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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 September 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
  _________________________________________
 awexlogo9302016.jpg
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 November 1, 2016
Common Stock, $0.01 par value per share
  
42,734,591 shares



TABLE OF CONTENTS
 
 
Page
 
 
 
PART I-FINANCIAL INFORMATION
 
 
 
Item 1.
 4
 
 
 
Item 2.
 35
 
 
 
Item 3.
 51
 
 
 
Item 4.
 51
 
 
 
PART II-OTHER INFORMATION
 
 
 
Item 1.
 52
 
 
 
Item 1A.
 52
 
 
 
Item 2.
 55
 
 
 
Item 6.
 56
 
 
             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, specifically, the Electronic Funds Source LLC's operations and employees; the ability to realize anticipated synergies and cost savings; unexpected costs, charges or expenses resulting from an acquisition; the Company's failure to successfully operate and expand ExxonMobil's European and Asian commercial fuel card programs; the failure of corporate investments to result in anticipated strategic value; the impact and size of credit losses; the impact of changes to the Company's credit standards; breaches of the Company’s technology systems or those of our third-party service providers and any resulting negative impact on our reputation, liabilities or relationships with customers or merchants; the Company’s failure to maintain or renew key agreements; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates; the impact of the Company’s outstanding notes on its operations; the impact of increased leverage on the Company's operations, results or borrowing capacity generally, and as a result of acquisitions specifically; the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units changes; the uncertainties of litigation; as well as other risks and uncertainties identified in Item 1A of our annual report on Form 10-K for the year ended December 31, 2015, filed on February 26, 2016, and Item 1.A. of Part II of the quarterly report on Form 10-Q filed

2


on April 28, 2016, both with the Securities and Exchange Commission. 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) 
 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents
$
537,150

 
$
279,989

Accounts receivable (less reserve for credit losses of $13,987 in 2016 and $13,832 in 2015)
2,061,358

 
1,508,605

Securitized accounts receivable, restricted
89,252

 
87,724

Income taxes receivable
11,006

 

Available-for-sale securities
24,160

 
18,562

Fuel price derivatives, at fair value

 
5,007

Property, equipment and capitalized software (net of accumulated depreciation of $224,075 in 2016 and $192,140 in 2015)
162,473

 
138,585

Deferred income taxes, net
43,362

 
10,303

Goodwill
1,841,663

 
1,112,878

Other intangible assets, net
1,293,124

 
470,712

Other assets
270,142

 
215,544

Total assets
$
6,333,690

 
$
3,847,909

Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
711,101

 
$
378,811

Accrued expenses
287,523

 
156,180

Income taxes payable
2,181

 
2,732

Deposits
1,286,595

 
870,518

Securitized debt
83,868

 
82,018

Revolving line-of-credit facilities and term loans, net
1,702,265

 
664,918

Deferred income taxes, net
174,451

 
83,912

Notes outstanding, net
395,351

 
394,800

Other debt
108,127

 
50,046

Amounts due under tax receivable agreement
49,612

 
57,537

Other liabilities
14,411

 
10,756

Total liabilities
4,815,485

 
2,752,228

Commitments and contingencies (Note 14)

 

Stockholders’ Equity
 
 
 
Common stock $0.01 par value; 175,000 shares authorized; 47,171 shares issued in 2016 and 43,079 in 2015; 42,840 shares outstanding in 2016 and 38,746 in 2015
472

 
431

Additional paid-in capital
542,010

 
174,972

Non-controlling interest
11,614

 
12,437

Retained earnings
1,238,984

 
1,183,634

Accumulated other comprehensive loss
(102,533
)
 
(103,451
)
Less treasury stock at cost; 4,428 shares in 2016 and 2015
(172,342
)
 
(172,342
)
Total stockholders’ equity
1,518,205

 
1,095,681

Total liabilities and stockholders’ equity
$
6,333,690

 
$
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
 September 30,
 
Nine months ended
 September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Payment processing revenue
$
146,182

 
$
133,198

 
$
383,319

 
$
378,714

Account servicing revenue
58,815

 
39,578

 
150,770

 
115,000

Finance fee revenue
36,138

 
23,502

 
92,348

 
64,094

Other revenue
46,621

 
29,779

 
101,184

 
84,187

Total revenues
287,756

 
226,057

 
727,621

 
641,995

Expenses
 
 
 
 
 
 
 
Salary and other personnel
76,706

 
57,174

 
206,778

 
174,682

Restructuring
2,531

 
(45
)
 
7,626

 
8,514

Service fees
53,415

 
36,924

 
136,098

 
100,935

Provision for credit losses
9,489

 
6,635

 
19,849

 
14,532

Technology leasing and support
12,517

 
10,157

 
34,525

 
29,612

Occupancy and equipment
7,271

 
5,240

 
19,096

 
15,271

Depreciation and amortization
46,008

 
20,778

 
91,381

 
62,924

Operating interest expense
2,599

 
1,483

 
5,490

 
4,419

Cost of hardware and equipment sold
859

 
706

 
2,429

 
2,499

Other
21,793

 
19,260

 
57,018

 
50,919

Gain on divestiture

 

 

 
(1,215
)
Total operating expenses
233,188

 
158,312

 
580,290

 
463,092

Operating income
54,568

 
67,745

 
147,331

 
178,903

Financing interest expense
(35,064
)
 
(11,330
)
 
(87,040
)
 
(35,334
)
Net foreign currency gain (loss)
5,932

 
6,525

 
17,233

 
(12
)
Net realized and unrealized gain on fuel price derivative instruments

 
7,922

 
711

 
4,671

Non-cash adjustments related to tax receivable agreement
(168
)
 
1,634

 
(168
)
 
1,634

Income before income taxes
25,268

 
72,496

 
78,067

 
149,862

Income taxes
6,065

 
30,714

 
23,730

 
61,647

Net income
19,203

 
41,782

 
54,337

 
88,215

Less: Net (loss) gain attributable to non-controlling interests
(493
)
 
203

 
(1,013
)
 
(2,201
)
Net earnings attributable to WEX Inc.
19,696

 
41,579

 
55,350

 
90,416

Accretion of non-controlling interest

 
(9,413
)
 

 
(9,413
)
Net earnings attributable to shareholders
$
19,696

 
$
32,166

 
$
55,350

 
$
81,003

 
 
 
 
 
 
 
 
Net earnings attributable to shareholders per share:
 
 
 
 
 
 
 
Basic
$
0.46

 
$
0.83

 
$
1.38

 
$
2.09

Diluted
$
0.46

 
$
0.83

 
$
1.38

 
$
2.08

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
42,788

 
38,745

 
40,126

 
38,780

Diluted
42,871

 
38,808

 
40,199

 
38,852

See notes to unaudited condensed consolidated financial statements.

5


WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three months ended
 September 30,
 
Nine months ended
 September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
19,203

 
$
41,782

 
$
54,337

 
$
88,215

Changes in available-for-sale securities, net of tax effect of $(37) and $59 for the three months ended September 30, 2016 and 2015 and $123 and $29 for the nine months ended September 30, 2016 and 2015
(62
)
 
99

 
209

 
50

Foreign currency translation
1,549

 
(34,948
)
 
709

 
(55,265
)
Comprehensive income
20,690


6,933

 
55,255

 
33,000

Less: comprehensive (loss) income attributable to non-controlling interests
(438
)
 
(2,255
)
 
(823
)
 
(8,084
)
Comprehensive income attributable to WEX Inc.
$
21,128

 
$
9,188

 
$
56,078

 
$
41,084

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

 

 
(230
)
 

 

 

 

 
(230
)
Stock issued upon vesting of restricted and deferred stock units
56

 
1

 
(1
)
 

 

 

 

 

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

 

 
7,845

 

 

 

 

 
7,845

Purchase of shares of treasury stock
(210
)
 

 

 

 
(22,011
)
 

 

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

 

 

 
50

 

 

 

 
50

Foreign currency translation

 

 

 
(49,382
)
 

 

 
(1,673
)
 
(51,055
)
Adjustment of redeemable non-controlling interest

 

 
(13,927
)
 
(9,108
)
 

 
(9,413
)
 

 
(32,448
)
Net income (loss)

 

 

 

 

 
90,416

 
(3,391
)
 
87,025

Balance at September 30, 2015
38,745


$
431


$
172,788


$
(109,021
)

$
(172,342
)

$
1,162,733


$
12,332


$
1,066,921

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
21

 

 
283

 

 

 

 

 
283

Tax expense from stock option and restricted stock units

 

 
(300
)
 

 

 

 

 
(300
)
Stock issued upon vesting of restricted and deferred stock units
61

 
1

 

 

 

 

 

 
1

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

 

 
12,142

 

 

 

 

 
12,142

Changes in available-for-sale securities, net of tax effect of $123

 

 

 
209

 

 

 

 
209

Stock issued for July 1, 2016 purchase of EFS
4,012

 
40

 
354,913

 

 

 

 

 
354,953

Foreign currency translation

 

 

 
709

 

 

 
190

 
899

Net income (loss)

 

 

 

 

 
55,350

 
(1,013
)
 
54,337

Balance at September 30, 2016
42,840

 
$
472

 
$
542,010

 
$
(102,533
)
 
$
(172,342
)
 
$
1,238,984

 
$
11,614

 
$
1,518,205

See notes to unaudited condensed consolidated financial statements.

7


WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine months ended
 September 30,
 
2016
 
2015
Cash flows from operating activities
 
 
 
Net income
$
54,337

 
$
88,215

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 
 
Net unrealized (gain) loss
(17,598
)
 
44,626

Stock-based compensation
14,312

 
10,227

Depreciation and amortization
91,381

 
62,924

Ticking fees expensed
30,045

 

Debt restructuring and debt issuance cost amortization
8,631

 
2,319

Gain on divestiture

 
(1,215
)
Loss on debt extinguishment
2,018

 

Provision for deferred taxes
15,668

 
24,057

Restructuring charge
4,438

 
8,514

Provision for credit losses
19,849

 
14,532

Loss on disposal of property, equipment and capitalized software
196

 
298

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(405,616
)
 
(78,951
)
Other assets
(44,051
)
 
(82,133
)
Accounts payable
169,716

 
107,884

Accrued expenses
(2,866
)
 
40,539

Income taxes
(12,993
)
 
17,288

Other liabilities
(416
)
 
(2,221
)
Amounts due under tax receivable agreement
(7,924
)
 
(9,318
)
Net cash (used for) provided by operating activities
(80,873
)
 
247,585

Cash flows from investing activities
 
 
 
Purchases of property, equipment and capitalized software
(45,016
)
 
(47,117
)
Purchases of available-for-sale securities
(5,716
)
 
(263
)
Maturities of available-for-sale securities
450

 
544

Acquisition of a business, net of cash acquired
(1,089,280
)
 

Proceeds from divestiture

 
17,265

Net cash used for investing activities
(1,139,562
)
 
(29,571
)
Cash flows from financing activities
 
 
 
Excess tax benefits from equity instrument share-based payment arrangements
391

 
658

Repurchase of share-based awards to satisfy tax withholdings
(2,170
)
 
(2,382
)
Proceeds from stock option exercises
284

 
24

Net change in deposits
415,737

 
211,015

Net activity on other debt
56,442

 
155

Net borrowings on 2016 revolving credit facility
96,100

 

Borrowings on 2016 term loans
1,643,000

 

Repayments of 2016 term loans
(8,688
)
 

Net repayment on 2014 revolving credit facility
(205,549
)
 
(168,752
)
Repayments on 2014 term loan
(458,750
)
 
(20,625
)
Ticking fees paid
(22,171
)
 

Debt issuance costs
(40,868
)
 

Net change in securitized debt
(1,696
)
 
85,658

Purchase of redeemable non-controlling interest

 
(46,018
)
Purchase of shares of treasury stock

 
(22,011
)
Net cash provided by financing activities
1,472,062

 
37,722


8


Effect of exchange rate changes on cash and cash equivalents
5,534

 
(6,873
)
Net change in cash and cash equivalents
257,161

 
248,863

Cash and cash equivalents, beginning of period
279,989

 
284,763

Cash and cash equivalents, end of period
$
537,150

 
$
533,626

Supplemental cash flow information
 
 
 
Interest paid
$
87,177

 
$
41,292

Income taxes paid
$
21,098

 
$
19,899

Supplemental disclosure of non-cash investing and financing activities
 
 
 
Issuance of common stock in a business combination
$
354,953

 

See notes to unaudited condensed consolidated financial statements.


9


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.
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 shareholders to exclude acquisition and divestiture related items, debt restructuring and debt issuance cost amortization, stock-based compensation, restructuring and other costs related to certain outsourcing initiatives, changes in unrealized fuel price derivatives, net foreign currency remeasurement gains and losses, non-cash adjustments related to our tax receivable agreement, reserves for regulatory penalties, similar adjustments attributed to our non-controlling interest and certain tax related items.
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 2016-09
 
Accounting Standards Update No. 2016-09 Compensation-Stock Compensation (Topical 718): Improvements to Employee Share-Based Payment Accounting
ASU 2016-13
 
Accounting Standards Update No. 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2016-15
 
Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
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
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. On July 1, 2016, the Company acquired WP Mustang Topco LLC, the indirect parent of Electronic Funds Source, LLC and Warburg Pincus Private Equity XI (Lexington), LLC, an affiliated entity, from investment funds affiliated with Warburg Pincus LLC.
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

10

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

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 nine months ended September 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 nine month periods ended September 30, 2016 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.
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:

11

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

 
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

In September 2015, the FASB issued ASU 2015-16 related to simplifying the accounting for measurement period adjustments. This standard replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively. Under the amendments, an acquirer must recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the effect on earnings of changes in depreciation, amortization, or other income effects as if the accounting had been completed at the acquisition date. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. The Company adopted this standard on January 1, 2016.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other liabilities approximate their respective fair values due to the short-term nature of such instruments. The carrying values of certificates of deposit, interest-bearing money market deposits and borrowed federal funds approximate their respective fair values as the interest rates on these financial instruments are variable. 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. FASB has and is expected to continue to issue clarifications on various aspects of 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 January 2016, the FASB issued ASU 2016-01 related to accounting for equity investments. The pronouncement requires equity investments, except those accounted for under the equity method of accounting, or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In 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

12

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

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. The measurement of expected credit losses will be based on historical experience, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. The standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15 which provides clarification on the classification of eight specific cash flow presentation issues that have developed out of diversity in practice. The issues include, but are not limited to, debt prepayment or extinguishment costs, cash receipts from payments on beneficial interests in securitization transactions, and proceeds from the settlement of insurance claims. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the standard will have on the consolidated financial statements and related disclosures.
3.
Business Acquisitions
EFS
On July 1, 2016, the Company acquired all of the outstanding membership interests of EFS, a provider of customized corporate payment solutions for fleet and corporate customers with a focus on the large and mid-sized over-the-road fleet segments. The acquisition will enable the combined company to expand its customer footprint and to utilize EFS' technology to better serve the needs of all fleet customers.
In consideration for the acquisition of EFS, the Company issued 4,012 shares of its common stock valued at approximately $355,000 based on the July 1, 2016 closing price of the Company's common stock on the New York Stock Exchange, representing approximately 9.4% of the Company's outstanding common stock after giving effect to the issuance of the new shares in connection with this acquisition. The cash consideration for the transaction totaled approximately $1,182,000, and was funded with amounts received under the 2016 Credit Agreement described further in Note 9. The value of the total cash and stock consideration paid for the acquisition of EFS was approximately $1,444,000, net of $93,000 in cash acquired. This amount is subject to working capital adjustments.
During the third quarter of 2016, the Company obtained information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed in the EFS acquisition. Based on such information, the Company recorded intangible assets and goodwill as described below. The Company is still reviewing the valuation of all assets and liabilities and has not finalized the purchase accounting.

13

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

The following represents the preliminary allocation of the purchase price by the assets and liabilities acquired and goodwill recognized in this business combination:
Consideration paid, net of cash acquired
1,444,235

Less:
 
Accounts receivable
164,459

Property and equipment, net
8,249

Customer relationships (a)(b)
832,400

Developed technologies (a)(c)
31,100

Trade name (a)(d)
14,600

Deferred income tax assets
34,571

Accounts payable
(153,777
)
Accrued expenses
(128,281
)
Deferred income tax liabilities
(78,119
)
Other assets and liabilities
54

Recorded goodwill (a)
$
718,979

(a)
Approximately $1,356,350 in goodwill and other intangible assets recorded from this business combination were assigned to our Fleet Solutions segment, the remaining $293,729 was assigned to our Travel and Corporate Solutions segment.
(b)
Weighted average life – 8.7 years.
(c)
Weighted average life – 2.3 years.
(d)
Weighted average life – 3.3 years.
Goodwill is calculated as the consideration in excess of net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized, including synergies derived from the acquisition.
The Company is currently evaluating the tax basis and the allocation of book basis to the assets recognized in this business combination. The preliminary estimates could change significantly upon completion of this evaluation. We estimate approximately $530,000 of the goodwill recognized in this business combination will be deductible for income tax purposes.
At September 30, 2016, estimated amortization expense related to the definite-lived intangible assets listed above for each of the next five fiscal years is as follows:
Remaining 2016
$
15,591

2017
$
76,241

2018
$
75,155

2019
$
69,522

2020
$
64,786

2021
$
57,951

Thereafter
$
503,264

The pro forma financial information presented below includes the effects of the EFS acquisition as if it had been consummated on January 1, 2015. Pro forma results include the amortization associated with acquired intangible assets, interest expense associated with the 2016 Credit Agreement used to fund the acquisition and related income tax results. To reflect recurring results of the combined companies, transaction costs directly attributable to the acquisition have been eliminated. The pro forma results of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated integration costs that have been or will be incurred by the Company. Accordingly, the following pro forma information is not necessarily indicative of either the future results of operations or results that would have been achieved if the acquisition had taken place at the beginning of 2015. Subsequent to the July 1, 2016 acquisition date, the operations of EFS contributed revenues of approximately $35,017 and net income before taxes of approximately $1,511 to the Company's Fleet Solutions segment and revenues of approximately $5,012 and net income before taxes of approximately $1,993 to the Company's Travel and Corporate Solutions segment.

14

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

The following represents unaudited pro forma operational results as if EFS has been included in the Company's unaudited condensed consolidated statements of operations as of the beginning of the fiscal periods ended:
 
Three months ended September 30,
Nine months ended September 30,
 
2016
 
2015
2016
 
2015
Total revenues
$
287,755

 
261,361

$
796,514

 
748,186

Net earnings attributable to shareholders
$
30,357

 
20,592

$
38,670

 
47,852

Pro forma net income attributable to shareholders per common share:
 
 
 
 
 
 
Net income per share - basic
$
0.71

 
$
0.53

$
0.96

 
$
1.23

Net income per share - diluted
$
0.71

 
$
0.53

$
0.96

 
$
1.23

Benaissance
On November 18, 2015, the Company purchased the stock of Benaissance for approximately $80,677. The transaction was financed through the Company’s cash on hand and existing credit facility. Benaissance provides financial management for health benefits administration by offering SaaS solutions for individual single point and consolidated group premium billing. The Company acquired Benaissance to enhance the Company's positioning in the growing healthcare market.
During the fourth quarter of 2015, the Company obtained preliminary information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed in the Benaissance acquisition. During the first quarter of 2016, the Company decreased certain tangible assets by $502 and increased Goodwill by $502. Based on such information, the Company recorded intangible assets and goodwill as described below. Goodwill is expected to be deductible for tax purposes. The Company finalized our Benaissance purchase accounting in the third quarter of 2016.
The 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.
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

15

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

based on the revolving balance. The Company had approximately $2,600 in receivables with revolving credit as of September 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 September 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 September 30, 2016, approximately 93 percent of the outstanding balance of total trade accounts receivable was current and approximately 97 percent of the outstanding balance of total trade accounts receivable was less than 60 days past due. As of September 30, 2015, approximately 90 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:
 
Nine months ended September 30,
 
2016
 
2015
Balance, beginning of period
$
13,832

 
$
13,919

Provision for credit losses
19,849

 
14,532

Charge-offs
(24,825
)
 
(20,667
)
Recoveries of amounts previously charged-off
4,980

 
3,965

Currency translation
151

 
(214
)
Balance, end of period
$
13,987

 
$
11,535


16

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 nine 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
$
735,770

 
$
38,134

 
$
350,321

 
$
1,124,225

Acquisition of EFS
602,423

 
116,556

 

 
718,979

Acquisition adjustments

 

 
502

 
502

Impact of foreign currency translation
8,617

 
(1,739
)
 
2,949

 
9,827

Gross goodwill, September 30, 2016
1,346,810

 
152,951

 
353,772

 
1,853,533

 
 
 
 
 
 
 
 
Accumulated impairment, January 1, 2016
(867
)
 
(10,480
)
 

 
(11,347
)
Impact of foreign currency translation
(40
)
 
(483
)
 

 
(523
)
Accumulated impairment, September 30, 2016
$
(907
)
 
$
(10,963
)
 
$

 
$
(11,870
)
 
 
 
 
 
 
 
 
Net goodwill, January 1, 2016
$
734,903

 
$
27,654

 
$
350,321

 
$
1,112,878

Net goodwill, September 30, 2016
$
1,345,903

 
$
141,988

 
$
353,772

 
$
1,841,663

The Company had no impairments to goodwill during the nine months ended September 30, 2016.
Other Intangible Assets
During the third quarter of 2016, management shortened the useful life of our preexisting over-the-road payment processing technology as a result of the EFS acquisition. We now expect to transition off of this software during the third quarter of 2017. This change in the estimated useful life of this intangible asset resulted in approximately $5.9 million of accelerated amortization during the quarter.
The changes in other intangible assets during the first nine months of 2016 were as follows:
 
Net
Carrying
Amount,
January 1,
2016
 
Acquisitions
 
Amortization
 
Transfers1
 
Impact of
foreign
currency
translation
 
Net Carrying
Amount, September 30, 2016
Definite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Acquired software and developed technology
$
114,012

 
$
31,100

 
$
(16,516
)
 
$

 
$
348

 
$
128,944

Customer relationships
297,904

 
832,400

 
(36,520
)
 

 
2,287

 
1,096,071

Licensing agreements
27,398

 

 
(3,823
)
 

 
764

 
24,339

Patent
878

 

 
(113
)
 

 
(14
)
 
751

Trademarks and trade names
13,144

 
14,600

 
(2,094
)
 
11,000

 
(204
)
 
36,446

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

 

 

 
(11,000
)
 
197

 
6,573

Total
$
470,712

 
$
878,100

 
$
(59,066
)
 
$

 
$
3,378

 
$
1,293,124

1 During the third quarter of 2016, management reevaluated a trade name assigned to the Health and Employee Benefits Solutions segment, which was previously believed to have an indefinite life. As result, it was determined it is now probable that the trade name will not be renewed upon its 2024 expiration date. As such, this intangible asset will be amortized over its seven-year remaining estimated useful life.

17

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

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
$
33,420

2017
$
135,637

2018
$
119,493

2019
$
110,611

2020
$
102,706

2021
$
92,099

Other intangible assets, net consist of the following:
 
September 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
$
185,487

 
$
(56,543
)
 
$
128,944

 
$
155,182

 
$
(41,170
)
 
$
114,012

Customer relationships
1,227,953

 
(131,882
)
 
1,096,071

 
403,382

 
(105,478
)
 
297,904

Licensing agreements
32,793

 
(8,454
)
 
24,339

 
31,903

 
(4,505
)
 
27,398

Patent
2,524

 
(1,773
)
 
751

 
2,413

 
(1,535
)
 
878

Trademarks and trade names
41,696

 
(5,250
)
 
36,446

 
16,410

 
(3,266
)
 
13,144

 
$
1,490,453

 
$
(203,902
)
 
1,286,551

 
$
609,290

 
$
(155,954
)
 
453,336

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
 
 
 
6,573

 
 
 
 
 
17,376

Total
 
 
 
 
$
1,293,124

 
 
 
 
 
$
470,712

7.
Earnings per Share
Basic earnings per share is computed by dividing net earnings attributable to shareholders by the weighted average number of shares of common stock and vested deferred stock units outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and assumed issuance of unvested restricted stock units and deferred stock units and unvested performance-based restricted stock units for which the performance condition has been met as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options, the total unrecognized compensation expense for unvested share-based compensation awards and the excess tax benefits resulting from share-based compensation tax deductions in excess of the related expense recognized for financial reporting purposes, would be used to purchase the Company's common stock at the average market price during the period.
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and nine months ended September 30, 2016 and 2015:
 
Three months ended
 September 30,
 
Nine months ended
 September 30,
 
2016
 
2015
 
2016
 
2015
Net earnings attributable to shareholders – Basic and Diluted
$
19,696

 
$
32,166

 
$
55,350

 
$
81,003

Weighted average common shares outstanding – Basic
42,788

 
38,745

 
40,126

 
38,780

Dilutive impact of share based compensation awards
83

 
63

 
73

 
72

Weighted average common shares outstanding – Diluted
42,871

 
38,808

 
40,199

 
38,852


18

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

For the three and nine months ended September 30, 2016 and September 30, 2015, an immaterial number of outstanding stock options, restricted stock units, and performance based restricted stock units for which the performance condition has been met as of the dates of determination were excluded from the computation of diluted earnings per share because the effect of including these awards 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.
In April 2014, the Company initiated a partial foreign currency exchange hedging program. In 2014, the Company managed its foreign currency exchange exposure on an intra-quarter basis. During the third quarter of 2015, the Company decided to suspend the foreign currency exchange hedging program for all but a few short-term intercompany transactions. Because this was a partial foreign currency exchange hedging program, the Company had foreign currency exchange exposure which was not hedged while the program was in effect.
The 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.
As of September 30, 2016, the Company had the following foreign currency swap outstanding, which is not designated as a hedging contract and settles in U.S. dollars during the fourth quarter of 2016:
 
 
Aggregate Notional Amount
Australian dollar
 
A$
10,000

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 September 30,
 
Nine months ended
 September 30,
Income on Derivative
 
2016
 
2015
 
2016
 
2015
Commodity contracts
Net realized and unrealized (loss) gain on fuel price derivatives
 
$

 
$
7,922

 
$
711

 
$
4,671

Foreign currency contracts
Net foreign currency gain (loss)
 
$
1

 
$
(100
)
 
$
40

 
$
21,867


19

WEX INC
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 unaudited condensed consolidated balance sheets:
 
 
Derivatives Classified as Assets
 
Derivatives Classified as Liabilities
 
 
September 30, 2016
December 31, 2015
 
September 30, 2016
December 31, 2015
Derivatives Not Designated as Hedging Instruments
 
Balance
Sheet
Location
 
Fair
Value
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
Balance
Sheet
Location
 
Fair
Value
Commodity contracts
 
Fuel price
derivatives,
at fair value
 
$

Fuel price
derivatives,
at fair value
 
$
5,007

 
Fuel price
derivatives,
at fair value
 
$

Fuel price
derivatives,
at fair value
 
$

Foreign currency contracts
 
Accounts receivable
 
$

Accounts receivable
 
$

 
Accounts payable
 
$
9

Accounts payable
 
$
90

9.
Financing and Other Debt
2016 Credit Agreement
On July 1, 2016, the Company entered into the 2016 Credit Agreement, which replaced the 2014 Credit Agreement. The 2016 Credit Agreement provides for a tranche A term loan facility in an amount equal to $455,000 that matures on July 1, 2021, a tranche B term loan facility in an amount equal to $1,200,000 that matures on July 1, 2023, and a $470,000 secured revolving credit facility, with a $250,000 sublimit for letters of credit and a $20,000 sublimit for swingline loans, that terminates on July 1, 2021. Additional loans of up to the greater of $375,000 (plus the amount of certain prepayments) and an unlimited amount subject to satisfaction of a consolidated leverage ratio test of 4.00 to 1.00 may be made available under the 2016 Credit Agreement upon request of the Company subject to specified terms and conditions, including receipt of lender commitments. Proceeds from the 2016 Credit Agreement may be used for working capital purposes, acquisitions, payment of dividends and other restricted payments, refinancing of indebtedness, and other general corporate purposes.
As of September 30, 2016, the Company had $86,424, net of loan origination fees, of borrowings against its $470,000 revolving credit facility. The outstanding debt under the amortizing term loan arrangement totaled $1,615,841, net of loan origination fees at September 30, 2016. As of September 30, 2016, amounts outstanding under the 2016 Credit Agreement bore a weighted average effective interest rate of 3.8%.
Amounts outstanding under the 2016 Credit Agreement bear interest at a rate equal to, at the Company’s option, (a) the Eurocurrency Rate, as defined in the 2016 Credit Agreement, plus a margin of between 1.75% to 3.25% (3.25% at September 30, 2016) with respect to the tranche A term loan facility and the revolving credit facility and between 3.25% to 3.50% (3.50% at September 30, 2016) with respect to the tranche B term loan facility (with the Eurocurrency Rate subject to a 0.75% floor in the case of the tranche B term loan facility and a 0.0% floor in the case of the tranche A term loan and revolving credit facility), in each case, based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA or (b) the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate announced by Bank of America, and (iii) the Eurocurrency Rate plus 1.00%, in each case plus a margin of 0.75% to 2.25% (2.25% at September 30, 2016) with respect to the tranche A term loan facility and the revolving credit facility or 2.25% to 2.50% (2.50% at September 30, 2016) with respect to the tranche B term loan facility, in each case, based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA. In addition, the Company has agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.30% to 0.50% (0.50% at September 30, 2016) based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA of the daily unused portion of the 2016 Credit Agreement. The tranche B term loan facility was issued with an original issue discount of 1.00%.
The 2016 Credit Agreement requires the Company to prepay outstanding term loans, subject to certain exceptions, with:
solely with respect to the tranche B term loan facility, currently 50% (subject to reduction to 25% and 0% based upon the Company’s consolidated leverage ratio) of the Company’s annual Excess Cash Flow (as defined in the 2016 Credit Agreement);
100% of the net cash proceeds of certain asset sales where the proceeds exceed certain thresholds, and certain casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and

20

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

100% of the net cash proceeds of any incurrence or issuance of certain debt, other than debt permitted under the 2016 Credit Agreement.
The Company may voluntarily prepay outstanding loans from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Eurocurrency Rate loans, provided, however, that if on or prior to the date that is twelve (12) months following the closing date, the Company prepays any loans under the tranche B term loan facility in connection with a repricing transaction, the Company must pay a prepayment premium of 1.00% of the aggregate principal amount of the tranche B term loans so prepaid.
The Company is required to make scheduled quarterly payments each equal to 1.25% in the case of the tranche A term loan facility, and 0.25% in the case of the tranche B term loan facility, of the original principal amount of the respective term loans made on the closing date, with the balance due at maturity.
The 2016 Credit Agreement contains customary representations and warranties, as well as affirmative and negative covenants. The 2016 Credit Agreement also requires, solely for the benefit of the lenders under the tranche A term loan facility and the revolving credit facility, that the Company maintain at the end of each fiscal quarter the following financial ratios:
a consolidated EBITDA to consolidated interest charge coverage ratio of no less than 3.25 to 1.00; and
a consolidated funded indebtedness (excluding (i) up to an agreed amount of consolidated funded indebtedness under permitted securitization transactions and (ii) the non-recourse portion of any permitted factoring transaction) to consolidated EBITDA ratio of, initially, no more than 5.40 to 1.00, which ratio shall step down to 5.25 to 1.00 at December 31, 2016, 5.00 to 1.00 at December 31, 2017, 4.25 to 1.00 at December 31, 2018 and 4.00 to 1.00 at December 31, 2019.
The obligations under the 2016 Credit Agreement are secured by a security interest in, subject to certain exceptions, substantially all of the assets of the Company pursuant to the terms of a U.S. Security Agreement, dated as of July 1, 2016, in favor of Bank of America, as collateral agent for the lenders.
On July 1, 2016, the Company borrowed the entire principal amount of the tranche A term loan facility, the entire principal amount of the tranche B term loan facility and $220,000 under the revolving credit facility to pay the cash portion of the purchase price for the acquisition of EFS, repay EFS's outstanding credit facilities, repay amounts outstanding under the 2014 Credit Agreement, and pay related fees, expenses and other transaction costs, as well as for working capital and other general corporate purposes. The total initial borrowing on July 1, 2016 was $1,875,000 and the total borrowing capacity under the 2016 Credit Agreement is $2,125,000.
On July 1, 2016, concurrently with the financing transactions discussed above, the Company repaid in full all outstanding amounts under the 2014 Credit Agreement and terminated all commitments by the lenders to extend further credit thereunder and all guarantees and security interests granted by the Company to the lenders thereunder. The Company did not incur any early termination penalties in connection with the termination of the 2014 Credit Agreement.
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 July 1, 2016, the Company entered into the 2016 Credit Agreement, which replaced the 2014 Credit Agreement. See above for a discussion of the 2016 Credit Agreement.

21

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

Borrowed Federal Funds
In the third quarter of 2016, the Company increased its federal funds lines of credit to $225,000. As of September 30, 2016, the Company had $0 outstanding on its $225,000 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 $13,127 of debt as of September 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 14.6 percent as of September 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. This agreement was most recently amended in July 2016 to extend the maturity date while maintaining a funding capacity of $45,000. During the second quarter of 2016, WEX Bank entered into another agreement with a separate third-party bank for a funding capacity of $10,000. This agreement was amended in August 2016 to increase the funding capacity to $50,000. These borrowings carry a variable interest rate of 1 to 3-month LIBOR plus a margin of 225 basis points.  The balance of the debt was $95,000 as of September 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 $95,000. The Company's participation debt agreements will mature on December 31, 2020 and August 18, 2017, respectively. This debt is classified in Other debt on the Company’s 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 our Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper ("securitized debt") for approximately 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 September 30, 2016 and 2.91 percent as of December 31, 2015. The Company had $76,408 of securitized debt under this facility as of September 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 our European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes. The amounts of receivables to be securitized under this agreement will be determined by management on a monthly basis. The Company had $7,460 of securitized debt under this facility as of September 30, 2016 at an interest rate of 0.83 percent.
Debt issuance costs
During the third quarter of 2016, the Company capitalized approximately $46,882 of debt issuance costs associated with the 2016 Credit Agreement. Additionally, we expensed approximately $5,056 during the third quarter of 2016 related to noncapitalizable third-party costs incurred in connection with the modification of certain 2014 Credit Agreement syndicate loans. These debt issuance costs will be amortized into interest expense over the 2016 Credit Agreement's term using the effective interest method for the tranche A and B term loans and the straight-line method for the revolver.
The Company recognized a loss of $2,018 associated with the early extinguishment of the 2014 Credit Agreement during the three months ended September 30, 2016, including a partial write-off of previously capitalized debt issuance costs and newly paid lender fees associated with the extinguishment of syndicate borrowings.

22

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

In January 2016, the Company began to incur ticking fees for the debt financing commitment associated with the 2016 Credit Agreement in anticipation of the then pending acquisition of EFS. Pursuant to the terms set forth in the bank commitment letter, the ticking fees were calculated based on the financing commitment in the aggregate amount of $2,125,000, and remained in place until the closing of the EFS acquisition on July 1, 2016 (see Note 3). Total ticking fees accrued were $30,045 for the nine months ended September 30, 2016, and are included in financing interest expense. In conjunction with the continued negotiation of the Company's new credit agreement, the amount of ticking fees to be paid was reduced by $7,874. The total amount of ticking fees paid at the closing of the EFS acquisition was $22,171. The excess ticking fees were reflected as a reduction of the $46,882 debt issuance costs related to the 2016 Credit Agreement noted above and will be amortized over the 2016 Credit Agreement's term using the effective interest method for the tranche A and B term loans and the straight-line method for the revolver.
The following table presents the Company's net debt issuance costs related to its revolving line-of-credit facilities, term loan and notes outstanding:
 
September 30, 2016
 
December 31, 2015
Revolving line of credit facilities and term loan
$
40,147

 
$
4,837

Notes outstanding
$
4,649

 
$
5,200

10.
Fair Value
The Company holds mortgage-backed securities, fixed income 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.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the three or nine months ended September 30, 2016.

23

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

The following table presents the Company’s assets that are measured at fair value and the related hierarchy levels as of September 30, 2016: 
 
 
 
Fair Value Measurements
at Reporting Date Using
 
September 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
$
499

 
$

 
$
499

 
$

Asset-backed securities
688

 

 
688

 

Municipal bonds
708

 

 
708

 

Fixed-income mutual fund
22,265

 
22,265

 

 

Total available-for-sale securities
$
24,160

 
$
22,265

 
$
1,895

 
$

Executive deferred compensation plan trust (a)
$
5,716

 
$
5,716

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Foreign currency swaps (b)
$
9

 
$

 
$
9

 
$

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

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

 

Fixed-income mutual fund
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.


24

WEX INC
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 an open-ended mutual fund which is invested in fixed-income securities and is held in order to satisfy certain regulatory requirements of WEX Bank.
For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. The obligations related to the deferred compensation plan trust are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets.
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. This credit risk did not have a material impact on 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.
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.

The following table presents a reconciliation of the beginning and ending balances for fuel-price derivative assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2015:
 
 
Fuel Price
Derivatives –
Diesel
Beginning balance, July 1 2015
 
$
6,078

Total gains and (losses) – realized/unrealized
 
 
Included in earnings (a)
 
(1,633
)
Included in other comprehensive income
 

Purchases, issuances and settlements
 

Transfers (in)/out of Level 3
 

Ending balance, September 30 2015
 
$
4,445

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


25

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 fuel-price derivative assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended:
 
 
 
 
 
 
 
September 30, 2016
 
September 30, 2015
 
 
Fuel Price
Derivatives –
Diesel
 
Fuel Price
Derivatives –
Diesel
Beginning balance, January 1, 2016 and 2015, respectively
 
$
1,924

 
$
11,848

Total (losses) and gains – realized/unrealized
 
 
 
 
Included in earnings (a)
 
(1,924
)
 
(7,403
)
Included in other comprehensive income
 

 

Purchases, issuances and settlements
 

 

Transfers (in)/out of Level 3
 

 

Ending balance September 30, 2016 and 2015, respectively
 
$

 
$
4,445

(a) 
Gains and losses for the nine months ended September 30, 2016 and 2015 are reported in net realized and unrealized losses on fuel price derivatives on the unaudited condensed consolidated statements of income.
Debt
We determine the fair value of the amount outstanding under our 2016 Credit Facility and Notes based on the market rates for the issuance of the Company's debt which are Level 2 inputs in the fair value hierarchy. The fair value of amounts outstanding under the 2016 Credit Facility approximate the carrying value.
The Notes outstanding as of September 30, 2016 have a carrying value of $400,000, less loan origination fees of $4,649, and a fair value of $396,000. 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.
11.
Accumulated Other Comprehensive Income (Loss)
A reconciliation of accumulated other comprehensive income (loss) for the three month periods ended September 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
$
59

 
$
(104,079
)
 
$
(178
)
 
$
(67,344
)
Other comprehensive income (loss)
(62
)
 
1,549

 
99

 
(32,490
)
Purchase of redeemable non-controlling interest

 

 

 
(9,108
)
Ending balance
$
(3
)
 
$
(102,530
)
 
$
(79
)
 
$
(108,942
)
A reconciliation of accumulated other comprehensive income (loss) for the nine month periods ended September 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)
209

 
709

 
50

 
(49,382
)
Purchase of redeemable non-controlling interest

 

 

 
(9,108
)
Ending balance
$
(3
)
 
$
(102,530
)
 
$
(79
)
 
$
(108,942
)
No amounts were reclassified from accumulated other comprehensive income (loss) in the periods presented.

26

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

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 September 30, 2016, was $5,025, and the total tax effect on accumulated unrealized losses, as of September 30, 2015, was $1,414.
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.
A reconciliation of redeemable non-controlling interest for the three and nine month periods ended September 30, 2015, is as follows:
 
Three months ended
 September 30, 2015
 
Nine months ended September 30, 2015
Balance, beginning of period
$
14,992