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EX-32.1 - EX-32.1 SECTION 906 CERTIFICATION OF CEO - WEX Inc.b77472exv32w1.htm
EX-32.2 - EX-32.2 SECTION 906 CERTIFICATION OF CFO - WEX Inc.b77472exv32w2.htm
EX-31.1 - EX-31.1 SECTION 302 CERTIFICATION OF CEO - WEX Inc.b77472exv31w1.htm
EX-31.2 - EX-31.2 SECTION 302 CERTIFICATION OF CFO - WEX Inc.b77472exv31w2.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
     
o   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
 
(WRIGHT EXPRESS LOGO)
WRIGHT EXPRESS CORPORATION
(Exact name of registrant as specified in its charter)
     
Delaware   01-0526993
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
97 Darling Avenue, South Portland, Maine   04106
(Address of principal executive offices)   (Zip Code)
(207) 773-8171
(Registrant’s telephone number, including area code)
 
     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.
þ Yes     ¨ No
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes     ¨ No
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes     þ No
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class   Outstanding at October 27, 2009
Common Stock, $0.01 par value per share   38,131,343 shares
 
 

 


 

TABLE OF CONTENTS
         
        Page
PART I-FINANCIAL INFORMATION
  Financial Statements.   - 3 -
 
       
  Management’s Discussion and Analysis of Financial Condition and Results of Operations.   - 16 -
 
       
  Quantitative and Qualitative Disclosures About Market Risk.   - 23 -
 
       
  Controls and Procedures.   - 24 -
 
       
PART II-OTHER INFORMATION
 
       
  Legal Proceedings.   - 25 -
 
       
  Risk Factors.   - 25 -
 
       
  Unregistered Sales of Equity Securities and Use of Proceeds   - 25 -
 
       
  Exhibits.   - 26 -
 
       
SIGNATURE - 27 -
 EX-31.1 Section 302 Certification of CEO
 EX-31.2 Section 302 Certification of CFO
 EX-32.1 Section 906 Certification of CEO
 EX-32.2 Section 906 Certification of CFO
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 Quarterly Report contains forward-looking statements. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. When used in this Quarterly Report, the words “may,” “will,” “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 Quarterly Report, in press releases and in oral statements made by our authorized officers: fuel price volatility; our failure to maintain or renew key agreements; failure to expand our technological capabilities and service offerings as rapidly as our competitors; the actions of regulatory bodies, including bank regulators, or possible changes in banking regulations impacting our industrial loan bank and us as the corporate parent; the uncertainties of litigation; the effects of general economic factors on fueling patterns and the commercial activity of fleets, as well as other risks and uncertainties identified in Item 1A of our Annual Report for the year ended December 31, 2008, filed on Form 10-K with the Securities and Exchange Commission on February 27, 2009. Our forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger, acquisition or disposition. The forward-looking statements speak only as of the date of the initial filing of this Quarterly 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.

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Table of Contents

PART I
Item 1. Financial Statements.
WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
                 
    September 30,     December 31,  
    2009     2008  
       
Assets
               
Cash and cash equivalents
  $ 15,904     $ 183,117  
Accounts receivable (less reserve for credit losses of $9,113 in 2009 and $18,435 in 2008)
    911,455       702,225  
Income taxes receivable
          7,903  
Available-for-sale securities
    10,938       12,533  
Fuel price derivatives, at fair value
    20,149       49,294  
Property, equipment and capitalized software (net of accumulated depreciation of $68,556 in 2009 and $57,814 in 2008)
    45,385       44,864  
Deferred income taxes, net
    182,816       239,957  
Goodwill
    315,244       315,230  
Other intangible assets, net
    36,101       39,922  
Other assets
    17,869       16,810  
       
 
               
Total assets
  $ 1,555,861     $ 1,611,855  
       
 
               
Liabilities and Stockholders’ Equity
               
Accounts payable
  $ 348,883     $ 249,067  
Accrued expenses
    28,506       34,931  
Income taxes payable
    160        
Deposits
    421,982       540,146  
Borrowed federal funds
    40,300        
Revolving line-of-credit facility
    165,700       170,600  
Other liabilities
    1,696       3,083  
Amounts due under tax receivable agreement
    110,460       309,366  
Preferred stock; 10,000 shares authorized:
               
Series A non-voting convertible, redeemable preferred stock; 0.1 shares issued and outstanding
    10,000       10,000  
       
 
               
Total liabilities
    1,127,687       1,317,193  
 
               
Commitments and contingencies (Note 8)
               
 
               
Stockholders’ Equity
               
Common stock $0.01 par value; 175,000 shares authorized, 41,102 in 2009 and 40,966 in 2008 shares issued; 38,131 in 2009 and 38,244 in 2008 shares outstanding
    411       410  
Additional paid-in capital
    110,895       100,359  
Retained earnings
    400,009       272,479  
Other comprehensive loss, net of tax:
               
Net unrealized loss on available-for-sale securities
    62       (53 )
Net unrealized loss on interest rate swaps
    (161 )     (1,736 )
Net foreign currency translation adjustment
    (32 )     (55 )
       
 
               
Accumulated other comprehensive loss
    (131 )     (1,844 )
 
               
Less treasury stock at cost, 2,971 shares in 2009 and 2,722 shares in 2008
    (83,010 )     (76,742 )
       
 
               
Total stockholders’ equity
    428,174       294,662  
       
 
               
Total liabilities and stockholders’ equity
  $ 1,555,861     $ 1,611,855  
       
See notes to unaudited condensed consolidated financial statements.

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Table of Contents

WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
     
Service Revenues
                               
Payment processing revenue
  $ 59,871     $ 83,685     $ 158,657     $ 241,205  
Transaction processing revenue
    4,538       5,326       13,199       14,561  
Account servicing revenue
    9,540       7,645       27,807       22,656  
Finance fees
    8,790       8,109       23,133       23,179  
Other
    3,193       2,958       8,930       8,704  
     
 
                               
Total service revenues
    85,932       107,723       231,726       310,305  
 
                               
Product Revenues
                               
Hardware and equipment sales
    710       808       2,718       2,410  
     
 
                               
Total revenues
    86,642       108,531       234,444       312,715  
 
                               
Expenses
                               
Salary and other personnel
    18,680       14,604       54,792       50,038  
Service fees
    7,291       4,923       19,447       15,629  
Provision for credit losses
    5,667       9,325       12,469       30,544  
Technology leasing and support
    2,424       2,100       6,821       6,478  
Occupancy and equipment
    1,960       1,933       6,317       5,783  
Depreciation and amortization
    5,359       5,216       15,942       14,642  
Operating interest expense
    2,759       9,581       10,889       27,667  
Cost of hardware and equipment sold
    638       668       2,394       2,101  
Other
    5,518       5,779       17,331       17,415  
     
 
                               
Total operating expenses
    50,296       54,129       146,402       170,297  
     
 
                               
Operating income
    36,346       54,402       88,042       142,418  
 
Financing interest expense
    (1,355 )     (3,006 )     (5,423 )     (9,123 )
Loss on foreign currency transactions
    (16 )           (28 )      
Gain on settlement of portion of amounts due under tax receivable agreement
                136,485        
Net realized and unrealized gains (losses) on fuel price derivatives
    3,687       66,034       (13,770 )     (31,876 )
Increase in amount due under tax receivable agreement
          (9,159 )     (570 )     (9,159 )
     
 
                               
Income before income taxes
    38,662       108,271       204,736       92,260  
 
                               
Income taxes
    15,299       35,927       77,206       29,771  
     
 
                               
Net income
    23,363       72,344       127,530       62,489  
 
                               
Changes in available-for-sale securities, net of tax effect of $42 and $63 in 2009 and $10 and $(24) in 2008
    78       19       115       (42 )
Changes in interest rate swaps, net of tax effect of $96 and $912 in 2009 and $277 and $210 in 2008
    167       495       1,575       367  
Foreign currency translation
    197       (15 )     23       (23 )
     
 
                               
Comprehensive income
  $ 23,805     $ 72,843     $ 129,243     $ 62,791  
     
 
                               
Earnings per share:
                               
Basic
  $ 0.61     $ 1.86     $ 3.33     $ 1.60  
Diluted
  $ 0.60     $ 1.82     $ 3.25     $ 1.57  
 
                               
Weighted average common shares outstanding:
                               
Basic
    38,217       38,831       38,324       38,999  
Diluted
    39,351       39,730       39,359       39,920  
     
See notes to unaudited condensed consolidated financial statements.

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Table of Contents

WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
    Nine months ended  
    September 30,  
    2009     2008  
     
Cash flows from operating activities
               
Net income
  $ 127,530     $ 62,489  
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
               
Fair value change of fuel price derivatives
    29,145       (4,652 )
Stock-based compensation
    4,339       3,914  
Depreciation and amortization
    16,413       14,950  
Loss on sale of available-for-sale securities
    15        
Gain on settlement of portion of amounts due under tax receivable agreement
    (136,485 )      
Deferred taxes
    56,166       5,594  
Provision for credit losses
    12,470       30,544  
Loss on disposal of property and equipment
    45       66  
Impairment of internal-use software
    421        
Changes in operating assets and liabilities, net of effects of acquisitions in 2008:
               
Accounts receivable
    (221,619 )     (293,517 )
Other assets
    (1,530 )     (3,192 )
Accounts payable
    99,795       193,593  
Accrued expenses
    (3,990 )     (1,621 )
Income taxes
    14,964       2,057  
Other liabilities
    (1,409 )     (1,356 )
Amounts due under tax receivable agreement
    (62,421 )     (4,502 )
     
 
               
Net cash (used for) provided by operating activities
    (66,151 )     4,367  
 
               
Cash flows from investing activities
               
Purchases of property and equipment
    (13,129 )     (12,339 )
Purchase of available-for-sale securities
    (120 )     (4,259 )
Maturities of available-for-sale securities
    1,871       927  
Sale of available-for-sale securities
    7        
Purchase of trade name
          (44 )
Acquisitions, net of cash acquired
          (41,526 )
     
 
               
Net cash used for investing activities
    (11,371 )     (57,241 )
 
               
Cash flows from financing activities
               
Excess tax benefits from equity instrument share-based payment arrangements
          140  
Repurchase of share-based awards to satisfy tax withholdings
    (921 )     (2,076 )
Proceeds from stock option exercises
    212       415  
Net (decrease) increase in deposits
    (118,164 )     66,650  
Net increase in borrowed federal funds
    40,300       23,305  
Net change in revolving line-of-credit facility
    (4,900 )     12,800  
Loan origination fees paid for revolving line-of-credit facility
          (1,556 )
Purchase of shares of treasury stock
    (6,268 )     (31,391 )
     
 
               
Net cash (used for) provided by financing activities
    (89,741 )     68,287  
 
               
Effect of exchange rate changes on cash and cash equivalents
    50       (23 )
     
 
               
Net change in cash and cash equivalents
    (167,213 )     15,390  
Cash and cash equivalents, beginning of period
    183,117       43,019  
     
 
               
Cash and cash equivalents, end of period
  $ 15,904     $ 58,409  
     
 
               
Supplemental cash flow information
               
Interest paid
  $ 24,978     $ 34,890  
Income taxes paid
  $ 6,075     $ 22,222  
     
See notes to unaudited condensed consolidated financial statements.

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Table of Contents

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
1.   Basis of Presentation
          The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Annual Report on Form 10-K of Wright Express Corporation for the year ended December 31, 2008. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements that are included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission ("SEC") on February 27, 2009. When used in these notes, the term “Company” means Wright Express Corporation and all entities included in the consolidated financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2009, are not necessarily indicative of the results that may be expected for any future quarter(s) or the year ending December 31, 2009. We have evaluated all subsequent events through October 30, 2009, the date the financial statements were issued.
2.   Acquisitions
          In February 2008, the Company acquired certain assets and assumed certain liabilities of Pacific Pride Services, Inc. The allocation of the purchase price relative to this acquisition was finalized in the first quarter of 2009. No adjustments to the allocation have been made since December 31, 2008. In August 2008, the Company acquired certain assets of Financial Automation Limited, a New Zealand based entity. The allocation of the purchase price was finalized in the third quarter of 2009. No adjustments to the allocation have been made since December 31, 2008.
          No pro forma information has been included in these financial statements because the results of operations of Pacific Pride and Financial Automation Limited for the three and nine months ended September 30, 2008, would have been immaterial to the Company’s revenues, net income and earnings per share for those periods.
3. Goodwill and Other Intangible Assets
     Goodwill
          The changes in goodwill during the first nine months of 2009 were as follows:
                         
    Fleet   MasterCard    
    Segment   Segment   Total
     
Balance at January 1, 2009
  $ 305,517     $ 9,713     $ 315,230  
Impact of foreign currency translation
    14             14  
     
 
                       
Balance at September 30, 2009
  $ 305,531     $ 9,713     $ 315,244  
     

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Table of Contents

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
     Other Intangible Assets
          The changes in other intangible assets during the first nine months of 2009 were as follows:
                                 
    Net Carrying                   Net Carrying
    Amount, December 31,           Impact of Foreign   Amount, September 30,
    2008   Amortization   Currency Translation   2009
     
Definite-lived intangible assets
                               
Acquired software
  $ 15,085     $ (1,140 )   $     $ 13,945  
Non-compete agreement
    17       (17 )            
Customer relationships
    20,267       (2,610 )     (29 )     17,628  
Trade name
    88       (25 )           63  
 
                               
Indefinite-lived intangible assets
                               
Trademarks and trade names
    4,465                   4,465  
     
Total
  $ 39,922     $ (3,792 )   $ (29 )   $ 36,101  
     
          The Company expects amortization expense related to the definite-lived intangible assets above as follows: $1,263 for October 1, 2009 through December 31, 2009; $5,431 for 2010; $4,710 for 2011; $4,075 for 2012; $3,459 for 2013; and $2,841 for 2014.
          Other intangible assets consist of the following:
                                                 
    September 30, 2009   December 31, 2008
    Gross                   Gross        
    Carrying
Amount
  Accumulated Amortization   Net Carrying
Amount
  Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
Definite-lived intangible assets
                                               
Acquired software
  $ 16,300     $ (2,355 )   $ 13,945     $ 16,300     $ (1,215 )   $ 15,085  
Non-compete agreement
    100       (100 )           100       (83 )     17  
Customer relationships
    24,884       (7,256 )     17,628       24,900       (4,633 )     20,267  
Trade name
    100       (37 )     63       100       (12 )     88  
     
 
                                               
 
  $ 41,384     $ (9,748 )     31,636     $ 41,400     $ (5,943 )     35,457  
     
 
                                               
Indefinite-lived intangible assets
                                               
Trademarks and trade names
                    4,465                       4,465  
     
 
                                               
Total
                  $ 36,101                     $ 39,922  
     

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Table of Contents

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
4.   Earnings per Common Share
          The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and nine months ended September 30, 2009 and 2008:
                                 
    Three months ended   Nine months ended
    September 30,   September 30,
    2009   2008   2009   2008
Income available for common stockholders — Basic
  $ 23,363     $ 72,344     $ 127,530     $ 62,489  
Convertible, redeemable preferred stock dividends
    53       110       203       368  
     
 
                               
Income available for common stockholders — Diluted
  $ 23,416     $ 72,454     $ 127,733     $ 62,857  
     
 
                               
Weighted average common shares outstanding — Basic
    38,217       38,831       38,324       38,999  
Unvested restricted stock units
    403       417       396       434  
Stock options
    287       38       195       43  
Convertible, redeemable preferred stock
    444       444       444       444  
     
 
                               
Weighted average common shares outstanding — Diluted
    39,351       39,730       39,359       39,920  
     
5.   Derivative Instruments
          The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rates and commodity prices. Interest rate swap arrangements are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings. The Company also enters into put and call option contracts based on the wholesale price of gasoline and the retail price of diesel fuel, which settle on a monthly basis. These put and call option contracts (also referred to as “fuel price derivative instruments”), are designed to reduce the volatility of the Company’s cash flows associated with its fuel price-related revenue exposure.
          The Company recognizes all derivative instruments as either assets or liabilities at fair value in the statement of financial position. The Company designates interest rate swap arrangements as cash flow hedges of the forecasted interest payments on a portion of its variable-rate credit agreement. The Company’s fuel price derivative instruments do not qualify for hedge accounting treatment, and therefore, no such hedging designation has been made.
Cash Flow Hedges
          For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. As of September 30, 2009, the Company had the following outstanding interest rate swap arrangements that were entered into to hedge forecasted interest payments:
                 
    Average   Notional
    Base Rate   Amount
Interest rate swap arrangement settling October 2009 — July 2011
    1.35 %   $ 50,000  
 
               

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
  Derivatives Not Designated as Hedging Instruments
          For derivative instruments that are not designated as hedging instruments, the gain or loss on the derivative is recognized in current earnings. As of September 30, 2009, the Company had the following put and call option contracts which settle on a monthly basis:
         
    Aggregate  
    Notional  
    Amount  
    (gallons) (a)  
Fuel price derivative instruments — unleaded fuel
       
Put and call option contracts settling October 2009 — March 2011
    31,696  
 
       
Fuel price derivative instruments — diesel
       
Put and call option contracts settling October 2009 — March 2011
    14,240  
 
     
 
Total fuel price derivative instruments
    45,936  
 
     
 
(a)   The settlement of the put and call option contracts (in all instances, notional amount of puts and calls are equal; strike prices are different) is based upon the New York Mercantile Exchange’s New York Harbor Reformulated Gasoline Blendstock for Oxygen Blending and the U.S. Department of Energy’s weekly retail on-highway diesel fuel price for the month.
          The following table presents information on the location and amounts of derivative fair values in the condensed consolidated balance sheets:
                                                                 
    Asset Derivatives   Liability Derivatives
    September 30, 2009   December 31, 2008   September 30, 2009   December 31, 2008
    Balance           Balance           Balance           Balance    
    Sheet   Fair   Sheet   Fair   Sheet   Fair   Sheet   Fair
    Location   Value   Location   Value   Location   Value   Location   Value
         
Derivatives designated as hedging instruments
                                                               
Interest rate contracts
  Other assets   $     Other assets   $     Accrued expenses   $ 255     Accrued expenses   $ 2,742  
 
                                                       
 
                                                               
Derivatives not designated as hedging instruments
                                                               
Commodity contracts
  Fuel price derivatives, at fair value     20,149     Fuel price derivatives, at fair value     49,294     Fuel price derivatives,
at fair value
        Fuel price derivatives,
at fair value
     
         
Total derivatives
          $ 20,149             $ 49,294             $ 255             $ 2,742  
         

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
          The following table presents information on the location and amounts of derivative gains and losses in the condensed consolidated statements of income:
                                                                 
                            Amount of Gain            
                            or (Loss)            
                            Reclassified            
                            from           Amount of Gain or
                            Accumulated           (Loss) Recognized in
    Amount of Gain or           OCI into   Location of Gain or   Income on Derivative
    (Loss) Recognized in           Income   (Loss) Recognized in   (Ineffective Portion and Amount
    OCI on Derivative   Location of Gain or   (Effective   Income on Derivative   Excluded from
    (Effective Portion) (a)   (Loss) Reclassified   Portion)   (Ineffective Portion   Effectiveness Testing) (b)
Derivatives   Three months ended   from Accumulated   Three months ended   and Amount Excluded   Three months ended
Designated as   September 30,   OCI into Income   September 30,   from Effectiveness   September 30,
Hedging Instruments   2009   2008   (Effective Portion)   2009   2008   Testing) (b)   2009   2008
 
Interest rate contracts
  $ 167     $ 495     Financing interest expense   $ (612 )   $ (694 )   Financing
interest expense
  $     $  
                         
            Amount of Gain or
            (Loss) Recognized in
            Income on Derivative
Derivatives Not   Location of Gain or   Three months ended
Designated as   (Loss) Recognized in   September 30,
Hedging Instruments   Income on Derivative   2009   2008
 
Commodity contracts
  Net realized and unrealized losses on fuel price derivatives   $ 3,687     $ 66,034  
 
(a)   The amount of gain or (loss) recognized in OCI on the Company’s interest rate swap arrangements has been recorded net of tax impacts of $96 in 2009 and $277 in 2008.
 
(b)   No ineffectiveness was reclassified into earnings nor was any amount excluded from effectiveness testing.

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
                                                                 
                            Amount of Gain            
                            or (Loss)            
                            Reclassified            
                            from           Amount of Gain or
                            Accumulated           (Loss) Recognized in
    Amount of Gain or           OCI into   Location of Gain or   Income on Derivative
    (Loss) Recognized in           Income   (Loss) Recognized in   (Ineffective Portion and Amount
    OCI on Derivative   Location of Gain or   (Effective   Income on Derivative   Excluded from
    (Effective Portion) (a)   (Loss) Reclassified   Portion)   (Ineffective Portion   Effectiveness Testing) (b)
Derivatives   Nine months ended   from Accumulated   Nine months ended   and Amount Excluded   Nine months ended
Designated as   September 30,   OCI into Income   September 30,   from Effectiveness   September 30,
Hedging Instruments   2009   2008   (Effective Portion)   2009   2008   Testing) (b)   2009   2008
 
Interest rate contracts
  $ 1,575     $ 367     Financing interest expense   $ (3,083 )   $ (1,644 )   Financing
interest expense
  $     $  
                         
            Amount of Gain or
            (Loss) Recognized in
            Income on Derivative
Derivatives Not   Location of Gain or   Nine months ended
Designated as   (Loss) Recognized in   September 30,
Hedging Instruments   Income on Derivative   2009   2008
 
Commodity contracts
  Net realized and unrealized losses on fuel price derivatives   $ (13,770 )   $ (31,876 )
 
(a)   The amount of gain or (loss) recognized in OCI on the Company’s interest rate swap arrangements has been recorded net of tax impacts of $912 in 2009 and $210 in 2008.
 
(b)   No ineffectiveness was reclassified into earnings nor was any amount excluded from effectiveness testing.
6. Fair Value
          The Company holds mortgage-backed securities, fixed income and equity securities, derivatives and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such 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.

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
     The following table presents the Company’s assets and liabilities that are measured at fair value and the related hierarchy levels:
                                 
            Fair Value Measurements
            at Reporting Date Using
            Quoted Prices in        
            Active Markets for   Significant Other   Significant
    September 30,   Identical Assets   Observable Inputs   Unobservable Inputs
    2009   (Level 1)   (Level 2)   (Level 3)
     
Assets:
                               
 
Mortgage-backed securities
  $ 3,083     $     $ 3,083     $  
Asset-backed securities
    3,257             3,257        
Municipal bonds
    366             366        
Equity securities
    4,232       4,232              
     
 
Total available-for-sale securities
  $ 10,938     $ 4,232     $ 6,706     $  
     
 
Executive deferred compensation plan trust (a)
  $ 1,534     $ 1,534     $     $  
     
 
Fuel price derivatives — diesel
  $ 6,499     $     $     $ 6,499  
Fuel price derivatives — unleaded fuel
    13,650             13,650        
     
 
Total fuel price derivatives
  $ 20,149     $     $ 13,650     $ 6,499  
     
 
Liabilities:
                               
 
July 2009 interest rate swap arrangement with a base rate of 1.35% and a notional amount of $50,000 (b)
  $ 255     $     $ 255     $  
     
 
(a)   The fair value of the underlying investments are recorded in other assets.
 
(b)   The fair value of this instrument is recorded in accrued expenses.
          The following table presents a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2009:
         
    Fuel Price
    Derivatives -
    Diesel
     
Beginning balance
  $ 9,960  
Total losses — realized/unrealized
       
Included in earnings (a)
    (3,461 )
Included in other comprehensive income
     
Purchases, issuances and settlements
     
Transfers in/(out) of Level 3
     
     
 
Ending balance
  $ 6,499  
     
 
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at September 30, 2009 (a)
  $ (497 )
     
 
(a)   Gains and losses (realized and unrealized) included in earnings for the nine months ended September 30, 2009, are reported in net realized and unrealized losses on fuel price derivatives on the condensed consolidated statements of income.

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
7. Tax Receivable Agreement
          As a consequence of the Company’s separation from its former parent company, 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.”
          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 Wright Express to Cendant and Wyndham acquired from Cendant the right to receive 37.5 percent of the payments by Wright Express to Cendant under the 2005 Tax Receivable Agreement.
          On June 26, 2009, the Company entered into a Tax Receivable Prepayment Agreement with Realogy, pursuant to which the Company paid Realogy $51,000, including bank fees and legal expenses, as prepayment in full to settle the remaining obligations to Realogy under the 2005 Tax Receivable Agreement. These obligations were previously recorded at $187,485 and this transaction resulted in a gain of $136,485 in the second quarter of 2009. In connection with the Tax Receivable Prepayment Agreement with Realogy, the Company entered into a Ratification Agreement on June 26, 2009, (the “Ratification Agreement”) with Avis, Realogy and Wyndham which amended the 2005 Tax Receivable Agreement to require the Company to pay 31.875 percent of the future tax savings related to the Tax Basis Increase to Wyndham.
8. Commitments and Contingencies
     Litigation
          The Company is involved in pending litigation in the usual course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
9. Segment Information
          The Company operates in two reportable segments, fleet and MasterCard. The fleet segment provides customers with payment and transaction processing services specifically designed for the needs of vehicle fleet customers. The MasterCard segment provides customers with a payment processing solution for their corporate purchasing and transaction monitoring needs. The Company’s chief decision maker evaluates the operating results of the Company’s reportable segments based upon revenues and “adjusted net income,” which is defined by the Company as net income adjusted for fair value changes of fuel price derivatives, the amortization of acquired intangible assets, asset impairment charges related to its internally developed software, non-cash adjustments related to the tax receivable agreement and gains on the extinguishment of a portion of the tax receivable agreement. These adjustments are reflected net of the tax impact.

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
     The following table presents the Company’s reportable segment results for the three months ended September 30, 2009 and 2008:
                                         
            Operating       Depreciation                  
    Total   Interest   and   Income   Adjusted Net
    Revenues   Expense   Amortization   Taxes   Income
     
Three months ended September 30, 2009
                                       
Fleet
  $ 75,708     $ 2,489     $ 4,046     $ 13,391     $ 21,928  
MasterCard
    10,934       270       49       1,737       2,970  
     
 
                                       
Total
  $ 86,642     $ 2,759     $ 4,095     $ 15,128     $ 24,898  
     
 
                                       
Three months ended September 30, 2008
                                       
Fleet
  $ 101,062     $ 8,874     $ 3,779     $ 4549     $ 20,326  
MasterCard
    7,469       707       124       877       1,460  
     
 
                                       
Total
  $ 108,531     $ 9,581     $ 3,903     $ 5,426     $ 21,786  
     
 
                                       
     The following table presents the Company’s reportable segment results for the nine months ended September 30, 2009 and 2008:
                                         
            Operating       Depreciation                  
    Total   Interest   and   Income   Adjusted Net
    Revenues   Expense   Amortization   Taxes   Income
     
Nine months ended September 30, 2009
                                       
Fleet
  $ 207,334     $ 9,571     $ 11,968     $ 35,302     $ 57,897  
MasterCard
    27,110       1,318       182       3,314       5,666  
     
 
                                       
Total
  $ 234,444     $ 10,889     $ 12,150     $ 38,616     $ 63,563  
     
 
                                       
Nine months ended September 30, 2008
                                       
Fleet
  $ 292,064     $ 25,513     $ 10,745     $ 27,366     $ 58,420  
MasterCard
    20,651       2,154       542       1,967       3,210  
     
 
                                       
Total
  $ 312,715     $ 27,667     $ 11,287     $ 29,333     $ 61,630  
     
 
                                       

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WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
(in thousands, except per share data)
(unaudited)
     The following table reconciles adjusted net income to net income (loss):
                                 
    Three months ended   Nine months ended
    September 30,   September 30,
    2009   2008   2009   2008
     
Adjusted net income
  $ 24,898     $ 21,786     $ 63,563     $ 61,630  
Unrealized (losses) gains on fuel price derivatives
    (100 )     82,372       (29,145 )     4,652  
Amortization of acquired intangible assets
    (1,264 )     (1,313 )     (3,792 )     (3,355 )
Asset impairment charge
                (421 )      
Non-cash adjustments related to the tax receivable agreement
                (570 )      
Gain on extinguishment of liability
                136,485        
Tax impact
    (171 )     (30,501 )     (38,590 )     (438 )
     
 
                               
Net income (loss)   $ 23,363     $ 72,344     $ 127,530     $ 62,489  
     
 
                               

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We intend for this discussion to provide the reader with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. The discussion also provides information about the financial results of the two segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole. This discussion should be read in conjunction with our audited financial statements as of December 31, 2008, the notes accompanying those financial statements and management’s discussion and analysis as contained in our Annual Report on Form 10-K filed with the SEC on February 27, 2009 and in conjunction with the unaudited condensed consolidated financial statements and notes in Item 1 of Part I of this report.
Overview
          Wright Express is a leading provider of payment processing and information management services to the vehicle fleet industry. We facilitate and manage transactions for vehicle fleets through our proprietary closed network of major oil companies, fuel retailers and vehicle maintenance providers. We provide fleets with detailed transaction data, analytical tools and purchase control capabilities. Our operations are organized as follows:
    Fleet — The fleet segment provides customers with payment and transaction processing services specifically designed for the needs of the vehicle fleet industry. This segment also provides information management and account services to these fleet customers.
 
    MasterCard — The MasterCard segment provides customers with a payment processing solution for their corporate purchasing and transaction monitoring needs. The MasterCard products are used by businesses to facilitate purchases of products and utilize our information management capabilities.
Summary
          Below are key items from the third quarter of 2009:
    Average number of vehicles serviced increased 3 percent from the third quarter of 2008 to approximately 4.6 million.
 
    Total fleet transactions (payment processing and transaction processing transactions) processed declined 7 percent from the third quarter of 2008 to 67.1 million. Payment processing transactions decreased 4 percent to 53.0 million, and transaction processing transactions decreased 17 percent to 14.1 million.
 
    Average expenditure per payment processing transaction for the third quarter of 2009 decreased 35 percent to $52.50 from $80.84 for the same period last year. This decrease was driven by lower average retail fuel prices. The average fuel price per gallon during the three months ended September 30, 2009, was $2.58, a 36 percent decrease from the same period last year.
 
    Realized gains on our fuel price derivatives were $3.8 million compared to realized losses of $16.3 million for the third quarter of 2008.
 
    Credit losses in the fleet segment were $5.2 million for the three months ended September 30, 2009, versus $9.0 million for the three months ended September 30, 2008.
 
    Total MasterCard purchase volume grew $205.6 million to $875.8 million for the three months ended September 30, 2009, an increase of 31 percent over the same period last year. Revenue associated with such transactions increased 40 percent from $6.8 million in the third quarter of 2008 to $9.7 million during the third quarter of 2009.
 
    Our operating interest expense, which includes interest accruing on deposits and borrowed federal funds, decreased to $2.8 million during the three months ended September 30, 2009, from $9.6 million during the three months ended September 30, 2008.

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Results of Operations
     Fleet
          The following table reflects comparative operating results and key operating statistics within our fleet segment:
                                                                 
    Three months ended                   Nine months ended    
    September 30,   Increase (decrease)   September 30,   Increase (decrease)
(in thousands, except per                                
transaction and per gallon data)   2009   2008   Amount   Percent   2009   2008   Amount   Percent
     
Revenues
                                                               
Payment processing revenue
  $ 50,211     $ 76,802     $ (26,591 )     (35 )%   $ 134,404     $ 222,094     $ (87,690 )     (39 )%
Transaction processing revenue
    4,538       5,326       (788 )     (15 )%     13,199       14,561       (1,362 )     (9 )%
Account servicing revenue
    9,528       7,636       1,892       25 %     27,770       22,610       5,160       23 %
Finance fees
    8,650       8,027       623       8 %     22,807       22,935       (128 )     (1 )%
Other
    2,071       2,463       (392 )     (16 )%     6,436       7,454       (1,018 )     (14 )%
     
 
                                                               
Total service revenues
    74,998       100,254       (25,256 )     (25 )%     204,616       289,654       (85,038 )     (29 )%
 
                                                               
Product Revenues
                                                               
Hardware and equipment sales
    710       808       (98 )     (12 )%     2,718       2,410       308       13 %
     
 
                                                               
Total revenues
    75,708       101,062       (25,354 )     (25 )%     207,334       292,064       (84,730 )     (29 )%
 
                                                               
Total operating expenses
    44,069       48,997       (4,928 )     (10 )%     128,272       154,823       (26,551 )     (17 )%
     
 
                                                               
Operating income
    31,639       52,065       (20,426 )     (39 )%     79,062       137,241       (58,179 )     (42 )%
 
                                                               
Financing interest expense
    (1,355 )     (3,006 )     1,651       55 %     (5,423 )     (9,123 )     3,700       41 %
Loss on foreign currency transactions
    (16 )           (16 )   NM     (28 )           (28 )   NM
Gain on extinguishment of debt
                    NM     136,485             136,485     NM
Net realized and unrealized gains (losses) on fuel price derivatives
    3,687       66,034       (62,347 )     (94 )%     (13,770 )     (31,876 )     18,106       57 %
Decrease in amounts due under tax receivable agreement
          (9,159 )     9,159     NM     (570 )     (9,159 )     8,589     NM
     
 
                                                               
Income (loss) before income taxes
    33,955       105,934       (71,979 )     (68 )%     195,756       87,083       108,673       125 %
Income taxes
    13,562       35,050       (21,488 )     (61 )%     73,892       27,804       46,088       166 %
     
 
                                                               
Net income
  $ 20,393     $ 70,884     $ (50,491 )     (71 )%   $ 121,864     $ 59,279     $ 62,585       106 %
     
 
                                                               
Key operating statistics
                                                               
Payment processing revenue:
                                                               
Payment processing transactions
    53,036       55,519       (2,483 )     (4 )%     153,912       164,684       (10,772 )     (7 )%
Average expenditure per payment processing transaction
  $ 52.50     $ 80.84     $ (28.34 )     (35 )%   $ 47.03     $ 75.16     $ (28.13 )     (37 )%
Average price per gallon of fuel
  $ 2.58     $ 4.02     $ (1.44 )     (36 )%   $ 2.31     $ 3.75     $ (1.44 )     (38 )%
Transaction processing revenue:
                                                               
 
                                                               
Transaction processing transactions
    14,101       16,943       (2,842 )     (17 )%     42,613       45,482       (2,869 )     (6 )%
Account servicing revenue:
                                                               
 
                                                               
Average number of vehicles serviced (a)
    4,615       4,463       152       3 %     4,672       4,464       208       5 %
     
 
(a)   Does not include Pacific Pride vehicle information.

NM Not meaningful.
     Revenues
         Payment processing revenue decreased $26.6 million for the three months ended September 30, 2009, compared to the same period last year. The primary component of this decrease was a $26.5 million decrease in revenue associated with a 36 percent decrease in the average price per gallon of fuel.
         Payment processing revenue decreased $87.7 million for the nine months ended September 30, 2009, compared to the same period last year. The primary component of this decrease was an $80.4 million decrease in revenue associated with a 38 percent decrease in the average price per gallon of fuel. During 2008, we had renegotiated agreements with several of our merchants to change

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our pricing with them to include a fixed fee component and a percentage fee component. The renegotiated pricing has reduced the impact of fuel price volatility on our payment processing revenues. We benefited from this change as lower fuel prices drove our net payment processing rate up due to the fixed component of the transaction fees.
          Transaction processing revenue decreased $0.8 million for the three months ended September 30, 2009, compared to the same period in 2008, and decreased $1.4 million for the nine months ended September 30, 2009, as compared to the same period in 2008. These decreases in revenue, as well as the decreases in transaction processing transactions, are due to prevailing economic conditions. The decrease for the nine months ended September 30, 2009, was partially offset by the acquisition of Pacific Pride during the first quarter of 2008.
          Account servicing revenue increased $1.9 million for the three months ended September 30, 2009, compared to the same period in 2008, and increased $5.2 million for the nine months ended September 30, 2009, as compared to the same period in 2008. This increase is due both to our WEXSmartTM telematics program and expansion into international markets following our August 2008 acquisition of Financial Automation Limited.
          Our finance fees have increased $0.6 million for the three months ended September 30, 2009, as compared to the same period in 2008, and decreased $0.1 million for the nine months ended September 30, 2009, as compared to the same period in 2008. During December of 2008, we adjusted our late fee charged to delinquent customers to encourage timely payments. These adjustments contributed approximately $3.1 million of additional revenues for the three months ended September 30, 2009, and $8.5 million additional revenues for the nine months ended September 30, 2009. These increases in revenue were offset by a decline on delinquent balances due to lower average price per gallon, as compared to the same period on the prior year.
          The following table compares selected expense line items within our Fleet segment for the three months ended September 30:
                         
                    Increase  
(in thousands)   2009     2008     (decrease)  
 
Expense
                       
Provision for credit losses
  $ 5,210     $ 9,001       (42 )%
Operating interest expense
  $ 2,489     $ 8,874       (72 )%
Salary and other personnel
  $ 17,982     $ 13,817       30 %
Depreciation and amortization
  $ 5,310     $ 5,093       4 %
          Changes in operating expenses for the three months ended September 30, 2009, as compared to the corresponding period a year ago, include the following:
    We generally measure our credit loss performance by calculating credit losses as a percentage of total fuel expenditures on payment processing transactions (“Fuel Expenditures”). This metric for credit losses was 18.7 basis points of Fuel Expenditures for the three months ended September 30, 2009, compared to 20.1 basis points of Fuel Expenditures for the same period last year. We use a roll rate methodology to calculate the amount necessary for our ending receivable reserve balance. This methodology takes into account total receivable balances, recent charge off experience and the dollars that are delinquent to calculate the total reserve. In addition, management undertakes a detailed evaluation of the receivable balances to help ensure further overall reserve adequacy. The expense we recognized in the quarter is the amount necessary to bring the reserve to its required level after charge offs. Provision for credit loss decreased $3.8 million for the three months ended September 30, 2009, as compared to the same period in 2008. Approximately $3.2 million of this decrease was associated with lower fuel expenditures during the current quarter, primarily as a result of decreases in the price of fuel. Improvements in receivables aging and ultimate charge offs accounted for the remainder of the change.
 
    Operating interest expense decreased $6.4 million for the three months ended September 30, 2009, compared to the same period in 2008. Approximately $2.9 million of the decrease in operating interest expense is due to our total average operating debt balance, which consists of our deposits and borrowed federal funds, decreasing to $478 million for the third quarter of this year as compared to $756 million for the third quarter of 2008. The remaining decrease is due to lower interest rates. For the third quarter of 2009, the average interest rate on our deposits and borrowed federal funds was 1.6 percent. For the third quarter of 2008, this average interest rate was 4.2 percent. The interest rates we pay on certificates of deposit have been declining for the past several quarters, and we expect to continue to benefit from low interest rates for the remainder of the year.

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    Salary and other personnel expenses increased $4.2 million for the three months ended September 30, 2009, as compared to the same period last year. This increase is primarily due to the reversal of stock-based compensation and short-term incentive program bonuses that occurred during the third quarter of 2008, reducing expenses in that period by approximately $2.5 million. Furthermore, during 2009, we are currently expecting higher stock-based compensation and short-term incentive program bonuses based on current financial performance.
 
    Depreciation and amortization expenses increased approximately $0.2 million for the three months ended September 30, 2009, as compared to the same period in 2008. Approximately $0.1 million of the increase is amortization related to our acquisitions.
     The following table compares selected expense line items within our Fleet segment for the nine months ended September 30:
                         
                    Increase  
(in thousands)   2009     2008     (decrease)  
 
Expense
                       
Provision for credit losses
  $ 10,512     $ 28,940       (64 )%
Operating interest expense
  $ 9,571     $ 25,513       (62 )%
Salary and other personnel
  $ 52,688     $ 47,647       11 %
Depreciation and amortization
  $ 15,760     $ 14,100       12 %
          Changes in operating expenses for the nine months ended September 30, 2009, as compared to the corresponding period a year ago, include the following:
    Credit losses were 14.5 basis points of Fuel Expenditures for the nine months ended September 30, 2009, compared to 23.3 basis points of Fuel Expenditures for the same period last year. Provision for credit loss decreased $18.4 million for the nine months ended September 30, 2009. Approximately $7.5 million of this decrease was associated with lower fuel expenditures during the nine month period, primarily as a result of decreases in the price of fuel. Improvements in receivables aging and ultimate charge offs accounted for the remainder of the change.
 
    Operating interest expense decreased $15.9 million for the nine months ended September 30, 2009, compared to the same period in 2008. Approximately $8.5 million of the decrease in operating interest expense is due to our total average operating debt balance decreasing to $433 million for the first nine months of this year as compared to $685 million for the first nine months of 2008. The remaining decrease is due to lower interest rates. For the nine months ended September 30, 2009, the average interest rate on our deposits and borrowed federal funds was 2.6 percent, as compared to 4.5 percent for the same period in the prior year.
 
    Salary and other personnel expenses increased $5.0 million for the nine months ended September 30, 2009, as compared to the same period last year. This increase is primarily due to the reversal of stock-based compensation and short-term incentive program bonuses during the third quarter of 2008. Furthermore, during 2009, we are currently expecting stock-based compensation and short-term incentive programs bonuses based on current financial performance.
 
    Depreciation and amortization expenses increased $1.7 million for the nine months ended September 30, 2009, as compared to the same period in 2008. Approximately $0.6 million of the increase is amortization related to our acquisitions, and the remainder is additional depreciation as we place new assets into service.
          In June of 2009, we entered into a Tax Receivable Prepayment Agreement with Realogy Corporation (“Realogy”). Realogy had previously acquired the right to receive 62.5 percent of the payments made by us to Cendant Corporation (now Avis Budget Group, Inc. or “Avis”) under our 2005 Tax Receivable Agreement with Cendant. We paid Realogy $51 million, including bank fees and legal expenses, as a prepayment in full to settle the remaining obligations to Realogy under the 2005 Tax Receivable Agreement. These obligations were recorded on our balance sheet at approximately $187 million and this transaction resulted in a gain of approximately $136 million. We are still required to pay the remainder of the obligation under our tax receivable agreement.
          The effective tax rate was 37.7 percent for the nine months ended September 30, 2009, as compared to 32.3 percent for the same period ended September 30, 2008. The increase from the prior period is primarily due to the inclusion, in 2008, of $8.5 million in tax rate true up benefits as compared to $0.5 million of tax rate true up benefits in 2009.

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          We own fuel price-sensitive derivative instruments that we purchase on a periodic basis to manage the impact of volatility in fuel prices on our cash flows. These fuel derivative instruments do not qualify for hedge accounting. Accordingly, both realized and unrealized gains and losses on our fuel price-sensitive derivative instruments affect our net income. Activity related to the changes in fair value and settlements of these instruments and the changes in average fuel prices in relation to the underlying strike price of the instruments is shown in the following table:
                                 
    Three months ended   Nine months ended
    September 30,   September 30,
(in thousands, except per gallon data)   2009   2008   2009   2008
     
Fuel price derivatives, at fair value, beginning of period
  $ 20,249     $ (119,318 )   $ 49,294     $ (41,598 )
Net change in fair value
    3,687       66,034       (13,770 )     (31,876 )
Cash (receipts) payments on settlement
    (3,787 )     16,338       (15,375 )     36,528  
     
 
                               
Fuel price derivatives, at fair value, end of period
  $ 20,149     $ (36,946 )   $ 20,149     $ (36,946 )
     
 
                               
Collar range:
                               
Floor
  $ 2.86     $ 2.53     $ 2.70     $ 2.55  
Ceiling
  $ 2.92     $ 2.59     $ 2.76     $ 2.61  
 
                               
Average fuel price, beginning of period
  $ 2.53     $ 4.26     $ 1.97     $ 3.15  
Average fuel price, end of period
  $ 2.58     $ 3.83     $ 2.58     $ 3.83  
          Changes in fuel price derivatives for the three months ended September 30, 2009, as compared to the corresponding period a year ago, include the following:
    Fuel prices increased 2 percent from July 1st through September 30th of 2009. Due to the lack of movement in fuel prices, the fair value of the fuel price derivative instruments held at September 30, 2009, remained relatively flat as compared to June 30, 2009. In the same period for the prior year, the average fuel price decreased 10 percent from $4.26 to $3.83, resulting in a change in the fair value of the instruments.
          Changes in fuel price derivatives for the nine months ended September 30, 2009, as compared to the corresponding period a year ago, include the following:
    Fuel prices increased over 31 percent during the first nine months of 2009. Accordingly, the fair value of the fuel price derivative instruments held at September 30, 2009, has declined as compared to December 31, 2008. In the same period for the prior year, the average fuel price increased 22 percent, resulting in a decrease in the fair value of the instruments.
          We expect that our fuel price derivatives program will continue to be important to our business model going forward, and we expect to purchase derivatives in the future. However, we have reduced some of our exposure to fuel price volatility because of the fixed fee component of our new pricing arrangements.

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     MasterCard
          The following table reflects comparative operating results and key operating statistics within our MasterCard segment:
                                                                 
    Three months ended                   Nine months ended    
    September 30,   Increase (decrease)   September 30,   Increase (decrease)
(in thousands)   2009   2008   Amount   Percent   2009   2008   Amount   Percent
     
Revenues
                                                               
Payment processing revenue
  $ 9,660     $ 6,883     $ 2,777       40 %   $ 24,253     $ 19,111     $ 5,142       27 %
Account servicing revenue
    12       9       3       33 %     37       46       (9 )     (20) %
Finance fees
    140       82       58       71 %     326       244       82       34 %
Other
    1,122       495       627       127 %     2,494       1,250       1,244       100 %
     
Total revenues
    10,934       7,469       3,465       46 %     27,110       20,651       6,459       31 %
 
                                                               
Total operating expenses
    6,227       5,132       1,095       21 %     18,130       15,474       2,656       17 %
     
 
                                                               
Operating income
    4,707       2,337       2,370       101 %     8,980       5,177       3,803       73 %
Income taxes
    1,737       877       860       98 %     3,314       1,967       1,347       68 %
     
 
                                                               
Net income
  $ 2,970     $ 1,460     $ 1,510       103 %   $ 5,666     $ 3,210     $ 2,456       77 %
     
 
                                                               
Key operating statistics
                                                               
Payment processing revenue:
                                                               
MasterCard purchase volume
  $ 875,752     $ 670,137     $ 205,615       31 %   $ 2,296,269     $ 1,818,679     $ 477,590       26 %
          Payment processing revenue and the related operating expenses increased due to higher MasterCard purchase volume, primarily driven by our single use account product. The revenue increase during the nine months ended September 30, 2009, was partially offset by a decrease in the net interchange rate as a result of a new contract we signed with one of our largest customers.
          Other revenue has increased during the three months and nine months ended September 30, 2009, as the volume of cross-border fees increased over prior year. These fees are associated with our single use account product being used for international travel. This increase is partially offset by an increase in associated service fees expense.
          Credit loss, which is included in operating expense, was $0.4 million higher during the nine months ended September 30, 2009, as compared to the same period in the prior year primarily due to a bankruptcy that occurred during the first quarter of 2009.
          Operating interest was $0.8 million lower during the during the nine months ended September 30, 2009, as compared to the same period in the prior year primarily due to lower interest rates during the current year.
Liquidity, Capital Resources and Cash Flows
          Our primary source of liquidity is management operating cash, which we define as cash from operations adjusted for changes in deposits and borrowed federal funds. Management operating cash is not a measure in accordance with generally accepted accounting principles (“GAAP”). During the first nine months of 2009, we used approximately $144.0 million in management operating cash as compared to approximately $94.3 million of management operating cash generated in the first nine months of 2008.

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     Management Operating Cash
          We focus on management operating cash as a key element in achieving maximum stockholder value, and it is the primary measure we use internally to monitor cash flow performance from our core operations. Since deposits and borrowed federal funds are used to finance our accounts receivable, we believe that they are a recurring and necessary use and source of cash. As such, management considers deposits and borrowed federal funds when evaluating our operating activities. We believe that management operating cash may also be useful to investors as one means of evaluating our performance. However, management operating cash is a non-GAAP measure and should not be considered a substitute for, or superior to, net cash used for operating activities as presented on the condensed consolidated statement of cash flows in accordance with GAAP.
          The table below reconciles net cash used for operating activities to change in management operating cash:
                 
    Nine months ended
    September 30,
    2009   2008
     
Net cash (used for) provided by operating activities
  $ (66,151 )   $ 4,367  
Net (decrease) increase in deposits
    (118,164 )     66,650  
Net increase in borrowed federal funds
    40,300       23,305  
     
Change in management operating cash
  $ (144,015 )   $ 94,322  
     
          Our bank subsidiary, Wright Express Financial Services Corporation (“FSC”), utilizes certificates of deposit to finance our accounts receivable. At the end of 2008, FSC was overfunded by approximately $140 million. This overfunding was the result of lower receivable balances brought about by the rapid decline in fuel prices during the second half of 2008. During the first quarter of 2009 this overfunding was corrected. Additionally, during the second quarter of 2009, we prepaid a portion of our liabilities under our tax receivable agreement for $51 million. These two items resulted in a use of cash of approximately $191 million during the nine months ended September 30, 2009.
          FSC issued certificates of deposit in various maturities ranging between three months and two years and with fixed interest rates ranging from 0.45 percent to 5.00 percent as of September 30, 2009. Our weighted average interest rates on operating debt will be lower, in the foreseeable future, as a significant amount of our higher rate certificates of deposit matured during the first half of 2009. As of September 30, 2009, we had approximately $414 million of certificates of deposit outstanding with a weighted average rate of 1.46 percent. Certificates of deposit are subject to regulatory capital requirements.
          FSC also utilizes federal funds lines of credit to supplement the financing of our accounts receivable. There was approximately $40 million outstanding on our federal funds lines of credit as of September 30, 2009.
     Short-term Liquidity
          We continue to have access to short-term borrowings to fund our accounts receivable. Our cash balance dropped approximately $169 million from December 31, 2008, to September 30, 2009, mainly due to over $200 million of certificates of deposit maturing during the first quarter. As a result of the drop in average outstanding operating debt, our operating interest expense declined in the second and third quarters of 2009. We issue our certificates of deposit in anticipation of accounts receivable; accordingly, our certificate of deposit issuances in 2009 have increased during the second and third quarters as we experienced an increase in the price of gasoline and diesel fuel during the second and third quarters of this year.
          Management believes that we can adequately fund our cash needs during the next 12 months.
     Long-term Liquidity
          We have approximately 2.5 years left on our revolving credit facility. We are currently paying a rate of LIBOR plus 58 basis points. We had approximately $284 million available to us under this agreement as of September 30, 2009. We reduced $4.9 million in financing debt during the nine months ended September 30, 2009. During the second quarter of 2009 we borrowed approximately $51 million to purchase a portion of our tax receivable agreement from Realogy. During the course of the current year we effectively paid for this purchase with cash generated. There was a balance of $165.7 million on our revolving credit facility as of September 30, 2009.
          Our credit agreement contains various financial covenants requiring us to maintain certain financial ratios. In addition to the financial covenants, the credit agreement contains various customary restrictive covenants. FSC is not subject to certain of these restrictions. We have been, and expect to continue to be, in compliance with all material covenants and restrictions.

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          Effective July 22, 2009, we entered into an interest rate swap arrangement for $50 million. This interest rate swap arrangement was designated as a cash flow hedge intended to reduce a portion of the variability of the future interest payments on our credit agreement. Two of our previous interest rate swap agreements totaling $80 million expired on July 22, 2009. On August 24, 2009, we let our remaining interest rate swap agreement of $25 million expire.
          During the remainder of 2009, we expect to continue paying down debt and repurchasing shares. We have been authorized to purchase, in total, up to $150 million of our common stock. As of September 30, 2009, we have approximately $67 million remaining of the authorized amount. We will maintain our policy of considering alliances, mergers or acquisitions that can accelerate our overall growth and/or enhance our strategic position.
     Off-balance Sheet Arrangements
          We have no material changes to our off-balance sheet arrangements as discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.
     Purchase of Treasury Shares
          The following table presents stock repurchase program activity from July 1, 2009 through September 30, 2009 and January 1, 2009, through September 30, 2009:
                                                                 
    Three months ended September 30,           Nine months ended September 30,        
    2009   2008   2009   2008
(in thousands)   Shares   Cost   Shares   Cost   Shares   Cost   Shares   Cost
     
Treasury stock purchased
    166.5     $ 4,250       71.1     $ 2,046       248.1     $ 6,268       1,034.2     $ 31,391  
Critical Accounting Policies and Estimates
          We have no material changes to our critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.
Recently Adopted Accounting Standards
          None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
          We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2008.

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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
          The principal executive officer and principal financial officer of Wright Express Corporation evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. “Disclosure controls and procedures” are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms, is recorded, processed, summarized and reported, and is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, the principal executive officer and principal financial officer of Wright Express Corporation concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2009.
Changes in Internal Control Over Financial Reporting
          There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2009, our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
Item 1. Legal Proceedings.
     As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any material legal proceedings that were terminated during the third quarter of 2009. However, from time to time, we are subject to other legal proceedings and claims in the ordinary course of business, none of which we believe are likely to have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors.
     In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Share Repurchases
     The following table provides information about the Company’s purchases of shares of the Company’s common stock during the quarter ended September 30, 2009:
                                 
                            Approximate Dollar
                    Total Number of   Value of Shares
                    Shares Purchased   that May Yet Be
                    as Part of Publicly   Purchased Under
    Total Number of   Average Price   Announced Plans or   the Plans or
    Shares Purchased   Paid per Share   Programs (a)   Programs (a)
     
July 1 — July 31, 2009
    156,500     $ 25.27       156,500     $ 67,284,930  
August 1 — August 31, 2009
    10,000     $ 29.47       10,000     $ 66,990,242  
September 1 — September 30, 2009
        $             $ 66,990,242  
             
 
                               
Total
    166,500     $ 25.52       166,500          
             
 
(a)   On February 7, 2007, the Company announced a share repurchase program authorizing the purchase of up to $75 million of its common stock over the next 24 months. In July 2008, our board of directors approved an increase of $75 million to the share repurchase authorization. In addition, our board of directors extended the share repurchase program to July 25, 2010. We have been authorized to purchase, in total, up to $150 million of our common stock. Share repurchases will be 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, will determine the timing and number of shares repurchased.

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Item 6. Exhibits.
     
Exhibit No.   Description
3.1
  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)
 
   
3.2
  Amended and Restated By-Laws (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on November 20, 2008, File No. 001-32426)
 
   
4.1
  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)
 
   
10.1
  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)
 
   
10.2
  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)
 
   
10.3
  Confirmation of transaction between SunTrust Bank and Wright Express Corporation, dated as of July 22, 2009 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July 24, 2009, File No. 001-32426)
 
   
* 31.1
  Certification of Chief Executive Officer of Wright Express Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
 
   
* 31.2
  Certification of Chief Financial Officer of Wright Express Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
 
   
* 32.1
  Certification of Chief Executive Officer of Wright Express Corporation 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
 
   
* 32.2
  Certification of Chief Financial Officer of Wright Express Corporation 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
 
*   These exhibits have been filed with this Quarterly Report on Form 10-Q.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  WRIGHT EXPRESS CORPORATION
 
 
October 30, 2009  By:   /s/ Melissa D. Smith    
    Melissa D. Smith   
    CFO and Executive Vice President, Finance and Operations
(principal financial officer)
 
 

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Table of Contents

         
EXHIBIT INDEX
     
Exhibit No.   Description
3.1
  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)
 
   
3.2
  Amended and Restated By-Laws (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on November 20, 2008, File No. 001-32426)
 
   
4.1
  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)
 
   
10.1
  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)
 
   
10.2
  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)
 
   
10.3
  Confirmation of transaction between SunTrust Bank and Wright Express Corporation, dated as of July 22, 2009 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July 24, 2009, File No. 001-32426)
 
   
* 31.1
  Certification of Chief Executive Officer of Wright Express Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
 
   
* 31.2
  Certification of Chief Financial Officer of Wright Express Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
 
   
* 32.1
  Certification of Chief Executive Officer of Wright Express Corporation 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
 
   
* 32.2
  Certification of Chief Financial Officer of Wright Express Corporation 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
 
*   These exhibits have been filed with this Quarterly Report on Form 10-Q.

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