Green Dot 2012 Annual Report Download - page 45

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balances are therefore deemed to be our receivables due from cardholders, and we include them as a component of
accounts receivable, net, on our consolidated balance sheets. The banks that issue our cards fund the overdrawn
account balances on our behalf. We include our obligations to them on our consolidated balance sheets as amounts
due to card issuing banks for overdrawn accounts, a current liability, and we settle our obligations to them based on
the terms specified in their agreements with us. These settlement terms generally require us to settle on a monthly
basis or when the cardholder account is closed, depending on the card issuing bank.
We generally recover overdrawn account balances from those GPR cardholders that perform a reload transaction.
In addition, we recover some purchase transaction overdrafts through enforcement of payment network rules, which
allow us to recover the amounts from the merchant where the purchase transaction was conducted. However, we are
exposed to losses from unrecovered GPR cardholder account overdrafts. The probability of recovering these amounts
is primarily related to the number of days that have elapsed since an account had activity, such as a purchase, ATM
transaction or fee assessment. Generally, we recover 50-60% of overdrawn account balances in accounts that have
had activity in the last 30 days, less than 15% in accounts that have had activity in the last 30 to 60 days, and less
than 10% when more than 60 days have elapsed.
We establish a reserve for uncollectible overdrawn accounts for maintenance fees we assess and purchase
transactions we honor, in each case in excess of a cardholder’s account balance. We classify overdrawn accounts
into age groups based on the number of days since the account last had activity. We then calculate a reserve factor
for each age group based on the average recovery rate for the most recent six months. These factors are applied to
these age groups to estimate our overall reserve. We rely on these historical rates because they have remained
relatively consistent for several years. When more than 90 days have passed without any activity in an account, we
consider recovery to be remote and charge off the full amount of the overdrawn account balance against the reserve
for uncollectible overdrawn accounts. Our actual recovery rates and related estimates thereof may change in the future
in response to factors such as the pricing of reloads and new cards and the availability of substitute products.
Overdrafts due to maintenance fee assessments comprised approximately 95% of our total overdrawn account
balances due from cardholders for the year ended December 31, 2012. We charge our GPR cardholder accounts
maintenance fees on a monthly basis pursuant to the terms and conditions in the applicable cardholder agreements.
Although cardholder accounts become inactive or overdrawn, we continue to provide cardholders the ongoing
functionality of our GPR cards, which allows them to reload and use their cards at any time. As a result, we continue
to assess a maintenance fee until a cardholder account becomes overdrawn by an amount equal to two maintenance
fees, currently $6.00 for the Walmart MoneyCard and $11.90 for our Green Dot-branded GPR cards. We recognize
the fees ratably over the month for which they are assessed, net of the related provision for uncollectible overdrawn
accounts, as a component of card revenues and other fees in our consolidated statements of operations.
We include our provision for uncollectible overdrawn accounts related to purchase transactions in other general
and administrative expenses in our consolidated statements of operations.
Employee Stock-Based Compensation
We record employee stock-based compensation expense using the fair value method of accounting. For stock
options and stock purchases under our employee stock purchase plan, we base compensation expense on fair values
estimated at the grant date using the Black-Scholes option-pricing model. For stock awards, including restricted stock
units, we base compensation expense on the 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 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 Class A or Class B common
stock, as applicable, and recognize related expense in the same periods that the goods or services are received.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
2011-05, Comprehensive Income: Presentation of Comprehensive Income, which requires an entity to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It
eliminates the option to present components of other comprehensive income as part of the statement of changes in
stockholders' equity. ASU 2011-05 does not change the items which must be reported in other comprehensive income,
how such items are measured or when they must be reclassified to net income. In December 2011, the FASB, issued
ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of