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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _________________________________________
FORM 10-Q
  _________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-32426
  _________________________________________
 
WEX INC.
(Exact name of registrant as specified in its charter)
  _________________________________________
Delaware
 
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. ☒ 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
 
  
Accelerated filer
 
Non-accelerated filer
 
☐ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
☐ Yes  ☒  No
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 4, 2016
Common Stock, $0.01 par value per share
  
42,720,344 shares



TABLE OF CONTENTS
 
 
Page
 
 
 
PART I-FINANCIAL INFORMATION
 
 
 
Item 1.
 4
 
 
 
Item 2.
 30
 
 
 
Item 3.
 43
 
 
 
Item 4.
 43
 
 
 
PART II-OTHER INFORMATION
 
 
 
Item 1.
 45
 
 
 
Item 1A.
 45
 
 
 
Item 2.
 45
 
 
 
Item 6.
 46
 
 
             SIGNATURE
 
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 includes forward-looking statements including, but not limited to, statements about management’s plan and goals. Any statements in this Quarterly Report that are not statements of historical facts are forward-looking statements. When used in this Quarterly Report, the words “may,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend,” “estimate,” “believe,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Forward-looking statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or performance to be materially different from future results or performance expressed or implied by these forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report and in oral statements made by our authorized officers: the effects of general economic conditions on fueling patterns as well as payment and transaction processing activity; the impact of foreign currency exchange rates on the Company’s operations, revenue and income; changes in interest rates; the impact of fluctuations in fuel prices; the effects of the Company’s business expansion and acquisition efforts; potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition; competitive responses to any acquisitions; uncertainty of the expected financial performance of the combined operations following completion of an acquisition; the ability to successfully integrate the Company's acquisitions, including Electronic Funds Source LLC's operations and employees; the ability to realize anticipated synergies and cost savings; unexpected costs, charges or expenses resulting from an acquisition; the Company's failure to successfully operate and expand ExxonMobil's European commercial fuel card program, or Esso Card; the failure of corporate investments to result in anticipated strategic value; the impact and size of credit losses; the impact of changes to the Company's credit standards; breaches of the Company’s technology systems and any resulting negative impact on our reputation, liabilities or relationships with customers or merchants; the Company’s failure to maintain or renew key agreements; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates; the impact of the Company’s outstanding notes on its operations; the impact of increased leverage on the Company's operations, results or borrowing capacity including as a result of acquisitions; financial loss if the Company determines it necessary to unwind any derivative instrument positions prior to the expiration of a contract; the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units changes; the uncertainties of litigation; as well as other risks and uncertainties identified in Item 1A of our Annual Report for the year ended December 31, 2015, filed on Form 10-K with the Securities and

2


Exchange Commission on February 26, 2016, and our subsequent filings with the SEC, including Item 1A of Part II of our Quarterly Report for the quarterly period ended March 31, 2016. Our forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this 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.


3


PART I
Item 1. Financial Statements.
WEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited) 
 
June 30,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents
$
317,847

 
$
279,989

Accounts receivable (less reserve for credit losses of $13,064 in 2016 and $13,832 in 2015)
1,886,744

 
1,508,605

Securitized accounts receivable, restricted
87,241

 
87,724

Income taxes receivable
11,006

 

Available-for-sale securities
24,405

 
18,562

Fuel price derivatives, at fair value

 
5,007

Property, equipment and capitalized software (net of accumulated depreciation of $212,060 in 2016 and $192,140 in 2015)
150,276

 
138,585

Deferred income taxes, net
7,518

 
10,303

Goodwill
1,119,048

 
1,112,878

Other intangible assets, net
448,685

 
470,712

Other assets
209,651

 
215,544

Total assets
$
4,262,421

 
$
3,847,909

Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
553,522

 
$
378,811

Accrued expenses
215,480

 
156,180

Income taxes payable

 
2,732

Deposits
937,707

 
870,518

Securitized debt
73,327

 
82,018

Revolving line-of-credit facilities and term loan, net
727,639

 
664,918

Deferred income taxes, net
95,360

 
83,912

Notes outstanding, net
395,167

 
394,800

Other debt
62,149

 
50,046

Amounts due under tax receivable agreement
52,173

 
57,537

Other liabilities
13,146

 
10,756

Total liabilities
3,125,670

 
2,752,228

Commitments and contingencies (Note 14)

 

Stockholders’ Equity
 
 
 
Common stock $0.01 par value; 175,000 shares authorized; 43,146 shares issued in 2016 and 43,079 in 2015; 38,814 shares outstanding in 2016 and 38,746 in 2015
431

 
431

Additional paid-in capital
181,343

 
174,972

Non-controlling interest
12,052

 
12,437

Retained earnings
1,219,287

 
1,183,634

Accumulated other comprehensive income
(104,020
)
 
(103,451
)
Less treasury stock at cost; 4,428 shares in 2016 and 2015
(172,342
)
 
(172,342
)
Total stockholders’ equity
1,136,751

 
1,095,681

Total liabilities and stockholders’ equity
$
4,262,421

 
$
3,847,909

See notes to unaudited condensed consolidated financial statements.

4


WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(in thousands, except per share data)
(unaudited)
 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Payment processing revenue
$
126,080

 
$
128,081

 
$
237,136

 
$
245,516

Account servicing revenue
47,433

 
38,474

 
91,955

 
75,422

Finance fee revenue
32,704

 
20,401

 
56,210

 
40,592

Other revenue
27,719

 
26,697

 
54,563

 
54,408

Total revenues
233,936

 
213,653

 
439,864

 
415,938

Expenses
 
 
 
 
 
 
 
Salary and other personnel
66,662

 
59,091

 
130,072

 
117,508

Restructuring
3,506

 

 
5,095

 
8,559

Service fees
45,924

 
33,941

 
82,683

 
64,011

Provision for credit losses
6,443

 
3,983

 
10,360

 
7,897

Technology leasing and support
10,932

 
10,021

 
22,008

 
19,455

Occupancy and equipment
6,113

 
5,034

 
11,825

 
10,031

Depreciation and amortization
23,109

 
20,759

 
45,373

 
42,146

Operating interest expense
1,505

 
1,357

 
2,891

 
2,936

Cost of hardware and equipment sold
665

 
684

 
1,570

 
1,793

Other
17,442

 
15,865

 
35,225

 
31,659

Gain on divestiture

 

 

 
(1,215
)
Total operating expenses
182,301

 
150,735

 
347,102

 
304,780

Operating income
51,635

 
62,918

 
92,762

 
111,158

Financing interest expense
(30,418
)
 
(11,916
)
 
(51,976
)
 
(24,004
)
Net foreign currency (loss) gain
(4,823
)
 
(2,161
)
 
11,301

 
(6,537
)
Net realized and unrealized (loss) gain on fuel price derivative instruments

 
(6,000
)
 
711

 
(3,251
)
Income before income taxes
16,394

 
42,841

 
52,798

 
77,366

Income taxes
4,482

 
16,441

 
17,665

 
30,933

Net income
11,912

 
26,400

 
35,133

 
46,433

Less: Net loss attributable to non-controlling interests
(655
)
 
(92
)
 
(520
)
 
(2,404
)
Net earnings attributable to WEX Inc.
$
12,567

 
$
26,492

 
$
35,653

 
$
48,837

 
 
 
 
 
 
 
 
Net earnings attributable to WEX Inc. per share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.68

 
$
0.92

 
$
1.26

Diluted
$
0.32

 
$
0.68

 
$
0.92

 
$
1.26

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
38,806

 
38,739

 
38,781

 
38,798

Diluted
38,857

 
38,799

 
38,850

 
38,880

See notes to unaudited condensed consolidated financial statements.

5


WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
11,912

 
$
26,400

 
$
35,133

 
$
46,433

Changes in available-for-sale securities, net of tax effect of $63 and $(82) for the three months ended June 30, 2016 and 2015 and $160 and $(29) for the six months ended June 30, 2016 and 2015
107

 
(140
)
 
271

 
(49
)
Foreign currency translation
(11,479
)
 
8,749

 
(705
)
 
(20,317
)
Comprehensive income
540


35,009

 
34,699

 
26,067

Less: comprehensive (loss) income attributable to non-controlling interests
(976
)
 
866

 
(385
)
 
(5,829
)
Comprehensive income attributable to WEX Inc.
$
1,516

 
$
34,143

 
$
35,084

 
$
31,896

See notes to unaudited condensed consolidated financial statements.

6


WEX INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount at par
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Retained
Earnings
 
Non-controlling interest in subsidiaries
 
Total
Stockholders’
Equity
Balance at December 31, 2014
38,897

 
$
430

 
$
179,077

 
$
(50,581
)
 
$
(150,331
)
 
$
1,081,730

 
$
17,396

 
$
1,077,721

Stock issued upon exercise of stock options
2

 

 
24

 

 

 

 

 
24

Tax expense from stock option and restricted stock units

 

 
(234
)
 

 

 

 

 
(234
)
Stock issued upon vesting of restricted and deferred stock units
56

 
1

 
(1
)
 

 

 

 

 

Stock-based compensation, net of share repurchases for tax withholdings

 

 
4,789

 

 

 

 

 
4,789

Purchase of shares of treasury stock
(210
)
 

 

 

 
(22,011
)
 

 

 
(22,011
)
Changes in available-for-sale securities, net of tax effect of $(29)

 

 

 
(49
)
 

 

 

 
(49
)
Foreign currency translation

 

 

 
(16,892
)
 

 

 
(1,168
)
 
(18,060
)
Net income (loss)

 

 

 

 

 
48,837

 
(3,063
)
 
45,774

Balance at June 30, 2015
38,745


$
431


$
183,655


$
(67,522
)

$
(172,342
)

$
1,130,567


$
13,165


$
1,087,954

Balance at December 31, 2015
38,746

 
$
431

 
$
174,972

 
$
(103,451
)
 
$
(172,342
)
 
$
1,183,634

 
$
12,437

 
$
1,095,681

Stock issued upon exercise of stock options
7

 

 
93

 

 

 

 

 
93

Tax expense from stock option and restricted stock units

 

 
(692
)
 

 

 

 

 
(692
)
Stock issued upon vesting of restricted and deferred stock units
61

 

 

 

 

 

 

 

Stock-based compensation, net of share repurchases for tax withholdings

 

 
6,970

 

 

 

 

 
6,970

Changes in available-for-sale securities, net of tax effect of $160

 

 

 
271

 

 

 

 
271

Foreign currency translation

 

 

 
(840
)
 

 

 
135

 
(705
)
Net income (loss)

 

 

 

 

 
35,653

 
(520
)
 
35,133

Balance at June 30, 2016
38,814

 
$
431

 
$
181,343

 
$
(104,020
)
 
$
(172,342
)
 
$
1,219,287

 
$
12,052

 
$
1,136,751

See notes to unaudited condensed consolidated financial statements.

7


WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six months ended
 June 30,
 
2016
 
2015
Cash flows from operating activities
 
 
 
Net income
$
35,133

 
$
46,433

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
 
Net unrealized (gain) loss
(14,783
)
 
48,761

Stock-based compensation
9,113

 
7,160

Depreciation, amortization and impairment
46,916

 
43,687

Gain on divestiture

 
(1,215
)
Deferred taxes
15,251

 
9,026

Restructuring charge
2,969

 
8,567

Provision for credit losses
10,360

 
7,897

Loss on disposal of property, equipment and capitalized software
38

 
119

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(383,831
)
 
(244,537
)
Other assets
12,166

 
(32,769
)
Accounts payable
166,850

 
177,671

Accrued expenses
61,057

 
(19,133
)
Income taxes
(15,059
)
 
10,130

Other liabilities
2,408

 
(3,661
)
Amounts due under tax receivable agreement
(5,364
)
 
(5,121
)
Net cash (used for) provided by operating activities
(56,776
)
 
53,015

Cash flows from investing activities
 
 
 
Purchases of property, equipment and capitalized software
(35,742
)
 
(27,701
)
Purchases of available-for-sale securities
(5,596
)
 
(174
)
Maturities of available-for-sale securities
183

 
364

Proceeds from divestiture

 
17,265

Net cash used for investing activities
(41,155
)
 
(10,246
)
Cash flows from financing activities
 
 
 
Excess tax benefits from equity instrument share-based payment arrangements

 
653

Repurchase of share-based awards to satisfy tax withholdings
(2,143
)
 
(2,371
)
Proceeds from stock option exercises
93

 
24

Net change in deposits
66,994

 
(73,079
)
Net change in borrowed federal funds

 
50,500

Other debt
10,845

 
(482
)
Net activity on 2014 revolving credit facility, net of debt issuance costs
76,754

 
(168,829
)
Net activity on term loan, net of debt issuance costs
(13,750
)
 
(13,750
)
Net change in securitized debt
(10,154
)
 
90,382

Purchase of shares of treasury stock

 
(22,011
)
Net cash provided by (used for) financing activities
128,639

 
(138,963
)
Effect of exchange rate changes on cash and cash equivalents
7,150

 
(4,237
)
Net change in cash and cash equivalents
37,858

 
(100,431
)
Cash and cash equivalents, beginning of period
279,989

 
284,763

Cash and cash equivalents, end of period
$
317,847

 
$
184,332

Supplemental cash flow information
 
 
 
Interest paid
$
23,300

 
$
25,391

Income taxes paid
$
17,295

 
$
11,309

See notes to unaudited condensed consolidated financial statements.

8


WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
 
1.
Basis of Presentation
The acronyms and abbreviations identified below are used in the accompanying unaudited condensed consolidated financial statements and the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing the unaudited condensed consolidated financial statements.
2011 Credit Agreement
 
Credit agreement entered into on May 23, 2011 among the Company, as borrower, WEX Card Holdings Australia Pty Ltd, a wholly-owned subsidiary of the Company, as specified designated borrower, Bank of America, N.A., as administrative agent and letter of credit issuer, and the other lenders party thereto
2013 Credit Agreement
 
Amended and restated credit agreement entered into on January 18, 2013 by and among the Company and certain of our subsidiaries, as borrowers, and WEX Card Holdings Australia Pty Ltd, as specified designated borrower, with a lending syndicate
2014 Amendment Agreement
 
Amendment and restatement agreement entered into on August 22, 2014, among the Company, the lenders party thereto, and Bank of America, N.A., as administrative agent
2014 Credit Agreement
 
Second amended and restated credit agreement entered into on August 22, 2014, by and among the Company and certain of our subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank of America, N.A., as administrative agent on behalf of consenting lenders
2016 Credit Agreement
 
Credit agreement entered into on July 1, 2016 by and among the Company and certain of our subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank of America, N.A., as administrative agent on behalf of the lenders
Adjusted Net Income or ANI
 
A non-GAAP metric that adjusts net earnings attributable to WEX Inc. to exclude fair value changes of fuel-price related derivative instruments, the amortization of purchased intangibles, the impact of net foreign currency remeasurement gains and losses, the expense associated with stock-based compensation, acquisition related expenses and adjustments, the net impact of tax rate changes on the Company’s deferred tax asset and related changes in the tax-receivable agreement, deferred loan costs associated with the extinguishment of debt, certain non-cash asset impairment charges, restructuring charges, ticking fees, gains on the extinguishment of a portion of the tax receivable agreement, regulatory reserves, gains or losses on divestitures and adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, certain discrete tax items, as well as the related tax impacts of the adjustments
ASU 2014-09
 
Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606)
ASU 2015-03
 
Accounting Standards Update No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
ASU 2015-16
 
Accounting Standards Update No. 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
ASU 2016-01
 
Accounting Standards Update No. 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
ASU 2016-02
 
Accounting Standards Update No. 2016-02 Leases (Topic 842)
ASU 2016-08
 
Accounting Standards Update No. 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
ASU 2016-09
 
Accounting Standards Update No. 2016-09 Compensation-Stock Compensation (Topical 718): Improvements to Employee Share-Based Payment Accounting
ASU 2016-10
 
Accounting Standards Update No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
ASU 2016-12
 
Accounting Standards Update No. 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
ASU 2016-13
 
Accounting Standards Update No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Australian Securitization Subsidiary
 
Southern Cross WEX 2015-1 Trust, a bankruptcy-remote subsidiary consolidated by the Company
Average expenditure per payment processing transaction
 
Average total dollars of spend in a funded fuel transaction
Benaissance
 
Benaissance, a leading provider of integrated SaaS technologies and services for healthcare premium billing, payment and workflow management, acquired by the Company on November 18, 2015
Company
 
WEX Inc. and all entities included in the unaudited condensed consolidated financial statements

9

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

EFS
 
Electronic Funds Source LLC, a provider of customized corporate payment solutions for fleet and corporate customers with a focus on the large and mid-sized over-the-road fleet segments, acquired by the Company on July 1, 2016
Esso portfolio in Europe
 
European commercial fleet card portfolio acquired from ExxonMobil
European Securitization Subsidiary
 
Gorham Trade Finance B.V., a bankruptcy-remote subsidiary consolidated by the Company
Evolution1
 
EB Holdings Corp. and its subsidiaries which includes Evolution1, Inc., acquired by the Company on July 16, 2014
FASB
 
Financial Accounting Standards Board
FX
 
Foreign exchange
GAAP
 
Generally Accepted Accounting Principles in the United States
Indenture
 
The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company, the guarantors listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
NCI
 
Non-controlling interest
NOL
 
Net operating loss
Notes
 
$400 million notes with a 4.75% fixed rate, issued on January 30, 2013
NOW deposits
 
Negotiable order of withdrawal deposits
Over-the-road
 
Typically heavy trucks traveling long distances
Payment solutions purchase volume
 
Total amount paid by customers for transactions
Payment processing transactions
 
Funded payment transactions where the Company maintains the receivable for total purchase
PPG
 
Price per gallon of fuel
rapid! PayCard
 
rapid! PayCard, previously a line of business of the Company, sold on January 7, 2015
SaaS
 
Software-as-a-service
SEC
 
Securities and Exchange Commission
Ticking fees
 
A fee incurred by a borrower to compensate the lender to delay a financing arrangement and hold a commitment of funds for the borrower for a period of time
Total fleet transactions
 
Total of transaction processing and payment processing transactions
Transaction processing transactions
 
Unfunded payment transactions where the Company is the processor and only has receivables for the processing fee
UNIK
 
UNIK S.A., the Company's Brazilian subsidiary
WEX
 
WEX Inc.
WEX Europe Services
 
Consists primarily of our European commercial fleet card portfolio acquired by the Company from ExxonMobil on December 1, 2014
WEX Health
 
Evolution1 and Benaissance, collectively
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP 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 GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of WEX Inc. for the year ended December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 26, 2016. 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, 2016 are not necessarily indicative of the results that may be expected for any future periods or the year ending December 31, 2016.
The presentation of the accompanying condensed consolidated statements of income has been updated for the three and six month periods ended June 30, 2015 to disaggregate revenue into payment processing, account servicing, finance fee and other revenue in order to provide additional information regarding the Company’s significant revenue streams and to conform to the current year presentation. There was no change to total revenue, income from operations, net income or net income per share in any of the periods presented as a result of this updated presentation.

10

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

In April 2015, the FASB issued ASU 2015-03 related to the simplification of the presentation of debt issuance costs. The standard requires entities to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The ASU provides that debt issuance costs are analogous to debt discounts and reduce the proceeds of borrowing which increases the effective interest rate. Prior to the amendment, debt issuance costs were reported in the balance sheet as an asset. The amended guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, requires retrospective adoption, and represents a change in accounting principle. As a result of the adoption, the December 31, 2015 unaudited condensed consolidated balance sheet is restated as follows:
 
Previously Reported
 
Effect of Accounting Principle Adoption
 
Adjusted
Unaudited condensed consolidated balance sheet
 
 
 
 
 
Other assets
$
225,581

 
$
(10,037
)
 
$
215,544

Total assets
$
3,857,946

 
$
(10,037
)
 
$
3,847,909

Revolving line-of-credit facilities and term loan, net
$
669,755

 
$
(4,837
)
 
$
664,918

Notes outstanding, net
$
400,000

 
$
(5,200
)
 
$
394,800

Total liabilities
$
2,762,265

 
$
(10,037
)
 
$
2,752,228

Total liabilities and stockholders’ equity
$
3,857,946

 
$
(10,037
)
 
$
3,847,909

Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other liabilities approximate their respective fair values due to the short-term nature of such instruments. The carrying values of certificates of deposit, interest-bearing money market deposits, borrowed federal funds and credit agreement borrowings approximate their respective fair values as the interest rates on these financial instruments are variable. All other financial instruments are reflected at fair value on the unaudited condensed consolidated balance sheets.
2.
New Accounting Standards
In May 2014, the FASB issued ASU 2014-09 related to revenue recognition, which will supersede most existing revenue recognition guidance under U.S. GAAP. The new revenue recognition standard requires entities to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard permits the use of either the retrospective or cumulative effect transition method. On July 9, 2015, the Board voted to defer the effective date by one year to interim and annual reporting periods beginning after December 15, 2017, and permitted early adoption of the standard, but not for periods beginning on or before the original effective date of December 15, 2016. In March 2016, the FASB issued ASU 2016-08, in April 2016, the FASB issued ASU 2016-10, and in May 2016, the FASB issued ASU 2016-12, in each case to clarify the implementation guidance on the new revenue recognition standard. The effective dates for these standards are the same as the effective date for ASU 2014-09. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has not yet selected a transition method.
In September 2015, the FASB issued ASU 2015-16 related to simplifying the accounting for measurement period adjustments. This standard replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with a requirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. The Company adopted this standard on January 1, 2016.
In January 2016, the FASB issued ASU 2016-01 related to accounting for equity investments. The pronouncement requires equity investments, except those accounted for under the equity method of accounting, or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.

11

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. When transitioning, the standard requires leases to be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. Certain qualitative and quantitative disclosures are required. The standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09 to simplify several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13 which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This amount will be based on historical experience, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. The standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
3.
Business Acquisitions
Benaissance
On November 18, 2015, the Company purchased the stock of Benaissance for approximately $80,677, subject to working capital adjustments. The transaction was financed through the Company’s cash on hand and existing credit facility. Benaissance provides financial management for health benefits administration by offering SaaS solutions for individual single point and consolidated group premium billing. The Company acquired Benaissance to enhance the Company's positioning in the growing healthcare market.
During the fourth quarter of 2015, the Company obtained preliminary information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed in the Benaissance acquisition. During the first quarter of 2016, the Company decreased certain tangible assets by $502 and increased Goodwill by $502. Based on such information, the Company recorded intangible assets and goodwill as described below. Goodwill is expected to be deductible for tax purposes. The Company expects to finalize the purchase accounting in the third quarter of 2016.
The following is a summary of the final allocation of the purchase price to the assets and liabilities acquired:
Consideration paid (net of cash acquired)
$
80,677

Less:
 
Accounts receivable
1,594

Other tangible assets and liabilities, net
314

Acquired software and developed technology(a)
10,300

Customer relationships(b)
27,700

Trade name(c)
1,500

Recorded goodwill
$
39,269

(a) 
Weighted average life – 5.0 years.
(b) 
Weighted average life – 7.6 years.
(c) 
Weighted average life – 8.1 years.
No pro forma information has been included in these financial statements as the operations of Benaissance for the period that they were not part of the Company are not material to the Company's revenues, net income and earnings per share.
Acquisition of remaining 49% of UNIK
On August 31, 2015, the Company acquired the remaining 49 percent ownership in UNIK for $46,018. See Note 12 Non-controlling Interests for further information.

12

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

4.
Sale of Subsidiary and Assets
rapid! PayCard
On January 7, 2015, the Company sold the assets of its rapid! PayCard operations for $20,000, which resulted in a pre-tax book gain of approximately $1,215. The Company's primary focus in the U.S. continues to be in the fleet, travel, and healthcare industries. As such, the Company divested the operations of rapid! PayCard, which were not material to the Company's annual revenue, net income or earnings per share. The Company does not view this divestiture as a strategic shift in its operations.
5.
Reserves for Credit Losses
In general, the Company’s trade receivables provide for payment terms of 30 days or less. Receivables not paid within the terms of the customer agreement are generally subject to late fees based upon the outstanding customer receivable balance. Beginning in the first quarter of 2015, the Company began to extend revolving credit to certain customers with respect to small fleet receivables. These accounts are also subject to late fees and balances that are not paid in full are subject to interest charges based on the revolving balance. The Company had approximately $1,900 in receivables with revolving credit as of June 30, 2016 and $1,100 in receivables with revolving credit as of December 31, 2015.
The portfolio of receivables consists of a large group of homogeneous smaller balance amounts that are collectively evaluated for impairment. No customer made up more than eight percent of the outstanding receivables at June 30, 2016. One customer made up eleven percent of the outstanding receivables at December 31, 2015.
Receivables are generally written off when they are 150 days past due or upon declaration of bankruptcy by the customer. The reserve for credit losses is calculated by an analytic model that also takes into account other factors, such as the actual charge-offs for the preceding reporting periods, expected charge-offs and recoveries for the subsequent reporting periods, a review of accounts receivable balances which become past due, changes in customer payment patterns, known fraudulent activity in the portfolio, as well as leading economic and market indicators.
As of June 30, 2016, approximately 92 percent of the outstanding balance of total trade accounts receivable was current and approximately 98 percent of the outstanding balance of total trade accounts receivable was less than 60 days past due. As of June 30, 2015, approximately 91 percent of the outstanding balance of total trade accounts receivable was current and approximately 98 percent of the outstanding balance was less than 60 days past due. The outstanding balance is made up of receivables from a wide range of industries.
The following table presents changes in reserves for credit losses related to accounts receivable:
 
Six months ended June 30,
 
2016
 
2015
Balance, beginning of period
$
13,832

 
$
13,919

Provision for credit losses
10,360

 
7,897

Charge-offs
(13,681
)
 
(15,019
)
Recoveries of amounts previously charged-off
2,476

 
2,931

Currency translation
77

 
(63
)
Balance, end of period
$
13,064

 
$
9,665












13

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

6.
Goodwill and Other Intangible Assets
Goodwill
The changes in goodwill during the first six months of 2016 were as follows:
 
Fleet Solutions Segment
 
Travel and Corporate Solutions Segment
 
Health and Employee Benefit Solutions Segment
 
Total
Gross goodwill, January 1, 2016
$
736,240

 
$
43,825

 
$
350,321

 
$
1,130,386

Impact of foreign currency translation
4,285

 
(1,712
)
 
3,095

 
5,668

Acquisition adjustments

 

 
502

 
502

Gross goodwill, June 30, 2016
740,525

 
42,113

 
353,918

 
1,136,556

Accumulated impairment, June 30, 2016
(1,337
)
 
(16,171
)
 

 
(17,508
)
Net goodwill, June 30, 2016
$
739,188

 
$
25,942

 
$
353,918

 
$
1,119,048

As described in Note 3, the Company adjusted the amount of goodwill in the current six-month period in the accompanying unaudited condensed consolidated balance sheet to account for the measurement period adjustments to goodwill associated with the Benaissance acquisition.
The Company had no impairments to goodwill during the six months ended June 30, 2016.
Other Intangible Assets
The changes in other intangible assets during the first six months of 2016 were as follows:
 
Net
Carrying
Amount,
January 1,
2016
 
Amortization
 
Disposals
 
Impact of
foreign
currency
translation
 
Net Carrying
Amount, June 30, 2016
Definite-lived intangible assets
 
 
 
 
 
 
 
 
 
Acquired software and developed technology
$
114,012

 
$
(6,367
)
 
$

 
$
520

 
$
108,165

Customer relationships
297,904

 
(15,544
)
 

 
2,050

 
284,410

Licensing agreements
27,398

 
(2,549
)
 

 
521

 
25,370

Patent
878

 
(98
)
 

 
7

 
787

Trademarks and trade names
13,144

 
(654
)
 

 
2

 
12,492

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks and trade names
17,376

 

 

 
85

 
17,461

Total
$
470,712

 
$
(25,212
)
 
$

 
$
3,185

 
$
448,685

The following table presents the estimated amortization expense related to the definite-lived intangible assets listed above for the remainder of 2016 and for each of the five succeeding fiscal years: 
Remaining 2016
$
25,404

2017
$
51,191

2018
$
47,232

2019
$
43,416

2020
$
39,939

2021
$
35,890


14

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

Other intangible assets, net consist of the following:
 
June 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Definite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Acquired software and developed technology
$
156,285

 
$
(48,120
)
 
$
108,165

 
$
155,182

 
$
(41,170
)
 
$
114,012

Customer relationships
407,402

 
(122,992
)
 
284,410

 
403,382

 
(105,478
)
 
297,904

Licensing agreements
32,482

 
(7,112
)
 
25,370

 
31,903

 
(4,505
)
 
27,398

Patent
2,461

 
(1,674
)
 
787

 
2,413

 
(1,535
)
 
878

Trademarks and trade names
16,430

 
(3,938
)
 
12,492

 
16,410

 
(3,266
)
 
13,144

 
$
615,060

 
$
(183,836
)
 
431,224

 
$
609,290

 
$
(155,954
)
 
453,336

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
 
 
 
17,461

 
 
 
 
 
17,376

Total
 
 
 
 
$
448,685

 
 
 
 
 
$
470,712


7.
Earnings per 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, 2016 and 2015:
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
2016
 
2015
 
2016
 
2015
Net earnings attributable to WEX Inc. available for common stockholders – Basic and Diluted
$
12,567

 
$
26,492

 
$
35,653

 
$
48,837

Weighted average common shares outstanding – Basic
38,806

 
38,739

 
38,781

 
38,798

Unvested restricted stock units
36

 
43

 
54

 
65

Stock options
15

 
17

 
15

 
17

Weighted average common shares outstanding – Diluted
38,857

 
38,799

 
38,850

 
38,880

For the three and six months ended June 30, 2016 and June 30, 2015, an immaterial number of outstanding stock options and restricted stock units were excluded from the computation of diluted earnings per share because the effect of including these options and restricted stock units would be anti-dilutive.
8.
Derivative Instruments
The Company is exposed to certain market risks relating to its ongoing business operations. Derivative instruments were utilized in prior years to manage the Company's commodity price risk. The Company entered into put and call option contracts related to the Company’s commodity price risk, which were based on the wholesale price of gasoline and the retail price of diesel fuel and settled on a monthly basis. These put and call option contracts, or fuel price derivative instruments, were designed to reduce the volatility of the Company’s cash flows associated with its fuel price-related earnings exposure in North America.
During the fourth quarter of 2014, the Company suspended purchases under its fuel derivatives program due to unusually low prices in the commodities market. Management will continue to monitor the fuel price market and evaluate alternatives as it relates to this hedging program. During the first quarter of 2016, the Company held fuel price sensitive derivative instruments to hedge approximately 20 percent of its anticipated U.S. fuel-price related earnings exposure based on assumptions at time of purchase and all these positions were settled as of March 31, 2016. After the first quarter of 2016, the Company is no longer hedged for changes in fuel prices.

15

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

In April 2014, the Company initiated a partial foreign currency exchange hedging program. In 2014 the Company managed foreign currency exchange exposure on an intra-quarter basis. During the third quarter of 2015, the Company decided to suspend the foreign currency exchange hedging program for all but a few short-term intercompany transactions. Because this was a partial foreign currency exchange hedging program, the Company had foreign currency exchange exposure which was not hedged while the program was in effect.
The realized and unrealized gains or losses on the currency forward contracts and swaps are reported in earnings within the same unaudited condensed consolidated statement of income line as the impact of the foreign currency translation, net foreign currency gain (loss).
Accounting guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the unaudited condensed consolidated balance sheet. The Company’s fuel price derivative instruments and foreign currency instruments do not qualify for hedge accounting treatment, and therefore, no such hedging designation has been made.
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.

The following table presents information on the location and amounts of derivative gains and losses in the unaudited condensed consolidated statements of income:
 
 
 
Amount of Gain or
(Loss) Recognized in
Income on  Derivative
Derivatives Not Designated as Hedging Instruments
Location of Gain or (Loss)
Recognized in
 
Three months ended June 30,
 
Six months ended
 June 30,
Income on Derivative
 
2016
 
2015
 
2016
 
2015
Commodity contracts
Net realized and unrealized (loss) gain on fuel price derivatives
 
$

 
$
(6,000
)
 
$
711

 
$
(3,251
)
Foreign currency contracts
Net foreign currency gain (loss)
 
$
73

 
$
(5,838
)
 
39

 
$
21,967

The following table presents information on the location and amounts of derivative fair values in the unaudited condensed consolidated balance sheets:
 
 
Derivatives Classified as Assets
 
Derivatives Classified as Liabilities
 
 
December 31, 2015
 
December 31, 2015
Derivatives Not Designated as Hedging Instruments
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
Commodity contracts
 
Fuel price
derivatives,
at fair value
 
$
5,007

 
Fuel price
derivatives,
at fair value
 
$

Foreign currency contracts
 
Accounts receivable
 
$

 
Accounts payable
 
$
90

9.
Financing and Other Debt
In January 2016, the Company began to incur ticking fees for the debt financing commitment associated with the pending acquisition of EFS. Pursuant to the terms set forth in the bank commitment letter, the ticking fees were calculated based on the financing commitment in the aggregate amount of $2,125,000, and remained in place until the closing of the EFS acquisition on July 1, 2016 (see Note 18). Ticking fees were $19,545 for the three months ended June 30, 2016 and $30,045 for the six months ended June 30, 2016, and are included in financing interest expense.

16

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

2014 Credit Agreement
As of June 30, 2016, the Company had $282,639, net of loan origination fees, of borrowings against its $700,000 revolving credit facility. The outstanding debt under the amortizing term loan arrangement, which was scheduled to expire in January of 2018, totaled $445,000 at June 30, 2016 and $458,750 at December 31, 2015. As of June 30, 2016, amounts outstanding under the amortizing term loan bore interest at a rate of LIBOR plus 200 basis points. The revolving credit facility bore interest at a rate equal to, at the Company's option, (a) LIBOR plus 200 basis points, (b) the prime rate plus 100 basis points for domestic borrowings; and the Eurocurrency rate plus 200 basis points for international borrowings.
On May 20, 2016, the Company entered into a second amendment to its 2014 Credit Agreement among existing lenders to provide for an increase of the maximum Consolidated Leverage Ratio (as defined in the 2014 Credit Agreement) for each of the next three quarters from 3.25 to 1.00 to (i) 3.75 to 1.00 for the fiscal quarters ending June 30, 2016 and September 30, 2016 and (ii) 3.50 to 1.00 for the fiscal quarter ending December 31, 2016.
On July 1, 2016, the Company entered into the 2016 Credit Agreement, which replaced the 2014 Credit Agreement. See Note 18 for a discussion of the 2016 Credit Agreement.
Borrowed Federal Funds
In the second quarter of 2016, the Company decreased its federal funds lines of credit by $121,000 to $125,000. As of June 30, 2016, the Company had $0 outstanding on its $125,000 federal funds lines of credit. As of December 31, 2015 the Company had no outstanding balance on its $257,500 of available credit on these lines.
UNIK debt
UNIK had approximately $7,149 of debt as of June 30, 2016, and $5,046 of debt as of December 31, 2015. UNIK's debt is comprised of various credit facilities held in Brazil, with various maturity dates. The weighted average annual interest rate was 14.4 percent as of June 30, 2016 and 13.5 percent as of December 31, 2015. This debt is classified in Other debt on the Company’s unaudited condensed consolidated balance sheets for the periods presented. 
Participation debt
During the second quarter of 2014, WEX Bank entered into an agreement with a third party bank to fund customer balances that exceeded WEX Bank's lending limit to an individual customer. During the second quarter of 2016, WEX Bank entered into another agreement with a separate third party bank to increase the funding capacity by $10,000. These borrowings carry a variable interest rate of 1 to 3-month LIBOR plus a margin of 225 basis points.  The balance of the debt was $55,000 as of June 30, 2016 and $45,000 as of December 31, 2015 and was secured by an interest in the underlying customer receivables. The participation debt balance will fluctuate on a daily basis based on customer funding needs, and will range from $0 to $55,000. The Company's participation debt agreements will mature on August 1, 2018 and May 31, 2017, respectively. This debt is classified in Other debt on the Company’s unaudited condensed consolidated balance sheets for the periods presented. 
Australian securitization facility
On April 28, 2015, the Company entered into a one year securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd. In April 2016, this agreement was extended for one year. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of its Australian receivables to Southern Cross WEX 2015-1 Trust, a bankruptcy-remote subsidiary consolidated by the Company (the "Australian Securitization Subsidiary"). The Australian Securitization Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper ("securitized debt") for approximately 85 percent of the securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian Bank Bill Rate plus an applicable margin. The interest rate was 2.70 percent as of June 30, 2016 and 2.91 percent as of December 31, 2015. The Company had $73,327 of securitized debt as of June 30, 2016 and $82,018 of securitized debt as of December 31, 2015.
European securitization facility
On April 7, 2016, the Company entered into a five year securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to Gorham Trade Finance B.V., a bankruptcy-remote subsidiary consolidated by the Company (the "European Securitization Subsidiary"). The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate

17

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

purposes. The amounts of receivables to be securitized under this agreement will be determined by management on a monthly basis. This revolving facility has not been utilized as of June 30, 2016.
Debt issuance costs
The following table presents the Company's net debt issuance costs related to its revolving line-of-credit facilities, term loan and notes outstanding:
 
June 30, 2016
 
December 31, 2015
Revolving line of credit facilities and term loan
$
3,661

 
$
4,837

Notes outstanding
$
4,833

 
$
5,200

10.
Fair Value
The Company holds mortgage-backed securities, fixed income and equity securities, derivatives (see Note 8, Derivative Instruments) and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. In determining the fair value of the Company’s obligations, various factors are considered, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; and the Company’s own credit standing.
These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
The following table presents the Company’s assets that are measured at fair value and the related hierarchy levels as of June 30, 2016: 
 
 
 
Fair Value Measurements
at Reporting Date Using
 
June 30, 2016
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Mortgage-backed securities
$
629

 
$

 
$
629

 
$

Asset-backed securities
736

 

 
736

 

Municipal bonds
793

 

 
793

 

Equity securities
22,247

 
22,247

 

 

Total available-for-sale securities
$
24,405

 
$
22,247

 
$
2,158

 
$

Executive deferred compensation plan trust (a)
$
5,514

 
$
5,514

 
$

 
$

 
(a) 
The fair value of these instruments is recorded in Other assets.


18

WEX INC
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 as of December 31, 2015:
 
 
 
Fair Value Measurements
at Reporting Date Using
 
December 31, 2015
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Mortgage-backed securities
$
650

 
$

 
$
650

 
$

Asset-backed securities
848

 

 
848

 

Municipal bonds
398

 

 
398

 

Equity securities
16,666

 
16,666

 

 

Total available-for-sale securities
$
18,562

 
$
16,666

 
$
1,896

 
$

Executive deferred compensation plan trust (a)
$
5,655

 
$
5,655

 
$

 
$

Fuel price derivatives – unleaded fuel (b)
$
3,083

 
$

 
$
3,083

 
$

Fuel price derivatives – diesel (b)
1,924

 

 

 
1,924

Total fuel price derivatives
$
5,007

 
$

 
$
3,083

 
$
1,924

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Foreign currency swaps (c)
$
90

 
$

 
$
90

 
$

(a) 
The fair value of these instruments is recorded in Other assets.
(b) 
The balance sheet presentation combines unleaded fuel and diesel fuel positions.
(c) 
The fair value of these instruments is recorded in Accounts payable.

The following table presents a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2015:
 
 
Fuel Price
Derivatives –
Diesel
Beginning balance
 
$
10,261

Total gains and (losses) – realized/unrealized
 
 
Included in earnings (a)
 
(4,183
)
Included in other comprehensive income
 

Purchases, issuances and settlements
 

Transfers (in)/out of Level 3
 

Ending balance
 
$
6,078

 
(a) 
Gains and losses (realized and unrealized) associated with fuel price derivatives, included in earnings for the three months ended June 30, 2015, are reported in net realized and unrealized losses on fuel price derivatives on the unaudited condensed consolidated statements of income.


19

WEX INC
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 and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended:
 
 
 
 
 
 
 
June 30, 2016
 
June 30, 2015
 
 
Fuel Price
Derivatives –
Diesel
 
Fuel Price
Derivatives –
Diesel
Beginning balance
 
$
1,924

 
$
11,848

Total (losses) and gains – realized/unrealized
 
 
 
 
Included in earnings (a)
 
(1,924
)
 
(5,770
)
Included in other comprehensive income
 

 

Purchases, issuances and settlements
 

 

Transfers (in)/out of Level 3
 

 

Ending balance
 
$

 
$
6,078

(a) 
Gains and losses (realized and unrealized) associated with fuel price derivatives, included in earnings for the six months ended June 30, 2016 and 2015, are reported in net realized and unrealized losses on fuel price derivatives on the unaudited condensed consolidated statements of income.

$400 Million Notes outstanding
The Notes outstanding as of June 30, 2016 have a carrying value of $400,000, less loan origination fees of $4,833, and a fair value of $389,000. As of December 31, 2015 the carrying value of the $400,000 in Notes outstanding, less loan origination fees of $5,200, had a fair value of $366,000. The fair value is based on market rates for the issuance of the Company's debt. The Company determined the fair value of its Notes outstanding are classified as Level 2 in the fair value hierarchy.
Available-for-sale securities and executive deferred compensation plan trust
When available, the Company uses quoted market prices to determine the fair value of available-for-sale securities; such items are classified in Level 1 of the fair-value hierarchy. These securities primarily consist of exchange-traded equity securities.
For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. The obligations related to the deferred compensation plan trust are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets.
Foreign currency contracts
Derivatives include foreign currency forward and swap contracts. The Company's foreign currency forward and swap contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. We consider counterparty credit risk in the valuation of the Company's derivatives. However, counterparty credit risk did not impact the valuation of the Company's derivatives during 2016 and 2015.
Fuel price derivative instruments
The majority of fuel price derivative instruments entered into by the Company were executed over-the-counter and were valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying instrument. The principal technique used to value these instruments was a comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Company’s assumptions of volatility and present value, where appropriate. The fair values of derivative contracts reflected the expected cash the Company would pay or receive upon settlement of the respective contracts.
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 instruments, volatility, and correlation. The item was placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and inputs with longer tenures are generally less observable.

20

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

Fuel price derivative instruments – diesel. The assumptions used in the valuation of the diesel fuel price derivative instruments used both observable and unobservable inputs. There is a lack of price transparency with respect to forward prices for diesel fuel. Such unobservable inputs are significant to the diesel fuel derivative contract valuation methodology.
After the first quarter of 2016, the Company no longer holds any fuel price derivatives.
11.
Accumulated Other Comprehensive Income (Loss)
A reconciliation of accumulated other comprehensive income (loss) for the three month periods ended June 30, 2016 and 2015, is as follows:
 
2016
 
2015
 
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
 
Foreign
Currency
Items
 
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
 
Foreign
Currency
Items
Beginning balance
$
(48
)
 
$
(92,921
)
 
$
(38
)
 
$
(75,135
)
Other comprehensive income (loss)
107

 
(11,158
)
 
(140
)
 
7,791

Ending balance
$
59

 
$
(104,079
)
 
$
(178
)
 
$
(67,344
)
A reconciliation of accumulated other comprehensive income (loss) for the six month periods ended June 30, 2016 and 2015, is as follows:
 
2016
 
2015
 
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
 
Foreign
Currency
Items
 
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
 
Foreign
Currency
Items
Beginning balance
$
(212
)
 
$
(103,239
)
 
$
(129
)
 
$
(50,452
)
Other comprehensive income (loss)
271

 
(840
)
 
(49
)
 
(16,892
)
Ending balance
$
59

 
$
(104,079
)
 
$
(178
)
 
$
(67,344
)
No amounts were reclassified from accumulated other comprehensive income (loss) in the periods presented.
The change in foreign currency items is primarily due to the foreign currency translation of non-cash assets such as goodwill and other intangible assets related to the Company's foreign subsidiaries.
The total tax effect on accumulated unrealized losses, as of June 30, 2016, was $4,210, and the total tax effect on accumulated unrealized losses, as of June 30, 2015, was $933.
12.
Non-controlling Interests
On August 30, 2012, the Company acquired a 51 percent ownership interest in UNIK. The redeemable non-controlling interest was measured at fair value at the date of acquisition and was reported on the Company’s unaudited condensed consolidated balance sheets as “Redeemable non-controlling interest." On August 31, 2015, the Company acquired the remaining 49 percent ownership in UNIK for $46,018. Due to put rights held by the non-controlling shareholders after the Company's original investment, the non-controlling interest was previously reported as a liability rather than permanent equity. The Company agreed to cancel this put option in conjunction with the acquisition of the remaining 49 percent ownership. The value of the redeemable non-controlling interest was adjusted to the redemption value at date of purchase and the Company recorded the adjustment to retained earnings. This adjustment to retained earnings reduces the Earnings Per Share to shareholders. The Company recorded the amount paid in excess of the redemption value in additional paid-in capital and the impact related to foreign currency in accumulated other comprehensive income. The Company's overall purchase price was less than the fair value of UNIK.

21

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

A reconciliation of redeemable non-controlling interest for the three and six month periods ended June 30, 2015, is as follows:
 
Three months ended June 30, 2015
 
Six months ended June 30, 2015
Balance, beginning of period
$
13,647

 
$
16,590

Net income attributable to redeemable non-controlling interest
670

 
659

Currency translation adjustment
675

 
(2,257
)
Ending balance
$
14,992

 
$
14,992


On December 1, 2014, WEX acquired the assets of ExxonMobil's Esso portfolio in Europe through its majority owned subsidiary, WEX Europe Services Limited. The Company formed this entity during 2013 and has 75 percent ownership.

A reconciliation of non-controlling interest for the three and six month periods ended June 30, 2016 and June 30, 2015 is as follows:
 
Three months ended
 June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
13,028

 
$
13,644

 
$
12,437

 
$
17,396

Net loss attributable to non-controlling interest
(655
)
 
(762
)
 
(520
)
 
(3,063
)
Currency translation adjustment
(321
)
 
283

 
135

 
(1,168
)
Ending balance
$
12,052


$
13,165

 
$
12,052

 
$
13,165

13.
Income Taxes
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $21,260 at June 30, 2016, and $13,230 at December 31, 2015. These earnings are considered to be indefinitely reinvested, and accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. The Company has determined that the amount of taxes attributable to these undistributed earnings is not practicably determinable.

14.
Commitments and Contingencies
Litigation
The Company is involved in pending litigation in the ordinary course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.
15.
Restructuring
In the first quarter of 2015, the Company commenced a restructuring initiative (the "2015 Restructuring Initiative") as a result of its global review of operations. The global review of operations identified certain initiatives to further streamline the business, improve the Company's efficiency, and to globalize the Company's operations, all with an objective to improve scale and increase profitability going forward.
As the Company continued its efforts to improve its overall operational efficiency, the Company began a second restructuring initiative (the "2016 Restructuring Initiative") during the second quarter of 2016.
The restructuring expenses related to these initiatives primarily consist of employee costs and office closure costs directly associated with the initiatives. The Company has determined that the amounts of expenses related to these initiatives are probable and estimable and has recorded the impact on the unaudited condensed consolidated statements of income and in Accrued expenses on the unaudited condensed consolidated balance sheet. The balance under the 2015 Restructuring Initiative

22

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

is expected to be paid through 2017 and the amount under the 2016 Restructuring Initiative is expected to be paid through 2018. The Company expects to incur an additional $3,000 in restructuring costs related to the 2015 Restructuring Initiative and an additional $900 in restructuring costs related to the 2016 Restructuring Initiative.
The following table presents the Company's 2015 Restructuring Initiative liability for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2016
 
2015
2016
 
2015
Beginning balance
$
8,506

 
$
8,559

$
7,249

 
$

Restructuring charges

 

1,589

 
8,559

Cash paid
(1,478
)
 

(2,125
)
 

Impact of foreign currency translation
57

 
263

372

 
263

Ending balance
$
7,085

 
$
8,822

$
7,085

 
$
8,822

The following table presents the Company’s 2016 Restructuring Initiative liability for the three and six months ended June 30, 2016:
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Beginning balance
$

 
$

Restructuring charges
3,506

 
3,506

Cash paid

 

Impact of foreign currency translation
(18
)
 
(18
)
Ending balance
$
3,488

 
$
3,488

The following table presents the Company's total restructuring liability for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2016
 
2015
2016
 
2015
Beginning balance
$
8,506

 
$
8,559

$
7,249

 
$

Restructuring charges
3,506

 

5,095

 
8,559

Cash paid
(1,478
)
 

(2,125
)
 

Impact of foreign currency translation
39

 
263

354

 
263

Ending balance
$
10,573

 
$
8,822

$
10,573

 
$
8,822

16.
Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. The operating segments are aggregated into the three reportable segments described below.
The Company’s chief operating decision maker evaluates the operating results of the Company’s operating and reportable segments based upon revenues and adjusted pre-tax income before NCI which adjusts income before income taxes to exclude fair value changes of fuel price derivative instruments, net foreign currency remeasurement gains and losses, the amortization of acquired intangible assets, the expense associated with stock-based compensation, acquisition related expenses and adjustments, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreement, deferred loan costs associated with the extinguishment of debt, certain non-cash asset impairment

23

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

charges, gains on the extinguishment of a portion of the tax receivable agreement, restructuring charges, gains or losses on divestitures, regulatory reserves and adjustments attributable to non-controlling interests including adjustments to the redemption value of a non-controlling interest.
The Fleet Solutions segment provides customers with payment and transaction processing services specifically designed for the needs of commercial and government fleets. This segment also provides information management services to these fleet customers. The Travel and Corporate Solutions segment focuses on the complex payment environment of business-to-business payments, providing customers with payment processing solutions for their corporate payment and transaction monitoring needs. The Health and Employee Benefit Solutions segment provides healthcare payment products and SaaS consumer directed platforms, as well as payroll related benefits to customers in Brazil. Prior to the fourth quarter of 2015, the Company reported its results of operations in two business segments, Fleet Payment Solutions and Other Payment Solutions. During the fourth quarter of 2015, the Company revised its internal and external reporting and reports its results of operations in three reportable segments. The Company has recast the prior year's segment information to conform to the current year presentation.
The following table presents the Company's interest income by segment:
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2016
 
2015
2016
 
2015
Fleet Solutions
$
701

 
$
116

$
1,586

 
$
824

Travel and Corporate Solutions
96

 
90

187

 
154

Health and Employee Benefit Solutions
1,888

 
1,261

3,382

 
2,404

Total interest income
$
2,685

 
$
1,467

$
5,155

 
$
3,382

Net realized and unrealized losses on derivative instruments are allocated to the Fleet Solutions segment in the computation of segment results for internal evaluation purposes. Total assets are not allocated to the segments.
Beginning in the second quarter of 2015, adjusted pre-tax income before NCI excludes net foreign currency gains and losses. For comparative purposes, adjusted pre-tax income before NCI attributable to WEX Inc. for the prior periods has been adjusted to reflect the exclusion of net foreign currency gains and losses and differs from the figure previously reported due to this adjustment.
The segment information has also been updated for the three and six month periods ended June 30, 2015 to disaggregate revenue into payment processing, account servicing, finance fee and other revenue in order to provide additional information regarding the Company’s significant revenue streams and to conform to the current year presentation. There was no change to total revenue or other financial information in any of the periods presented as a result of this updated presentation.
The following tables present the Company’s reportable segment results on an adjusted pre-tax net income before NCI basis for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2016
 
2015
2016
 
2015
Fleet Solutions revenue
 
 
 
 
 
 
Payment processing revenue
$
70,711

 
$
80,127

$
133,001

 
$
153,070

Account servicing revenue
27,548

 
25,360

52,986

 
49,243

Finance fee revenue
30,674

 
19,069

52,611

 
38,064

Other revenue
15,027

 
10,964

26,436

 
23,633

Total Fleet Solutions revenue
$
143,960

 
$
135,520

$
265,034

 
$
264,010

 
 
 
 
 
 
 
Total Fleet Solutions operating interest expense
$
379

 
$
421

$
801

 
$
1,161

Total Fleet Solutions depreciation and amortization
$
7,799

 
$
6,975

$
15,119

 
$
14,433

Total Fleet Solutions adjusted pre-tax income before NCI
$
37,955

 
$
49,490

$
70,767

 
$
94,774


24

WEX INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)

 
Three Months Ended June 30,
Six Months Ended June 30,
 
2016
 
2015
2016
 
2015
Travel and Corporate Solutions revenue
 
 
 
 
 
 
Payment processing revenue
$
43,194

 
$
37,564

$
77,820

 
$
70,199