Business Context and Reporting Period
This Form 8-K was filed by Wright Express Corporation (WEX Inc.) on February 9, 2011, reporting events occurring on that date and a press release issued on February 15, 2011. The filing details the entry into a material definitive agreement regarding fuel-price risk management.
Key Financial Metrics and Contract Details
The filing does not report standard financial metrics such as revenue, profit, cash flow, or debt levels. Instead, it discloses specific terms of a new hedging program:
- Instrument Type: Costless collar (purchase of put options and sale of call options).
- Underlying Assets: Wholesale gasoline and retail diesel fuel.
- Counterparties: Merrill Lynch Commodities, Inc. and Wells Fargo Bank, N.A.
- Notional Amount: 11,327,409 gallons of gasoline and diesel fuel.
- Price Floor: Weighted average retail floor price of approximately $3.33 per gallon.
- Price Ceiling: Weighted average retail ceiling price of approximately $3.39 per gallon.
- Expiration: Monthly basis during the last three quarters of 2012.
Material Changes
The primary material change is the extension of the Company's fuel-price risk management program. This new agreement locks in a narrow price range for fuel costs, differing from prior periods where such specific collar terms were not in place for the 2012 timeframe.
Outlook, Risks, and Management Commentary
Management indicated the transaction is designed to be a "costless collar," implying no upfront premium was paid. The settlement is based on the New York Mercantile Exchange's New York Harbor Reformulated Gasoline Blendstock for Oxygen Blending and the U.S. Department of Energy's weekly retail on-highway diesel fuel price. The filing incorporates by reference a press release titled "Wright Express Extends Its Fuel-Price Risk Management Program."
Investor Verification Checklist
- Verify the impact of the $3.33 to $3.39 price range on future operating margins given current and projected fuel market prices.
- Confirm the total volume of fuel consumption expected by the Company to assess if the 11.3 million gallon notional amount covers a significant portion of their exposure.
- Review the full text of the press release (Exhibit 99.1) for additional commentary on the rationale for the specific price points selected.
- Monitor subsequent filings for any early termination or modification of the contracts.