Green Dot 2010 Annual Report Download - page 75

Note 2 — Summary of Significant Accounting Policies (continued)
2010, $19.0 million for the five months ended December 31, 2009, and $50.8 million and $40.7 million for
the years ended July 31, 2009 and 2008, respectively.
We expense costs for the production of advertising as incurred. The cost of media advertising is
expensed when the advertising first takes place. Advertising and marketing expenses were $15.6 million
for the year ended December 31, 2010, $1.5 million for the five months ended December 31, 2009, and
$7.0 million and $13.6 million for the years ended July 31, 2009 and 2008, respectively.
We record the costs associated with card packages and placards as prepaid expenses, and we record
the costs associated with personalized GPR cards as deferred expenses. We recognize the prepaid cost of
card packages and placards over the related sales period, and we amortize the deferred cost of
personalized GPR cards, when activated, over the average card lifetime, currently nine months. Our
manufacturing and distributing costs were $24.9 million for the year ended December 31, 2010, $10.8 mil-
lion for the five months ended December 31, 2009, and $18.0 million and $15.3 million for the years ended
July 31, 2009 and 2008, respectively. Included in our manufacturing and distributing costs were shipping
and handling costs of $2.7 million, $1.2 million, and $2.3 million and $1.3 million for the year ended
December 31, 2010, five months ended December 31, 2009, and years ended July 31, 2009 and 2008,
respectively. Also included in our manufacturing and distributing costs was a liability that we incurred for
use tax to various states related to purchases of materials since no sales tax is charged to customers when
new cards or cash transfer transactions are purchased.
Employee Stock-Based Compensation
Effective August 1, 2006, we adopted a new accounting standard using the prospective transition
method, which required compensation expense to be recognized on a prospective basis. Compensation
expense recognized relates to stock options granted, modified, repurchased, or cancelled on or after
August 1, 2006 and stock purchases under our employee stock purchase plan, or ESPP. We record
compensation expense using the fair value method of accounting. For stock options and stock purchases
under our ESPP, we base compensation expense on fair values estimated at the grant date using the
Black-Scholes option-pricing model. For stock awards, we base compensation expense on the estimated
fair value of our common stock at the grant date. We recognize compensation expense for awards with
only service conditions that have graded vesting schedules on a straight-line basis over the vesting period
of the award. Vesting is based upon continued service to our company.
We continue to account for stock options granted to employees prior to August 1, 2006, using the
intrinsic value method. Under the intrinsic value method, compensation associated with stock awards to
employees was determined as the difference, if any, between the fair value of the underlying common
stock on the grant date, and the price an employee must pay to exercise the award. We measure the fair
value of equity instruments issued to non-employees as of the earlier of the date a performance
commitment has been reached by the counterparty or the date performance is completed by the
counterparty. We determine the fair value using the Black-Scholes option-pricing model or the fair value
of our common stock, as applicable, and recognize related expense in the same periods that the goods or
services are received.
For additional information, refer to Note 10 — Stock-Based Compensation.
Income Taxes
Our income tax expense is comprised of current and deferred income tax expense. Current income
tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax
expense results from the changes in deferred tax assets and liabilities during the periods. These gross
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)