfolio in Europe in December of 2014. This increase is partially offset by a decrease in
service fees related to the divestiture of Pacific Pride that occurred in July of 2014.
Provision for credit losses decreased $9.9 million for 2015, as compared to 2014. Our credit losses as a percentage of
customers spend decreased to 9.4 basis points as compared to 11.7 basis points for 2014. The expense we recognized in
2015 was the amount necessary to bring the reserve to its required level after net charge offs.
• Technology leasing and support expenses increased $6.6 million in 2015, as compared to 2014. The increase is primarily
the result of additional expenses related to the consolidation of data centers, increases in cybersecurity infrastructure and
additional fees associated with the general expansion of operations.
• Other expenses decreased $1.1 million in 2015, as compared to 2014. This decrease is due to lower hardware expenses.
• On July 29, 2014, we sold our Pacific Pride subsidiary for a pre-tax book gain of $27.5 million as it did not align with
the long-term strategy of the core fleet business. The operations of Pacific Pride were not material to our annual revenue,
net income or earnings per share.
Foreign Currency Transactions
Beginning in the second half of 2014 and through 2015 there were fluctuations in exchange rates that resulted in a
significant devaluation of major currencies to which our business is exposed, including the Australian dollar, the Brazilian real,
44
the Euro and the British Pound sterling. Our foreign currency exchange exposure is primarily related to the re-measurement of
our cash, receivable, payable and intercompany balances that are denominated in these foreign currencies. These fluctuations in
exchange rates resulted in a gain of $1.5 million in 2015 as compared to a loss of $4.1 million in 2014.
Fuel Price Derivatives
During 2015, we recorded a net gain of $5.8 million on our fuel derivatives, consisting of a reduction in the unrealized
balance in fuel derivatives of $36.0 million and a realized gain of $41.8 million. During 2014, we recorded a net gain of $46.2
million on our fuel derivatives, consisting of an unrealized gain of $48.3 million and a realized loss of $2.1 million. These gains
and losses were due to the overall change in the current and future price of fuel relative to our hedged fuel prices. During the fourth
quarter of 2014 we suspended purchases under our fuel derivatives program due to unusually low prices in the commodities market.
We continued to hold fuel price derivative instruments through the first quarter of 2016.
TRAVEL AND CORPORATE SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Travel and Corporate
Solutions segment:
(in thousands)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Loss on foreign currency transactions
Income before income taxes
Key operating statistics
Payment processing revenue:
Payment solutions purchase card volume
Revenues
2015
2014
Increase
(decrease)
$
151,311
$
141,368
1,930
326
41,852
195,419
109,101
86,318
(6,242)
$
80,076
$
1,647
438
39,513
182,966
95,674
87,292
(8,779)
78,513
7 %
17 %
(26)%
6 %
7 %
14 %
(1)%
(29)%
2 %
$ 19,440,663
$ 17,072,743
14 %
Payment processing revenue increased approximately $9.9 million for 2015, as compared to 2014. The primary driver
of the increase in payment processing revenue is a higher virtual card purchase volume, which grew by approximately $2.4 billion in
2015 compared to 2014. These increases were partially offset by a decrease in the virtual card net interchange rate of 5 basis points
in 2015 as compared to 2014, primarily due to increases in customer rebates.
Other revenue increased $2.3 million for 2015 as compared to 2014. These increases are primarily due to revenues
associated with currency conversion fees charged to our virtual customers.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted as of
December 31, 2015 and 2014.
45
Expenses
The following table compares selected expense line items within our Travel and Corporate Solutions segment:
(in thousands)
Expense
Salary and other personnel
Service fees
Provision for credit losses
Technology leasing and support
Depreciation and amortization
Other
NM - Not Meaningful
2015
2014
Increase
$
$
$
$
$
$
21,754
62,162
1,324
12,505
2,999
3,961
$
$
$
$
$
$
19,735
58,711
1,061
10,800
1,911
(232)
10%
6%
25%
16%
57%
NM
Salary and other personnel expenses increased $2.0 million in 2015, as compared to 2014. The increase is primarily due
to an increase in headcount over the prior year.
Service fees increased by $3.5 million in 2015, as compared to 2014. This increase is primarily due to higher processing
fees associated with an increase in purchase card volume.
Provision for credit losses increased $0.3 million in 2015, as compared to 2014, primarily due to higher purchase volumes.
The expense we recognize each year is the amount necessary to bring the reserve to its required level after net charge offs.
Technology leasing and support expense increased $1.7 million in 2015, as compared to 2014. This increase is primarily
due to additional expenses from hardware and related maintenance.
Depreciation and amortization expenses increased $1.1 million in 2015, as compared to 2014. This increase is primarily
related to additional assets placed in service during the year.
Other expense increased $4.2 million in 2015, as compared to 2014. The increase is primarily due to sales and marketing
incentives.
Foreign Currency Transactions
Beginning in the second half of 2014 and through 2015 there were fluctuations in exchange rates that resulted in a
significant devaluation of major currencies to which our business is exposed, including the Australian dollar, the Brazilian real,
the Euro and the British Pound sterling. Our foreign currency exchange exposure is primarily related to the re-measurement of
our cash, receivable, payable and intercompany balances that are denominated in these foreign currencies. These fluctuations in
exchange rates resulted in a loss of $6.2 million in 2015 as compared to a loss of $8.8 million in 2014.
46
HEALTH AND EMPLOYEE BENEFIT SOLUTIONS SEGMENT
The following table reflects comparative operating results and key operating statistics within our Health and Employee
Benefit Solutions segment:
(in thousands)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Total operating expenses
Operating income
Finance interest expense
Loss on foreign currency transactions
Income before income taxes
NM - Not Meaningful
Revenues
2015
2014
Increase
$
38,703
53,912
5,113
13,812
111,540
103,148
8,392
(15,010)
(926)
$
(7,544) $
21,569
32,645
4,742
7,383
66,339
67,569
(1,230)
(4,829)
(569)
(6,628)
79%
65%
8%
87%
68%
53%
NM
NM
63%
14%
Payment processing revenue increased approximately $17.1 million for 2015, as compared to 2014. The increase in
revenue is due to the acquisition of Evolution1 in July of 2014, offset by lower revenue, as compared to 2014, associated with
rapid! Paycard, which was sold in January of 2015. Due to the timing of the Benaissance acquisition, which was completed on
November 18, 2015, the impact from Benaissance on the results of operations of the Health and Employee Benefit Solutions
segment was not material.
Account servicing revenue increased approximately $21.3 million for 2015, as compared to 2014, due primarily to a full
year of Evolution1 SaaS healthcare offerings revenue in 2015.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time
to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted as of
December 31, 2015 or 2014.
Other revenue increased approximately $6.4 million for 2015 as compared to 2014, due primarily to higher Evolution1
ancillary fees.
Expenses
The following table compares selected expense line items within our Health and Employee Benefit Solutions segment:
(in thousands)
Expense
Salary and other personnel
Service fees
Technology leasing and support
Depreciation and amortization
2015
2014
Increase
(decrease)
$
$
$
$
41,688
13,607
3,710
25,625
$
$
$
$
24,245
17,699
1,249
13,680
72 %
(23)%
197 %
87 %
•
•
Salary and other personnel expenses increased $17.4 million in 2015, as compared to 2014. The increase is primarily due
to salary expense at Evolution1, which was acquired in July of 2014, offset by lower expenses associated with rapid!
Paycard, which was sold in January of 2015.
Service fees decreased by $4.1 million in 2015, as compared to 2014. This decrease is primarily due to lower expenses
associated with rapid! Paycard, slightly offset by higher expenses associated with Evolution1.
• Technology leasing and support expenses increased $2.5 million in 2015, as compared to 2014. This increase is primarily
due to additional expenses related to Evolution1.
47
• Depreciation and amortization expenses increased $11.9 million in 2015, as compared to 2014. This increase is primarily
related to amortization expense associated with the intangible assets acquired with Evolution1.
Financing Interest Expense
Financing interest expense is related to our credit agreements. The $15.0 million in financing interest expense in 2015
and the $4.8 million expense in 2014 are associated with the debt incurred to purchase Evolution1.
Foreign Currency Transactions
Beginning in the second half of 2014 and through 2015 there were fluctuations in exchange rates that resulted in a
significant devaluation of major currencies to which our business is exposed, including the Brazilian real. Our foreign currency
exchange exposure is primarily related to the re-measurement of our cash, receivable, payable and intercompany balances that are
denominated in these foreign currencies. These fluctuations in exchange rates resulted in a loss of $0.9 million in 2015 as compared
to a loss of $0.6 million in 2014.
NON-GAAP FINANCIAL MEASURES
The Company's non-GAAP adjusted net income excludes acquisition and divestiture related items, debt restructuring
costs, stock-based compensation, restructuring and other costs, a vendor settlement, unrealized gains and losses on derivatives,
net foreign currency remeasurement gains and losses, non-cash adjustments related to tax receivable agreement, reserves for
regulatory penalties, similar adjustments attributed to our non-controlling interest and certain tax related items.
Beginning in the third quarter of 2016, adjusted net income further excluded debt issuance cost amortization. For
comparative purposes, adjusted pre-tax income before NCI attributable to shareholders for the prior periods has been adjusted to
reflect the exclusion of these items and differs from the figure previously reported due to this adjustment.
Although adjusted net income is not calculated in accordance with GAAP, this non-GAAP measure is integral to the
Company's reporting and planning processes and the chief operating decision maker of the Company uses pre-tax adjusted income
to allocate resources. The Company considers this measure integral because it excludes specified items that the Company's
management excludes in evaluating the Company's performance. Specifically, in addition to evaluating the Company's performance
on a GAAP basis, management evaluates the Company's performance on a basis that excludes the above items because:
• Exclusion of the non-cash, mark-to-market adjustments on derivative instruments, including fuel-price related derivatives
and interest rate swap agreements, helps management identify and assess trends in the Company's underlying business
that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these derivative contracts.
The non-cash, mark-to-market adjustments on derivative instruments are difficult to forecast accurately, making
comparisons across historical and future quarters difficult to evaluate.
• Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, receivable
and payable balances, certain intercompany notes denominated in foreign currencies and any gain or loss on foreign
currency hedges relating to these items. The exclusion of these items helps management compare changes in operating
results between periods that might otherwise be obscured due to currency fluctuations.
• The Company considers certain acquisition-related costs, including certain financing costs, ticking fees, investment
banking fees, warranty and indemnity insurance, certain integration related expenses and amortization of acquired
intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside
of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition,
the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be
indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses of
divestitures facilitates the comparison of our financial results to the Company's historical operating results and to other
companies in our industry.
In prior periods, the Company has adjusted for goodwill impairments and acquisition related asset impairments. No
goodwill or acquisition related impairments were identified during the years ended December 31, 2016, 2015 and 2014.
•
Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a
cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award
is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based
on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.
48
• Restructuring costs are related to employee termination benefits from certain identified initiatives to further streamline
the business, improve the Company's efficiency, create synergies and to globalize the Company's operations, all with an
objective to improve scale and increase profitability going forward. We exclude these items when evaluating our continuing
business performance as such items are not consistently occurring and do not reflect expected future operating expense,
nor provide insight into the fundamentals of current or past operations of our business.
• Vendor settlement represents a payment in exchange for the release of potential claims related to insourcing certain
technology, and does not reflect recurring costs that would be relevant to the continuing operations of the Company. The
Company believes that excluding this nonrecurring expense facilitates the comparison of our financial results to the
Company's historical operating results and to other companies in our industry.
• Debt issuance cost amortization is a non-cash item. Additionally, both these and the costs associated with debt restructuring
are unrelated to the continuing operations of the Company. Because these types of costs are dependent upon the financing
method which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison
to historical results as well as to other companies within our industry.
• Regulatory reserves reflect charges related to the impact of a regulatory action which resulted in WEX paying a penalty.
We have excluded this item when evaluating our continuing business performance as it is not consistently recurring and
does not reflect an expected future operating expense, nor provide insight into the fundamentals of the current or past
operations of our business.
• The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-
controlling interest, and the non-cash adjustments related to tax receivable agreement have no significant impact on the
ongoing operations of the business.
• The tax related items are the difference between the Company’s U.S. GAAP tax provision and a pro forma tax provision
based upon the Company’s adjusted net income before taxes as well as the impact from certain discrete tax items. The
methodology utilized for calculating the Company’s adjusted net income tax provision is the same methodology utilized
in calculating the Company’s U.S. GAAP tax provision.
For the same reasons, WEX believes that adjusted net income may also be useful to investors as one means of evaluating
the Company's performance. However, because adjusted net income is a non-GAAP measure, it should not be considered as a
substitute for, or superior to, net income, operating income or cash flows from operating activities as determined in accordance
with GAAP. In addition, adjusted net income as used by WEX may not be comparable to similarly titled measures employed by
other companies.
The following table reconciles Adjusted Net Income to net earnings attributable to WEX Inc.:
Net earnings attributable to shareholders
Unrealized (gains) losses on derivative instruments
Net foreign currency remeasurement loss
Acquisition and divestiture related items
Stock-based compensation
Restructuring and other costs
Vendor settlement
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
Regulatory reserve
ANI adjustments attributable to non-controlling interests
Tax related items
Adjusted net income attributable to shareholders
Year ended December 31,
2016
2015
2014
$
60,637
$
101,904
$
202,211
(7,901)
7,665
148,753
19,742
13,995
15,500
12,673
563
—
(2,583)
(79,834)
35,962
5,689
50,714
12,420
9,010
—
3,097
(2,145)
1,750
4,996
(32,286)
(48,327)
13,438
20,826
13,790
—
—
2,641
1,331
—
(2,150)
2,462
$
189,210
$
191,111
$
206,222
49
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOWS
We believe that our cash generating capability and financial condition, together with our revolving credit agreement and
other available methods of financing (including deposits, participation loans, borrowed federal funds and securitization facilities),
are adequate to meet our operating, investing and financing needs. As part of our overall financial structure, our industrial bank
subsidiary, WEX Bank, utilizes brokered deposits and borrowed federal funds to finance our domestic accounts receivable.
The table below summarizes our cash activities:
(in thousands)
Net cash (used for) provided by operating activities
Net cash used for investing activities
Net cash provided by (used for) financing activities
2016 Highlights
Year ended December 31,
2016
(151,131) $
$
2015
2014
445,100
$
296,413
(1,160,439)
(126,658)
$ 1,216,081
$
(319,538) $
(904,034)
526,707
• On July 1, 2016, we completed the acquisition of EFS, a provider of customized corporate payment solutions for fleet
and corporate customers with a focus on the large and mid-sized over-the-road fleet segments for approximately $1.4
billion in cash and stock consideration. This is the Company's largest acquisition to date.
In conjunction with the EFS acquisition, we successfully closed on the 2016 Credit Agreement, which increased our
available financing. The 2016 Credit Agreement provides for term loan facilities in the amount of $1.7 billion, a $470
million secured revolving credit facility and the option for additional loans subject to certain criteria.
• During 2016, our increase in accounts receivable resulted in a $442.3 million use of cash, net of the customer receivables
acquired as part of the EFS acquisition. This was primarily funded by operating activities. Accounts receivable increased
as a result of higher revenues during the month ended December 31, 2016 as compared to the same period in 2015,
resulting primarily from an increase in transaction volume.
•
In November 2016, we entered into three forward-fixed interest rate swap agreements to manage the interest rate risk
associated with our outstanding variable-interest rate borrowings. Commencing January 2017, the Company will receive
variable interest of 1-month LIBOR under these swaps and will pay fixed rates between 0.896% to 1.125%, reducing a
portion of the variability of the future interest payments associated with $800 million of our borrowings.
• During 2016, cash outflows from capital additions totaled $61.8 million, primarily related to the development of internal-
use software as we expand globally and provide competitive products and services to our customers.
2015 Highlights
• During 2015, cash provided by operating activities was primarily provided by a decrease in accounts receivable, net of
the accounts receivable balances acquired with our acquisitions, net income, and depreciation and amortization expense.
Accounts receivable decreased in 2015 over 2014 as a result of decreases in fuel prices.
• On November 18, 2015, we acquired Benaissance for approximately $80.7 million. The transaction was financed through
the Company’s cash on hand and existing credit facility.
• On August 31, 2015, we acquired the remaining 49 percent ownership in UNIK, that we did not previously own for
approximately $46 million. The transaction was financed through the Company’s cash on hand and existing credit facility.
• On January 7, 2015, we sold our operations of rapid! PayCard for $20.0 million, which resulted in a pre-tax gain of $1.2
million.
• During 2015, we incurred restructuring charges of $9.0 million, of which approximately $1.4 million was paid during
the year. These expenses consist of employee termination benefits and third party service fees and are expected to be paid
out through 2016 and into 2017.
• During 2015, we had approximately $63 million of capital expenditures. A significant portion of our capital expenditures
are for the development of internal-use computer software primarily to enhance product features and functionality in the
United States and the development of our global fleet platform. Our capital spending is financed primarily through
internally generated funds.
50
2014 Highlights
• During 2014, our increase in accounts receivable, net of the account receivable balances acquired with our acquisitions,
was primarily funded by operating activities. Accounts receivable increased in 2014 over 2013 as a result of increased
customer spend levels.
• On July 16, 2014, we acquired Evolution1 for approximately $532.2 million in cash. The transaction was financed through
our cash on hand and existing credit facility.
• On July 29, 2014, we sold our Pacific Pride subsidiary, for $49.7 million, which resulted in a pre-tax gain of $27.5 million.
• On August 22, 2014, we entered into agreements, including the 2014 Credit Agreement, to modify certain terms of our
existing bank borrowing agreements in order to permit the additional financing and investments necessary to facilitate
the consummation of the Esso portfolio in Europe transaction.
• On December 1, 2014, WEX Europe Services Limited, acquired certain assets of ExxonMobil's European commercial
fuel card program for approximately $379.5 million, which includes operations, funding, pricing, sales and marketing in
nine countries in Europe.
• During 2014, we had $58.1 million of capital expenditures. A significant portion of our capital expenditures are for the
development of internal-use computer software primarily to enhance product features and functionality in the United
States and for the development of our global fleet platform. Our capital spending is financed primarily through internally
generated funds.
Liquidity
General
In general, our trade receivables provide for payment terms of 30 days or less. Receivables not paid within the terms of
the customer agreement are generally subject to late fees based upon the outstanding customer receivable balance. Beginning in
the first quarter of 2015, we began to extend revolving credit to certain customers with respect to small fleet receivables. These
accounts are also subject to late fees and balances that are not paid in full are subject to interest charges based on a revolving
balance. As of December 31, 2016 and 2015, we had approximately $3.4 million and $1.1 million, respectively, of receivables
with revolving credit.
At December 31, 2016, approximately 93 percent of the outstanding balance of $2.2 billion of total trade accounts
receivable was current and approximately 98 percent of the outstanding balance of total trade accounts receivable was less than
60 days past due. The outstanding balance is made up of receivables from a wide range of industries. One customer represented
11 percent of the outstanding receivables balance at each of December 31, 2016 and 2015.
Our short-term cash requirements consist primarily of payments to major oil companies for purchases made by our fleet
customers, payments to our online travel agency merchants, payments on maturing and withdrawals of brokered deposits and
borrowed federal funds, interest payments on our credit facility and other operating expenses. WEX Bank is responsible for the
majority of domestic payments to major oil companies, merchants, and payments on maturing and withdrawals of brokered deposits
and borrowed federal funds. WEX Bank can fund our short-term domestic cash requirements through the issuance of brokered
deposits and borrowed federal funds. Any remaining cash needs are primarily funded through operations.
2016 Credit Agreement
On July 1, 2016, we entered into the 2016 Credit Agreement in order to permit the additional financing necessary to
facilitate the EFS acquisition. The 2016 Credit Agreement provides for a tranche A term loan facility in an amount equal to $455
million that matures on July 1, 2021, a tranche B term loan facility in an amount equal to $1,200 million that matures on July 1,
2023, and a $470 million secured revolving credit facility, with a $250 million sublimit for letters of credit and a $20 million
sublimit for swingline loans, that terminates on July 1, 2021. Additional loans of up to the greater of $375 million (plus the amount
of certain prepayments) and an unlimited amount subject to satisfaction of a consolidated leverage ratio test of 4.00 to 1.00 may
be made available under the 2016 Credit Agreement upon request of the Company subject to specified terms and conditions,
including receipt of lender commitments.
On July 1, 2016, the Company borrowed the entire principal amount of the tranche A term loan facility, the entire principal
amount of the tranche B term loan facility and $220.0 million under the revolving credit facility to pay the cash portion of the
purchase price for the EFS acquisition, repay amounts outstanding under the 2014 Credit Agreement (which has been superseded
51
by the 2016 Credit Agreement), and pay related fees, expenses and other transaction costs, as well as for working capital and other
general corporate purposes.
Our credit agreements contain various financial covenants requiring us to maintain certain financial ratios. In addition to
the financial covenants, the credit agreements contain various customary restrictive covenants including restrictions in certain
situations on the payment of dividends. WEX Bank is not subject to certain of these restrictions. We were in compliance with all
material covenants and restrictions at December 31, 2016.
As of December 31, 2016, we had no outstanding borrowings against our $470.0 million revolving credit facility, which
terminates in July of 2021. The amount of loan origination fees for the revolving credit facility were $9.2 million at December 31,
2016. The combined outstanding debt under our tranche A term loan facility, which expires in July of 2021, and our tranche B
term loan facility, which expires in July of 2023, totaled $1.6 billion at December 31, 2016, net of loan origination fees. As of
December 31, 2016, amounts outstanding under the 2016 Credit Agreement bore a weighted average effective interest rate of
4.2%.
See Item 8 - Note 12 Financing Debt for further information regarding interest rates, voluntary prepayments rights and
principal payments required under our 2014 and 2016 Credit Agreements.
Ticking Fees
In January 2016, we began to incur ticking fees for the debt financing commitment associated with the 2016 Credit
Agreement in anticipation of the then pending acquisition of EFS. Through June 30, 2016, we recorded $30 million of ticking
fees, which is included in financing interest expense. These ticking fees were calculated based on the financing commitment of
an aggregate principal amount of $2.125 billion that remained in place until the closing of the EFS acquisition on July 1, 2016.
The total amount of ticking fees paid at the closing of the EFS acquisition was $22.2 million. The excess ticking fees of $7.9
million were netted against the net debt issuance costs related to the 2016 Credit Agreement and will be amortized over the 2016
Credit Agreement's terms using the effective interest method for the tranche A and B term loans and the revolver.
$400 million Notes Outstanding
On January 30, 2013, the Company completed a $400 million offering in aggregate principal amount of its 4.750 percent
senior notes due 2023 (the “Notes”) at an issue price of 100.0 percent of the principal amount, plus accrued interest, from January 30,
2013. Proceeds from the Notes were used to pay down the entire outstanding balance of the revolver portion of our 2013 Credit
Agreement. The remaining proceeds are available for working capital purposes, acquisitions, payment of dividends and other
restricted payments, refinancing of indebtedness, and other general corporate purposes.
WEX Brazil Debt
WEX Brazil had debt of approximately $30.8 million and $5.0 million as of December 31, 2016 and 2015, respectively.
This is comprised of credit facilities held in Brazil and loan arrangements related to our accounts receivable, with various maturity
dates. The average interest rate was 19.7 percent and 15.2 percent for the years ended December 31, 2016 and 2015, respectively.
This debt is classified in Other debt on the Company’s consolidated balance sheets for the periods presented.
Participation Debt
WEX Bank has entered into an agreement with a third-party bank to fund customer balances that exceeded WEX Bank's
lending limit. This agreement was most recently amended in July 2016 to extend the maturity date while maintaining a funding
capacity of $45.0 million. During the second quarter of 2016, WEX Bank entered into another agreement with a separate third-
party bank for incremental funding capacity of $10.0 million. This second agreement was amended in August 2016 to increase the
incremental funding capacity to $50.0 million. These borrowings carry a variable interest rate of 1 to 3-month LIBOR plus a margin
of 225 basis points. The balance of the debt was $95.0 million and $45.0 million as of December 31, 2016 and 2015, respectively,
and was secured by an interest in the underlying customer receivables. The participation debt balance will fluctuate on a daily
basis based on customer funding needs, and will range from $0 to $95.0 million. The Company's participation debt agreements
will mature on December 31, 2020 and August 18, 2017, respectively.
Australian Securitization Facility
On April 28, 2015, we entered into a one-year securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd.
In April 2016, this agreement was extended for one year. Under the terms of the agreement, each month, on a revolving basis, the
Company sells certain of its Australian receivables to our Australian Securitization Subsidiary. The Australian Securitization
Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper ("securitized debt") for approximately
52
85 percent of the securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized
debt and is not available for general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 2.65 percent and 2.91 percent as of December 31, 2016 and 2015,
respectively. The Company had securitized debt under this facility of $78.6 million and $82.0 million as of December 31, 2016
and 2015, respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to our
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The amounts of receivables to be securitized under this agreement will be determined by management
on a monthly basis. The Company had $5.7 million of securitized debt under this facility as of December 31, 2016 at an interest
rate of 0.95 percent.
Deposits and Borrowed Federal Funds
WEX Bank issues certificates of deposit in various maturities ranging between 1 month and three years, with interest
rates ranging from 0.65 percent to 1.35 percent as of December 31, 2016, as compared to interest rates ranging from 0.55 percent
to 1.35 percent as of December 31, 2015, and 0.35 percent to 1.05 percent as of December 31, 2014. WEX Bank also issues interest-
bearing money market deposits with variable interest rates ranging from 0.48 percent to 0.87 percent as of December 31, 2016,
as compared to variable interest rates ranging from 0.00 percent to 0.60 percent as of December 31, 2015, and 0.16 percent to 0.36
percent as of December 31, 2014. As of December 31, 2016, we had approximately $725.6 million of certificates of deposit
outstanding at a weighted average interest rate of 0.96 percent, compared to $152.3 million of certificates of deposit outstanding
at a weighted average interest rate of 0.90 percent as of December 31, 2015, and approximately $296.0 million of certificates of
deposit outstanding at a weighted average interest rate of 0.61 percent as of December 31, 2014. As of December 31, 2016, we
had approximately $325.5 million of brokered money market deposits outstanding at a weighted average interest rate of 0.76
percent, compared to $369.2 million of brokered money market deposits at a weighted average interest rate of 0.45 percent as of
December 31, 2015, and approximately $330.7 million of brokered money market deposits outstanding at a weighted average
interest rate of 0.25 percent as of December 31, 2014.
WEX Bank may issue brokered deposits 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, 2016, all brokered deposits were in denominations of $250,000 or less, corresponding to FDIC deposit insurance
limits. Interest-bearing money market funds may be withdrawn at any time. We believe that our brokered deposits are paying
competitive yields and that there continues to be consumer demand for these instruments.
As of December 31, 2015, we had $309.0 million of non-interest bearing NOW account deposits. As of December 31,
2016, our agreement with the deposit program partner Higher One had ended and we had no non-interest bearing NOW account
deposits. This previous funding source has been replaced by certificates of deposit.
We also carry non-interest bearing deposits that are required for certain customers as collateral for their credit accounts.
We had $67.8 million, $40.0 million and $38.3 million of these deposits on hand at December 31, 2016, 2015 and 2014, respectively.
WEX Bank also borrows from lines of credit on a federal funds rate basis to supplement the financing of our accounts
receivable. Our federal funds lines of credit were $250.0 million, $257.5 million and $125.0 million as of December 31, 2016,
2015 and 2014, respectively, with no outstanding balance as of December 31, 2016.
Other Liquidity Matters
On July 1, 2016, the Company completed the acquisition of EFS for approximately $1.2 billion in cash and 4 million
shares of its common stock.
We discuss our hedging strategies relative to commodity and interest rate risk in Item 7A below. Our fuel price derivatives
were entered into to mitigate the volatility that domestic fuel prices introduce to our revenue streams. The effect of these derivatives
is to restrict a portion of our fuel price exposure to a collar range, established at the time the fuel price derivatives are purchased.
During the fourth quarter of 2014, we suspended purchases under our fuel derivatives program due to unusually low prices in the
commodities market. After the first quarter of 2016, we were no longer hedged for changes in fuel prices. Management will continue
53
to monitor the fuel price market and evaluate our alternatives as it relates to this hedging program. During the course of the year
we received $5.7 million from our counterparties as a result of the net settlement of expiring derivative contracts.
In November 2016, the Company entered into three forward-fixed interest rate swap agreements to manage the interest
rate risk associated with our outstanding variable-interest rate borrowings, effective December 30, 2016. Beginning in January
2017, the Company will receive variable interest of 1-month LIBOR under these swaps and will pay fixed rates between 0.896%
to 1.125% under these swap agreements, reducing a portion of the variability of the future interest payments associated with $800
million of our borrowings. These swaps will mature on December 31, 2018 and 2020. See Note 16, Fair Value for more information.
Our long-term cash requirements consist primarily of amounts owed on our 2016 Credit Agreement, amounts due to
Wyndham Worldwide Corporation (see Note 14 - Tax Receivable Agreement, in Part II, Item 8) as part of our tax receivable
agreement, and various facilities lease agreements.
As of December 31, 2016, we also had approximately $13.3 million in letters of credit outstanding. At December 31,
2016, we had $1,599.3 million of borrowed funds, and $470.0 million available, under the 2016 Credit Agreement, subject to the
covenants as described above.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $25.8 million and $13.2 million at
December 31, 2016 and 2015, respectively. These earnings are considered to be indefinitely reinvested, and accordingly, no U.S.
federal and state income taxes have been provided thereon. If we were to distribute such 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. The Company’s primary tax jurisdictions are the United States, Australia and the
United Kingdom.
Earnings outside of the United States are accompanied by certain financial risks, such as changes in foreign currency
exchange rates. Changes in foreign currency exchange rates may reduce the reported value of our foreign currency revenues, net
of expenses, and cash flows. We cannot predict changes in currency exchange rates, the impact of exchange rate changes, nor the
degree to which we will be able to manage the impact of currency exchange rate changes. As of December 31, 2016, we have
approximately $66.0 million in cash located outside of the United States.
WEX Bank was required to maintain reserves against certain customer deposits by keeping cash on hand or balances
with the Federal Reserve Bank due to the Company's agreement with Higher One to offer NOW deposit accounts. During the
fourth quarter of 2016, the Company's agreement with Higher One ended. As a result, the Company is not subject to these reserve
requirements as of December 31, 2016. The required amount of those reserves at December 31, 2015 was $39.7 million.
We currently have authorization from our Board to purchase up to $150 million of our common stock until September
30, 2017. We used $22 million during 2015 to repurchase shares of our common stock. The approximate dollar value of shares
that were available to be purchased under our share repurchase program was $108.2 million as of December 31, 2016. The program
is funded either through our future cash flows or through borrowings on our 2016 Credit Agreement. Share repurchases are made
on the open market and may be commenced or suspended at any time. The Company’s management, based on its evaluation of
market and economic conditions and other factors, determines the timing and number of shares repurchased. The Company is
subject to restrictions under the investor rights agreement entered at the closing of the EFS acquisition that may limit our ability
to repurchase shares.
Management believes that we can adequately fund our cash needs for at least the next 12 months.
54
Contractual Obligations
The table below summarizes the estimated dollar amounts of payments under contractual obligations as of December 31,
2016, for the periods specified:
(in thousands)
Operating Lease Obligations(a)
Debt Obligations
Term Loans
Interest payments on term loans(b)
$400 million notes offering
Interest on $400 million notes offering
Other debt(c)
Securitization facility(d)
Other Commitments
Certificates of deposit
Minimum volume purchase commitments(e)
Tax receivable agreement(f)
Other(g)
2017
2018
2019
2020
2021 and
Thereafter
Total
$
11,495
$
9,276
$
6,429
$
5,354
$
19,517
$
52,071
34,750
68,051
—
19,000
125,755
84,323
517,524
164,422
13,098
77,102
34,750
66,591
—
19,000
—
—
165,065
164,422
13,422
8,560
34,750
65,132
—
19,000
—
—
42,983
164,422
15,108
8,560
34,750
63,672
—
19,000
—
—
—
1,498,625
1,637,625
128,889
400,000
39,583
—
—
—
392,335
400,000
115,583
125,755
84,323
725,572
164,422
643,987
1,301,675
5,674
1,560
—
3,120
47,302
98,902
Total
$ 1,115,520
$
481,086
$
356,384
$
294,432
$ 2,733,721
$ 4,981,143
(a) Operating leases – We lease office space, office equipment and computer equipment under long-term operating leases, which
are recorded in occupancy and equipment or technology leasing and support. See Item 8 - Note 18, Commitment and Contingencies
for more information.
(b) Interest payments on term loans – Interest payments are based on effective rates and credit spreads in effect as of December 31,
2016. See Item 8 - Note 12, Financing Debt for more information.
(c) Other debt – This amount consists of participation debt at WEX Bank and debt balances at one of the Company's subsidiaries.
Interest payments due were not included as the amount was not material.
(d) Securitization facility – Interest payments due on the securitization facility are not included as the amount was not material.
(e) Minimum volume purchase commitments – One of the Company's subsidiaries is required to purchase a minimum amount of
fuel from their suppliers on an annual basis. If the minimum requirement is not fulfilled, they are subject to penalties based on the
amount of spend below the minimum annual volume commitment. The table above represents the Company's annual penalty
assuming we purchase no fuel under these commitments after December 31, 2016.
(f) Tax receivable agreement – As a consequence of the Company’s separation from its former parent company in 2005, the tax
basis of the Company’s net tangible and intangible assets increased, reducing 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 Company’s 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.” See Item 8 - Note 14, Tax Receivable Agreement
for more information.
(g) Other – This amount is comprised of contractually committed incentives to be paid to a strategic relationship in 2017, a vendor
settlement and future payments due for our outsourced information technology services.
Uncertain tax liabilities – The Company has excluded $4,960 in unrecognized tax benefits as of December 31, 2016 from the table
above due to the uncertainty about the timing of payments to the taxing authority.
55
Off-balance Sheet Arrangements
Other than the operating leases included in the table above, we have the following off-balance sheet arrangements as of
December 31, 2016:
• Extension of credit to customers – We have entered into commitments to extend credit in the ordinary course of business.
We had approximately $5.4 billion of unused commitments to extend credit at December 31, 2016, as part of established
customer agreements. These amounts may increase or decrease during 2017 as we increase or decrease credit to customers,
subject to appropriate credit reviews, as part of our lending product agreements. Many of these commitments are not
expected to be utilized; therefore, we do not believe total unused credit available to customers and customers of strategic
relationships represents future cash requirements. We can adjust most of our customers’ credit lines at our discretion at
any time. We believe that we can adequately fund actual cash requirements related to these credit commitments through
the issuance of certificates of deposit, borrowed federal funds and other debt facilities.
•
Letters of credit – As of December 31, 2016, we had $13.3 million outstanding in undrawn irrevocable letters of credit
issued by us in favor of third-party beneficiaries, primarily related to facility lease agreements and virtual card and fuel
payment processing activity at our foreign subsidiaries. These irrevocable letters of credit are unsecured and are renewed
on an annual basis unless the Company chooses not to renew them.
56
Application of Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with Generally Accepted Accounting Principles. Preparation of these financial
statements requires us to make estimates and judgments that affect reported amounts of assets and liabilities, revenue and expenses
and related disclosure of contingent assets and liabilities at the date of our financial statements. We continually evaluate our
judgments and estimates in determination of our financial condition and operating results. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Estimates are based on information available as of the date of the financial statements and, accordingly, actual results could differ
from these estimates, sometimes materially. Critical accounting policies and estimates are defined as those that are both most
important to the portrayal of our financial condition and operating results and require management’s most subjective judgments.
Our consolidated financial statements are based on the selection and application of critical accounting policies and estimates, the
most significant of which are included in the tables below.
Effect if Actual Results Differ from
Assumptions
In preparing the financial statements,
management must make estimates related to
the contractual terms, customer performance
and sales volume to determine the total
amounts recorded as deductions, such as
rebates and incentives, from revenue.
Management also considers historical results
in making such estimates. The actual amounts
ultimately paid to the customer may be
different from our estimates. Such differences
are recorded once they have been determined
and have historically not been significant.
Revenue Recognition
Description
Assumptions/Approach Used
The Company generally records revenue net of
costs based on the following criteria: (i) the
Company is not the primary obligor in the
arrangement; (ii) the Company has no
inventory risk; (iii) the Company does not have
reasonable latitude with respect to establishing
the price for the product; (iv) the Company
does not make any changes to the product or
have any involvement in the product
specifications; and (v) the amount the
Company earns for its services is fixed, within
a limited range.
The Company enters into contracts with certain
large customers or strategic relationships that
provide for fee rebates tied to performance
milestones. Rebates are recorded as a reduction
in revenue in the same period that revenue is
earned or performance occurs. Rebates and
incentives are calculated based on estimated
performance and the terms of the related
business agreements.
Service related revenues are recognized in the
period that the work is performed.
The Company recognizes SaaS based service
fees in the healthcare market for the per-
participant per-month fee which is recognized
on a monthly basis subsequent to billing being
completed. Interchange fees are recorded as
received and ancillary service revenue is
recognized when the related services have
been provided.
The majority of the Company’s revenues are
comprised of transaction-based fees, which are
generally calculated based on measures such as:
(i) percentage of dollar value of volume processed;
(ii) number of transactions processed; or (iii) some
combination thereof.
In Europe, our Fleet Solutions payment processing
revenue is specifically derived from the difference
between the negotiated price of the fuel from the
supplier and the agreed upon price paid by the
fleets.
Interchange income is earned from the Company’s
suite of card products. 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 it is earned.
The Company assesses fees for providing ancillary
services, such as information products and services,
SaaS based fees, 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 Company’s customers.
The Company has entered into agreements with
major oil companies, fuel retailers and vehicle
maintenance providers which provide products and/
or services to the Company’s 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 Company’s 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.
57
Reserve for Credit Losses
Description
Assumptions/Approach Used
The reserve for losses relating to accounts
receivable represents management’s estimate of the
losses inherent in the Company’s outstanding
portfolio of receivables. The reserve for credit
losses reduces the Company’s accounts receivable
balances as reported in its financial statements to
the net realizable value.
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.
Reserves for losses on these receivables are
primarily based on a model that analyzes
specific portfolio statistics, including average
charge-off rates for various stages of
receivable aging (including: current, 30 days,
60 days, 90 days) over historical periods
including average bankruptcy and recovery
rates. Receivables are generally written off
when they are 150 days past due or declaration
of bankruptcy by the customer.
The reserve reflects management’s judgment
regarding overall reserve adequacy.
Management considers whether to adjust the
reserve that is calculated by the analytic model
based on other factors, such as the actual
charge-offs for the preceding reporting periods,
expected charge-offs and recoveries for the
subsequent reporting periods, a review of
accounts receivable balances which become
past due, changes in customer payment
patterns, known fraudulent activity in the
portfolio, as well as leading economic and
market indicators.
Effect if Actual Results Differ from
Assumptions
To the extent historical credit experience is
not indicative of future performance, actual
loss experience could differ significantly
from management’s judgments and
expectations, resulting in either higher or
lower future provisions for credit losses, as
applicable. As of December 31, 2016, we
have estimated a reserve for credit losses
which is 0.97 percent of the total gross
accounts receivable balance.
An increase or decrease to this reserve by
0.5 percent would increase or decrease the
provision for credit losses for the year by
$10.4 million. For the past three years, our
reserve for credit losses in an annual period
has not been in excess of 1.0 percent of the
total receivable balance.
58
Business Combinations, Acquired Intangible Assets and Goodwill
Description
Assumptions/Approach Used
Business combinations are accounted for at fair
value. The accounting for business combinations
requires estimates and judgment as to expectations
for future cash flows of the acquired business, and
the allocation of those cash flows to identifiable
intangible assets, in determining the estimated fair
value for assets and liabilities acquired.
Goodwill is comprised of the cost of business
acquisitions in excess of the fair value assigned to
the net tangible and identifiable intangible assets
acquired. Goodwill is not amortized but is
reviewed for impairment annually, or when events
or changes in the business environment indicate
that the carrying value of the reporting unit may
exceed its fair value. Acquired intangible assets
result from the allocation of the cost of an
acquisition. These acquired intangibles include
assets that amortize, primarily software and
customer relationships, and those that do not
amortize, specifically trademarks and certain trade
names. The annual review of goodwill and non-
amortizing intangibles values is performed as of
October 1 of each year.
The fair values assigned to tangible and
intangible assets acquired and liabilities
assumed are based on management’s estimates
and assumptions, as well as other information
compiled by management, including valuations
that utilize customary valuation procedures and
techniques.
For the reporting units that carry goodwill
balances, our impairment test consists of a
comparison of each reporting unit’s carrying
value to its estimated fair value. A reporting
unit, for the purpose of the impairment test, is
one level below the operating segment level.
We have three reporting segments that are
further broken into several reporting units for
the impairment review. The estimated fair
value of a reporting unit is primarily based on
discounted estimated future cash flows. An
appropriate discount rate is used, as well as
risk premium for specific business units, based
on the Company’s cost of capital or reporting
unit-specific economic factors. We generally
validate the model through a reconciliation of
the fair value of all our reporting units to our
overall market capitalization. The assumptions
used to estimate the discounted cash flows are
based on our best estimates about payment
processing fees/interchange rates, sales
volumes, costs (including fuel prices), future
growth rates, capital expenditures and market
conditions over an estimate of the remaining
operating period at the reporting unit level. The
discount rate at each reporting unit is based on
the weighted average cost of capital that is
determined by evaluating the risk free rate of
return, cost of debt, and expected equity
premiums.
Non-goodwill intangible assets are considered
non-recoverable if the carrying amount
exceeds the sum of undiscounted cash flows
expected to result from the use of the assets.
The recoverability test is based on
management’s intended use of the assets. If the
asset fails the recoverability test, impairment is
measured as the amount by which the carrying
amount of the asset group exceeds its fair
value. Fair value measurements under FASB
Accounting Standards Codification ("ASC")
820 - Fair Value Measurements and
Disclosures, are based on the assumptions of
market participants. When determining the fair
value of the asset group, entities must consider
the highest and best use of the assets from a
market-participant perspective.
Effect if Actual Results Differ from
Assumptions
We review the carrying values of the
unamortizing and amortizing assets for
impairment annually and whenever events or
changes in business circumstances indicate
that the carrying amount of an asset may not
be recoverable. Such circumstances would
include, but are not limited to, a significant
decrease in the perceived market price of the
intangible, a significant adverse change in the
way the asset is being used, or a history of
operating or cash flow losses associated with
the use of the intangible.
Our goodwill resides in multiple reporting
units. The profitability of individual reporting
units may suffer periodically from downturns
in customer demand or other economic
factors. Individual reporting units may be
more impacted than the Company as a whole.
Specifically, during times of economic
slowdown, our customers may reduce their
expenditures. As a result, demand for the
services of one or more of the reporting units
could decline which could adversely affect
our operations, cash flow, and liquidity and
could result in an impairment of goodwill or
intangible assets.
As of December 31, 2016, the Company had
an aggregate of approximately $3,104 million
on its consolidated balance sheet related to
goodwill and intangible assets of acquired
entities. Since the acquisition of EFS was
recent, its market value approximates
carrying value. The goodwill associated with
this reporting unit is $728.2 million as of
December 31, 2016. Although no reporting
units are deemed at risk of impairment as of
December 31, 2016, the potential for
impairment exists in the future should actual
results deteriorate versus our current
expectations.
New Accounting Standards
See Item 8 – Note 2, "Recent Accounting Pronouncements" for recently issued accounting standards that have not yet
been adopted.
59
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rates, foreign currency exchange rates and commodity prices.
From time to time, the Company enters into derivative instrument arrangements to manage these risks.
Interest Rate Risk
2016 Credit Agreement
At December 31, 2016, we had borrowings of $1,599.3 million under our 2016 Credit Agreement that bore interest at
variable rates. We periodically review our projected borrowings under our 2016 Credit Agreement and the current interest rate
environment in order to ascertain whether interest rate swaps should be used to increase coverage of our overall borrowings.
During 2016, we entered into three interest rate swap contracts that mature on December 31, 2018 and 2020. Beginning in 2017,
the Company will receive variable interest of 1-month LIBOR under these swaps and will pay fixed rates between 0.896% to
1.125% under these swap agreements, reducing a portion of the variability of the future interest payments associated with $800
million of our borrowings. See Item 8 – Note 16, Fair Value for more information.
Deposits
At December 31, 2016, WEX Bank had deposits (includes certificates of deposits, interest bearing money market deposits
and participation debt) outstanding of $1.1 billion. The deposits are generally short-term in nature. Upon maturity, the deposits
will likely be replaced by issuing new deposits to the extent they are needed.
Sensitivity Analysis
The following table presents a sensitivity analysis of the impact of changes in interest rates on our deposits and corporate
debt, assuming amounts outstanding, the notional amounts of our interest rate swap agreements, and certificate of deposit maturities
in place as of December 31, 2016 remain constant. Actual results may differ materially.
2016 Credit Agreement
Participation agreements
Certificates of deposits
Money market deposits
Foreign Currency Risk
Impact of 1.00%
increase in
interest rates
$
8,376
950
3,044
3,255
Our exposure to foreign currency fluctuation is due to our financial statements being presented in U.S. dollars and our
foreign subsidiaries transacting in currencies other than the U.S. dollar, which results in gains and losses that are reflected in our
consolidated statements of operations. We currently do not utilize hedging instruments to mitigate these risks. However, growth
in our international operations increases this exposure. and we may initiate strategies to hedge certain foreign currency risks in
the future.
Commodity Price Risk
As discussed in the “Fuel Price Derivatives” section of Item 1, we previously used derivative instruments to manage the
impact of volatility in North American fuel prices on our earnings. We entered into put and call option contracts (“Options”) based
on the wholesale price of unleaded gasoline and retail price of diesel fuel, which settled on a monthly basis through the first quarter
of 2016. The Options were intended to lock in a range of prices during any given quarter on a portion of our forecasted earnings
subject to fuel price variations. During the fourth quarter of 2014, we suspended purchases under our fuel derivatives program
due to unusually low prices in the commodities market. After the first quarter of 2016, we were no longer hedged for changes in
fuel prices. Management will continue to monitor the fuel price market and evaluate its alternatives as it relates to this hedging
program.
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Page
62
63
64
65
66
67
69
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of WEX Inc.
South Portland, Maine
We have audited the accompanying consolidated balance sheets of WEX Inc. and subsidiaries (the "Company") as of December
31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of WEX Inc.
and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 6, 2017 expressed an adverse opinion on the Company’s internal control over financial reporting because of a material
weakness.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 6, 2017
62
WEX INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Cash and cash equivalents
Accounts receivable (less reserve for credit losses of $20,092 in 2016 and $13,832 in 2015)
Securitized accounts receivable, restricted
Income taxes receivable
Available-for-sale securities
Fuel price derivatives, at fair value
Property, equipment and capitalized software, net
Deferred income taxes, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Accounts payable
Accrued expenses
Income taxes payable
Deposits
Securitized debt
Revolving line-of-credit facilities and term loans, net
Deferred income taxes, net
Notes outstanding, net
Other debt
Amounts due under tax receivable agreement
Other liabilities
Total liabilities
Commitments and contingencies (Note 18)
Stockholders’ Equity
Common stock $0.01 par value; 175,000 shares authorized; 47,173 shares issued in 2016 and 43,079 in 2015;
42,841 shares outstanding in 2016 and 38,746 in 2015
Additional paid-in capital
Non-controlling interest
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost; 4,428 shares in 2016 and 2015
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
63
December 31,
2016
2015
$
190,930
$
279,989
2,054,701
1,508,605
$
$
97,417
10,765
23,525
—
167,278
6,934
1,838,441
1,265,468
341,638
5,997,097
617,118
331,579
—
1,118,823
84,323
1,599,291
152,906
395,534
125,755
47,302
18,719
$
$
87,724
—
18,562
5,007
138,585
10,303
1,112,878
470,712
215,544
3,847,909
378,811
156,180
2,732
870,518
82,018
664,918
83,912
394,800
50,046
57,537
10,756
4,491,350
2,752,228
472
547,627
8,558
431
174,972
12,437
1,244,271
1,183,634
(122,839)
(172,342)
(103,451)
(172,342)
1,505,747
1,095,681
$
5,997,097
$
3,847,909
WEX INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year ended December 31,
2016
2015
2014
$
520,619
$
495,869
$
211,012
138,940
147,889
156,693
88,993
113,082
$
1,018,460
$
854,637
$
286,298
7,486
173,052
33,348
47,602
25,820
14,864
5,604
6,645
12,145
141,651
12,386
56,431
—
823,332
195,128
(113,418)
(7,665)
12,908
711
(563)
87,101
29,625
57,476
(3,161)
60,637
—
60,637
1.49
1.48
40,809
40,914
$
$
$
234,564
9,010
138,844
22,825
41,315
20,618
12,891
4,515
6,457
10,424
83,077
5,628
36,891
(1,215)
625,844
228,793
(46,189)
(5,689)
—
5,848
2,145
184,908
75,296
109,612
(1,705)
111,317
(9,413)
101,904
2.63
2.62
38,771
38,843
$
$
$
$
$
$
519,987
115,509
80,883
101,268
817,647
200,809
—
119,876
32,144
30,581
18,278
11,814
3,934
5,369
9,213
70,380
6,437
30,064
(27,490)
511,409
306,238
(36,042)
(13,438)
—
46,212
(1,331)
301,639
101,621
200,018
(2,193)
202,211
—
202,211
5.20
5.18
38,890
39,000
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Expenses
Salary and other personnel
Restructuring
Service fees
Provision for credit losses
Technology leasing and support
Occupancy and equipment
Advertising
Marketing
Postage and shipping
Communications
Depreciation and amortization
Operating interest expense
Other
Gain on sale of subsidiary
Total operating expenses
Operating income
Financing interest expense
Net foreign currency loss
Net unrealized gains on interest rate swap agreements
Net realized and unrealized gains on fuel price derivatives
Non-cash adjustments related to tax receivable agreement
Income before income taxes
Income taxes
Net income
Less: Net loss from non-controlling interests
Net earnings attributable to WEX Inc.
Accretion of non-controlling interest
Net earnings attributable to shareholders
Net earnings attributable to WEX Inc. per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
64
WEX INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Changes in available-for-sale securities, net of tax effect of $144 in 2016, $49 in 2015 and $(175) in 2014
Foreign currency translation
Comprehensive income
Less: Comprehensive loss attributable to non-controlling interest
Comprehensive income attributable to WEX Inc.
See notes to consolidated financial statements.
Year ended December 31,
2016
2015
2014
$
57,476
$
109,612
$
200,018
(251)
(19,855)
37,370
(3,879)
(83)
(49,952)
59,577
(7,979)
304
(39,726)
160,596
(6,529)
$
41,249
$
67,556
$
167,125
65
WEX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balance at December 31, 2013
38,987
$
429
$ 168,891
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
$
Treasury
Stock
Retained
Earnings
(15,495) $(130,566) $ 879,519
Stock issued upon exercise of stock
options
Tax benefit from stock options and
restricted stock units
Stock issued upon vesting of restricted
and deferred stock units
Stock-based compensation, net of
share repurchases for tax withholdings
Purchase of shares of treasury stock
Changes in available-for-sale
securities, net of tax effect of $(175)
Noncontrolling interest investment
Foreign currency translation
Net income
18
—
103
—
(211)
—
—
—
—
—
—
1
—
—
—
—
—
—
239
1,867
(1)
8,081
—
—
—
—
—
—
—
—
—
—
304
—
(35,390)
—
—
—
—
—
(19,765)
—
—
—
—
—
—
—
—
—
—
—
—
202,211
Non-
controlling
interest in
subsidiaries
Total
Equity
$
519
$
903,297
—
—
—
—
—
—
21,267
(1,999)
(2,391)
239
1,867
—
8,081
(19,765)
304
21,267
(37,389)
199,820
Balance at December 31, 2014
38,897
430
179,077
(50,581)
(150,331)
1,081,730
17,396
1,077,721
Stock issued upon exercise of stock
options
Tax benefit from stock options and
restricted stock units
Stock issued upon vesting of restricted
and deferred stock units
Stock-based compensation, net of
share repurchases for tax withholdings
3
—
56
—
Purchase of shares of treasury stock
(210)
Changes in available-for-sale
securities, net of tax effect of $49
Adjustment of redeemable non-
controlling interest
Foreign currency translation
Net income
—
—
—
—
—
—
1
—
—
—
—
—
—
33
650
(1)
9,140
—
—
(13,927)
—
—
—
—
—
—
—
(83)
(9,108)
(43,679)
—
—
—
—
—
(22,011)
—
—
—
—
—
—
—
—
—
—
(9,413)
—
111,317
—
—
—
—
—
—
—
(2,063)
(2,896)
33
650
—
9,140
(22,011)
(83)
(32,448)
(45,742)
108,421
Balance at December 31, 2015
38,746
431
174,972
(103,451)
(172,342)
1,183,634
12,437
1,095,681
Stock issued upon exercise of stock
options
Tax deficiency from stock options
and restricted stock units
Stock issued upon vesting of
restricted and deferred stock units
Stock-based compensation, net of
share repurchases for tax
withholdings
Stock issued for July 1, 2016
purchase of EFS
Changes in available-for-sale
securities, net of tax effect of $144
Foreign currency translation
Net income
21
—
62
—
4,012
—
—
—
—
—
1
—
40
—
—
—
300
(100)
(1)
17,543
354,913
—
—
—
—
—
—
—
—
(251)
(19,137)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
60,637
—
—
—
—
—
—
(718)
(3,161)
300
(100)
—
17,543
354,953
(251)
(19,855)
57,476
Balance at December 31, 2016
42,841
$
472
$ 547,627
$
(122,839) $(172,342) $1,244,271
$
8,558
$ 1,505,747
See notes to consolidated financial statements.
66
WEX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net unrealized loss (gain)
Stock-based compensation
Depreciation and amortization
Ticking fees expensed
Debt restructuring and debt issuance cost amortization
Gain on divestiture
Loss on debt extinguishment
Provision for deferred taxes
Restructuring charge
Provision for credit losses
Loss on disposal of property, equipment and capitalized software
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Other assets
Accounts payable
Accrued expenses
Income taxes
Other liabilities
Amounts due under tax receivable agreement
Net cash (used for) provided by operating activities
Cash flows from investing activities
Purchases of property, equipment and capitalized software
Purchases of available-for-sale securities
Maturities of available-for-sale securities
Acquisitions and investment, net of cash
Acquisition of an intangible asset
Proceeds from divestiture
Net cash used for investing activities
Cash flows from financing activities
Excess tax benefits from equity instrument share-based payment arrangements
Repurchase of share-based awards to satisfy tax withholdings
Proceeds from stock option exercises
Net change in deposits
Net activity on other debt
Borrowings on revolving line-of-credit facility
Repayments on revolving line-of-credit facility
Borrowings on term loans
Repayments on term loans
Loan origination fees
Net change in securitized debt
Ticking fees paid
Purchase of redeemable non-controlling interest
Purchase of shares of treasury stock
Net cash provided by (used for) financing activities
Effect of exchange rates on cash and cash equivalents
67
Year ended December 31,
2016
2015
2014
$
57,476
$
109,612
$
200,018
(26,737)
19,742
141,651
30,045
10,656
—
2,017
19,499
2,711
33,348
259
(436,071)
(63,730)
75,807
(1,042)
(14,614)
8,086
(10,234)
(151,131)
(61,799)
(5,853)
495
15,852
12,420
83,077
—
3,097
(1,215)
—
37,359
7,561
22,825
349
199,717
(17,653)
(33,201)
9,033
10,687
(2,322)
(12,098)
445,100
(63,491)
(349)
594
(48,327)
13,790
70,380
—
2,641
(27,490)
—
46,111
—
32,144
1,182
55,883
(16,920)
(29,154)
29,263
(21,770)
(3,190)
(8,148)
296,413
(58,133)
(2,837)
337
(1,089,282)
(80,677)
(891,725)
(4,000)
—
—
17,265
—
48,324
(1,160,439)
(126,658)
(904,034)
597
(2,200)
300
248,926
62,474
650
(2,392)
33
1,867
(5,709)
239
(107,345)
(109,138)
(435)
46,851
3,505,732
2,203,027
2,519,742
(3,707,248)
(2,402,118)
(2,105,321)
1,643,000
(476,126)
(40,868)
3,665
(22,171)
—
—
1,216,081
6,430
—
(27,500)
—
84,571
—
(46,018)
(22,011)
(319,538)
(3,678)
222,500
(21,250)
(3,309)
—
—
—
(19,765)
526,707
4,191
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information
Interest paid
Income taxes paid
Supplemental disclosure of non-cash investing and financing activities
Issuance of common stock in a business combination
See notes to consolidated financial statements.
(89,059)
279,989
190,930
116,272
23,946
354,953
$
$
$
$
(4,774)
284,763
279,989
49,032
27,186
$
$
$
(76,723)
361,486
284,763
40,287
75,258
— $
—
$
$
$
$
68
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. Summary of Significant Accounting Policies
Business Description
WEX Inc. (“Company”, "we" or "our") 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 Company’s Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit 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, vehicle maintenance providers, online travel agencies and health partners.
Basis of Presentation
The accompanying consolidated financial statements of WEX Inc. for the years ended December 31, 2016, 2015 and
2014, include the accounts of WEX Inc. and its material subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
The presentation of the accompanying consolidated statements of income has been updated for the years ended December
31, 2015 and 2014 to disaggregate revenue into payment processing, account servicing, finance fee and other revenue in order to
provide additional information regarding the Company’s significant revenue streams and to conform to the current year presentation.
There was no change to total revenue, income from operations, net income or net income per share in any of the periods presented
as a result of this updated presentation.
The Company rounds amounts in the consolidated financial statements to thousands and calculates all percentages and
per-share data from underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot, or recalculate based on
reported numbers due to rounding.
In September 2015, the FASB issued ASU 2015-16 related to simplifying the accounting for measurement period
adjustments. This standard replaces the requirement that an acquirer in a business combination account for measurement period
adjustments retrospectively. Under the amendments, an acquirer must recognize adjustments to the provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the
effect on earnings of changes in depreciation, amortization, or other income effects as if the accounting had been completed at the
acquisition date. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective
date of the guidance. The Company adopted this standard on January 1, 2016.
In April 2015, the FASB issued ASU 2015-03 related to the simplification of the presentation of debt issuance costs. The
standard requires entities to present such costs in the balance sheet as a direct deduction from the related debt liability rather than
as an asset. Amortization of the costs is reported as interest expense. The ASU provides that debt issuance costs are analogous to
debt discounts and reduce the proceeds of borrowing which increases the effective interest rate. Prior to the amendment, debt
issuance costs were reported in the balance sheet as an asset. The amended guidance was effective for financial statements issued
for fiscal years beginning after December 15, 2015, required retrospective adoption, and represented a change in accounting
principle. As a result of the adoption, the December 31, 2015 consolidated balance sheet is restated as follows:
Previously Reported
Effect of Accounting
Principle Adoption
Adjusted
Consolidated balance sheet
Other assets
Total assets
Revolving line-of-credit facilities and term loan, net
Notes outstanding, net
Total liabilities
Total liabilities and stockholders’ equity
225,581
$
(10,037) $
3,857,946
669,755
400,000
2,762,265
(10,037)
(4,837)
(5,200)
(10,037)
3,857,946
$
(10,037) $
215,544
3,847,909
664,918
394,800
2,752,228
3,847,909
$
$
69
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Acronyms and Abbreviations
The acronyms and abbreviations identified below are used in the accompanying consolidated financial statements and
the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing the consolidated
financial statements:
2011 Credit Agreement
2013 Credit Agreement
2014 Amendment
Agreement
2014 Credit Agreement
2016 Credit Agreement
Adjusted Net Income or
ANI
ASU 2014-09
ASU 2015-03
ASU 2015-16
ASU 2016-01
ASU 2016-02
ASU 2016-09
ASU 2016-13
ASU 2016-15
Australian Securitization
Subsidiary
Average expenditure per
payment processing
transaction
Benaissance
Company
EFS
Esso portfolio in Europe
Credit agreement entered into on May 23, 2011 among the Company, as borrower, WEX Card
Holdings Australia Pty Ltd, a wholly-owned subsidiary of the Company, as specified designated
borrower, Bank of America, N.A., as administrative agent and letter of credit issuer, and the other
lenders party thereto
Amended and restated credit agreement entered into on January 18, 2013 by and among the Company
and certain of our subsidiaries, as borrowers, and WEX Card Holdings Australia Pty Ltd, as specified
designated borrower, with a lending syndicate
Amendment and restatement agreement entered into on August 22, 2014, among the Company, the
lenders party thereto, and Bank of America, N.A., as administrative agent
Second amended and restated credit agreement entered into on August 22, 2014, by and among the
Company and certain of its subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as
designated borrower, and Bank of America, N.A., as administrative agent on behalf of consenting
lenders.
Credit agreement entered into on July 1, 2016 by and among the Company and certain of its
subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank
of America, N.A., as administrative agent on behalf of the lenders
A non-GAAP measure that adjusts net earnings attributable to shareholders to exclude acquisition
and divestiture related items, debt restructuring and debt issuance cost amortization, stock-based
compensation, restructuring and other costs, a vendor settlement, unrealized gains and losses on
derivatives, net foreign currency remeasurement gains and losses, non-cash adjustments related to
tax receivable agreement, reserves for regulatory penalties, similar adjustments attributed to our non-
controlling interest and certain tax related items.
Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606)
Accounting Standards Update No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs
Accounting Standards Update No. 2015-16 Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments
Accounting Standards Update No. 2016-01 Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
Accounting Standards Update No. 2016-02 Leases (Topic 842)
Accounting Standards Update No. 2016-09 Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
Accounting Standards Update No. 2016-13 Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments
Southern Cross WEX 2015-1 Trust, a bankruptcy-remote subsidiary consolidated by the Company
Average total dollars of spend in a funded fuel transaction
Benaissance, a leading provider of integrated SaaS technologies and services for healthcare premium
billing, payment and workflow management, acquired by the Company on November 18, 2015.
WEX Inc. and all entities included in the consolidated financial statements
Electronic Funds Source, LLC, a provider of customized corporate payment solutions for fleet and
corporate customers with a focus on the large and mid-sized over-the-road fleets. On July 1, 2016,
the Company acquired WP Mustang Topco LLC, the indirect parent of Electronic Funds Source,
LLC and Warburg Pincus Private Equity XI (Lexington), LLC, an affiliated entity, from investment
funds affiliated with Warburg Pincus LLC.
European commercial fleet card portfolio acquired from ExxonMobil
70
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
European Securitization
Subsidiary
Evolution1
Evolution1 Plan
FASB
FDIC
FX
GAAP
Higher One
Indenture
NCI
NOL
Notes
NOW deposits
Over-the-road
Pacific Pride
Payment solutions
purchase volume
Payment processing
transactions
PPG
rapid! PayCard
SaaS
SEC
Ticking fees
Total fleet transactions
Transaction processing
transactions
UNIK
WEX
WEX Europe Services
WEX Health
Gorham Trade Finance B.V., a bankruptcy-remote subsidiary consolidated by the Company
EB Holdings Corp. and its subsidiaries which includes Evolution1, Inc., acquired by the Company
on July 16, 2014
Evolution1 401(k) Plan sponsored by Evolution1 Inc.
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Foreign exchange
Generally Accepted Accounting Principles in the United States
Higher One, Inc. a technology and payment services company focused on higher education
The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company,
the guarantors listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
Non-controlling interest
Net operating loss
$400 million notes with a 4.75% fixed rate, issued on January 30, 2013
Negotiable order of withdrawal deposits
Typically heavy trucks traveling long distances
Pacific Pride Services, LLC, previously a wholly-owned subsidiary, sold on July 29, 2014
Total amount paid by customers for transactions
Funded payment transactions where the Company maintains the receivable for total purchase
Price per gallon of fuel
rapid! PayCard, previously a line of business of the Company, sold on January 7, 2015
Software-as-a-service
Securities and Exchange Commission
A fee incurred by a borrower to compensate the lender to delay a financing arrangement and hold a
commitment of funds for the borrower for a period of time
Total of transaction processing and payment processing transactions
Unfunded payment transactions where the Company is the processor and only has receivables for
the processing fee
UNIK S.A., the Company's Brazilian subsidiary, which has been subsequently branded WEX Brazil
WEX Inc.
Consists primarily of our ESSO portfolio in Europe acquired by the Company from ExxonMobil on
December 1, 2014
Evolution1 and Benaissance, collectively
71
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Use of Estimates and Assumptions
The Company prepares its consolidated financial statements in conformity with GAAP and with the Rules and Regulations
of the SEC, specifically Regulation S-X and the instructions to Form 10-K. These principles require 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 fair value. Cash equivalents
include federal funds sold, which are unsecured short-term investments entered into with financial institutions.
Restricted Cash
Restricted cash represents funds collected from individuals or employers on behalf of our customers that are to be remitted
to third parties or funds required to be maintained on hand under certain vendor agreements. This restricted cash, which totaled
$22,412 and $17,783 as of December 31, 2016 and 2015, respectively, is classified in Other Assets on the Company’s consolidated
balance sheets. We maintain an offsetting liability against restricted cash collected and remitted on behalf of our customers.
Restricted cash is not available to fund the Company’s operations.
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 management’s 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,
changes in customer payment patterns, 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 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 sheets in accumulated other comprehensive
loss. Realized gains and losses and declines in fair value determined to be other-than-temporary are included in non-operating
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 has used 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
sheets.
In November 2016, the Company entered into three forward-fixed interest rate swap agreements to manage the interest
rate risk associated with the Company's outstanding variable-interest rate borrowings. The interest rate swaps do not qualify for
hedge accounting treatment; therefore, gains or losses related to the interest rate swaps, both realized and unrealized, are recognized
in earnings. For the purposes of cash flow presentation, realized and unrealized gains or losses related to the interest rate swaps
are included in operating cash flows, which is consistent with the cash flow treatment of the underlying interest expense on our
outstanding borrowings.
The Company’s fuel price derivative instruments did not qualify for hedge accounting treatment; therefore, gains or losses
related to fuel price derivative instruments, both realized and unrealized, were recognized 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 and unrealized gains or losses related to fuel price derivative instruments are included in operating cash flows, as they
72
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
were intended to hedge operating cash flows. After the first quarter of 2016, the Company was no longer partially hedged for
changes in fuel prices.
In April 2014, the Company initiated a partial foreign currency exchange hedging program and managed foreign currency
exchange exposure on an intra-quarter basis. The majority of the hedges were intended to renew on a monthly basis. Because this
was a partial foreign currency exchange hedging program, the Company had additional foreign currency exchange exposure which
was not hedged. During the third quarter of 2015, the Company decided to suspend the foreign currency exchange hedging program
for all but a few short-term intercompany transactions.
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 primarily computed using the straight-
line method over the estimated useful lives shown below. Leasehold improvements are primarily depreciated using the straight-
line method over the lesser of the useful life of the asset or over the remaining lease term.
Below are the estimated useful lives for assets placed in service during 2016 and beyond:
Furniture, fixtures and equipment
Internal-use computer software
Computer software
Leasehold improvements
Capitalized Software
Estimated Useful Lives
3 to 5 years
3 years
18 months to 7 years
up to 5 years
The Company develops software that is used to provide processing and information management services to customers.
A significant portion of the Company’s capital expenditures is devoted to the development of such internal-use computer software.
Software development costs are capitalized during the application development stage. Costs incurred during the preliminary project
stage are expensed as incurred. Capitalization begins when the preliminary project stage is complete, as well as when management
authorizes and commits to the funding of the project. 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.
Below are the amounts of internal-use software capitalized and amortized:
Amounts capitalized for internal-use computer software (including work-in-process)
Amounts expensed for amortization of internal-use computer software
Goodwill and Other Intangible Assets
Year ended December 31,
2016
2015
2014
$
$
55,379
27,581
$
$
52,218
20,316
$
$
34,053
18,661
The Company classifies intangible assets in the following 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
Company’s operating segments. The Company performs impairment tests at the 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 both
discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting units. 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
73
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
marketplace participants would use in estimating future cash flows. In addition, an appropriate discount rate is used, based on the
Company’s 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 the
reporting unit's implied fair value. The Company's annual goodwill and intangible asset impairment tests performed as of October
1, 2016, 2015 and 2014 did not identify any impairment.
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. The Company determines the useful lives of its
identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. The factors
that management considers when determining useful lives include the contractual term of agreements, the history of the asset, the
Company’s 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. 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 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 is required. The Company did not recognize any significant
impairment expense on the Company’s long-lived assets during the years ended December 31, 2016, 2015 and 2014. Disposals
in the ordinary course of business are recorded in occupancy and equipment in the consolidated statements of income.
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 and borrowed federal funds approximate their respective fair values as the
interest rates on these financial instruments are variable market-based rates. All other financial instruments are reflected at fair
value on the consolidated balance sheets.
Revenue Recognition
The majority of the Company’s revenues are comprised of transaction-based fees, which are generally 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 Company’s 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 Company’s 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.
The Company generally records revenue net of costs based on the following criteria: (i) the Company is not the primary
obligor in the arrangement; (ii) the Company has no inventory risk; (iii) the Company does not have reasonable latitude with
respect to establishing the price for the product; (iv) the Company does not make any changes to the product or have any involvement
in the product specifications and (v) the amount the Company earns for its services is fixed, within a limited range.
The Company enters into contracts with certain large customers or strategic relationships that provide for fee rebates tied
to performance milestones. Rebates are recorded as a reduction in revenue in the same period that revenue is earned or performance
occurs. Rebates and incentives are calculated based on estimated performance and the terms of the related business agreements.
A description of the major components of revenue are as follows:
Payment Processing Revenue. Revenue consists of transaction fees as well as interchange income;
•
Fleet transaction fees are assessed to major oil companies, fuel retailers and vehicle maintenance providers. We
extend short-term credit to the fleet customer and pay the purchase price for the fleet customer’s transaction,
less the payment processing fees we retain, to the merchant. We collect the total purchase price from the fleet
customer. The fee charged is generally based upon a percentage of the total transaction amount; however, it may
74
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
also be based on a fixed amount charged per transaction or on a combination of both measures. The Company
records revenue at the time the transaction is captured.
•
•
In Europe, our payment processing revenue is specifically derived from the difference between the negotiated
price of the fuel from the supplier and the agreed upon price paid by the fleets.
Interchange income is earned from the Company’s suite of card products in the Fleet Solutions and Health and
Employee Benefit Solutions segments, as well as on our virtual card technology. 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 fleet and travel payment processing revenue, the Company is generally responsible for the collection of
the total transaction amount from the customer and the payment to the merchant of their sales amount, net of the payment processing
revenue earned by the Company, and as such, recognizes revenue net of the cost of the underlying products and services. As a
consequence, the Company’s accounts receivable and accounts payable related to its payment processing revenues are reflective
of the total transaction amount processed by the Company, not the Company’s revenue.
Account Servicing Revenue. In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly
fees based on vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports. In our Health and
Employee Benefit Solutions segment, we also recognize account servicing fees for the per-participant per-month fee charged per
consumer on our healthcare financial technology platform. Account servicing revenue is recognized monthly, as the Company
fulfills its contractual service obligations.
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 to maintain customer goodwill. The Company’s
established reserve for such waived amounts is estimated and offset against the late fee revenue recognized. These waived fees
amounted to $10,922, $6,013 and $6,002 in 2016, 2015 and 2014, respectively. The Company 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 Company’s fuel desk product and interest earned on the Company’s foreign paycard
product.
Other. 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.
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 Company’s 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 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 WEX Telematics program. In addition, prior to the divestiture of
Pacific Pride, the Company sold 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 agreements with suppliers, partners and customers and offers incentives to
establish access to new channels, enter new market segments and expand the use and acceptance of WEX products and services.
As part of these agreements the Company may agree to pay an up-front bonus or fee. The company capitalizes these payments
within other assets in the consolidated balance sheets and amortizes each monthly, generally on a straight-line basis against the
related revenue earned throughout the life of the agreement.
Stock-Based Compensation
The Company recognizes the fair value of all stock-based payments to employees in its financial statements. The Company
estimates the fair value of stock option awards using a Black-Scholes-Merton valuation model. The fair value of Restricted Stock
Units ("RSUs"), including Performance Based Restricted Stock Units ("PBRSUs"), is determined and fixed on the grant date based
on the Company's stock price.
75
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The Company uses the straight-line methodology for recognizing the expense associated with stock options and RSU
grants and a graded-vesting methodology for the expense recognition of PBRSUs. This recognized expense is net of estimated
forfeitures and is recorded over each award's requisite service period. Stock-based compensation is recorded in salary and other
personnel expense in the consolidated statements of income.
Advertising Costs
Advertising and marketing costs are expensed in the period incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
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 is established for those jurisdictions in
which deferred tax assets realization is deemed less than more likely than not. Deferred taxes are not provided for the undistributed
earnings of the Company’s 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 are reduced and reflected as a reduction of
the overall income tax provision.
Earnings per Common Share
Basic earnings per share is computed by dividing net earnings attributable to shareholders by the weighted average number
of shares of common stock and vested deferred stock units ("DSUs) outstanding during the year. The computation of diluted
earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed
exercise of dilutive options and assumed issuance of unvested RSUs and DSUs and unvested PBRSUs for which the performance
condition has been met as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury
stock method assumes that proceeds, including cash received from the exercise of employee stock options, the total unrecognized
compensation expense for unvested share-based compensation awards and the excess tax benefits resulting from share-based
compensation tax deductions in excess of the related expense recognized for financial reporting purposes, would be used to purchase
the Company's common stock at the average market price during the period.
Income available for common stockholders used to calculate earnings per share is as follows:
Net earnings attributable and available for common stockholders –Basic and Diluted
$
60,637
$
101,904
$
202,211
Weighted average common shares outstanding used to calculate earnings per share are as follows:
Year ended December 31,
2016
2015
2014
Weighted average common shares outstanding – Basic
Dilutive impact of share based compensation awards
Weighted average common shares outstanding – Diluted
Year ended December 31,
2016
2015
2014
40,809
105
40,914
38,771
72
38,843
38,890
110
39,000
76
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Foreign Currency Movement
The financial statements of the Company’s foreign subsidiaries, where the local currency is the functional currency,
translated to U.S. dollars using year-end spot exchange rates for assets and liabilities, average exchange rates for revenue and
expenses and historical exchange rates for equity transactions. The resulting foreign currency translation adjustment is recorded
as a component of accumulated other comprehensive loss.
Realized and unrealized gains and losses on foreign currency transactions as well as the re-measurement of the Company's
cash, receivable and payable balances that are denominated in foreign currencies, are recorded directly in the consolidated statements
of income. However, gains or losses resulting from intercompany transactions where repayment is not anticipated for the foreseeable
future are not recognized in the consolidated statements of income. In these situations, the gains or losses are deferred and included
as a component of accumulated other comprehensive loss. In addition, gains and losses associated with the Company's foreign
currency exchange derivatives are recorded in gains and losses on foreign currency in the consolidated statements of income.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss includes unrealized gains and losses on available-for-sale securities 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.
2. Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, which simplifies how an entity is required to test goodwill for impairment
by eliminating Step 2, the comparison of the implied fair value of goodwill to the respective carrying amount of each reporting
unit. Under the amendments, an entity will perform a one-step quantitative test and recognize an impairment charge for the amount
by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting
unit to determine if the quantitative impairment test is necessary. The standard is effective for annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for testing dates after January 1, 2017. The
Company does not believe this standard will have a material impact on the consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18 which provides clarification on the classification and presentation of
restricted cash in the statement of cash flows, thereby reducing diversity in practice. The statement of cash flows must explain the
change during the period in the total of cash and cash equivalents and amounts described as restricted cash or cash equivalents.
The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those
fiscal years, and requires retrospective application to all periods presented. Early adoption is permitted. The Company does not
believe this standard will have a material impact on our consolidated statement of cash flows.
In August 2016, the FASB issued ASU 2016-15 which provides clarification on the classification of eight specific cash
flow presentation issues that have developed out of diversity in practice. The issues include, but are not limited to, debt prepayment
or extinguishment costs, cash receipts from payments on beneficial interests in securitization transactions, and proceeds from the
settlement of insurance claims. The standard is effective for annual reporting periods beginning after December 15, 2017, including
interim periods within those fiscal years. The Company is currently evaluating the impact the standard will have on the consolidated
financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13 which requires financial assets measured at amortized cost basis to be
presented at the net amount expected to be collected. The measurement of expected credit losses will be based on historical
experience, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. The
standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal
years. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related
disclosures.
In March 2016, the FASB issued ASU 2016-09 to simplify several aspects of accounting for employee share-based
payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, and
classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Adopting this standard will result in increased income tax expense
volatility, the nature of which will be dependent on the magnitude of our common stock price fluctuations. The other aspects of
this standard are not expected to have a material impact on the consolidated financial statements and related disclosures.
77
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. When
transitioning, the standard requires leases to be recognized and measured at the beginning of the earliest period presented using a
modified retrospective approach. Certain qualitative and quantitative disclosures are required. The standard is effective for annual
reporting periods beginning after December 15, 2018, including interim periods within that reporting period. The Company is
currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01 related to accounting for equity investments. The pronouncement requires
equity investments, except those accounted for under the equity method of accounting, or those that result in consolidation of the
investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is
currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, which will supersede most existing revenue recognition guidance under
U.S. GAAP ("Topic 606"). The new revenue recognition standard requires entities to recognize revenue for the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers.
Topic 606 does not apply to rights or obligations associated with financial instruments (e.g. interest income), including
the Company’s finance fee and interest income from banking relationships and cardholders. As such, approximately 14% of
consolidated revenues for the year ended December 31, 2016 will not be impacted by Topic 606.
The Company’s revenue from discount and interchange, transaction processing and certain fees is within the scope of
Topic 606. FASB and its Transition Resource Group have issued clarifications on various aspects of ASU 2014-09. Those
clarifications, along with the guidance under Topic 606 support the conclusion that timing and measurement of revenue associated
with the Company’s transaction processing services, including discount and interchange and other transaction processing fees, or
approximately 48% of consolidated revenues for the year ended December 31, 2016, will remain substantially unchanged under
the new standard.
The Company is in the process of assessing the remaining revenue streams that fall within the scope of this new standard.
Included in this assessment is confirming principle vs. agent determinations, reviewing commission structure and applying the
series guidance to the Company's revenue streams. Under the new guidance certain costs to obtain a contract, such as sales
commissions are to be capitalized and amortized over the life of the contract, with a practical expedient available for contracts
under one year in duration. Sales commissions were approximately $20,000 for the year ended December 31, 2016.
On July 9, 2015, the FASB voted to defer the effective date by one year to interim and annual reporting periods beginning
after December 15, 2017, and permitted early adoption of the standard, but not for periods beginning on or before the original
effective date of January 1, 2017. The Company is not electing early adoption and as a result the standard will become effective
on January 1, 2018. The guidance permits two methods of adoption: full retrospective approach, which requires an entity to restate
each prior period that is reported in the financial statements and modified retrospective approach, which requires a cumulative
adjustment to retained earnings as of the effective date, without restatement of prior period amounts. The Company currently
anticipates adopting the standard using the modified retrospective method.
78
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
3. Business Acquisitions and Other Intangible Asset Acquisitions
The Company incurred and expensed costs directly related to completed acquisitions of $19,168, $342 and $7,694 in
2016, 2015 and 2014, respectively, which are included primarily within Service fees in the consolidated statements of income.
EFS
On July 1, 2016, the Company acquired all of the outstanding membership interests of EFS, a provider of customized
payment solutions for fleet and corporate customers with a focus on the large and mid-sized over-the-road fleets. The acquisition
will enable the combined company to expand its customer footprint and to utilize EFS' technology to better serve the needs of all
fleet customers.
In consideration for the acquisition of EFS, the Company issued 4,012 shares of its common stock valued at approximately
$355,000 based on the July 1, 2016 closing price of the Company's common stock on the New York Stock Exchange, representing
approximately 9.4% of the Company's outstanding common stock after giving effect to the issuance of the new shares in connection
with this acquisition. The cash consideration for the transaction totaled approximately $1,182,000, and was funded with amounts
received under the 2016 Credit Agreement described further in Note 12, Financing Debt. The value of the total cash and stock
consideration paid for the acquisition of EFS was approximately $1,444,000, net of $93,000 in cash acquired.
During the second half of 2016, the Company obtained information to assist in determining the fair values of certain
tangible and intangible assets acquired and liabilities assumed in the EFS acquisition. Based on such information, the Company
recorded other intangible assets and goodwill as described below. Goodwill is calculated as the consideration in excess of net
assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually
identified and separately recognized, including synergies derived from the acquisition.
The tax structure of EFS consists of limited liability companies and corporations. The Company’s tax election will allow
a step-up in tax basis related to its 49.5 percent direct ownership in the limited liability company. The remaining 50.5 percent
ownership in the limited liability company is held by a corporation that is part of the EFS structure and will therefore receive carry
over tax basis. The difference between book and tax basis resulting from receiving carry over tax basis has been reflected in the
financial statements as an investment in partnership deferred tax liability. The Company is currently evaluating the tax basis and
the allocation of book basis to the assets acquired and liabilities assumed in this business combination. In addition, the Company
is still reviewing the valuation as well as performing procedures to verify the completeness and accuracy of the data used in the
independent valuation for intangible assets identified in the table below. The preliminary estimates are not expected to but could
change significantly upon completion of this evaluation. The Company has not finalized the purchase accounting and estimates
approximately $591,000 of the goodwill recognized in this business combination will be deductible for income tax purposes.
The following represents the preliminary allocation of the purchase price by the assets and liabilities acquired and goodwill
recognized in this business combination:
Total consideration (net of cash acquired)
Less:
Accounts receivable
Property and equipment
Customer relationships (a)(b)
Developed technologies (a)(c)
Trademarks and trade names (a)(d)
Deferred income tax assets
Accounts payable
Accrued expenses
Deferred income tax liabilities
Recorded goodwill (a)
$
1,444,235
162,684
2,387
842,700
32,120
13,700
34,992
(153,777)
(128,267)
(91,194)
728,890
$
(a) Approximately $1,273,927 in goodwill and other intangible assets recorded from this business combination were preliminarily allocated to our Fleet
Solutions segment, the remaining $343,483 was preliminarily allocated to our Travel and Corporate Solutions segment.
(b) Weighted average life – 8.1 years.
(c) Weighted average life – 2.2 years.
(d) Weighted average life – 7.7 years.
79
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
At December 31, 2016, estimated amortization expense related to the definite-lived intangible assets listed above for each
of the next five fiscal years and thereafter is as follows:
2017
2018
2019
2020
2021
Thereafter
$
$
85,541
81,131
74,674
68,798
60,750
481,523
The pro forma financial information presented below includes the effects of the EFS acquisition as if it had been
consummated on January 1, 2015. These pro forma results have been calculated after applying our accounting policies and adjusting
results to reflect the intangible amortization and interest expense associated with the 2016 Credit Agreement used to fund the
acquisition and related income tax results assuming they were applied and incurred since January 1, 2015. In addition, non-recurring
costs that were incurred in 2016 and are directly attributable to the acquisition have been reflected in pro forma results for the year
ended December 31, 2015. Such adjustments include $19,168 of transaction costs and $7,074 of expenses incurred as part of the
July 2016 debt modification and extinguishment, net of the related income tax results. The pro forma results of operations do not
include any cost savings or other synergies that may result from the acquisition or any estimated integration costs that have been
or will be incurred by the Company. Accordingly, the following pro forma information is not necessarily indicative of either the
future results of operations or results that would have been achieved if the acquisition had taken place at the beginning of 2015.
Subsequent to the July 1, 2016 acquisition date, the operations of EFS contributed revenues of approximately $83,300 and net
income before taxes of approximately $5,800 to the Company's consolidated income statement.
The following represents unaudited pro forma operational results as if EFS has been included in the Company's
consolidated statements of income as of January 1, 2015:
Total revenues
Net earnings attributable to shareholders
Pro forma net income attributable to shareholders per common share:
Basic
Diluted
Benaissance
Year ended December 31,
2016
2015
$
$
$
$
1,089,880
42,821
1.00
1.00
$
$
$
$
994,619
36,763
0.86
0.86
On November 18, 2015, the Company purchased the stock of Benaissance for $80,677. The transaction was financed
through the Company’s cash on hand and existing credit facility. Benaissance provides financial management for health benefits
administration by offering SaaS solutions for individual single point and consolidated group premium billing. The Company
acquired Benaissance to enhance the Company's positioning in the growing healthcare market.
During the fourth quarter of 2015, the Company obtained preliminary information to assist in determining the fair values
of certain tangible and intangible assets acquired and liabilities assumed in the Benaissance acquisition. During the first quarter
of 2016, the Company decreased certain tangible assets by $502 and increased Goodwill by $502. Based on such information, the
Company recorded intangible assets and goodwill as described below. Goodwill is expected to be deductible for tax purposes. The
Company finalized our Benaissance purchase accounting in the third quarter of 2016.
The operations of Benaissance contributed net revenues of approximately $2,085 and net income of approximately $399
from November 18, 2015, through December 31, 2015. The results of operations for Benaissance are presented in the Company's
Health and Employee Benefit Solutions segment.
80
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 assets and liabilities acquired:
Consideration paid (net of cash acquired)
Less:
Accounts receivable
Other tangible assets and liabilities, net
Acquired software and developed technology (a)
Customer relationships(b)
Trade name(c)
Recorded goodwill
(a) Weighted average life – 5.0 years.
(b) Weighted average life – 7.6 years.
(c) Weighted average life – 8.1 years
$
80,677
1,594
314
10,300
27,700
1,500
39,269
$
No pro forma information has been included in these financial statements as the operations of Benaissance for the period
that they were not part of the Company are not material to the Company's revenues, net income and earnings per share.
Acquisition of remaining 49% of UNIK
On August 31, 2015, the Company acquired the remaining 49 percent ownership in UNIK for $46,018. See Note 17 Non-
controlling interest for further information.
Esso portfolio in Europe
On December 1, 2014, the Company acquired certain assets of the Esso portfolio in Europe through a majority owned
subsidiary, WEX Europe Services Limited. The Company formed this entity during 2013 and has 75 percent ownership. The
Company paid $379,458 in cash, which includes an $80,000 advance payment made in the third quarter of 2014. The transaction
was financed through the Company’s cash on hand and existing credit facility. Under the terms of the transaction, WEX purchased
ExxonMobil’s commercial fleet fuel card program which includes operations, funding, pricing, sales and marketing in nine countries
in Europe. As part of the transaction, both parties have agreed to enter into a long term supply agreement to serve the current and
future Esso Card customers and to grow the business. The Company entered into this transaction in order to expand its presence
in the European market and to broaden its international footprint, while laying the foundation for further expansion.
During the fourth quarter of 2014, the Company obtained preliminary information to assist in determining the fair values
of certain tangible and intangible assets acquired and liabilities assumed in the Esso portfolio in Europe transaction. During 2015,
the Company obtained final information to assist in determining the fair values of certain tangible and intangible assets acquired
and liabilities assumed as of the acquisition date. Based on such information, the Company retrospectively adjusted the fiscal year
2014 comparative information resulting in an increase in goodwill of $537, a decrease in accounts receivable of $2, a decrease in
the customer relationship intangible asset of $374, a decrease in the licensing agreements intangible asset of $374, and an increase
in other tangible assets and liabilities, net, including consideration receivable of $213. The Company recorded intangible assets
and goodwill as described below. The Company finalized the purchase accounting during the fourth quarter of 2015. Goodwill
related to this transaction is expected to be deductible for income tax purposes. The results of operations for the Esso portfolio in
Europe are presented in the Company's Fleet Solutions segment.
The operations of the Esso portfolio in Europe contributed net revenues of approximately $3,428 and net losses attributable
to WEX Inc. of approximately $7,172 from December 1, 2014, through December 31, 2014, which includes finance costs. Goodwill
related to this transaction is expected to be deducted for income tax purposes. The results of operations for the Esso portfolio in
Europe are presented in the Company's Fleet Solutions segment.
81
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:
Consideration paid (net of cash acquired)
Less:
Accounts receivable
Other tangible assets and liabilities, net
Licensing agreements(a)
Customer relationships(b)
Recorded goodwill
(a) Weighted average life – 4.6 years.
(b) Weighted average life – 7.2 years.
$
379,458
303,376
(8,497)
36,605
7,346
40,628
$
Supplemental pro forma financial information related to the Esso portfolio in Europe acquisition has not been provided
as it would be impracticable to do so. Historical financial information regarding the acquired assets is not accessible and, thus, the
amounts would require estimates to be significant and render the disclosure irrelevant.
Acquisition of Evolution1
On July 16, 2014, the Company acquired all of the outstanding stock of Evolution1, a leading provider of payment
solutions within the healthcare industry, for approximately $532,174 in cash. The transaction was financed through the Company’s
cash on hand and existing credit facility. Evolution1 developed and operates an all-in-one, multi-tenant technology platform, card
products, and mobile offering that supports a full range of healthcare account types. This includes consumer-directed payments
for health savings accounts, health reimbursement arrangements, flexible spending accounts, voluntary employee beneficiary
associations, and defined contribution and wellness programs. The Company acquired Evolution1 to enhance the Company's
capabilities and positioning in the growing healthcare market.
During the third quarter of 2014, the Company obtained preliminary information to assist in determining the fair values
of certain tangible and intangible assets acquired and liabilities assumed in the Evolution1 acquisition. During 2015, the Company
obtained final information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities
assumed as of the acquisition date. Based on such information, the Company retrospectively adjusted the fiscal year 2014
comparative information resulting in an increase in goodwill of $379, a decrease in other tangible assets and liabilities of $127,
and an increase in deferred income tax liabilities of $252. There were no changes to the previously reported consolidated statements
of operations or statements of cash flows. The valuation of all assets and liabilities have been finalized. The results of operations
for Evolution1 are presented in the Company's Health and Employee Benefit Solutions segment.
The operations of Evolution1 contributed net revenues of approximately $35,976 and net losses of approximately $512
from July 16, 2014, through December 31, 2014, which includes financing costs. Evolution1 had previously recorded goodwill
on its financial statements from prior acquisitions, some of which is expected to be deductible for tax purposes.
The following is a summary of the allocation of the purchase price to the assets and liabilities acquired:
Consideration paid (net of cash acquired)
Less:
Accounts receivable
Accounts payable
Deferred tax liabilities, net
Other tangible assets and liabilities, net
Acquired software and developed technology (a)
Customer relationships(b)
Trade name(c)
Trade name(d)
Recorded goodwill
(a) Weighted average life – 6.4 years.
(b) Weighted average life – 9.7 years.
(c) Weighted average life – 9.9 years.
(d) Indefinite-lived
82
$
532,174
8,418
(175)
(68,768)
(3,712)
70,000
211,000
7,900
11,000
296,511
$
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The following represents unaudited pro forma operational results as if Evolution1 had been included in the Company’s
consolidated statements of income as of January 1, 2013:
Total revenues
Net earnings attributable to shareholders
Pro forma net income attributable to WEX Inc. per common share:
Net income per share – basic
Net income per share – diluted
December 31,
2014
865,056
191,415
4.92
4.91
$
$
$
$
$
$
$
$
2013
786,854
97,016
2.49
2.48
The pro forma financial information assumes that the companies were combined as of January 1, 2013, and includes the
business combination accounting impact from the acquisition, including acquisition related expenses, 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 integration
costs that have been or will be incurred by the Company. 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 year 2013.
4. Divestitures
rapid! PayCard
On January 7, 2015, the Company sold the assets of its rapid! PayCard operations for $20,000, which resulted in a pre-
tax book gain of approximately $1,215. The Company's primary focus in the U.S. continues to be in the fleet, travel, and healthcare
industries. As such, the Company divested the operations of rapid! PayCard, which were not material to the Company's annual
revenue, net income or earnings per share. The Company does not view this divestiture as a strategic shift in its operations.
Pacific Pride
On July 29, 2014, the Company sold its wholly-owned subsidiary Pacific Pride for $49,664, which resulted in a pre-tax
book gain of $27,490. The transfer of the operations of Pacific Pride occurred on July 31, 2014. Simultaneously with the sale, the
Company entered into a multi-year agreement with the buyer that continued to allow WEX branded card acceptance at Pacific
Pride locations. The Company sold the operations of Pacific Pride as it did not align with the long-term strategy of the core fleet
business. The operations of Pacific Pride were not material to the Company's annual revenue, net income or earnings per share.
The Company does not view this divestiture as a strategic shift in its operations.
The following is a summary of the allocation of the assets and liabilities sold:
Consideration received
Less:
Expenses associated with the sale
Accounts receivable
Accounts payable
Other tangible assets and liabilities, net
Customer relationships
Trademarks and trade name
Goodwill
Gain on sale
$
49,664
1,340
48,699
(53,001)
828
3,727
1,444
19,137
27,490
$
5. Accounts Receivable and Reserves for Credit Losses
In general, the Company’s trade receivables provide for payment terms of 30 days or less. Receivables not paid within
the terms of the customer agreement are generally subject to late fees based upon the outstanding customer receivable balance.
Beginning in the first quarter of 2015, the Company began to extend revolving credit to certain customers with respect to small
fleet receivables. These accounts are also subject to late fees and balances that are not paid in full are subject to interest charges
83
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
based on the revolving balance. The Company had approximately $3,400 and $1,100 in receivables with revolving credit balances
as of December 31, 2016 and 2015, respectively. The portfolio of receivables consists of a large group of homogeneous smaller
balance amounts that are collectively evaluated for impairment.
Receivables are generally written off when they are 150 days past due or upon declaration of bankruptcy by the customer.
The reserve for credit losses is calculated by an analytic model that also takes into account other factors, such as the actual charge-
offs for the preceding reporting periods, expected charge-offs and recoveries for the subsequent reporting periods, a review of past
due accounts receivable balances, changes in customer payment patterns, known fraudulent activity in the portfolio, as well as
leading economic and market indicators.
At December 31, 2016, approximately 93 percent of the $2.2 billion trade accounts receivable balance was current and
approximately 98 percent of trade accounts receivable was less than 60 days past due. At December 31, 2015, approximately 86
percent of the $1.6 billion of trade accounts receivable was current and approximately 97 percent of trade accounts receivable was
less than 60 days past due. The outstanding balance is made up of receivables from a wide range of industries. One customer
represented 11 percent of the outstanding receivables balance at each of December 31, 2016 and 2015.
The following table presents changes in reserves for credit losses related to accounts receivable:
Balance, beginning of year
Provision for credit losses
Charge-offs
Recoveries of amounts previously charged-off
Currency translation
Balance, end of year
Year ended December 31,
2016
2015
2014
$
$
13,832
$
13,919
$
33,348
(33,665)
6,201
376
22,825
(27,862)
5,202
(252)
20,092
$
13,832
$
10,396
32,144
(35,302)
6,832
(151)
13,919
84
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
6. Investments
Available-for-sale Securities
The Company’s available-for-sale securities as of December 31, 2016 and 2015, are presented below:
2016
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Equity securities(b)
Total available-for-sale securities
2015
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Equity securities(b)
Total available-for-sale securities
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value(a)
$
$
$
$
$
$
$
498
650
697
22,414
24,259
665
850
424
16,961
18,900
$
15
—
1
—
16
16
—
—
—
16
$
$
$
$
23
2
16
709
750
31
2
26
295
354
$
$
$
$
490
648
682
21,705
23,525
650
848
398
16,666
18,562
(a)
The Company’s techniques used to measure the fair value of its investments are discussed in Note 16, Fair Value.
Excludes $5,673 and $5,655 in equity securities designated as trading as of December 31, 2016 and 2015, respectively, included in Other assets on the
(b)
consolidated balance sheets. See Note 15 for additional information about the securities designated as trading.
The Company reviews its investments to identify and evaluate indications of possible impairment. Factors considered
in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the cost
basis, the financial condition and near-term prospects of the investee, and the Company’s 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 Company’s fixed
income securities are rated investment grade or better. The amount of available-for-sale securities that have been in a continuous
unrealized loss position for more than twelve months is insignificant. The Company’s management has determined that these gross
unrealized losses at December 31, 2016 and 2015 are temporary in nature.
The Company had maturities of available-for-sale securities of $495, $594 and $337 for the years ended December 31
2016, 2015 and 2014, respectively.
The maturity dates of the Company’s available-for-sale securities are as follows:
Due after 1 year through year 5
Due after 5 years through year 10
Due after 10 years
Mortgage-backed securities with original maturities of 30 years
Equity securities with no maturity dates
Total
December 31,
2016
2015
Cost
Fair Value
Cost
Fair Value
$
$
165
529
653
498
165
529
636
490
$
315
$
—
959
665
22,414
21,705
16,961
$
24,259
$
23,525
$
18,900
$
313
—
933
650
16,666
18,562
85
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
7. Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consist of the following:
Furniture, fixtures and equipment
Computer software
Software under development
Leasehold improvements
Capital leases
Total
Less: accumulated depreciation and amortization
Total property, equipment and capitalized software, net
December 31,
2016
2015
$
69,513
$
254,163
49,922
21,257
759
395,614
(228,336)
$
167,278
$
63,278
212,504
39,694
14,492
757
330,725
(192,140)
138,585
Depreciation expense, including expense associated with capital leases, was $43,821, $35,285 and $29,758 in 2016, 2015
and 2014, respectively. The Company did not incur significant impairment charges during 2016, 2015, and 2014.
8. Goodwill and Other Intangible Assets
The changes in goodwill during the period January 1 to December 31, 2016 were as follows:
Fleet
Solutions
Segment
Travel and Corporate
Solutions
Segment
Health and Employee
Benefit Solutions
Segment
Total
Gross goodwill, January 1, 2016
$
735,770
$
38,134
$
350,321
$
Acquisition of EFS
Acquisition adjustments
Impact of foreign currency translation
Gross goodwill, December 31, 2016
Accumulated impairment, January 1, 2016
Impact of foreign currency translation
Accumulated impairment, December 31, 2016
Net goodwill, January 1, 2016
Net goodwill, December 31, 2016
$
$
$
561,119
—
(3,751)
1,293,138
(867)
12
167,771
—
(3,134)
202,771
(10,480)
145
(855) $
(10,335) $
—
502
2,899
353,722
—
—
— $
1,124,225
728,890
502
(3,986)
1,849,631
(11,347)
157
(11,190)
734,903
1,292,283
$
$
27,654
192,436
$
$
350,321
353,722
$
$
1,112,878
1,838,441
The changes in goodwill during the period January 1 to December 31, 2015 were as follows:
Gross goodwill, January 1, 2015
Acquisition of Benaissance
Sale of subsidiaries
Impact of foreign currency translation
Gross goodwill, December 31, 2015
Accumulated impairment, January 1, 2015
Impact of foreign currency translation
Accumulated impairment, December 31, 2015
Net goodwill, January 1, 2015
Net goodwill, December 31, 2015
$
$
$
Fleet
Solutions
Segment
Travel and Corporate
Solutions
Segment
Health and Employee
Benefit Solutions
Segment
Total
$
759,617
$
40,251
$
330,094
$
1,129,962
—
(147)
(23,700)
735,770
(969)
102
—
—
(2,117)
38,134
(11,712)
1,232
(867) $
(10,480) $
38,767
(12,386)
(6,154)
350,321
—
—
— $
38,767
(12,533)
(31,971)
1,124,225
(12,681)
1,334
(11,347)
758,648
734,903
$
$
28,539
27,654
$
$
330,094
350,321
$
$
1,117,281
1,112,878
86
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Other Intangible Assets
During the second half of 2016, the Company evaluated the estimated useful life of our existing over-the-road payment
processing technology following the EFS acquisition. As a result of this analysis, we recorded approximately $10.1 million of
accelerated amortization related to this technology.
The changes in other intangible assets during the period January 1 to December 31, 2016, were as follows:
Definite-lived intangible assets
Acquired software and developed
technology
Customer relationships
Licensing agreements
Non-compete agreement
Patent
Trade name
Indefinite-lived intangible assets
Net Carrying
Amount,
Beginning of
Year
Acquisitions
Amortization
Transfers(a)
Impacts of
Foreign
Currency
Translation
Net Carrying
Amount,
End of
Year
$
114,012
$
32,120
$
(32,109) $
— $
3,993
$
118,016
297,904
27,398
—
878
13,144
842,700
—
4,000
—
13,700
(57,413)
(5,070)
—
(228)
(3,009)
—
—
—
—
11,000
(2,868)
(694)
—
6
(314)
1,080,323
21,634
4,000
656
34,521
Trademarks, trade names and brand names
17,376
—
—
(11,000)
(58)
6,318
Total
$
470,712
$
892,520
$
(97,829) $
— $
65
$
1,265,468
(a)
During the third quarter of 2016, management reevaluated a trade name assigned to the Health and Employee Benefit Solutions segment, which was
previously believed to have an indefinite life. As result, it was determined it is now probable that the trade name will not be renewed upon its 2024 expiration
date. As such, this intangible asset will be amortized over its seven-year remaining estimated useful life.
The changes in other intangible assets during the period January 1 to December 31, 2015, were as follows:
Definite-lived intangible assets
Acquired software and developed
technology(a)
Customer relationships(a)
Licensing agreements
Patent
Trade name(a)
Indefinite-lived intangible assets
Net Carrying
Amount,
Beginning of
Year (a)
Acquisitions
Amortization
Disposals
Impacts of
Foreign
Currency
Translation
Net Carrying
Amount, End
of Year
$
119,509
$
10,300
$
(9,844) $
— $
(5,953) $
309,450
35,341
1,245
15,373
27,700
—
—
1,500
(32,468)
(4,165)
(243)
(1,072)
(2,329)
(164)
—
(723)
(4,449)
(3,614)
(124)
(1,934)
114,012
297,904
27,398
878
13,144
Trademarks, trade names and brand names
16,379
—
—
—
997
17,376
Total
$
497,297
$
39,500
$
(47,792) $
(3,216) $
(15,077) $
470,712
(a)
and Other Intangible Asset Acquisitions.
The prior year amounts have been adjusted to reflect changes as a result of finalizing the purchase accounting. See Note 3, Business Acquisitions
The following table presents the estimated amortization expense related to the definite-lived intangible assets listed
above for each of the next five fiscal years:
2017
2018
2019
2020
2021
$
$
148,774
130,586
120,814
110,269
98,260
87
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Other intangible assets consist of the following:
December 31, 2016
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Definite-lived intangible assets
Acquired software and developed technology
$
187,499
$
(69,483) $
118,016
$
155,182
$
(41,170) $
Customer relationships
Licensing agreements
Non-compete agreement
Patent
Trade name
1,247,624
(167,301)
1,080,323
30,760
4,000
2,380
41,029
(9,126)
—
(1,724)
(6,508)
21,634
4,000
656
34,521
403,382
31,903
—
2,413
16,410
(105,478)
(4,505)
—
(1,535)
(3,266)
114,012
297,904
27,398
—
878
13,144
$ 1,513,292
$
(254,142) $
1,259,150
$
609,290
$
(155,954) $
453,336
Indefinite-lived intangible assets
Trademarks, trade names and brand names
Total
9. Accounts Payable
Accounts payable consists of:
Merchant payables
Other payables
Accounts payable
10. Deposits, Borrowed Federal Funds and Other Debt
The following table presents information about deposits:
Certificates of deposit with maturities within 1 year
Certificates of deposit with maturities greater than 1 year and less than 5 years
Interest-bearing money market deposits
Negotiable order of withdrawal deposits
Customer deposits
Total deposits
Weighted average cost of funds on certificates of deposit outstanding
Weighted average cost of interest-bearing money market deposits
6,318
$
1,265,468
17,376
$
470,712
December 31,
2016
2015
$
$
520,058
97,060
617,118
$
$
313,244
65,567
378,811
December 31,
2016
2015
$
517,524
$
208,048
325,464
—
67,787
97,859
54,448
369,191
308,998
40,022
$
1,118,823
$
870,518
0.96%
0.76%
0.90%
0.45%
WEX Bank has issued certificates of deposit with maturities ranging from 1 month to 3 years and with interest rates
ranging from 0.65 percent to 1.35 percent as of December 31, 2016. WEX Bank may issue certificates of deposit without limitation
on the balance outstanding. WEX Bank must maintain minimum financial ratios, which include risk-based asset and capital
requirements, as prescribed by the FDIC. As of December 31, 2016, certificates of deposit were in denominations of $250 or less.
The Company requires deposits from certain customers as collateral for credit that has been extended. These deposits are
generally non-interest bearing.
The Company also had federal funds lines of credit totaling $250,000 and $257,500 at December 31, 2016 and 2015,
respectively. There were no borrowings against these lines of credit at December 31, 2016 and 2015.
88
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
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 at any time, although notification
may be required and the monthly number of transactions is limited.
During the fourth quarter of 2016, the Company's agreement with Higher One to offer NOW accounts ended. As a result,
the Company does not have any non-interest bearing NOW account deposits outstanding as of December 31, 2016.
Other Debt
WEX Brazil Debt
WEX Brazil had debt of approximately $30,755 and $5,046 as of December 31, 2016 and 2015, respectively. This is
comprised of credit facilities and loan arrangements related to our accounts receivable, with various maturity dates. This debt is
classified in Other debt on the Company’s consolidated balance sheets for the periods presented.
Participation Debt
During the second quarter of 2014, WEX Bank entered into an agreement with a third-party bank to fund customer
balances that exceeded WEX Bank's lending limit to an individual customer. This agreement was most recently amended in July
2016 to extend the maturity date while maintaining a funding capacity of $45,000. During the second quarter of 2016, WEX Bank
entered into another agreement with a separate third-party bank for incremental funding capacity of $10,000. This second agreement
was amended in August 2016 to increase the incremental funding capacity to $50,000. These borrowings carry a variable interest
rate of 1 to 3-month LIBOR plus a margin of 225 basis points. The balance of the debt was $95,000 and $45,000 as of December 31,
2016 and 2015, respectively, and was secured by an interest in the underlying customer receivables. The participation debt balance
will fluctuate on a daily basis based on customer funding needs, and could range from $0 to $95,000. The Company's participation
debt agreements will mature on December 31, 2020 and August 18, 2017, respectively. This debt is classified in Other debt on the
Company’s consolidated balance sheets for the periods presented.
The following table presents the average interest rates for deposits, borrowed federal funds and other debt:
Average interest rate:
Deposits
Borrowed federal funds
Interest-bearing money market deposits
WEX Brazil debt
Participation agreement
Average deposits and borrowed federal funds balance
Average other debt (WEX Brazil and participation agreements)
11. Derivative Instruments
Year ended December 31,
2016
2015
2014
0.94%
0.69%
0.50%
19.70%
2.94%
0.65%
0.39%
0.25%
15.21%
2.57%
0.53%
0.38%
0.23%
17.15%
2.46%
$ 1,102,210
$ 1,026,963
$ 1,220,979
$
92,684
$
51,209
$
37,876
The Company is exposed to certain market risks relating to its ongoing business operations. From time to time, the
Company enters into derivative instrument arrangements to manage various risks including interest rate risk, foreign exchange
risk, and commodity price risk. None of these derivative instruments qualify for hedge accounting treatment.
Interest Rate Swap Agreements
In November 2016, the Company entered into three forward-fixed interest rate swap agreements to manage the interest
rate risk associated with our outstanding variable-interest rate borrowings. Commencing January 2017, the Company will receive
variable interest of 1-month LIBOR under these swaps and will pay fixed rates between 0.896% to 1.125% under these swap
agreements, reducing a portion of the variability of the future interest payments associated with $800,000 of the Company's
borrowings.
89
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The notional amounts, fixed and variable interest rates and maturities of the interest rate swap agreements are as
follows:
Notional amount
Amortization
Maturity date
Fixed interest rate
Tranche A
$400,000
5% annually
12/31/2020
1.108%
Tranche B
$150,000
N/A
12/31/2020
1.125%
Tranche C
$250,000
N/A
12/31/2018
0.896%
See Note 16, Fair Value for more information regarding the valuation of our interest rate swaps.
Foreign Currency Exchange Program
In April 2014, the Company initiated a partial foreign currency exchange hedging program. In 2014, the Company managed
its foreign currency exchange exposure on an intra-quarter basis. During the third quarter of 2015, the Company decided to suspend
the foreign currency exchange hedging program for all but a few short-term intercompany transactions. Because this was a partial
foreign currency exchange hedging program, the Company had foreign currency exchange exposure which was not hedged while
the program was in effect.
The following table summarizes the contracts related to its foreign currency swaps, which settle in U.S. dollars at various
dates within 5 days after year-end:
Australian dollar
Euro
Pound sterling
Fuel Derivatives Program
Aggregate Notional Amount
December 31,
2016
2015
A$
€
£
15,000 A$
— €
— £
10,000
10,000
5,000
The Company entered into put and call option contracts related to the Company’s commodity price risk, which were
based on the wholesale price of unleaded gasoline and the retail price of diesel fuel and settled on a monthly basis. These put and
call option contracts ("Options"), or fuel price derivative instruments, were designed to reduce the volatility of the Company’s
cash flows associated with its fuel price-related earnings exposure in North America by locking in a range of prices during any
given quarter on a portion of the Company’s forecasted earnings subject to fuel price variations. During the fourth quarter of 2014,
the Company suspended purchases under its fuel derivatives program due to unusually low prices in the commodities market.
Management will continue to monitor the fuel price market and evaluate its alternatives as it relates to this hedging program.
During the first quarter of 2016, the Company held fuel price sensitive derivative instruments to hedge approximately 20 percent
of its anticipated U.S. fuel-price related earnings exposure based on assumptions at time of purchase and all of these positions
were settled as of March 31, 2016. After the first quarter of 2016, the Company was no longer hedged for changes in fuel prices.
90
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The following table presents information about the Options:
Fuel price derivative instruments – unleaded fuel
Options settling July 2015 – March 2016
Options settling April 2015 – December 2015
Options settling January 2015 – September 2015
Options settling October 2014 – June 2015
Options settling July 2014 – March 2015
Total fuel price derivative instruments – unleaded fuel
Fuel price derivative instruments – diesel
Options settling July 2015 – March 2016
Options settling April 2015 – December 2015
Options settling January 2015 – September 2015
Options settling October 2014 – June 2015
Options settling July 2014 – March 2015
Total fuel price derivative instruments – diesel
Total fuel price derivative instruments
December 31,
2015
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
$
$
$
$
2.483
$
2.620
2.625
2.568
2.510
$
3.724
$
3.785
3.795
3.785
3.788
$
2.543
2.680
2.685
2.628
2.570
3.784
3.845
3.855
3.845
3.848
2,655
$
3,082
—
—
—
—
—
—
—
—
2,655
1,314
$
$
3,082
1,925
—
—
—
—
—
—
—
—
1,314
3,969
$
$
1,925
5,007
(a)
(b)
The settlement of the Options is based upon the New York Mercantile Exchange’s New York Harbor Reformulated Gasoline Blendstock for Oxgenate
Blending and the U.S. Department of Energy’s weekly retail on-highway diesel fuel price for the month.
The Options settle on a monthly basis.
The following table summarizes the changes in fair value of the fuel price derivatives which have been recorded on the
consolidated statements of income:
Realized gains (losses)
Change in unrealized fuel price derivatives
Net realized and unrealized gains on derivative instruments
Consolidated Derivative Instruments
Year ended December 31,
2016
2015
2014
$
$
5,718
(5,007)
711
$
$
41,810
(35,962)
5,848
$
$
(2,115)
48,327
46,212
The following table presents information on the location and amounts of derivative fair values on the consolidated balance
sheets, which are recorded at fair value:
Asset Derivatives
Liability Derivatives
December 31, 2016
December 31, 2015
December 31, 2016
December 31, 2015
Derivatives Not Designated as Hedging
Instruments
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Interest rate swaps
Other assets
$ 12,908 Other assets
$
—
Commodity contracts
Foreign currency contracts
Fuel price
derivatives,
at fair value
Accounts
receivable
Fuel price
derivatives,
at fair value
Accounts
receivable
—
$
29
91
Balance
Sheet
Location
Other
liabilities
Fuel price
derivatives,
at fair value
Fair
Value
$
—
—
5,007
$
—
Accounts
payable
$
—
Balance
Sheet
Location
Other
liabilities
Fuel price
derivatives,
at fair value
Accounts
payable
Fair
Value
$
—
—
$
90
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The Company’s fuel price, foreign currency, and interest rate swap derivative instruments do not qualify for hedge
accounting treatment, and therefore, no such hedging designation has been made. For these derivative instruments, the gain or loss
is recognized in the consolidated statements of income.
The following table presents information on the location and amounts of derivative gains and losses:
Derivatives Not Designated as Hedging
Instruments
Location of Gain Recognized in
Income on Derivative
Foreign currency contracts
Interest rate swap agreements
Commodity contracts
12. Financing Debt
2016 Credit Agreement
Net foreign currency gain
Net unrealized gains on interest rate swap agreements
Net realized and unrealized gains on fuel price derivatives
Amount of Gain Recognized in
Income on Derivative
December 31,
2016
2015
2014
$
59
$ 27,236
$ 15,398
$ 12,908
$
711
$
$
— $
—
5,848
$ 46,212
On July 1, 2016, the Company entered into the 2016 Credit Agreement, which replaced the 2014 Credit Agreement. The
2016 Credit Agreement provides for a tranche A term loan facility in an amount equal to $455,000 that matures on July 1, 2021,
a tranche B term loan facility in an amount equal to $1,200,000 that matures on July 1, 2023, and a $470,000 secured revolving
credit facility, with a $250,000 sublimit for letters of credit and a $20,000 sublimit for swingline loans, that terminates on July 1,
2021. Additional loans of up to the greater of $375,000 (plus the amount of certain prepayments) and an unlimited amount subject
to satisfaction of a consolidated leverage ratio test of 4.00 to 1.00 may be made available under the 2016 Credit Agreement upon
request of the Company subject to specified terms and conditions, including receipt of lender commitments.
On July 1, 2016, the Company borrowed the entire principal amount of the tranche A term loan facility, the entire principal
amount of the tranche B term loan facility and $220,000 under the revolving credit facility to pay the cash portion of the purchase
price for the acquisition of EFS, repay EFS's outstanding credit facilities, repay amounts outstanding under the 2014 Credit
Agreement, and pay related fees, expenses and other transaction costs, provide for working capital needs and other general corporate
purposes. The total initial borrowing on July 1, 2016 was $1,875,000 and the total borrowing capacity under the 2016 Credit
Agreement is $2,125,000. Proceeds from the 2016 Credit Agreement may be used for working capital purposes, acquisitions,
payment of dividends and other restricted payments, refinancing of indebtedness, and other general corporate purposes.
As of December 31, 2016, the Company had no outstanding borrowings against its $470,000 revolving credit facility.
Accordingly, at December 31, 2016, the Company had $470,000 of availability under the 2016 Credit Agreement, subject to the
covenants as described below. The amount of loan origination fees for the revolving credit facility were $9,150 at December 31,
2016. The outstanding debt, net of loan origination fees, under the amortizing term loan arrangement totaled $1,599,291
at December 31, 2016 and bore a weighted average effective interest rate of 4.2%.
As of December 31, 2016 and 2015, the Company has posted approximately $13,346 and $8,550, respectively, in letters
of credit as collateral for lease agreements and virtual card and fuel payment processing activity at our foreign subsidiaries.
Amounts outstanding under the 2016 Credit Agreement bear interest at a rate equal to, at the Company’s option, (a) the
Eurocurrency Rate, as defined in the 2016 Credit Agreement, plus a margin of between 1.75% to 3.25% (3.25% at December 31,
2016) with respect to the tranche A term loan facility and the revolving credit facility and between 3.25% to 3.50% (3.50% at
December 31, 2016) with respect to the tranche B term loan facility (with the Eurocurrency Rate subject to a 0.75% floor in the
case of the tranche B term loan facility and a 0.0% floor in the case of the tranche A term loan and revolving credit facility), in
each case, 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%, (ii) the prime rate announced by Bank of America, and (iii) the
Eurocurrency Rate plus 1.00%, in each case plus a margin of 0.75% to 2.25% (2.25% at December 31, 2016) with respect to the
tranche A term loan facility and the revolving credit facility or 2.25% to 2.50% (2.50% at December 31, 2016) with respect to the
tranche B term loan facility, in each case, based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries
to consolidated EBITDA. In November 2016, the Company entered into three interest rate swap agreements to manage the interest
rate risk associated with our outstanding variable-interest rate borrowings under the 2016 Credit Agreement. See Note 11 Derivative
Instruments, for further discussion.
92
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
In addition, the Company has agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.30% to 0.50%
(0.50% at December 31, 2016) based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to
consolidated EBITDA of the daily unused portion of the 2016 Credit Agreement. The tranche B term loan facility was issued with
an original issue discount of 1.00%.
The 2016 Credit Agreement requires the Company to prepay outstanding term loans, subject to certain exceptions:
•
solely with respect to the tranche B term loan facility, currently with 50% (subject to reduction to 25% and 0%
based upon the Company’s consolidated leverage ratio) of the Company’s annual Excess Cash Flow (as defined
in the 2016 Credit Agreement);
• with 100% of the net cash proceeds of certain asset sales where the proceeds exceed certain thresholds, and
certain casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and
• with 100% of the net cash proceeds of any incurrence or issuance of certain debt, other than debt permitted under
the 2016 Credit Agreement.
The Company may voluntarily prepay outstanding loans from time to time, subject to certain conditions, without premium
or penalty other than customary “breakage” costs with respect to Eurocurrency Rate loans, provided, however, that if on or prior
to the date that is twelve (12) months following the closing date, the Company prepays any loans under the tranche B term loan
facility in connection with a repricing transaction, the Company must pay a prepayment premium of 1.00% of the aggregate
principal amount of the tranche B term loans so prepaid.
The Company is required to make scheduled quarterly payments each equal to 1.25% in the case of the tranche A term
loan facility, and 0.25% in the case of the tranche B term loan facility, of the original principal amount of the respective term loans
made on the closing date, with the balance due at maturity.
The 2016 Credit Agreement contains customary representations and warranties, as well as affirmative and negative
covenants. The 2016 Credit Agreement also requires, solely for the benefit of the lenders under the tranche A term loan facility
and the revolving credit facility, that the Company maintain at the end of each fiscal quarter the following financial ratios:
•
•
a consolidated EBITDA to consolidated interest charge coverage ratio of no less than 3.25 to 1.00; and
a consolidated funded indebtedness (excluding (i) up to an agreed amount of consolidated funded indebtedness
under permitted securitization transactions and (ii) the non-recourse portion of any permitted factoring
transaction) to consolidated EBITDA ratio of, initially, no more than 5.40 to 1.00, which ratio shall step down
to 5.25 to 1.00 at December 31, 2016, 5.00 to 1.00 at December 31, 2017, 4.25 to 1.00 at December 31, 2018
and 4.00 to 1.00 at December 31, 2019.
The obligations under the 2016 Credit Agreement are secured by a security interest in, subject to certain exceptions,
substantially all of the assets of the Company pursuant to the terms of a U.S. Security Agreement, dated as of July 1, 2016, in favor
of Bank of America, as collateral agent for the lenders.
Debt Covenants
The 2016 Credit Agreement and the Indenture contain covenants that, among other things, limit the Company’s ability
and the ability of its restricted subsidiaries and, in certain limited circumstances, WEX Bank and the Company’s 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 Company’s 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, and subject to certain conditions, certain covenants will be
suspended with respect to the Notes. WEX Bank and the Company’s other regulated subsidiaries will not be subject to some of
the restrictive covenants in the Indenture that place limitations on the Company and its restricted subsidiaries’ actions, and where
WEX Bank and the Company’s regulated subsidiaries are subject to covenants, there are significant exceptions and limitations on
the application of those covenants to WEX Bank and the Company’s regulated subsidiaries.
93
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
2014 Credit Agreement
On July 1, 2016, concurrently with the financing transactions discussed above, the Company repaid in full all outstanding
amounts under the 2014 Credit Agreement and terminated all commitments by the lenders to extend further credit thereunder and
all guarantees and security interests granted by the Company to the lenders thereunder. The Company did not incur any early
termination penalties in connection with the termination of the 2014 Credit Agreement.
As of June 30, 2016, the Company had $282,639 of borrowings , net of loan origination fees, against its $700,000 revolving
credit facility. The outstanding debt under the amortizing term loan arrangement, which was scheduled to expire in January of
2018, totaled $445,000 at June 30, 2016 and $458,750 at December 31, 2015. As of June 30, 2016, amounts outstanding under
the amortizing term loan bore interest at a rate of LIBOR plus 200 basis points. The revolving credit facility bore interest at a rate
equal to, at the Company's option, (a) LIBOR plus 200 basis points, (b) the prime rate plus 100 basis points for domestic borrowings;
and the Eurocurrency rate plus 200 basis points for international borrowings.
$400 Million Notes Outstanding
On January 30, 2013, the Company completed a $400,000 offering in an 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, from January 30,
2013, in a private placement to “qualified institutional buyers” as 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 the Indenture among the Company, the guarantors listed therein, and The Bank of New York Mellon Trust
Company, N.A., as trustee.
The Notes will mature on February 1, 2023, and interest will accrue at the rate of 4.750 percent per annum. Interest is
only payable semiannually in arrears on February 1 and August 1 of each year, commencing on August 1, 2013. Not considering
unamortized loan origination fees, the Notes outstanding had a carrying value of $400,000 as of both December 31, 2016 and
2015.
The Notes are guaranteed on a senior unsecured basis by each of the Company’s restricted subsidiaries and each of the
Company’s regulated subsidiaries that guarantees the Company’s 2013 Credit Agreement, which, as of the issue date, consist of
four of the Company’s restricted subsidiaries. WEX Bank, which represents a substantial amount of the Company’s operations, is
not a guarantor and is not 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 Company’s
existing and future senior debt, senior in right of payment to all of the Company’s subordinated debt, and effectively junior in right
of payment to all of the Company’s existing and future secured debt, including the Company’s 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 Company’s 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 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.
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.
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.
94
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
2013 Credit Agreement
On January 18, 2013, the Company entered into the 2013 Credit Agreement, among the Company, as borrower, WEX
Card Holdings Australia Pty Ltd, a wholly-owned subsidiary of the Company, as specified designated borrower, Bank of America,
N.A., as administrative agent and letter of credit issuer, and the other lenders party thereto. The 2013 Credit Agreement provided
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. The indebtedness covenant under the 2013 Credit Agreement required 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 had the option to increase the facility by up to an additional $100,000.
The 2013 Credit Agreement amended, restated and substituted for the 2011 Credit Agreement. The 2013 Credit Agreement
increased the outstanding amount of the term loan from $185,000 to $300,000 and increased the amount of the revolving loan
from $700,000 to $800,000. A portion of the indebtedness owing under the 2013 Credit Agreement was the same indebtedness as
formerly evidenced by the 2011 Credit Agreement. The 2013 Credit Agreement would have matured in January 2018, unless
extended pursuant to the terms of the 2013 Credit Agreement.
Australian Securitization Facility
On April 28, 2015, the Company entered into a one year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. In April 2016, this agreement was extended for one year. Under the terms of the agreement, each month, on a revolving
basis, the Company sells certain of its Australian receivables to the Company's Australian Securitization Subsidiary. The Australian
Securitization Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper ("securitized debt")
for approximately 85 percent of the securitized receivables. The amount collected on the securitized receivables is restricted to
pay the securitized debt and is not available for general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 2.65 percent and 2.91 percent as of December 31, 2016 and 2015,
respectively. The Company had securitized debt under this facility of $78,592 and $82,018 as of December 31, 2016 and 2015,
respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to its
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The amounts of receivables to be securitized under this agreement will be determined by management
on a monthly basis. The Company had $5,731 of securitized debt under this facility as of December 31, 2016 at an interest rate of
0.95% percent.
Debt Commitments
The table below summarizes the Company's annual principal payments on long-term debt for each of the next five fiscal
years:
2017
2018
2019
2020
2021
Debt Issuance Costs
$
$
34,750
34,750
34,750
34,750
364,625
The Company capitalized approximately $49,810 of debt issuance costs, including an original issue discount of $12,000
associated with the 2016 Credit Agreement. Additionally, the Company expensed approximately $5,056 during the third quarter
of 2016 related to noncapitalizable third-party costs incurred in connection with the modification of the certain 2014 Credit
95
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Agreement syndicate loans. These debt issuance costs will be amortized into interest expense over the 2016 Credit Agreement's
term using the effective interest method for the tranche A and B term loans and the revolver.
The Company recognized a loss of $2,018 associated with the early extinguishment of the 2014 Credit Agreement during
the year ended December 31, 2016, including a partial write-off of previously capitalized debt issuance costs and newly paid lender
fees associated with the extinguishment of syndicate borrowings.
In January 2016, the Company began to incur ticking fees for the debt financing commitment associated with the 2016
Credit Agreement in anticipation of the then pending acquisition of EFS. Pursuant to the terms set forth in the bank commitment
letter, the ticking fees were calculated based on the financing commitment in the aggregate amount of $2,125,000, and remained
in place until the closing of the EFS acquisition on July 1, 2016 (see Note 3, Business Acquisitions and Other Intangible Asset
Acquisitions). Total ticking fees expensed to financing interest were $30,045 for the year ended December 31, 2016. In conjunction
with the continued negotiation of the Company's new credit agreement, the amount of ticking fees to be paid at the time of closing
was reduced by $7,874 to $22,171. The excess ticking fees were reflected as a reduction of the $49,810 debt issuance costs related
to the 2016 Credit Agreement noted above and will be amortized over the 2016 Credit Agreement's term using the effective interest
method for the tranche A and B term loans and the revolver.
The following table presents the Company's net debt issuance costs related to its revolving line-of-credit facilities, term
loans and notes outstanding:
Revolving line of credit facilities and term loans
Notes outstanding
Other
Year ended December 31,
2016
2015
$
$
38,334
4,466
$
$
4,837
5,200
As of December 31, 2016, WEX Bank pledged approximately $313,670 of fleet receivables held by WEX Bank to the
Federal Reserve Bank as collateral for potential borrowings, through 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 $237,698 as
of December 31, 2016. WEX Bank had no borrowings on this line of credit through the Federal Reserve Bank Discount Window
as of December 31, 2016.
13. Income Taxes
Income (losses) before income taxes consisted of the following:
United States
Foreign
Total
Year ended December 31,
2016
2015
2014
$
$
32,622
54,479
87,101
$
$
203,692
(18,784)
184,908
$
$
329,633
(27,994)
301,639
Income tax expense (benefit) from continuing operations consisted of the following for the years ended December 31:
2016
Current
Deferred
2015
Current
Deferred
2014
Current
Deferred
United States
State
and Local
Foreign
Total
(1,232) $
21,565
22,570
37,553
43,565
51,581
$
$
$
$
$
3,033
$
(5,106) $
4,288
5,631
3,326
3,979
$
$
$
$
8,325
3,040
9,173
$
$
$
(3,919) $
8,009
$
(8,839) $
10,126
19,499
36,031
39,265
54,900
46,721
$
$
$
$
$
$
96
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:
Federal statutory rate
State income taxes (net of federal income tax benefit)
Foreign income tax rate differential
Revaluation of deferred tax assets for tax rate changes and blending differences, net
Research and development credit
Release of tax reserves
Withholding taxes
Domestic production exclusions
Change in valuation allowance
Nondeductible expenses
Other
Effective tax rate
Year ended December 31,
2016
2015
2014
35.0%
35.0%
35.0%
1.1
(4.4)
(0.9)
(0.5)
(4.9)
0.3
—
2.3
3.4
2.6
2.5
1.4
0.7
0.2
—
—
(1.8)
1.6
0.3
0.8
1.6
1.1
(0.1)
(0.6)
—
—
(4.0)
0.1
—
0.6
34.0%
40.7%
33.7%
Our effective tax rate was 34.0 percent for 2016 as compared to 40.7 percent for 2015. The change in our tax rate reflects
a shift in jurisdictional profitability between 2015 and 2016. Increased profits in 2016 within tax jurisdictions with tax rates lower
than the United States resulted in a reduction to our effective tax rate. Our 2016 tax rate reflects the release of certain historical
foreign reserve positions in Australia, primarily driven by a lapse of statute, as well as a reduction in our domestic production
activities deduction as a result of lower taxable income in the United States.
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:
Deferred assets related to:
Reserve for credit losses
Tax credit carryforwards
Stock-based compensation, net
Net operating loss carryforwards
Pension
Accruals
Unrealized losses
Total
Deferred tax liabilities related to:
Unrealized gains
Other liabilities
Property, equipment and capitalized software
Intangibles, net
Investment in partnership
Pension
Total
Valuation allowance primarily on net operating loss carryforwards
Deferred income taxes, net
97
December 31,
2016
2015
$
7,122
$
5,178
12,729
56,501
944
23,461
164
106,099
—
643
32,759
118,695
94,354
—
246,451
5,620
5,310
4,686
9,150
22,797
—
5,992
2,647
50,582
1,876
1,226
20,861
94,814
—
600
119,377
4,814
$
(145,972) $
(73,609)
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Net deferred tax (liabilities) assets by jurisdiction are as follows:
United States
Australia
New Zealand
The Netherlands
United Kingdom
Brazil
Canada
Total
December 31,
2016
2015
$
(148,389) $
(2,020)
183
206
6,474
(2,497)
71
(76,308)
(6,153)
252
230
9,623
(1,253)
—
$
(145,972) $
(73,609)
The deferred tax assets and deferred tax liabilities are included in deferred income taxes, net on the consolidated balance
sheets where a right of offset exists.
The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom. The Company had
approximately $211,010 of post apportionment state, $103,739 of federal and $54,062 of foreign net operating loss carry forwards
at December 31, 2016 and approximately $102,483 of post apportionment state, $10,072 of federal and $69,762 of foreign net
operating loss carry forwards at December 31, 2015. The 2016 increase is a result of the EFS acquisition which included a corporation
carrying forward state and federal net operating losses. The U.S. losses expire at various times through 2035. Foreign losses in
Brazil and the UK have indefinite carry forward periods.
The Company has established valuation allowances for the following items: (i) acquired net operating losses in the UK
(ii) Evolution1’s equity investment in its minority-owned subsidiaries, (iii) state tax credits, and (iv) certain net operating losses
and estimated non-deductible expenses. During 2016 and 2015, the Company recorded tax expense of $2,000 and $2,888,
respectively, for net increases to the valuation allowance. In each case the Company has determined it is more likely than not that
the benefits will not be utilized. No other valuation allowances have been established for any other deferred tax assets as the
Company believes it is more likely than not that its deferred tax assets will be utilized within the carry forward periods. The
Company has not finalized the purchase accounting for the acquisition of EFS.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $25,824 and $13,230 at December 31,
2016 and 2015, respectively. 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. The Company has determined that the amount of taxes attributable to these undistributed
earnings is not practicably determinable.
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 or one of its subsidiaries files income tax returns in the United States federal jurisdiction and various state
and foreign jurisdictions, where required. In the normal course of business, the Company is no longer subject to income tax
examination after the Internal Revenue Service statute of limitations of three years. However, as extensions are in place, the Internal
Revenue Service is currently in the process of examining the Company’s US federal income tax returns for 2010, 2011 and 2012.
The Company is currently appealing adjustments proposed by the Internal Revenue Service in connection with the ongoing audits.
The Company is also subject to an ongoing examination in New Zealand by Inland Revenue for calendar tax years 2012 and 2013.
98
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:
Beginning balance
Increases related to prior year tax positions
Decreases related to prior year tax positions, due to foreign currency exchange
Decreases related to prior year tax positions
Lapse of statute
Ending balance
Year ended December 31,
2016
2015
2014
$
4,776
$
4,856
$
4,960
—
(431)
(4,345)
431
(511)
—
—
5,283
—
(427)
—
—
$
4,960
$
4,776
$
4,856
At December 31, 2016, the Company had $4,960 of net unrecognized tax benefits. If recognized, the $4,960 in net
unrecognized tax benefits would reduce the Company’s effective tax rate. The Company anticipates settling a portion of the
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
did not accrue an amount in 2016 for penalties and interest related to uncertain tax positions. The Company accrued $2,251 and
$1,988 as of December 31, 2015 and 2014, respectively, for penalties and interest related to uncertain tax positions.
14. Tax Receivable Agreement
As a consequence of the Company’s separation from its former parent company in 2005, the tax basis of the Company’s
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 Company’s 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 Company’s ability to
generate sufficient taxable income adequate to cover the tax depreciation, amortization and interest expense associated with the
Tax Basis Increase. Estimated blended tax rates are impacted by a number of factors including tax law changes, statutory tax rate
changes, state apportionment and state filing combinations. The Company regularly reviews its estimated blended 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, net of bank fees and legal expenses, as prepayment in full to settle the remaining obligations
to Realogy under the 2005 Tax Receivable Agreement. 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 percent of the future tax
savings related to the Tax Basis Increase to Wyndham.
For each year presented, there has been a reassessment of the blended tax rates that are projected into the future. For the
year ended December 31, 2016, the net future benefits increased, which increased the associated liability to Wyndham, resulting
in a charge to non-operating expense of $563. In addition, the liability decreased due to payments of $10,797 made during the year
ended December 31, 2016. For the year ended December 31, 2015, the net future benefits decreased, which decreased the associated
liability to Wyndham, resulting in a $2,145 offset to non-operating expense. For the year ended December 31, 2014, the net future
benefits increased, which increased the associated liability to Wyndham, resulting in a charge to non-operating expense of $1,331.
99
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
15. Employee Benefit Plans
The Company sponsors a 401(k) retirement and savings plan. Eligible employees may participate in the plan immediately.
The Company’s employees who are at least 18 years of age, have worked at least 1000 hours in the past year, and have completed
one year of service are eligible for Company matching contributions in the plan. The Company matches 100 percent of each
employee’s contributions up to a maximum of 6 percent of each employee’s eligible compensation. All contributions vest
immediately. WEX Inc. has the right to discontinue the plan at any time. Contributions to the plan are voluntary. The Company
contributed $5,297, $4,571 and $3,502 in matching funds to the plan for the years ended December 31, 2016, 2015 and 2014,
respectively.
During 2016, the Company acquired EFS, which as of the date of the acquisition had its own employee savings plan ("the
EFS Plan"). As of December 31, 2016, the EFS Plan was merged with the existing WEX plan, and the existing plan recorded a
receivable for the amount of net assets available for benefits expected to be received from the EFS Plan. On February 1, 2017, the
WEX plan received net assets available for benefits totaling $15,159 in a transfer from the EFS Plan. On January 1, 2017, EFS
employees became eligible to participate in the existing WEX plan.
During 2014, the Company acquired Evolution1 which, as of the date of the acquisition, had its own employee savings
plan, the Evolution1 Plan. As of December 31, 2014, the Evolution1 Plan was merged with the existing WEX plan, and the existing
plan recorded a receivable for the amount of net assets available for benefits it expected to receive from the Evolution1 Plan. Net
assets available for benefits totaling $21,739 were received by the plan on January 2, 2015, in a transfer from the Evolution1 Plan.
On January 1, 2015, Evolution1 employees became eligible to participate in the existing WEX plan.
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 grantor’s trust
to hold the assets under the Company’s defined contribution plan. The obligation related to the defined contribution plan totaled
$5,673 and $5,655 at December 31, 2016 and 2015, respectively, and are included in Other liabilities on the consolidated balance
sheets. 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 $5,673
and $5,655 at December 31, 2016 and 2015, respectively, and are included in Other assets on the consolidated balance sheets.
The Company has defined benefit pension plans in Germany and Norway. The total net unfunded status for the Company’s
foreign defined benefit pension plans, recognized as accrued expenses in the consolidated balance sheets, were $5,979 and $4,406
as of December 31, 2016 and 2015, respectively. The Company will measure these plan obligations on an annual basis. The change
in fair value to the defined benefit pension plans is recorded through the consolidated statements of income. The expense under
each of these defined benefit pension plans for 2016 and 2015 was not material to the consolidated financial statements.
16. Fair Value
The Company holds mortgage-backed securities, fixed income securities, derivatives (see Note 11, Derivative Instruments)
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 as model pricing, when market quotes are not readily
accessible or available. In determining the fair value of the Company’s 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; and the Company’s own-credit standing.
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 Company’s 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.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement
100
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers between Level
1, Level 2, or Level 3 of the fair value hierarchy during either of the years ended December 31, 2016 and 2015.
The following table presents the Company’s assets and liabilities that are measured at fair value and the related hierarchy
levels for 2016 and 2015:
Assets:
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Equity securities
Total available-for-sale securities
Executive deferred compensation plan trust (a)
Fuel price derivatives – unleaded fuel (b)
Fuel price derivatives – diesel (b)
Total fuel price derivatives
Interest rate swaps (a)
Foreign currency swaps (c)
Liabilities:
Foreign currency swaps (d)
Fair Value
Hierarchy
December 31,
2016
2015
2
2
2
1
1
2
3
2
2
2
$
$
$
$
$
$
$
$
490
648
682
21,705
23,525
5,673
$
$
$
— $
—
— $
12,908
29
$
$
— $
650
848
398
16,666
18,562
5,655
3,083
1,924
5,007
—
—
90
(a)
(b)
(c)
(d)
The fair value of these instruments is recorded in Other assets.
The consolidated balance sheet presentation combines unleaded fuel and diesel fuel positions.
The fair value of these instruments is recorded in Accounts receivable.
The fair value of these instruments is recorded in Accounts payable.
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 an open-ended mutual fund which
is invested in fixed-income securities and is held in order to satisfy the regulatory requirements of WEX Bank.
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 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active
markets.
$400 Million Notes Outstanding
Not considering unamortized loan origination fees, the Notes outstanding have a carrying value of $400,000 and a fair
value of $390,000 as of December 31, 2016 and a carrying value of $400,000 and fair value of $366,000 as of December 31, 2015.
The fair value is based on market rates for the issuance of our debt. The Company determined the fair value of its Notes outstanding
are classified as Level 2 in the fair value hierarchy.
Foreign Currency Contracts
Derivatives include foreign currency forward and swap contracts. Our foreign currency forward and swap contracts are
valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. We
consider counterparty credit risk in the valuation of the Company's derivatives. This credit risk did not have a material impact on
the valuation of the Company's derivatives during 2016 and 2015.
101
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Fuel Price Derivatives
The majority of derivatives entered into by the Company were executed over-the-counter and were valued using internal
valuation techniques as no quoted market prices exist for such instruments. The valuation technique and inputs depended on the
type of derivative and the nature of the underlying instrument. The principal technique used to value these instruments was a
comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Company’s assumptions of
volatility and present value, where appropriate. The fair values of derivative contracts reflected the expected cash the Company
would pay or receive upon settlement of the respective contracts. After the first quarter of 2016, the Company no longer holds any
fuel price derivatives.
The key inputs depended 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 was 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 were generally
less observable.
Significant Unobservable Inputs
The assumptions used in the valuation of the diesel fuel price derivatives used both observable and unobservable inputs.
There is a lack of price transparency with respect to forward prices for diesel fuel. Such unobservable inputs were significant to
the diesel fuel derivative contact valuation methodology.
The significant unobservable inputs used in the fair value measurement of the Company’s diesel fuel price derivative
instruments designated as Level 3 were as follows:
Fuel price derivatives – diesel
$
1,924
Option model
Fair Value at
December 31, 2015
Valuation
Technique
Unobservable Input
Future retail price of diesel
fuel after December 31,
2015
Range $
per gallon
3.72 – 3.78
The following table presents a reconciliation of the beginning and ending balances for assets and liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2016 and
2015:
Fuel Price Derivatives – Diesel
Beginning balance
Total gains or (losses) – realized/unrealized
Included in earnings (a)
Ending balance
December 31,
2016
2015
1,924
$
11,848
(1,924)
— $
(9,924)
1,924
$
$
(a)
Gains and losses for the years ended December 31, 2016 and 2015, are reported in Net realized and unrealized gains and (losses) on fuel price derivatives
in the consolidated statements of income.
Interest Rate Swap Arrangements
We determine the fair value of our interest rate swaps based on the discounted cash flows of the difference between the
projected fixed payments on the swap and the implied floating payments using the current LIBOR curve, which are Level 2 inputs
in the fair value hierarchy.
Debt
We determine the fair value of the amount outstanding under our 2016 Credit Facility based on the market rates for the
issuance of the Company's debt which are Level 2 inputs in the fair value hierarchy. The fair value of amounts outstanding under
the 2016 Credit Facility approximate the carrying value.
102
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
17. Non-controlling interest
On August 30, 2012, the Company acquired a 51 percent ownership interest in UNIK. The redeemable non-controlling
interest was measured at fair value at the date of acquisition and was reported on the Company’s consolidated balance sheets as
“Redeemable non-controlling interest." On August 31, 2015, the Company acquired the remaining 49 percent ownership in UNIK
for $46,018. Due to put rights held by the non-controlling shareholders after the Company's original investment, the non-controlling
interest was previously reported as a liability rather than permanent equity. The Company agreed to cancel this put option in
conjunction with the acquisition of the remaining 49 percent ownership. The value of the redeemable non-controlling interest was
adjusted to the redemption value at date of purchase and the Company recorded the adjustment to retained earnings. This adjustment
to retained earnings reduces the Earnings Per Share to shareholders. The Company recorded the amount paid in excess of the
redemption value in additional paid-in capital and the impact related to foreign currency in accumulated other comprehensive
income. The Company's overall purchase price was less than the fair value of UNIK.
A reconciliation of redeemable non-controlling interest for the year ended December 31, 2015, is as follows:
Beginning balance
Net income attributable to redeemable non-controlling interest
Currency translation adjustment
Accretion to redemption value
Excess purchase amount over redemption value
Purchase of non-controlling interest
Ending balance
$
$
16,590
1,190
(4,210)
9,413
23,035
(46,018)
—
On December 1, 2014, WEX acquired the assets of ExxonMobil's Esso portfolio in Europe through its majority owned
subsidiary, WEX Europe Services Limited. The Company formed this entity during 2013 and has 75 percent ownership.
A reconciliation of non-controlling interest for the years ended December 31, 2016 and 2015 is as follows:
Beginning balance
Net loss attributable to non-controlling interest
Currency translation adjustment
Ending balance
18. Commitments and Contingencies
Litigation
2016
2015
$
$
12,437
$
(3,161)
(718)
8,558
$
17,396
(2,896)
(2,063)
12,437
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 Company’s consolidated financial position, results of operations or cash flows.
Legal Matters
On August 11, 2016, the Company was sued in the Circuit Court of St. Charles County, Missouri, in a putative class action
alleging the Company improperly sent unauthorized facsimile advertisements in violation of the Telephone Consumer Protection
Act, 47 U.S.C. § 227 (the “TCPA”). The named plaintiff seeks to represent a nationwide class of recipients of unauthorized facsimile
advertisements from the Company (collectively, the "Plaintiffs") and requests statutory damages for each facsimile advertisement.
The Plaintiffs further allege that the opt-out notice of the faxes did not meet the criteria set forth in the TCPA or its underlying
regulations. The Company removed the case to the United States District Court for the Eastern District of Missouri on September
15, 2016. On October 14, 2016, the Company filed an answer denying liability and stating the facsimile advertisement at issue
was sent by FleetOne, LLC, Company’s wholly-owned subsidiary. A mediation related to this dispute is also expected to occur.
The Company is currently conducting an internal review of this matter and intends to vigorously defend itself. The current
estimate of a reasonably possible loss contingency is not material to the Company's consolidated financial position, results of
operations or cash flows.
103
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Extension of Credit to Customers
The Company had aggregate unused commitments of approximately $5,421,000 and $6,229,000 at December 31, 2016
and 2015, respectively, related to payment processing services, primarily related to commitments to extend credit to customers
and customers of strategic relationships as part of the Company’s 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, subject to limited notice requirements in some instances. These amounts are not recorded on the consolidated
balance sheets.
Operating Leases
The Company leases office space and equipment under non-cancelable operating lease agreements that expire at various
dates through 2026. 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 $15,104, $11,310 and $8,838 for the years ended
December 31, 2016, 2015 and 2014, respectively. 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 and rental expense related to information technology hardware and software leases totaled
$12,875, $11,288 and $9,852 for the years ended December 31, 2016, 2015 and 2014, respectively. 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:
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Minimum Volume Purchase Commitments
$
$
11,495
9,276
6,429
5,354
4,593
14,924
52,071
One of the Company's subsidiaries is required to purchase a minimum amount of fuel from suppliers on an annual basis
through 2024. Should we fail to meet these minimum volume commitments, the Company will be assessed a penalty as defined
under the contracts. If the Company does not purchase fuel under these commitments after December 31, 2016, we would incur
annual penalties through 2024 totaling approximately $1,301,675. During the years ended December 31, 2016, 2015 and 2014,
we did not incur material shortfall penalties under these contracts. The Company considers the associated risk of loss to be remote
based on current operations.
104
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
19. Accumulated Other Comprehensive Loss
A reconciliation of accumulated other comprehensive loss for the years ended December 31, 2016 and 2015, is as follows:
Beginning balance
Other comprehensive loss
Purchase of redeemable non-controlling interest
Ending balance
2016
2015
Unrealized
Losses on
Available-
for-Sale
Securities
Foreign
Currency
Items
Unrealized
Losses on
Available-
for-Sale
Securities
Foreign
Currency
Items
$
$
(212) $ (103,239) $
(129) $
(50,452)
(251)
—
(19,137)
—
(83)
—
(43,679)
(9,108)
(463) $ (122,376) $
(212) $
(103,239)
No significant amounts were reclassified from accumulated other comprehensive loss in the periods presented.
The change in foreign currency items is primarily due to the foreign currency translation of non-cash assets such as
goodwill and other intangible assets related to the Company's foreign subsidiaries.
The total tax effect on accumulated unrealized loss was $5,416 and $2,647 as of December 31, 2016 and 2015, respectively.
20. Dividend Restrictions
The Company has certain restrictions on the dividends it may pay under its revolving credit agreement, including pro
forma compliance with a ratio of consolidated funded indebtedness to consolidated EBITDA of 2.50:1.00 for the most recent
period of four fiscal quarters. However, if the Company's leverage ratio does not exceed 5.25 through September 30, 2017, 5.00
through September 30, 2018, 4.25 through September 30, 2019, or 4.00 from December 31, 2019 and thereafter, after execution
of a restricted payment, the Company may pay $50,000 per annum for restricted payments, including dividends, of which 100%
of unused amounts may be carried over into subsequent years. The Company has not declared any dividends on its common stock
since it commenced trading on the NYSE on February 16, 2005.
Dividends paid by WEX Bank have provided a substantial part of the Company’s operating funds and for the foreseeable
future it is anticipated that dividends paid by WEX Bank will continue to be a source of operating funds to the Company. 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 Bank’s 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 each of the years ended December 31, 2016, 2015,
and 2014.
21. Stock-Based Compensation
In 2010, the Company adopted the WEX Inc. 2010 Equity Incentive Plan (the “Plan”). This Plan replaced the Company’s
2005 Equity and Incentive Plan. In May 2015, the Company adopted the 2015 Section 162(m) Performance Incentive Plan
(collectively the "Plans"). These Plans, which are stockholder-approved, permit 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 the sum of 3,800 shares of common stock and such additional number of shares of common
stock (up to 1,596) as is equal to the number of shares of common stock reserved for issuance under the Company’s Amended and
Restated 2005 Equity and Incentive Plan (the “Prior Plan”) that remained available for grant under the Prior Plan immediately
prior to the Board of Directors’ approval of the 2010 Plan and the number of shares of common stock subject to awards under the
105
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Prior Plan which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at
their original issuance price pursuant to a contractual repurchase right.
On December 31, 2016, 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 $19,742, $12,420 and $13,790 for 2016, 2015
and 2014, respectively. The associated tax benefit related to these costs was $7,200, $4,542 and $4,983, for 2016, 2015, and 2014,
respectively. There were 2,645,987 units of common stock available for grant for future equity-incentive compensation awards
under the plan at December 31, 2016.
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 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 Company’s stock on the day of grant as reported by the New
York Stock Exchange (“NYSE”).
A summary of the status of the Company’s RSUs as of December 31, 2016, and changes during the year then ended is
presented below:
Restricted Stock Units
Balance at January 1, 2016
Granted
Vested – shares issued
Vested – shares deferred (a)
Forfeited
Withheld for taxes (b)
Balance at December 31, 2016
Weighted-
Average per share
Grant-
Date Fair
Value
Units
99
$
209
(61)
(2)
(11)
(28)
206
$
94.51
90.24
94.93
87.08
87.22
96.40
88.78
(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 Company’s common stock at a later date as specified by the award (deferred stock units or “DSUs”).
(b)
The Company withholds shares of common stock to pay the minimum required statutory taxes due upon RSU vesting. Cash is then remitted by the
Company to the appropriate taxing authority.
As of December 31, 2016, there was $9,037 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 1.3 years.
The total grant-date fair value of shares granted was $18,826, $7,846 and $7,376 during 2016, 2015 and 2014, respectively. The
total fair value of shares vested was $3,648, $4,521 and $8,545 during 2016, 2015 and 2014, respectively.
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 Company’s
stock on the grant date as reported by the NYSE.
106
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
A summary of the status of the Company’s DSUs as of December 31, 2016, and changes during the year is presented
below:
Deferred Stock Units
Balance at January 1, 2016
Awards
Converted from RSUs
Balance at December 31, 2016
Weighted-
Average per share
Grant-Date
Fair Value
Units
98
$
1
2
101
$
30.59
84.52
87.08
32.12
There is no unrecognized compensation cost related to awards granted as, or converted to, DSUs. The Company has
determined that the award is earned when granted and it is expensed at that time. The total fair value of shares granted and vested
was $238, $363 and $189 during 2016, 2015 and 2014, respectively.
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 performance goals. PBRSU awards generally have performance goals tracking a one to three 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 Company’s stock on the grant date as reported by the NYSE.
A summary of the status of certain of the Company’s PBRSUs at threshold and target performance as of December 31,
2016, and changes during the year then ended is presented below:
Performance Based Restricted Stock Units
Balance at January 1, 2016
Granted
Forfeited / Canceled
Converted to RSUs
Balance at December 31, 2016
Units at
Threshold
Units at
Target
Units at
Maximum
Weighted-
Average per
share
Grant-Date
Fair Value
71
95
(4)
(40)
122
188
197
(10)
(65)
310
$
363
389
(19)
(119)
614
$
96.16
80.84
85.46
105.30
84.83
The range of unrecognized compensation cost related to the PBRSU awards is from $5,107 at threshold (below target
performance), $10,835 at target and up to $21,450 at maximum (above target performance), as of December 31, 2016, depending
on whether certain performance conditions are met. That cost is expected to be recognized over a weighted-average period of 1.6
years. The total grant-date fair value of shares granted at target was $15,921, $6,860 and $19,239 during 2016, 2015 and 2014,
respectively. The total grant-date fair value of shares converted to RSUs and subsequently vested was $4,858, $2,035 and $2,474
during 2016, 2015 and 2014, respectively.
Stock Options
The fair value of each option award is estimated on the grant date using the following assumptions and a Black-Scholes-
Merton option-pricing model. The expected term assumption as it relates to the valuation of the options represents the period of
time that options granted are expected to be outstanding. The Company also estimates expected volatilities that are based on implied
volatilities from traded options on the Company's stock, historical volatility of the Company’s stock, and other factors. The option-
pricing model includes a risk-free interest rate for the period matching the expected term of the option and is based on the U.S.
Treasury yield curve in effect at the time of the grant. The dividend yield used in the option-pricing model is the calculated yield
on the Company’s stock at the time of the grant.
107
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
On March 15, 2016, March 15, 2015, and August 31, 2015, the Company approved the grant of stock options to certain
officers and employees under the Plan. Stock options granted generally become exercisable over three years (with approximately
33 percent of the total grant vesting each year on the anniversary of the grant date) and expire 10 years from the date of grant.
Based on the Company's lack of historical option exercise experience and granting of stock options with "plain vanilla"
characteristics, the Company uses the simplified method to estimate the expected term of its employee stock options.
The table below summarizes the assumptions used to calculate the fair value:
Weighted average expected life (in years)
Weighted average exercise price
Weighted average volatility
Weighted average risk-free rate
Weighted average fair value
March 15,
2016
March 15,
2015
August 31,
2015
6.0
6.0
5.77
77.20
$
103.75
$
94.53
31.93%
1.62%
30.53%
1.73%
28.73%
1.66%
26.14
$
34.13
$
28.90
$
$
The stock options granted under the plan related to the Company’s employees consisted of:
Stock Options
Outstanding at January 1, 2016
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2016
Exercisable on December 31, 2016
Vested and expected to vest at December 31, 2016
Weighted-
Average per
share
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value
Shares
81
$
126
(22)
(5)
180
23
172
$
$
$
71.50
77.20
13.96
87.38
81.90
75.58
82.00
8.57
5.69
8.54
$
$
$
5,347
833
5,081
As of December 31, 2016, there was $2,865 of total unrecognized compensation cost related to these options. That cost
is expected to be recognized over a weighted-average period of 1.4 years. The total intrinsic value of options exercised during the
years ended December 31, 2016, 2015 and 2014 was $1,712, $216 and $1,543, respectively. The total grant-date fair value of
shares granted was $3,297 and $1,855 during 2016 and 2015, respectively. There were no options granted during 2014.
22. Restructuring
In the first quarter of 2015, the Company commenced a restructuring initiative (the "2015 Restructuring Initiative") as a
result of its global review of operations. The global review of operations identified certain initiatives to further streamline the
business, to improve the Company's efficiency, and to globalize the Company's operations, all with an objective to improve scale
and increase profitability going forward. The Company continued its efforts to improve its overall operational efficiency and began
a second restructuring initiative (the "2016 Restructuring Initiative") during the second quarter of 2016. In connection with the
EFS acquisition, the Company initiated a restructuring program in the third quarter of 2016 (the "Acquisition Integration
Restructuring Initiative").
The restructuring expenses related to these initiatives primarily consist of employee costs and office closure costs directly
associated with the respective program. The Company has determined that the amount of expenses related to these initiatives are
probable and reasonably estimable and has recorded the impact on the consolidated statements of income and in Accrued expenses
on the consolidated balance sheets. Restructuring charges incurred to date under these initiatives were $17,340 as of December
31, 2016.
The balance under the 2015 Restructuring Initiative is expected to be paid through 2018. Amounts under the 2016
Restructuring Initiative and the Acquisition Integration Restructuring Initiative are expected to be paid through 2017. The Company
expects to incur an additional $300 in restructuring costs related to the 2015 Restructuring Initiative, an additional $300 in
108
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
restructuring costs related to the 2016 Restructuring Initiative and an additional $600 in restructuring costs related to the Acquisition
Integration Restructuring Initiative.
The following table presents the Company's 2015 Restructuring Initiative liability for the years ended December 31, 2016
and 2015:
Beginning balance
Restructuring charges
Reserve release
Cash paid
Other
Impact of foreign currency translation
Ending balance
2016
2015
$
7,249
$
2,182
(816)
(3,921)
(166)
703
$
5,231
$
—
9,038
(28)
(1,433)
—
(328)
7,249
The following table presents the Company's 2016 Restructuring Initiative liability for the year ended December 31, 2016:
Beginning balance
Restructuring charges
Reserve release
Cash paid
Other
Impact of foreign currency translation
Ending balance
$
2016
—
3,506
—
(4)
166
(6)
$
3,662
The following table presents the Company's Acquisition Integration Restructuring Initiative liability for the year ended
December 31, 2016:
Beginning balance
Restructuring charges
Cash paid
Ending balance
2016
—
2,614
(850)
1,764
$
$
The following table presents the Company's total restructuring liability for the years ended December 31, 2016 and 2015:
Beginning balance
Restructuring charges
Reserve release
Cash paid
Impact of foreign currency translation
Ending balance
23. Segment Information
2016
2015
$
7,249
$
8,302
(816)
(4,775)
697
$
10,657
$
—
9,038
(28)
(1,433)
(328)
7,249
Operating segments are defined as components of an enterprise about which separate financial information is available
and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance.
The Company’s chief operating decision maker is its Chief Executive Officer. The operating segments are aggregated into the
three reportable segments described below.
The Company’s chief operating decision maker evaluates the operating results of the Company’s operating and reportable
segments based upon revenues and adjusted pre-tax income before NCI which adjusts income before income taxes to exclude
certain items as noted below.
109
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The Fleet Solutions segment provides customers with payment and transaction processing services specifically designed
for the needs of commercial and government fleets. This segment also provides information management services to these fleet
customers. The Travel and Corporate Solutions segment focuses on the complex payment environment of business-to-business
payments, providing customers with payment processing solutions for their corporate payment and transaction monitoring needs.
The Health and Employee Benefit Solutions segment provides healthcare payment products and SaaS consumer directed platforms,
as well as payroll related benefits to customers. No one customer accounted for more than 10 percent of the total consolidated
revenue at December 31, 2016.
During the third quarter of 2016, management further refined its segment reporting, reclassifying certain revenues and
expenses previously reported in our Health and Employee Benefit Solutions segment to its Fleet Solutions segment. The prior year
amounts have been revised to reflect these adjustments, which were not deemed to be material to prior interim or annual periods,
either individually or in the aggregate.
Our segments earn interest income both from banking relationships and from cardholders. The majority of interest income
from cardholders is earned on our salary payment cards offered in Brazil.
The following table presents the Company's interest income by segment for the years ended December 31, 2016, 2015
and 2014:
Fleet Solutions
Travel and Corporate Solutions
Health and Employee Benefit Solutions
Total interest income
2016
2015
2014
$
$
3,053
$
1,704
$
498
13,581
348
5,116
17,132
$
7,168
$
1,853
96
4,717
6,666
The segment information has also been updated for the years ended December 31, 2015 and 2014 to disaggregate revenue
into payment processing, account servicing, finance fee and other revenue in order to provide additional information regarding
the Company’s significant revenue streams and to conform to the current year presentation. There was no change to total revenue
or other financial information in any of the periods presented as a result of this updated presentation.
The accounting policies of the reportable segments are generally the same as those described in the summary of significant
accounting policies. Assets are not allocated to the segments for internal reporting purposes.
The following tables present the Company’s reportable segment results on an adjusted pre-tax net income before NCI
basis for the years ended December 31, 2016, 2015 and 2014:
Fleet Solutions
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total Fleet Solutions revenue
Total Fleet Solutions operating interest expense
Total Fleet Solutions depreciation and amortization
Total Fleet Solutions adjusted pre-tax income before NCI
2016
2015
2014
$
$
$
$
$
297,900
$
305,855
$
357,050
127,106
124,725
92,330
642,061
3,476
100,860
175,162
$
$
$
$
100,850
83,554
57,419
81,217
75,703
54,373
547,678
$
568,343
1,869
54,453
199,319
$
$
$
2,910
54,789
206,367
110
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Travel and Corporate Solutions
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total Travel and Corporate Solutions revenue
Total Travel and Corporate Solutions operating interest expense
Total Travel and Corporate Solutions depreciation and amortization
Total Travel and Corporate Solutions adjusted pre-tax income before NCI
Health and Employee Benefit Solutions
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total Health and Employee Benefit Solutions revenue
Total Health and Employee Benefit Solutions operating interest expense
Total Health and Employee Benefit Solutions depreciation and amortization
Total Health and Employee Benefit Solutions adjusted pre-tax income before NCI
2016
2015
2014
175,762
$
151,311
$
141,368
1,247
643
37,595
215,247
2,969
6,187
103,167
$
$
$
$
1,930
326
41,852
195,419
$
1,218
2,999
73,510
$
$
$
1,647
438
39,513
182,966
410
1,911
87,664
2016
2015
2014
46,957
$
38,703
$
82,660
13,572
17,963
161,152
5,941
34,604
19,762
$
$
$
$
53,912
5,113
13,812
111,540
$
2,541
25,625
28,576
$
$
$
21,569
32,645
4,742
7,383
66,339
3,117
13,680
11,307
$
$
$
$
$
$
$
$
$
$
The following table reconciles income before income taxes to adjusted pre-tax income before NCI:
Income before income taxes
Unrealized (gains) losses on derivative instruments
Net foreign currency remeasurement loss
Acquisition and divestiture related items
Stock-based compensation
Restructuring and other costs
Vendor settlement
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
Regulatory reserve
Adjusted pre-tax income before NCI
Year ended December 31,
2016
2015
2014
$
87,101
$
184,908
$
301,639
(7,901)
7,665
148,753
19,742
13,995
15,500
12,673
563
—
35,962
5,689
50,714
12,420
9,010
—
3,097
(2,145)
1,750
(48,327)
13,438
20,826
13,790
—
—
2,641
1,331
—
$
298,091
$
301,405
$
305,338
The Company’s chief operating decision maker evaluates the operating results of the Company’s operating and reportable
segments based upon revenues and adjusted pre-tax income before NCI which adjusts income before income taxes to exclude
acquisition and divestiture related items, debt restructuring costs, stock-based compensation, restructuring and other costs, a vendor
settlement, unrealized gains and losses on derivatives, net foreign currency remeasurement gains and losses, non-cash adjustments
related to tax receivable agreement and reserves for regulatory penalties.
Beginning in the third quarter of 2016, adjusted pre-tax income before NCI further excluded debt issuance cost
amortization. For comparative purposes, adjusted pre-tax income before NCI attributable to shareholders for the prior periods has
been adjusted to reflect the exclusion of these items and differs from the figure previously reported due to this adjustment.
111
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Although adjusted pre-tax income before NCI is not calculated in accordance with GAAP, this non-GAAP measure is
integral to the Company's reporting and planning processes and the chief operating decision maker of the Company uses it to
allocate resources. The Company considers this measure integral because it excludes specified items that the Company's
management excludes in evaluating the Company's performance. Specifically, in addition to evaluating the Company's performance
on a GAAP basis, management evaluates the Company's performance on a basis that excludes the above items because:
• Exclusion of the non-cash, mark-to-market adjustments on derivative instruments, including fuel price related derivatives
and interest rate swap agreements, helps management identify and assess trends in the Company's underlying business
that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these derivative contracts.
The non-cash, mark-to-market adjustments on derivative instruments are difficult to forecast accurately, making
comparisons across historical and future quarters difficult to evaluate.
• Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, receivable
and payable balances, certain intercompany notes denominated in foreign currencies and any gain or loss on foreign
currency hedges relating to these items. The exclusion of these items helps management compare changes in operating
results between periods that might otherwise be obscured due to currency fluctuations.
• The Company considers certain acquisition-related costs, including certain financing costs, ticking fees, investment
banking fees, warranty and indemnity insurance, certain integration related expenses and amortization of acquired
intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside
of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition,
the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be
indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses of
divestitures facilitates the comparison of our financial results to the Company's historical operating results and to other
companies in our industry.
In prior periods, the Company has adjusted for goodwill impairments and acquisition related asset impairments. No
goodwill or acquisition related impairments were identified during the years ended December 31, 2016, 2015 and 2014.
•
Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a
cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award
is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based
on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.
• Restructuring costs are related to employee termination benefits from certain identified initiatives to further streamline
the business, improve the Company's efficiency, create synergies, and to globalize the Company's operations, all with an
objective to improve scale and increase profitability going forward. We exclude these items when evaluating our continuing
business performance as such items are not consistently occurring and do not reflect expected future operating expense,
nor provide insight into the fundamentals of current or past operations of our business.
• Vendor settlement represents a payment in exchange for the release of potential claims related to insourcing certain
technology, and does not reflect recurring costs that would be relevant to the continuing operations of the Company. The
Company believes that excluding this nonrecurring expense facilitates the comparison of our financial results to the
Company's historical operating results and to other companies in our industry.
• Debt issuance cost amortization is a non-cash item. Additionally, both these and the costs associated with debt restructuring
are unrelated to the continuing operations of the Company. Because these types of costs are dependent upon the financing
method which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison
to historical results as well as to other companies within our industry.
• The non-cash adjustments related to tax receivable agreement have no significant impact on the ongoing operations of
the business.
• Regulatory reserves reflect charges related to the impact of a regulatory action which resulted in WEX paying a penalty.
We have excluded this item when evaluating our continuing business performance as it is not consistently recurring and
does not reflect an expected future operating expense, nor provide insight into the fundamentals of the current or past
operations of our business.
112
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
For the same reasons, WEX believes that adjusted pre-tax income before NCI may also be useful to investors as one
means of evaluating the Company's performance. However, because adjusted pre-tax income before NCI is a non-GAAP measure,
it should not be considered as a substitute for, or superior to, net income, operating income or cash flows from operating activities
as determined in accordance with GAAP. In addition, pre-tax income before NCI as used by WEX may not be comparable to
similarly titled measures employed by other companies.
Geographic Data
Revenue by principal geographic area, based on the country in which the sale originated, was as follows:
Revenues:
United States
Australia
Other international
Total revenues
Year ended December 31,
2016
2015
2014
$
839,917
$
691,088
$
708,827
53,068
125,475
50,387
113,162
57,897
50,923
$
1,018,460
$
854,637
$
817,647
No single country, other than the United States and Australia, made up more than 5 percent of total revenues for any of
the years presented.
Net property, equipment and capitalized software are subject to geographic risks because they are generally difficult to
move and relatively illiquid. Net property, equipment and capitalized software by principal geographic area was as follows:
Property, equipment and capitalized software, net:
United States
Australia
Other international
Total property, equipment and capitalized software, net
Year ended December 31,
2016
2015
2014
$
$
146,165
$
79,265
$
5,493
15,620
5,445
53,875
72,334
6,280
26,982
167,278
$
138,585
$
105,596
113
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
24. Supplementary Regulatory Capital Disclosure
The Company's subsidiary, WEX Bank is subject to various regulatory capital requirements administered by the FDIC
and the Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory,
and possible additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WEX Bank
must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. WEX Bank’s capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum
amounts and ratios as defined in the regulations. As of December 31, 2016 and December 31, 2015, the most recent FDIC exam
report categorized WEX Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no
conditions or events subsequent to that examination report that management believes have changed WEX Bank’s capital rating.
WEX Bank's actual and regulatory minimum capital amounts and ratios as of December 31, 2016 and 2015 are presented
in the following table:
Minimum for
Capital
Adequacy
Purposes
Amount
Ratio
Minimum to Be
Well
Capitalized
Under Prompt
Corrective
Action
Provisions
Amount
Actual Amount
Ratio
2016
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
2015
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
$
$
$
$
228,402
214,847
214,847
214,847
202,294
193,337
193,337
193,337
12.59% $
145,182
8.00% $
11.10%
11.84%
77,413
81,665
4.00%
4.50%
11.84% $
108,887
6.00% $
181,477
96,767
117,961
145,183
15.50 % $
104,437
8.00 % $
130,547
11.23 %
14.81 %
14.81 % $
68,865
58,746
78,328
4.00 %
4.50 %
86,082
84,855
6.00 % $
104,437
Ratio
10.00%
5.00%
6.50%
8.00%
10.00 %
5.00 %
6.50 %
8.00 %
114
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
25. Quarterly Financial Results (Unaudited)
Summarized quarterly results for the years ended December 31, 2016 and 2015, are as follows:
2016
Total revenues (a)
Operating income(a)
Net earnings attributable to shareholders(a)
Earnings per share:(a)
Basic
Diluted
2015
Total revenues
Operating income
Net earnings attributable to shareholders
Earnings per share:
Basic
Diluted
Three months ended
March 31
June 30
September 30
December 31
$
$
$
$
$
$
$
$
$
$
205,928
41,127
23,086
0.60
0.59
202,285
48,240
22,345
0.58
0.57
$
$
$
$
$
$
$
$
$
$
233,936
51,635
12,567
0.32
0.32
213,653
62,918
26,492
0.68
0.68
$
$
$
$
$
$
$
$
$
$
287,756
54,568
19,696
0.46
0.46
226,057
67,745
32,166
0.83
0.83
$
$
$
$
$
$
$
$
$
$
290,840
47,798
5,288
0.12
0.12
212,642
49,890
20,901
0.54
0.54
(a)
Results for three months ended September 30, 2016 and December 31, 2016 include the operations of EFS and the issuance of approximately 4,000 shares of
common stock for the acquisition of EFS on July 1, 2016.
Basic and diluted net income per share are computed independently for each quarter presented. Therefore, the sum of
quarterly basic and diluted net income per share information may not equal annual basic and diluted net income per share.
115
ITEM 9.
FINANCIAL
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), that are intended to ensure that information that would be required to be disclosed in Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision, and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2016. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were not effective as of December 31, 2016 due to the material weakness in internal
control over financial reporting related to information technology general controls described below.
Management excluded from its assessment the internal control over financial reporting at EFS, which was acquired on
July 1, 2016, and whose financial statements constitute 6% percent of total operating assets and 8% percent of revenues of the
consolidated financial statement amounts as of and for the year ended December 31, 2016. This exclusion was in accordance with
Securities and Exchange Commission guidance that an assessment of a recently acquired business may be omitted in management’s
report on internal control over financial reporting in the year of acquisition.
(b) Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process,
designed by, or under the supervision of the Company’s principal executive and principal financial officers and effected by the
Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that
transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts
and expenditures are made only in accordance with management and Board authorizations; and providing reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance
that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with policies or procedures may deteriorate.
Management, with the participation of the Company’s principal executive and principal financial officers, conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework
and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design
effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on the
foregoing, management concluded that the Company’s internal control over financial reporting was not effective as of December
31, 2016 for the reasons described below.
(c) Material Weakness Discussion and Remediation
Management has identified a material weakness in its internal control over financial reporting related to information
technology general controls in the areas of user access and program change management. We have developed a remediation plan
for this material weakness, which is described below under “Remediation Activities.”
116
Material Weakness
In the course of completing its assessment of internal control over financial reporting as of December 31, 2016,
management identified a number of deficiencies related to the design and operating effectiveness of information technology (“IT”)
general controls for certain information systems that comprise part of the Company’s system of internal control over financial
reporting and are relevant to the preparation of its consolidated financial statements (such information technology systems are
referred to as the “affected IT systems”). These deficiencies involve user access controls and program change management controls.
These controls are intended to ensure that access to financial applications and data is adequately restricted to appropriate personnel,
and that changes affecting the financial applications and underlying account records are made by only authorized individuals. As
a result of the deficiencies identified, there is a possibility that the effectiveness of business process controls, certain of which are
dependent on the affected IT systems, or electronic data and financial reports, generated from the affected IT systems, could be
adversely affected. Therefore, management has concluded that, as of December 31, 2016, there was a material weakness in internal
control over financial reporting related to information technology general controls in the areas of user access and program change
management for the affected IT systems. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis.
Our internal control over financial reporting as of December 31, 2016, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report, which follows below.
Remediation Activities
We are actively engaged in the implementation of a remediation plan to ensure that controls contributing to this material
weakness are designed appropriately and will operate effectively. The remediation actions we are taking and expect to take include
the following:
•
Improving the design, operation and monitoring of control activities and procedures associated with user and administrator
access to the affected IT systems, through the implementation of preventive and detective control activities.
• While remediation is in progress to address the general IT control deficiencies, implementing detective monitoring controls
within IT to directly mitigate the risks.
• Assessing resources in the functional areas that support and monitor our IT systems.
Management believes that these efforts will effectively remediate the material weakness. However, the material weakness
in our internal control over financial reporting will not be considered remediated until the new controls are fully implemented, in
operation for a sufficient period of time, and tested and concluded by management to be designed and operating effectively. We
cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting
will be effective as a result of these efforts. In addition, as the Company continues to evaluate and work to improve its internal
control over financial reporting within the area of IT general controls, management may determine to take additional measures to
address control deficiencies or determine to modify the remediation plan described above. Management will test, evaluate, and
audit the implementation of these new processes and internal controls during fiscal 2017 to ascertain whether they are designed
and operating effectively to provide reasonable assurance that they will prevent or detect a material error in the Company’s financial
statements. Subject to the foregoing, management is working towards having these remediation efforts completed by the time we
issue our December 31, 2017 financial statements. Management is committed to continuous improvement of our internal control
over financial reporting and will continue to diligently review our financial reporting controls and procedures.
The management team was able to obtain a reasonable level of assurance that the underlying systems and financial
statement balances were accurate and complete through tests of the design and operating effectiveness of business process controls,
as well as validation procedures and review processes. As a result of these procedures, we believe that the consolidated financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2016 fairly present, in all material
respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Additionally, this material weakness did not result in any adjustments or restatements of the Company's audited and unaudited
consolidated financial statements or disclosures for any prior period previously reported by the Company.
We believe that the remediation measures described above will strengthen our internal control over financial reporting
and remediate the material weaknesses we have identified. We expect that our remediation efforts, including design, implementation
and testing will continue throughout fiscal year 2017.
117
(d) Changes in Internal Control Over Financial Reporting
As previously disclosed in our quarterly report on Form 10-Q that was filed with the SEC on August 9, 2016, during
April 2016, the Company began the process of migrating certain general IT controls and processes which cover our core businesses
to outsourced service provider CSC (formerly Computer Sciences Corporation). In addition, the Company designed and
implemented related monitoring controls in order to appropriately oversee the work performed by CSC. Due to the pervasive
nature of impacted general IT controls, we considered this outsourcing to represent a material change in our internal control over
financial reporting. Other than the material weakness and the change noted above, there were no other changes in our internal
control over financial reporting that occurred during the fiscal year 2016 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
118
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of WEX Inc.
South Portland, Maine
We have audited the internal control over financial reporting of WEX Inc. and subsidiaries (the "Company") as of December 31,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting
appearing at Item 9A, management excluded from its assessment the internal control over financial reporting at Electronic Funds
Source LLC, which was acquired on July 1, 2016, and whose financial statements constitute 6 percent of total operating assets
and 8 percent of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2016.
Accordingly, our audit did not include the internal control over financial reporting at Electronic Funds Source LLC. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented
or detected on a timely basis. The following material weakness has been identified and included in management’s assessment:
Management identified a material weakness in internal control over financial reporting relating to the design and operating
effectiveness of user access and program change management controls related to certain information systems that are relevant to
the preparation of the Company’s consolidated financial statements and system of internal control over financial reporting. This
material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated
financial statements of the Company as of and for the year ended December 31, 2016, and this report does not affect our report
on such financial statements.
In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control
criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2016, based on
the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
119
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our report dated March 6,
2017 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 6, 2017
120
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See the information in the Company’s proxy statement for the 2017 Annual Meeting of Stockholders captioned “Members
of the Board of Directors,” “Non-Director Members of the Executive Management Team,” “Section 16(a) Beneficial Ownership
Reporting Compliance,” “Director Nominations,” “Communications with the Board of Directors,” “Board and Committee
Meetings” and “Corporate Governance Information,” which information is incorporated herein by reference.
Website Availability of Corporate Governance and Other Documents
The following documents are available on the Corporate Governance page of the investor relations section of the Company’s
website, www.wexinc.com: (1) the Code of Business Conduct and Ethics, which covers all employees, officers and our board of
directors, (2) the Company’s Corporate Governance Guidelines and (3) key Board Committee charters, including charters for the
Audit, Corporate Governance and Compensation Committees. Stockholders also may obtain printed copies of these documents
by submitting a written request to Investor Relations, WEX Inc., 97 Darling Avenue, South Portland, Maine USA 04106. The
Company intends to post on its website, www.wexinc.com, all disclosures that are required by law or New York Stock Exchange
listing standards concerning any amendments to, or waivers from, the Code of Business Conduct and Ethics.
ITEM 11. EXECUTIVE COMPENSATION
See the information in the Company’s proxy statement for the 2017 Annual Meeting of Stockholders captioned “Executive
Compensation” and the related subsections, “Director Compensation” and “Compensation Committee Interlocks and Insider
Participation,” which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See the information in the Company’s proxy statement for the 2017 Annual Meeting of Stockholders captioned “Securities
Authorized for Issuance Under Equity Compensation Plans” and “Principal Stockholders” and the related subsections, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See the information in the Company’s proxy statement for the 2017 Annual Meeting of Stockholders captioned “Director
Independence” and “Certain Relationships and Related Transactions,” which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
See the section of the Company’s proxy statement for the 2017 Annual Meeting of Stockholders captioned “Auditor
Selection and Fees,” which information is incorporated herein by reference.
121
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
1. Financial Statements (see Index to Financial Statements on page 60).
2. The exhibit index attached to this Annual Report on Form 10-K is hereby incorporated by reference.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
122
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WEX INC.
March 6, 2017
By:
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer (principal financial officer
and principal accounting officer)
123
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
March 6, 2017
/s/ Melissa D. Smith
Melissa D. Smith
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer
(principal financial and accounting officer)
/s/ Michael E. Dubyak
Michael E. Dubyak
Chairman of the Board
/s/ Rowland T. Moriarty
Rowland T. Moriarty
Lead Director
/s/ John E. Bachman
John E. Bachman
Director
/s/ Eric Duprat
Eric Duprat
Director
/s/ Shikhar Ghosh
Shikhar Ghosh
Director
/s/ Ronald T. Maheu
Ronald T. Maheu
Director
/s/ George L. McTavish
George L. McTavish
Director
/s/ James C. Neary
James C. Neary
Director
/s/ Kirk Pond
Kirk Pond
Director
124
March 6, 2017
March 6, 2017
/s/ Regina O. Sommer
Regina O. Sommer
Director
/s/ Jack A. VanWoerkom
Jack A. VanWoerkom
Director
125
Exhibit
No.
EXHIBIT INDEX
Description
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
Share Purchase Agreement among RD Card Holdings Limited, Wright Express Australia Holdings PTY LTD and Wright Express
Corporation (incorporated by reference to Exhibit No. 2.1 to our Current Report on Form 8-K filed with the SEC on September 20,
2010, File No. 001-32426)
Unit Purchase Agreement, dated October 18, 2015, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
(E&P) XI, L.P., WP Mustang Topco LLC and Warburg Pincus Private Equity XI (Lexington), LLC (incorporated by reference to
Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Certificate of Incorporation (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on
March 1, 2005, File No. 001-32426)
Certificate of Ownership and Merger merging WEX Transitory Corporation with and into Wright Express Corporation (incorporated
by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on October 30, 2012, File No. 001-32426)
Amended and Restated By-Laws of WEX Inc. (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K
filed with the SEC on March 18, 2014, File No. 001-32426)
Rights Agreement dated as of February 16, 2005, by and between Wright Express Corporation and Wachovia Bank, National
Association (incorporated by reference to Exhibit No. 4.1 to our Current Report on Form 8-K filed with the SEC on March 1, 2005,
File No. 001-32426)
Indenture, dated as of January 30, 2013, among WEX Inc., the Guarantors named therein, and The Bank of New York Mellon Trust
Company, N.A. (incorporated by reference to Exhibit No. 4.1 to our Current Report on Form 8-K filed with the SEC on February 1,
2013, File No. 001-32426)
Supplemental Indenture, dated as of July 1, 2016 to the Indenture, dated as of January 30, 2013 among WEX Inc., the additional
subsidiary guarantors thereto and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit No. 4.1
to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
U.S. Security Agreement, made by WEX Inc., and the certain of its subsidiaries, as pledgors, assignors and debtors dated as of July
1, 2016, in favor of Bank of America, as collateral agent for the Lenders (incorporated by reference to Exhibit No. 4.2 to our Current
Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
Form of director indemnification agreement (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed
with the SEC on June 8, 2009, File No. 001-32426)
Tax Receivable Agreement, dated as of February 22, 2005, by and between Cendant Corporation and Wright Express Corporation
(incorporated by reference to Exhibit No. 10.3 to our Current Report on Form 8-K filed with the SEC on March 1, 2005, File No.
001-32426)
Tax Receivable Prepayment Agreement dated June 26, 2009 by and between Wright Express Corporation and Realogy Corporation
(incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 2, 2009, File No.
001-32426)
Ratification Agreement dated June 26, 2009 by and among Wright Express Corporation, Realogy Corporation, Wyndham Worldwide
Corporation and Avis Budget Group, Inc. (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed
with the SEC on July 2, 2009, File No. 001-32426)
Guarantee, dated as of June 26, 2009, by Apollo Investment Fund VI, L.P., Apollo Overseas Partners VI, L.P., Apollo Overseas
Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware892) VI, L.P. and Apollo Overseas Partners (Germany) VI, L.P. in
favor of Wright Express Corporation (incorporated by reference to Exhibit No. 10.3 to our Quarterly Report on Form 10-Q filed
with the SEC on July 30, 2009, File No. 001-324426)
Credit Agreement, dated as of May 22, 2007, among Wright Express Corporation, as borrower, Bank of America, N.A., as
administrative agent, swing line lender and L/C issuer, Banc of America Securities LLC and SunTrust Robinson Humphrey, a
division of SunTrust Capital Markets, Inc., as joint lead arrangers and joint book managers, SunTrust Bank, Inc., as syndication
agent, BMO Capital Markets, KeyBank National Association, and TD Banknorth, N.A., as co-documentation agents, and the other
lenders party thereto (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on
May 29, 2007, File No. 001-32426)
126
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Guaranty, dated as of May 22, 2007, by and among Wright Express Corporation, the subsidiary guarantors party thereto, and Bank
of America, N.A., as administrative agent for the lenders party to the Credit Agreement (incorporated by reference to Exhibit No.
10.2 to our Current Report on Form 8-K filed with the SEC on May 29, 2007, File No. 001-32426)
Incremental Amendment Agreement among Wright Express Corporation, as borrower; Bank of America, N.A., as administrative
agent, swing line lender and L/C issuer; Banc of America Securities LLC; SunTrust Robinson Humphrey, a division of SunTrust
Capital Markets, Inc., as joint lead arrangers and joint book managers; SunTrust Bank, Inc., as syndication agent; and with other
lenders (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on June 3, 2008, File
No. 001-32426)
Amendment to Credit Agreement, dated as of June 26, 2009, among Wright Express Corporation, as borrower, each lender from
time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by
reference to Exhibit No. 10.4 to our Quarterly Report on Form 10-Q filed with the SEC on July 30, 2009, File No. 001-324426)
Credit Agreement, dated as of May 23, 2011, by and among Wright Express Corporation and certain of its subsidiaries, as
borrowers, Wright Express Card Holdings Australia Pty Ltd, Bank of America, N.A., as administrative agent, swing line lender and
L/C issuer, and the other lenders party thereto (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K
filed with the SEC on May 26, 2011, File No. 001-32426)
Guaranty, dated as of May 23, 2011, by and among Wright Express Corporation and Bank of America, N.A. (incorporated by
reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on May 26, 2011, File No. 001-32426)
Domestic Subsidiary Guaranty, dated as of May 23, 2011, by and among Wright Express Corporation, certain Subsidiary Guarantors
and Bank of America, N.A. (incorporated by reference to Exhibit No. 10.3 to our Current Report on Form 8-K filed with the SEC on
May 26, 2011, File No. 001-32426)
Pledge Agreement, dated as of May 23, 2011, by and among Wright Express Corporation, certain Domestic Subsidiary Guarantors
and Bank of America, N.A. (incorporated by reference to Exhibit No. 10.4 to our Current Report on Form 8-K filed with the SEC on
May 26, 2011, File No. 001-32426)
Share Mortgage, dated as of May 23, 2011, by and among Wright Express Corporation and Bank of America, N.A. (incorporated by
reference to Exhibit No. 10.5 to our Current Report on Form 8-K filed with the SEC on May 26, 2011, File No. 001-32426)
Reaffirmation Agreement, dated as of January 18, 2013, among WEX Inc., Wright Express Card Holdings Australia PTY LTD., and
certain guarantors and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit No. 10.15 to our
Annual Report on Form 10-K filed with the SEC on February 28, 2013, File No. 001-32426)
Amended and Restated Credit Agreement, dated as of January 18, 2013, among WEX Inc. and Certain Subsidiaries, as borrowers,
Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the Other Lenders Party hereto Merrill Lynch,
Pierce Fenner & Smith Incorporated, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers
and joint book managers, SunTrust Bank, and Wells Fargo Bank, National Association as co-syndication agents, RBS Citizens, N.A.,
KeyBank National Association, and Bank of Montreal, as co-documentation agents, and the other lenders party thereto (incorporated
by reference to Exhibit No. 10.16 to our Annual Report on Form 10-K filed with the SEC on February 28, 2013, File No.
001-32426)
Second amended and Restated Agreement, dated as of August 22, 2014, among WEX Inc. and Certain Subsidiaries, as borrowers,
Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the Other Lenders Party hereto Merrill Lynch,
Pierce Fenner & Smith Incorporated, SunTrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers
and joint book managers, SunTrust Bank, and Wells Fargo Bank, National Association as co-syndication agents, RBS Citizens, N.A.,
KeyBank National Association, and Bank of Montreal, as co-documentation agents, and the other lenders party thereto (incorporated
by reference to Exhibit No. 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on October 30, 2014, File No.
001-32426)
Amendment and Restatement Agreement, dated as of August 22, 2014, by and among WEX Inc. as the Company, the Lenders party
hereto and Bank of America, N.A. as administrative agent and Merrill Lynch, Pierce Fenner & Smith Incorporated, SunTrust
Robinson Humphrey, Inc. and Wells Fargo Securities, LLC, as joint lead arrangers and joint book managers (incorporated by
reference to Exhibit No. 10.2 to our Quarterly Report on Form 10-Q filed with the SEC on October 30, 2014, File No. 001-32426)
Amended and Restated Guaranty, dated as of August 22, 2014, between WEX Inc., and Bank of America, N.A., as administrative
agent (incorporated by reference to Exhibit No. 10.3 to our Quarterly Report on Form 10-Q filed with the SEC on October 30, 2014,
File No. 001-32426)
First Amendment to Second Amended and Restated Credit Agreement dated as of November 20, 2014, by and among, WEX Inc. as
the Company, the Lenders party hereto and Bank of America, N.A. as administrative agent.
127
10.21
Second Amendment to the Second amended and Restated Agreement, dated as of August 22, 2014, among WEX Inc. and Certain
Subsidiaries, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and the Other Lenders
Party hereto (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on May 23, 2016,
File No. 001-32426)
10.22
Investors Rights Agreement, dated as of July 1, 2016, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
L.P., WP Mustang Co-Invest – B L.P., WP Mustang Co-Invest – C L.P., Warburg Pincus XI (E&P) Partners – B, L.P., Warburg
Pincus (E&P) XI, L.P., WP (Lexington) Holdings II, L.P., Warburg Pincus Private Equity (Lexington) XI – A, L.P., Warburg Pincus
XI (Lexington) Partners – A , L.P., WP Mustang Co-Invest LLC and the other investors party thereto (incorporated by reference to
Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
10.23
† 10.24
† 10.25
† 10.26
† 10.27
Credit Agreement among WEX Inc., certain of its subsidiaries as borrowers, WEX Card Holding Australia Pty Ltd., as designated
borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto
(incorporated by reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on July1, 2016, File No.
001-32426)
Wright Express Corporation Amended 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our Current
Report on Form 8-K filed with the SEC on May 21, 2010, File No. 001-32426)
Wright Express Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit No. 10.7 to our Registration
Statement on Form S-1 filed with the SEC on February 10, 2005, File No. 333-120679)
Wright Express Corporation Amended and Restated Non-Employee Directors Deferred Compensation Plan (incorporated by
reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
2013 Amended and Restated WEX Inc. Short-Term Incentive Program (incorporated by reference to Exhibit No. 10.20 to our
Annual Report on Form 10-K filed with the SEC on February 27, 2014, File No. 001-32426)
† 10.28
2013 Corporate Annual Grant Long-Term Incentive Program (incorporated by reference to Exhibit No. 10.22 to our Annual Report
on Form 10-K filed with the SEC on February 27, 2014, File No. 001-32426)
† 10.29
2013 International Annual Grant Long-Term Incentive Program (incorporated by reference to Exhibit No. 10.23 to our Annual
Report on Form 10-K filed with the SEC on February 27, 2014, File No. 001-32426)
† 10.30
† 10.31
2013 FleetOne Integration Long-Term Incentive Program (incorporated by reference to Exhibit No. 10.27 to our Annual Report on
Form 10-K filed with the SEC on February 26, 2015, File No. 001-32426)
2014 Amended and Restated WEX Inc. Short-Term Incentive Program (incorporated by reference to Exhibit No. 10.28 to our
Annual Report on Form 10-K filed with the SEC on February 26, 2015, File No. 001-32426)
† 10.32
2014 Form of Annual Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to our
Quarterly Report on Form 10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
† 10.33
† 10.34
† 10.35
† 10.36
† 10.37
2014 Form of Annual Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
Form of 2014 Growth Grant - Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to
our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
George Hogan WEX Inc. Special Incentive Plan (incorporated by reference to Exhibit No. 10.32 to our Annual Report on Form 10-
K filed with the SEC on February 26, 2015, File No. 001-32426)
2015 Section 162(m) Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed with the SEC on May 21, 2015, File No. 001-32426)
WEX Inc. Severance Plan for Officers (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the
SEC on October 1, 2015, File No. 001-32426)
† 10.38
Form of Employment Agreement for David Maxsimic and Melissa Smith (incorporated by reference to Exhibit No. 10.6 to our
Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
128
† 10.39
† 10.40
Form of Employment Agreement for Robert Cornett, Hilary Rapkin and Jamie Morin (incorporated by reference to Exhibit No. 10.7
to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
Form of Employment Agreement for George Hogan and Richard Stecklair (incorporated by reference to Exhibit No. 10.20 to our
Annual Report on Form 10-K filed with the SEC on February 26, 2010, File No. 001-32426)
† 10.41
Change of Control Agreement, dated April 13, 2012, between Steven A. Elder and Wright Express Corporation (incorporated by
reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on April 18, 2012, File No. 001-32426)
† 10.42
† 10.43
† 10.44
† 10.45
Form of Long Term Incentive Program Award Agreement under the Amended and Restated Wright Express Corporation 2005 Equity
and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our Current Report on Form 8-K filed with the SEC on April 6,
2006, File No. 001-32426)
Form of Non-Employee Director Long Term Incentive Program Award Agreement under the Amended and Restated Wright Express
Corporation 2005 Equity and Incentive Plan (for grants received prior to December 31, 2006) (incorporated by reference to Exhibit
10.3 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2008, File No. 001-32426)
Form of Wright Express Corporation Long Term Incentive Program 2010 Growth Grant Stock Non-Statutory Stock Option Award
Agreement under the Amended and Restated Wright Express Corporation 2005 Equity and Incentive Plan (incorporated by reference
to Exhibit No. 10.5 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No. 001-32426)
Form of Wright Express Corporation Option Agreement under the Wright Express Corporation 2010 Equity and Incentive Plan
(incorporated by reference to Exhibit No. 10.29 to our Annual Report on Form 10-K filed with the SEC on February 28, 2011, File
No. 001-32426)
† 10.46
2015 Form of WEX Inc. Long Term Incentive Program Non-Statutory Stock Option Award Agreement (incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 1, 2015, File No. 001-32426)
† 10.47
Form of Wright Express Corporation Non-Employee Director Compensation Plan Award Agreement under the Wright Express
Corporation 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 10.31 to our Annual Report on Form 10-K
filed with the SEC on February 28, 2011, File No. 001-32426)
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
ISDA Master Agreement and Schedule between CITIBANK, National Association and Wright Express Corporation, dated as of
April 20, 2005 (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on April 27,
2005, File No. 001-32426)
Confirmation of transaction between CITIBANK, National Association and Wright Express Corporation, dated April 21, 2005
(incorporated by reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on April 27, 2005, File No.
001-32426)
ISDA Master Agreement between Fleet National Bank and Wright Express Corporation, dated as of April 20, 2005 (incorporated by
reference to Exhibit No. 10.3 to our Current Report on Form 8-K filed with the SEC on April 27, 2005, File No. 001-32426)
ISDA Schedule to the Master Agreement between Fleet National Bank and Wright Express Corporation, dated as of April 20, 2005
(incorporated by reference to Exhibit No. 10.4 to our Current Report on Form 8-K filed with the SEC on April 27, 2005, File No.
001-32426)
Confirmation of transaction between Fleet National Bank and Wright Express Corporation, dated April 21, 2005 (incorporated by
reference to Exhibit No. 10.5 to our Current Report on Form 8-K filed with the SEC on April 27, 2005, File No. 001-32426)
Form of confirmation evidencing purchases of Nymex Unleaded Regular Gasoline put options and call options by Wright Express
Corporation from J. Aron & Company (incorporated by reference to Exhibit 10.18 to our Quarterly Report on Form 10-Q filed with
the SEC on October 28, 2005, File No. 001-32426)
Form of confirmation evidencing purchases of Nymex Diesel put options and call options by Wright Express Corporation from J.
Aron & Company (incorporated by reference to Exhibit 10.19 to our Quarterly Report on Form 10-Q filed with the SEC on
October 28, 2005, File No. 001-32426)
ISDA Credit Support Annex to the Schedule Master Agreement between Bank of America, N.A. (successor to Fleet National Bank)
and Wright Express Corporation, dated as of August 28, 2006 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed with the SEC on November 20, 2006, File No. 001-32426)
129
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
10.72
Amendment to the ISDA Master Agreement between Bank of America, N.A. (successor to Fleet National Bank) and Wright Express
Corporation, dated as of August 28, 2006 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed
with the SEC on November 20, 2006, File No. 001-32426)
Form of confirmation evidencing purchases and sales of Diesel put options and call options by Wright Express Corporation from
Bank of America, N.A. (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed with the SEC on
August 7, 2007, File No. 001-32426)
Form of confirmation evidencing purchases and sales of Nymex Unleaded Regular Gasoline put options and call options by Wright
Express Corporation from Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q
filed with the SEC on August 7, 2007, File No. 001-32426)
Novation Agreement and New ISDA Agreement, dated as of October 23, 2009, among Wright Express Corporation, Bank of
America, N.A., and Merrill Lynch Commodities, Inc. (incorporated by reference to Exhibit No. 10.35 to our Annual Report on Form
10-K filed with the SEC on February 26, 2010, File No. 001-32426)
ISDA Master Agreement and Schedule between Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Wright Express
Corporation, dated as of June 14, 2007 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed with
the SEC on November 7, 2007, File No. 001-32426)
Confirmation of transaction between Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Wright Express Corporation, dated
as of July 18, 2007 (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed with the SEC on
November 7, 2007, File No. 001-32426)
ISDA Master Agreement and Schedule between SunTrust Bank and Wright Express Corporation, dated as of April 5, 2005
(incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q filed with the SEC on November 7, 2007, File No.
001-32426)
Amendment to ISDA Master Agreement, dated as of May 20, 2011, between SunTrust Bank and Wright Express Corporation
(incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q filed with the SEC on August 8, 2011, File No.
001-32426)
Confirmation of transaction between SunTrust Bank and Wright Express Corporation, dated as of July 18, 2007 (incorporated by
reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q filed with the SEC on November 7, 2007, File No. 001-32426)
Confirmation of transaction between SunTrust Bank and Wright Express Corporation, dated as of July 22, 2009 (incorporated by
reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 24, 2009, File No. 001-32426)
Confirmation of transaction between SunTrust Bank and Wright Express Corporation, dated as of September 20, 2010 evidencing
purchase of interest rate swap (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC
on September 22, 2010, File No. 001-32426)
ISDA Master Agreement and Schedule between KeyBank National Association and Wright Express Corporation, dated as of
June 15, 2007 (incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q filed with the SEC on November 7,
2007, File No. 001-32426)
Confirmation of transaction between KeyBank National Association and Wright Express Corporation, dated as of August 22, 2007
(incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q filed with the SEC on November 7, 2007, File No.
001-32426)
ISDA Master Agreement and Schedule between Wachovia Bank, National Association and Wright Express Corporation, dated as of
July 18, 2007 (incorporated by reference to Exhibit No. 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 8,
2008, File No. 001-32426)
Form of confirmation evidencing purchases of Nymex Unleaded Regular Gasoline put options and call options by Wright Express
Corporation from Wachovia Bank, National Association (incorporated by reference to Exhibit No. 10.2 to our Quarterly Report on
Form 10-Q filed with the SEC on May 8, 2008, File No. 001-32426)
ISDA Master Agreement between Barclays Bank PLC and Wright Express Corporation, dated as of March 10, 2010 (incorporated
by reference to Exhibit No. 10.6 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No. 001-32426)
ISDA Schedule to the Master Agreement between Barclays Bank PLC and Wright Express Corporation, dated as of March 10, 2010
(incorporated by reference to Exhibit No. 10.7 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No.
001-32426)
130
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
† 10.87
† 10.88
Credit Support Annex to the Schedule to the ISDA Master Agreement between Barclays Bank PLC and Wright Express Corporation,
dated as of March 10, 2010 (incorporated by reference to Exhibit No. 10.8 to our Quarterly Report on Form 10-Q filed with the SEC
on April 30, 2010, File No. 001-32426)
The First Amendment, dated as of March 23, 2010, to the Schedule to the ISDA Master Agreement dated as of July 18, 2007
between Wells Fargo Bank, N.A. (formerly known as Wachovia Bank, National Association) and Wright Express Corporation
(incorporated by reference to Exhibit No. 10.9 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No.
001-32426)
ISDA Master and Consolidation Agreement, dated as of March 23, 2010, to the Schedule to the Master Agreement dated as of
July 18, 2007 between Wells Fargo Bank, N.A. (formerly known as Wachovia Bank, National Association) and Wright Express
Corporation (incorporated by reference to Exhibit No. 10.10 to our Quarterly Report on Form 10-Q filed with the SEC on April 30,
2010, File No. 001-32426)
Credit Support Annex to the Schedule to the ISDA Master Agreement, dated as of July 18, 2007, between Wachovia Bank, National
Association, and Wright Express Corporation (incorporated by reference to Exhibit No. 10.11 to our Quarterly Report on Form 10-Q
filed with the SEC on April 30, 2010, File No. 001-32426)
Form of confirmation evidencing purchases of diesel fuel put options and call options by Wright Express Corporation from Wells
Fargo Bank, NA (incorporated by reference to Exhibit No. 10.12 to our Quarterly Report on Form 10-Q filed with the SEC on
April 30, 2010, File No. 001-32426)
ISDA Master Agreement and Schedule between Bank of Montreal and Wright Express Corporation, dated as of July 8, 2010
(incorporated by reference to Exhibit No. 10.69 to our Annual Report on Form 10-K filed with the SEC on February 28, 2012, File
No. 001-32426)
Credit Support Annex to the Schedule to the ISDA Master Agreement between Bank of Montreal and Wright Express Corporation,
dated as of July 8, 2010 (incorporated by reference to Exhibit No. 10.70 to our Annual Report on Form 10-K filed with the SEC on
February 28, 2012, File No. 001-32426)
Form of Confirmation evidencing purchases of commodities options by Wright Express Corporation from the Bank of Montreal
(incorporated by reference to Exhibit No. 10.71 to our Annual Report on Form 10-K filed with the SEC on February 28, 2012, File
No. 001-32426)
Southern Cross WEX 2015-1 Trust - Receivables Acquisition and Servicing Agreement (incorporated by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Southern Cross WEX 2015-1 Trust - Guarantee and Indemnity (incorporated by reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Southern Cross WEX 2015-1 Trust General Security Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report
on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Southern Cross WEX 2015-1 Trust Class A Facility Deed (incorporated by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Southern Cross WEX 2015-1 Trust Class B Facility Deed (incorporated by reference to Exhibit 10.5 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Commitment Letter, dated as of October 18, 2015, by and among WEX Inc., Bank of America, N.A., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, SunTrust Bank, SunTrust Robinson Humphrey and MUFG Union Bank, N.A (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Offer Letter dated November 3, 2015 between WEX Inc. and Mr. Simon (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on November 5, 2015, File No. 001-32426)
Severance and Restricted Covenant Agreement between Roberto Simon and WEX Inc., dated March 3, 2016 (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on April 28, 2016, File No. 001-32426)
* 21.1
Subsidiaries of the registrant
* 23.1
Consent of Independent Registered Accounting Firm – Deloitte & Touche LLP
131
* 31.1
* 31.2
* 32.1
* 32.2
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
* 101.INS
XBRL Instance Document
* 101.SCH
XBRL Taxonomy Extension Schema Document
* 101.CAL
XBRL Taxonomy Calculation Linkbase Document
* 101.LAB
XBRL Taxonomy Label Linkbase Document
* 101.PRE
XBRL Taxonomy Presentation Linkbase Document
* 101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Filed with this report.
Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of this
Form 10-K.
*
†
132
DIRECTORS
MICHAEL E. DUBYAK
Chairman of WEX Inc.
ROWLAND T. MORIARTY
Lead Director and
Vice Chairman of WEX Inc.
Chairman, CRA International, Inc.
JOHN (JEB) E. BACHMAN
Retired Partner, PwC
ERIC DUPRAT
Business Consultant
SHIKHAR GHOSH
Professor, Harvard Business School
RONALD T. MAHEU
Financial and Business Consultant
GEORGE L. MCTAVISH
Business Consultant
JAMES NEARY
Managing Director, Warburg Pincus
KIRK POND
Former Chairman, President and
CEO of Fairchild Semiconductor
International, Inc.
MELISSA D. SMITH
President and
Chief Executive Officer of WEX Inc.
REGINA O. SOMMER
Financial and Business Consultant
JACK VANWOERKOM
Operating Partner of
Highland Consumer Fund
EXECUTIVE OFFICERS
MELISSA D. SMITH
President and
Chief Executive Officer
DAVID COOPER
Chief Technology Officer
GEORGE HOGAN
Senior Vice President,
International
KENNETH W. JANOSICK
Senior Vice President and
General Manager,
Global Fleet Direct
NICOLA S. MORRIS
Senior Vice President,
Corporate Development
SCOTT PHILLIPS
Senior Vice President and
General Manager,
EFS — a WEX Company
JAMES PRATT
Senior Vice President and
General Manager,
Virtual Products
HILARY A. RAPKIN
Senior Vice President,
General Counsel and
Corporate Secretary
ROBERTO SIMON
Chief Financial Officer
JEFF YOUNG
Senior Vice President and
General Manager,
WEX Health
CORPORATE HEADQUARTERS
ATTORNEYS
INVESTOR RELATIONS
WEX Inc.
97 Darling Avenue
South Portland, ME 04106
(207) 773-8171
Email: newsroom@wexinc.com
www.wexinc.com
TRANSFER AGENT
American Stock Transfer
& Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(866) 668-6550
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
(617) 437-2000
Wilmer Cutler Pickering Hale
and Dorr LLP
60 State Street
Boston, MA 02109
(617) 526-6000
STOCKHOLDERS’ MEETING
Date: May 12, 2017
Time: 8:00 a.m.
Location:
WEX Inc. Long Creek Campus
225 Gorham Road
South Portland, Maine
(207) 773-8171
TICKER SYMBOL
NYSE: WEX
Steve Elder
Senior Vice President, Global Investor Relations
(207) 523-7769
Steve.Elder@wexinc.com
FORM 10-K
A copy of the Company’s Form 10-K,
filed with the Securities and Exchange
Commission, is available without charge
upon written request to: WEX Inc.
Investor Relations, 97 Darling Avenue
South Portland, ME 04106; by calling
(866) 230-1633; or by emailing
investors@wexinc.com.
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97 Darling Avenue | South Portland, Maine 04106
(207) 773-8171
newsroom@wexinc.com | www.wexinc.com
BRINGING
THE FUTURE
OF COMMERCE
TO THE
PRESENT.
2016 WEX INC.
Annual Report
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