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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32426

WRIGHT EXPRESS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		01-0526993
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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           o 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).

þ Yes            o 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).

o 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 August 2, 2011
Common Stock, $0.01 par value per share		38,642,054 shares

 

 

TABLE OF CONTENTS

				Page
		PART I-FINANCIAL INFORMATION
Item 1.		Unaudited Condensed Consolidated Financial Statements			- 3 -
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			- 21 -
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			- 31 -
Item 4.		Controls and Procedures			- 32 -
		PART II-OTHER INFORMATION
Item 1.		Legal Proceedings			- 33 -
Item 1A.		Risk Factors			- 33 -
Item 6.		Exhibits			- 34 -
		SIGNATURE			- 35 -
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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: the Company’s failure to successfully integrate the businesses it has acquired; the failure to successfully expand business internationally; fuel price volatility; 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 regulations impacting the Company’s industrial loan bank and the Company as the corporate parent; the uncertainties of litigation; the impact of foreign currency exchange rates on the Company’s operations, revenue and income; the effects of general economic conditions, including uncertainties resulting from the potential downgrade of the credit rating of securities issued by the United States, on fueling patterns and the commercial activity of fleets; the effects of the Company’s international business expansion efforts and any failure of those efforts; the impact and range of third quarter and full year credit losses; changes in interest rates; financial loss if the Company determines it necessary to unwind its derivative instrument position prior to the expiration of a contract; as well as other risks and uncertainties identified in Item 1A of our Annual Report for the year ended December 31, 2010, filed on Form 10-K with the Securities and Exchange Commission on February 28, 2011. 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.

PART I

Item 1. Financial Statements.

WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

		June 30,				December 31,
		2011				2010
Assets
Cash and cash equivalents		$	57,012			$	18,045
Accounts receivable (less reserve for credit losses of $10,880 in 2011 and $10,237 in 2010)			1,557,413				1,160,482
Available-for-sale securities			10,503				9,202
Property, equipment and capitalized software (net of accumulated depreciation of $98,213 in 2011 and $88,970 in 2010)			61,835				60,785
Deferred income taxes, net			159,245				161,156
Goodwill			559,118				537,055
Other intangible assets, net			120,929				124,727
Other assets			37,154				26,499
Total assets		$	2,563,209			$	2,097,951
Liabilities and Stockholders’ Equity
Accounts payable		$	579,110			$	379,855
Accrued expenses			53,208				41,133
Income taxes payable			7,380				3,638
Deposits			768,461				529,800
Borrowed federal funds			9,400				59,484
Fuel price derivatives, at fair value			17,820				10,877
Revolving line-of-credit facilities and term loan			386,500				407,300
Other liabilities			6,256				6,712
Amounts due under tax receivable agreement			96,105				100,145
Total liabilities			1,924,240				1,538,944
Commitments and contingencies (Note 10)
Stockholders’ Equity
Common stock $0.01 par value; 175,000 shares authorized, 42,226 in 2011 and 41,924 in 2010 shares issued; 38,661 in 2011 and 38,437 in 2010 shares outstanding			422				419
Additional paid-in capital			141,136				132,583
Retained earnings			552,497				499,767
Other comprehensive income (loss), net of tax:
Net unrealized gain on available-for-sale securities			148				92
Net unrealized loss on interest rate swaps			(229	)			(368	)
Net foreign currency translation adjustment			46,362				27,881
Accumulated other comprehensive income			46,281				27,605
Less treasury stock at cost, 3,566 shares in 2011 and 2010			(101,367	)			(101,367	)
Total stockholders’ equity			638,969				559,007
Total liabilities and stockholders’ equity		$	2,563,209			$	2,097,951

See notes to unaudited condensed consolidated financial statements.

WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues
Fleet payment solutions		$	113,648			$	78,385			$	212,182			$	151,795
Other payment solutions			27,624				13,050				49,180				23,486
Total revenues			141,272				91,435				261,362				175,281
Expenses
Salary and other personnel			26,410				20,447				52,104				40,067
Service fees			18,194				9,468				31,204				17,062
Provision for credit losses			6,128				2,851				11,787				8,762
Technology leasing and support			4,022				3,261				7,956				6,085
Occupancy and equipment			2,820				2,043				6,085				4,087
Depreciation and amortization			10,908				5,737				21,877				11,610
Operating interest expense			1,461				1,429				2,739				2,871
Cost of hardware and equipment sold			825				655				1,876				1,198
Other			9,329				6,197				18,387				12,002
Total operating expenses			80,097				52,088				154,015				103,744
Operating income			61,175				39,347				107,347				71,537
Financing interest expense			(3,548	)			(693	)			(5,987	)			(1,419	)
Gain on foreign currency transactions			4				40				492				43
Net realized and unrealized gain (loss) on fuel price derivatives			6,232				9,363				(18,943	)			7,583
Income before income taxes			63,863				48,057				82,909				77,744
Income taxes			23,248				18,021				30,179				29,154
Net income			40,615				30,036				52,730				48,590
Changes in available-for-sale securities, net of tax effect of $39 and $33 in 2011 and $41 and $59 in 2010			68				74				56				108
Changes in interest rate swaps, net of tax effect of $40 and $81 in 2011 and $13 and $(56) in 2010			69				21				139				(96	)
Foreign currency translation			10,798				(335	)			18,481				(533	)
Comprehensive income		$	51,550			$	29,796			$	71,406			$	48,069
Earnings per share:
Basic		$	1.05			$	0.77			$	1.37			$	1.26
Diluted		$	1.04			$	0.77			$	1.36			$	1.24
Weighted average common shares outstanding:
Basic			38,722				38,830				38,619				38,582
Diluted			38,947				39,136				38,915				39,115

See notes to unaudited condensed consolidated financial statements.

WRIGHT EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Six months ended
		June 30,
		2011				2010
Cash flows from operating activities
Net income		$	52,730			$	48,590
Adjustments to reconcile net income to net cash used for operating activities:
Fair value change of fuel price derivatives			6,943				287
Stock-based compensation			4,574				2,976
Depreciation and amortization			23,139				12,067
Deferred taxes			4,750				15,428
Provision for credit losses			11,787				8,762
Loss on disposal of property and equipment			592				—
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable			(409,223	)			(190,626	)
Other assets			(8,627	)			1,171
Accounts payable			196,591				93,653
Accrued expenses			2,099				(2,975	)
Income taxes			10,441				(2,283	)
Other liabilities			(536	)			(29	)
Amounts due under tax receivable agreement			(4,040	)			(3,905	)
Net cash used for operating activities			(108,780	)			(16,884	)
Cash flows from investing activities
Purchases of property and equipment			(12,417	)			(13,455	)
Purchases of available-for-sale securities			(1,797	)			(77	)
Maturities of available-for-sale securities			585				1,198
Acquisition of ReD — adjustment			3,734				—
Acquisition of rapid!, net of earn out			(8,081	)			—
Net cash used for investing activities			(17,976	)			(12,334	)
Cash flows from financing activities
Excess tax benefits from share-based payment arrangements			3,659				981
Repurchase of share-based awards to satisfy tax withholdings			(2,387	)			(1,762	)
Proceeds from stock option exercises			2,675				1,970
Net increase in deposits			238,650				96,278
Net decrease in borrowed federal funds			(50,084	)			(46,905	)
Loan origination fee paid for 2011 revolving line-of-credit facility			(6,184	)			—
Net repayments on 2007 revolving line-of-credit facility			(332,300	)			—
Repayments on term loan			(75,000	)			—
Net borrowings in 2011 revolving line-of-credit facility			189,000				(36,800	)
Borrowings on 2011 term note agreement			200,000				—
Repayment of 2011 term note agreement			(2,500	)			—
Purchase of shares of treasury stock			—				(10,464	)
Net cash provided by financing activities			165,529				3,298
Effect of exchange rate changes on cash and cash equivalents			194				(176	)
Net change in cash and cash equivalents			38,967				(26,096	)
Cash and cash equivalents, beginning of period			18,045				39,304
Cash and cash equivalents, end of period		$	57,012			$	13,208
Supplemental cash flow information
Interest paid		$	7,135			$	1,317
Income taxes paid		$	10,714			$	15,031
Conversion of preferred stock shares and accrued preferred dividends to common stock shares		$	—			$	10,004
Significant non-cash transaction
Acquisition of rapid! — estimated earn out		$	10,000			$	—

See notes to unaudited condensed consolidated financial statements.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 have been no material changes 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, 2010. 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, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2011. 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 and six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for any future quarter(s) or the year ending December 31, 2011.

     In the first six months of 2011, consolidated stockholders’ equity changed because of (i) changes in other comprehensive income reflected in the consolidated statements of comprehensive income; (ii) changes in common stock and additional paid-in capital reflected in the consolidated statements of cash flows (including stock-based compensation, proceeds from stock option exercises and tax activities around share-based awards); and (iii) net income.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

2. Business Acquisitions

     Acquisition of RD Card Holdings Australia Pty Ltd.

     On September 14, 2010, the Company, through its wholly-owned subsidiary, Wright Express Australia Holdings Pty Ltd, completed its acquisition of all of the outstanding shares of RD Card Holdings Australia Pty Ltd. from RD Card Holdings Limited and an intra-group note receivable from RD Card Holdings Limited (the “ReD Transaction”). This acquisition extends the Company’s international presence and provides global revenue diversification. Consideration paid for the transaction was $360,300 Australian Dollars (“AUD”) (which was equivalent to approximately $336,300 U.S. dollars at the time of closing). This consideration included $6,500 AUD the Company paid for working capital adjustments. The purchase price and related allocations for the ReD Transaction were revised during the first and second quarters of 2011 as the Company finalized its working capital adjustments and valuation of intangible assets. The prior year’s amortization was adjusted by $250 in the current period for the effects of the change in intangible asset valuation. The final purchase price and related allocations for a portion of the ReD Transaction have yet to be finalized as the Company is currently in the process of completing its valuation of certain liabilities assumed and the related tax impact as part of the acquisition.

     The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired:

		Preliminary Purchase Price
		Allocation
		June 30,				December 31,
$ USD		2011				2010
Consideration paid (net of cash acquired)		$	336,260			$	339,994
Less:
Accounts receivable			91,487				91,638
Accounts payable			(50,534	)			(50,534	)
Other tangible assets, net			407				1,970
Software			11,526				10,986
Patent			3,086				2,869
Customer relationships			70,723				73,939
Brand name			5,470				5,374
Recorded goodwill		$	204,095			$	203,752

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

     The following represents unaudited pro forma operational results as if Wright Express Australia had been included in the Company’s condensed consolidated statements of operations as of the beginning of the fiscal years:

		Three				Six
		months				months
		ended				ended
		June 30,				June 30,
$ USD		2010				2010
Net revenue		$	106,575			$	204,567
Net income		$	30,134			$	48,148
Pro forma net income per common share:
Net income per share — basic		$	0.78			$	1.25
Net income per share — diluted		$	0.77			$	1.23

     The pro forma financial information assumes the companies were combined as of January 1, 2010, and includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, interest expense for debt incurred in the acquisition and net income tax effects. The pro forma results of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by the Company to integrate Wright Express Australia. The pro forma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2010.

     Acquisition of rapid! Financial Services LLC.

     On March 31, 2011, the Company acquired certain assets of rapid! Financial Services LLC (“rapid!”) for approximately $18,000 including an estimate of contingent consideration for future performance milestones of $10,000. rapid! is a provider of payroll debit cards, e-paystubs and e-W-2s, and is focused on small and medium sized businesses. The Company purchased rapid! to expand its purchase card product offerings. The operations of rapid! are included in the Other Payment Solutions segment. During the first quarter of 2011, the Company allocated the purchase price of the acquisition based upon a preliminary estimate of the fair values of the assets acquired and liabilities assumed. During the second quarter of 2011, the estimated valuation of intangibles was revised to increase acquired intangible assets by $2,300, while goodwill was decreased by the same amount. These valuations of intangible assets are still based on a preliminary assessment.

     A contingent consideration agreement was entered into in connection with the purchase of rapid!. Under the terms of the agreement the former owners of rapid! will receive additional consideration based upon the achievement of certain performance criteria, measured over the twelve-month period from the date of purchase. The payment is anticipated to be made during the second quarter of 2012.

     The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired:

		Preliminary Purchase Price
		Allocation
		June 30,				March 31,
		2011				2011
Consideration paid (including estimated $10,000, contingent consideration)		$	18,081			$	18,081
Less:
Accounts receivable			75				75
Accounts payable			(85	)			(85	)
Other tangible assets, net			105				105
Customer relationships (a)			4,600				3,597
Trade name			1,300				—
Recorded goodwill		$	12,086			$	14,389

     No pro forma information for 2010 has been included in these financial statements as the operations of rapid! 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.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

3. Goodwill and Other Intangible Assets

Goodwill

     The changes in goodwill during the first six months of 2011 were as follows:

		Fleet				Other
		Payment				Payment
		Solutions				Solutions
		Segment				Segment				Total
Balance at December 31, 2010		$	510,396			$	26,659			$	537,055
Impact of foreign currency translation			8,306				1,328				9,634
ReD purchase price adjustment			(4,121	)			4,464				343
Acquisition of rapid!			—				12,086				12,086
Balance at June 30, 2011		$	514,581			$	44,537			$	559,118

Other Intangible Assets

     The changes in other intangible assets during the first six months of 2011 were as follows:

		Net Carrying																Impact of				Net Carrying
		Amount,								Purchase								Foreign				Amount,
		December 31,								Price								Currency				June 30,
		2010				Acquisition				Adjustment				Amortization				Translation				2011
Definite-lived intangible assets
Acquired software		$	22,640			$	—			$	540			$	(2,519	)		$	919			$	21,580
Customer relationships			88,788				4,600				(3,216	)			(8,150	)			2,233				84,255
Patent			2,982				—				217				(275	)			194				3,118
Indefinite-lived intangible assets
Trademarks and trade names			10,317				1,300				96				—				263				11,976
Total		$	124,727			$	5,900			$	(2,363	)		$	(10,944	)		$	3,609			$	120,929

     The Company expects amortization expense related to the definite-lived intangible assets above to be as follows: $11,597 for July 1, 2011 through December 31, 2011; $19,909 for 2012; $16,578 for 2013; $13,665 for 2014; $11,157 for 2015 and $9,050 for 2016.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

     Other intangible assets consist of the following:

		June 30, 2011												December 31, 2010
		Gross												Gross
		Carrying				Accumulated				Net Carrying				Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Definite-lived intangible assets
Acquired software		$	29,387			$	(7,807	)		$	21,580			$	28,263			$	(5,623	)		$	22,640
Non-compete agreement			100				(100	)			—				100				(100	)			—
Customer relationships			109,765				(25,510	)			84,255				105,262				(16,474	)			88,788
Trade name			100				(100	)			—				100				(100	)			—
Patent			3,504				(386	)			3,118				3,124				(142	)			2,982
		$	142,856			$	(33,903	)			108,953			$	136,849			$	(22,439	)			114,410
Indefinite-lived intangible assets
Trademarks and trade names											11,976												10,317
Total										$	120,929											$	124,727

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 six months ended June 30, 2011 and 2010:

		Three months ended								Six months ended
		June 30,								June 30,
		2011				2010				2011				2010
Income available for common stockholders — Basic		$	40,615			$	30,036			$	52,730			$	48,590
Convertible, redeemable preferred stock			—				—				—				40
Income available for common stockholders — Diluted		$	40,615			$	30,036			$	52,730			$	48,630
Weighted average common shares outstanding — Basic			38,722				38,830				38,619				38,582
Unvested restricted stock units			79				127				119				135
Stock options			146				179				177				193
Convertible, redeemable preferred stock			—				—				—				205
Weighted average common shares outstanding — Diluted			38,947				39,136				38,915				39,115

No shares were considered anti-dilutive during the periods reported.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

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 rate risk and commodity price risk. 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 retail price of diesel fuel, which settle on a monthly basis, related to the Company’s commodity price risk. These put and call option contracts, or fuel price derivative instruments, are designed to reduce the volatility of the Company’s cash flows associated with its fuel price-related earnings exposure in North America.

     Accounting guidance requires companies to recognize 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 under current guidance, and therefore, no such hedging designation has been made. Because the derivatives are either accounting or economic hedges of operational exposures, cash flows from the settlement of such contracts are included in “Cash flows from operating activities” on the Condensed Consolidated Statements of Cash Flows.

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 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 June 30, 2011, the Company had the following outstanding interest rate swap arrangements that were entered into to hedge forecasted variable rate interest payments:

		Weighted-				Aggregate
		Average				Notional
		Base Rate				Amount
Interest rate swap arrangements settling through July 2011			1.35	%		$	50,000
Interest rate swap arrangements settling through March 2012			0.56	%			150,000

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 June 30, 2011, 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
Option contracts settling July 2011 — December 2012			36,558
Fuel price derivative instruments — diesel
Option contracts settling July 2011— December 2012			16,425
Total fuel price derivative instruments			52,983

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 fair values in the condensed consolidated balance sheets:

Derivatives Classified as Assets

Derivatives Classified as Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

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

$     361

Accrued expenses

$

581

Derivatives not designated as hedging instruments

Commodity contracts

Fuel price derivatives, at fair value

—

Fuel price derivatives, at fair value

—

Fuel price derivatives, at fair value

17,820

Fuel price derivatives, at fair value

10,877

Total derivatives

$

—

$

—

$18,181

$

11,458

     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

Amount of Gain or

from

(Loss) Recognized in

Accumulated

Income on Derivative

Amount of Gain or

OCI into

Location of Gain or

(Ineffective Portion

(Loss) Recognized in

Income

(Loss) Recognized in

and Amount

OCI on Derivative

Location of Gain or

(Effective

Income on Derivative

Excluded from

Derivatives in

(Effective Portion) (a)

(Loss) Reclassified

Portion)

(Ineffective Portion

Effectiveness Testing)

Cash Flow

Three months ended

from Accumulated

Three months ended

and Amount Excluded

Three months ended

Hedging

June 30,

OCI into Income

June 30,

from Effectiveness

June 30,

Relationships

2011

2010

(Effective Portion)

2011

2010

Testing) (b)

2011

2010

Interest rate contracts

$

69

$

21

Financing interest expense

$

(274

)

$(137)

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

June 30,

Hedging Instruments

Income on Derivative

2011

2010

Commodity contracts

Net realized and unrealized gains on fuel price derivatives

$

6,232

$

9,363

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)

(unaudited)

Amount of Gain

or (Loss)

Reclassified

Amount of Gain or

from

(Loss) Recognized in

Accumulated

Income on Derivative

Amount of Gain or

OCI into

Location of Gain or

(Ineffective Portion and

(Loss) Recognized in

Income

(Loss) Recognized in

Amount

OCI on Derivative

Location of Gain or

(Effective

Income on Derivative

Excluded from

Derivatives in

(Effective Portion) (a)

(Loss) Reclassified

Portion)

(Ineffective Portion

Effectiveness Testing)

Cash Flow

Six months ended

from Accumulated

Six months ended

and Amount Excluded

Six months ended

Hedging

June 30,

OCI into Income

June 30,

from Effectiveness

June 30,

Relationships

2011

2010

(Effective Portion)

2011

2010

Testing) (b)

2011

2010

Interest rate contracts

$

139

$

(96

)

Financing interest expense

$

(522

)

$

(277

)

Financing interest expense

$

—

$

—

				Amount of Gain or
				(Loss) Recognized in
				Income on Derivative
Derivatives Not		Location of Gain or		Six months ended
Designated as		(Loss) Recognized in		June 30,
Hedging Instruments		Income on Derivative		2011				2010
Commodity contracts		Net realized and unrealized (losses) gains on fuel price derivatives		$	(18,943	)		$	7,583

 

6. Financing Debt

     On May 23, 2011, the Company entered into a Credit Agreement (the “Credit Agreement”), by and among the Company and certain of its subsidiaries, as borrowers, and Wright Express Card Holdings Australia Pty Ltd, as specified designated borrower, with a lending syndicate. The Credit Agreement provides for a five-year $200,000 term loan facility and a five- year $700,000 revolving credit facility with a $100,000 sublimit for letters of credit and a $20,000 sublimit for swingline loans. Term loan payments in the amount of $2,500 are due beginning on June 30, 2011, and on the last day of each September,December, March and June thereafter, through and including March 31, 2016, and on the maturity date for the term agreement, May 23, 2016, the remaining outstanding principal amount of $150,000 is due. As of June 30, 2011, the Company had $386,500 of loans outstanding under the Credit Agreement. Accordingly,at June 30, 2011, the Company had $511,000 of availability under the Credit Agreement. The Company capitalized approximately $6,200 in association with this borrowing and wrote-off approximately $700 of previous issuance cost.

     Proceeds from the new credit facility were used to refinance the Company’s existing indebtedness under its 2007 credit facility, and its existing indebtedness under its 2010 term loan facility. The new credit facility is available for working capital purposes, acquisitions, payment of dividends and other restricted payments, refinancing of indebtedness, and other general corporate purposes.

     Amounts outstanding under the Credit Agreement bear interest at a rate equal to, at the Company’s option, (a) the Eurocurrency Rate, as defined, plus a margin of 1.25 percent to 2.25 percent based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA or (b) the highest of (i) the Federal Funds Rate plus 0.50 percent, (ii) the prime rate announced by lead lender, or (iii) the Eurocurrency Rate plus 1.00 percent, in each case plus a margin of 0.25 percent to 1.25 percent based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA. In addition, the Company has agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.20 percent to 0.40 percent of the daily unused portion of the credit facility. Any outstanding loans under the Credit Agreement mature on May 23, 2016, unless extended pursuant to the terms of the Credit Agreement. As of June 30, 2011, the interest rate on the credit facility was 2.17 percent.

     The Company’s credit agreement contains various covenants requiring it to maintain certain financial ratios. In addition to the Financial Covenants, the credit agreement contains various customary restrictive covenants, including, under certain situations, restrictions on the payment of dividends. The obligations under the Credit Agreement are secured by a pledge of 65 percent of the stock of Wright Express Holdings Pty Ltd, a wholly-owned subsidiary of the Company. The Company is, and expects to continue to be, in compliance with all material covenants and restrictions.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

7. 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.

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				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
		June 30,				Assets				Inputs				Inputs
		2011				(Level 1)				(Level 2)				(Level 3)
Assets:
Mortgage-backed securities		$	3,284			$	—			$	3,284			$	—
Asset-backed securities			2,042				—				2,042				—
Municipal bonds			144				—				144				—
Equity securities			5,033				5,033				—				—
Total available-for-sale securities		$	10,503			$	5,033			$	5,470			$	—
Executive deferred compensation plan trust (a)		$	2,321			$	2,321			$	—			$	—
Liabilities:
Fuel price derivatives — diesel		$	5,525			$	—			$	—			$	5,525
Fuel price derivatives — unleaded fuel			12,295				—				12,295				—
Total fuel price derivatives — liabilities			17,820								12,295				5,525
Interest rate swap arrangements with a base rate of 1.35% and an aggregate notional amount of $50,000(b)			48				—				48				—
Interest rate swap arrangements with a base rate of 0.56% and an aggregate notional amount of $150,000(b)			313				—				313				—
Total interest rate swap arrangement		$	361			$	—			$	361			$	—
Contingent Consideration		$	10,000			$	—			$	—			$	10,000

(a)		The fair value of these instruments is recorded in other assets.
(b)		The fair value of these instruments is recorded in accrued expenses.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

     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 three months ended June 30, 2011:

						Fuel Price
		Contingent				Derivatives –
		Consideration				Diesel
Beginning balance		$	(10,000	)		$	(10,685	)
Total gains or (losses) — realized/unrealized
Included in earnings (a)			—				5,160
Included in other comprehensive income			—				—
Purchases, issuances and settlements			—				—
Transfers in/(out) of Level 3			—				—
Ending balance		$	(10,000	)		$	(5,525	)

     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 six months ended June 30, 2011:

						Fuel Price
		Contingent				Derivatives –
		Consideration				Diesel
Beginning balance		$	—			$	(3,643	)
Total gains or (losses) — realized/unrealized
Included in earnings (a)			—				(1,882	)
Included in other comprehensive income			—				—
Purchases, issuances and settlements			(10,000	)			—
Transfers in/(out) of Level 3			—				—
Ending balance		$	(10,000	)		$	(5,525	)

     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 three months ended June 30, 2010:

		Fuel Price
		Derivatives –
		Diesel
Beginning balance		$	716
Total gains or (losses) — realized/unrealized
Included in earnings (a)			1,059
Included in other comprehensive income			—
Purchases, issuances and settlements			—
Transfers in/(out) of Level 3			—
Ending balance		$	1,775

     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 six months ended June 30, 2010:

		Fuel Price
		Derivatives –
		Diesel
Beginning balance		$	2,641
Total gains or (losses) — realized/unrealized
Included in earnings (a)			(866	)
Included in other comprehensive income			—
Purchases, issuances and settlements			—
Transfers in/(out) of Level 3			—
Ending balance		$	1,775

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

Available-for-sale securities and executive deferred compensation plan trust

     When available, the Company uses quoted market prices to determine the fair value of available-for-sale securities; such items are classified in Level 1 of the fair-value hierarchy. These securities primarily consist of exchange-traded equity securities.

     For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2.

Fuel price derivatives and interest rate swap arrangements

     The majority of derivatives entered into by the Company are executed over the counter and are valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying instrument. The principal technique used to value these instruments is a comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Company’s assumptions of volatility and present value, where appropriate. The fair values of derivative contracts reflect the expected cash the Company will pay or receive upon settlement of the respective contracts.

     The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, the spot price of the underlying instrument, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and items with longer tenures are generally less observable.

Contingent consideration

     The Company has classified its liability for contingent consideration related to its acquisition of rapid! within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include the projected revenues of rapid! over a twelve month period.

8. Stock-Based Compensation

     During the first six months of 2011, the Company awarded restricted stock units and performance-based restricted stock units to employees under the 2010 Equity and Incentive Plan (the “2011 grant”). Expense associated with the performance-based restricted stock units may increase or decrease due to changes in the probability of the Company achieving pre-established performance metrics. For the six months ended June 30, 2011, total stock-based compensation cost recognized was approximately $4,600 of which approximately $700 was related to the 2011 grant. As of June 30, 2011, total unrecognized compensation cost related to non-vested stock options, restricted stock units, and performance-based restricted stock units under the 2011 grant was approximately $5,700, to be recognized over the 2.5 year remaining vesting period of these awards.

9. Income Taxes

     During the first quarter of 2011, management determined that future earnings generated by the Company’s Australia subsidiaries will be invested indefinitely outside the United States. In prior years the company had designated its initial investment in Wright Express Australia as indefinitely reinvested. Accordingly, no incremental domestic tax effects have been contemplated in deferred tax balances. As of June 30, 2011, the prior year unremitted earnings of US $7,000 and investment of US $300,700 are designated as indefinitely invested.

10. 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.

WRIGHT EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

11. Segment Information

     Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The operating segments are reviewed separately because each operating segment represents a strategic business unit that generally offers different products and serves different markets.

     The Company’s chief operating 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 derivative instruments, the amortization of purchased intangibles, the net impact of tax rate changes on the estimate of amounts due under the tax receivable agreement, the net impact of tax rate changes on IPO related goodwill, certain non-cash asset impairment charges and the gains on the extinguishment of a portion of the tax receivable agreement. These adjustments are reflected net of the tax impact.

     The Company operates in two reportable segments, Fleet Payment Solutions and Other Payment Solutions. The Fleet Payment Solutions segment provides customers with payment and transaction processing services specifically designed for the needs of vehicle fleet customers. This segment also provides information management services to these fleet customers. The Other Payment Solutions segment provides customers with a payment processing solution for their corporate purchasing, payroll and transaction monitoring needs. Revenue in this segment is derived from our corporate charge cards, single use accounts and prepaid card products. The corporate charge card products are used by businesses to facilitate purchases of products and utilize the Company’s information management capabilities. The operations from the rapid! acquisition are included in the Other Payment Solutions segment.

     Financing interest expense and net realized and unrealized losses on derivative instruments are not allocated to the Other Payment Solutions segment in the computation of segment results. Total assets are not allocated to the segments.

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 June 30, 2011 and 2010:

						Operating				Depreciation
		Total				Interest				and				Provision for				Adjusted Net
		Revenues				Expense				Amortization				Income Taxes				Income
Three months ended June 30, 2011
Fleet payment solutions		$	113,648			$	1,218			$	5,115			$	16,061			$	28,800
Other payment solutions			27,624				243				414				3,761				6,745
Total		$	141,272			$	1,461			$	5,529			$	19,822			$	35,545
Three months ended June 30, 2010
Fleet payment solutions		$	78,385			$	1,221			$	4,351			$	14,117			$	23,530
Other payment solutions			13,050				208				68				1,958				3,262
Total		$	91,435			$	1,429			$	4,419			$	16,075			$	26,792

     The following table presents the Company’s reportable segment results for the six months ended June 30, 2011 and 2010:

						Operating				Depreciation
		Total				Interest				and				Income				Adjusted Net
		Revenues				Expense				Amortization				Taxes				Income
Six months ended June 30, 2011
Fleet payment solutions		$	212,182			$	2,238			$	10,136			$	29,688			$	53,237
Other payment solutions			49,180				501				797				6,397				11,474
Total		$	261,362			$	2,739			$	10,933			$	36,085			$	64,711
Six months ended June 30, 2010
Fleet payment solutions		$	151,795			$	2,449			$	8,797			$	26,772			$	44,622
Other payment solutions			23,486				422				123				3,508				5,844
Total		$	175,281			$	2,871			$	8,920			$	30,280			$	50,466