NetSpend 2010 Annual Report Download - page 106

Download and view the complete annual report

Please find page 106 of the 2010 NetSpend annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 127

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127

Table of Contents
NetSpend Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2008, 2009 and 2010
NOTE 16: COMMITMENTS AND CONTINGENCIES (Continued)
included in settlement gains and other losses on the Consolidated Statement of Operations for the year ended December 31, 2010. As of
December 31, 2010, $0.4 million was remaining in accrued liabilities on the Consolidated Balance Sheets.
At December 31, 2010, future minimum commitments under non-cancelable service agreements are as follows:
Guarantees
A significant portion of the Company's business is conducted through retailers that provide load and reload services to cardholders at their
retail locations. Members of the Company's distribution and reload network collect cardholders' funds and remit them by electronic transfer
directly to the issuing banks for deposit in the cardholder accounts. The Company does not take possession of cardholders' funds at any time
during the settlement process. The Company's issuing banks typically receive cardholders' funds no earlier than three business days after they
are collected by the retailer. If any retailer fails to remit cardholders' funds to the Company's issuing banks, the Company typically reimburses
the issuing banks for such funds. The Company manages the settlement risk associated with this process through a formalized set of credit
standards, limiting load volumes for certain retailers, requiring certain retailers to maintain deposits on account, and by typically maintaining a
right of offset of cardholders' funds against commissions payable to retailers. The Company has not experienced any significant historical
losses associated with settlement failures, and has not recorded a settlement guarantee liability as of December 31, 2009 or 2010. As of
December 31, 2009 and 2010, the Company's estimated gross settlement exposure was $11.0 and $13.9 million, respectively.
Cardholders can incur charges in excess of the funds available in their card accounts, and are liable for the resulting overdrawn account
balance. While the Company generally declines authorization attempts for amounts that exceed the available balance in a cardholder's account,
the application of card association and network organization rules and regulations, the timing of the settlement of transactions and the
assessment of subscription, maintenance or other fees, among other things, can result in overdrawn card accounts. The Company also provides,
as a courtesy and at its discretion, certain cardholders with a "cushion" which allows them to overdraw their card accounts. In addition, eligible
cardholders may enroll in the issuing banks' overdraft protection programs pursuant to which the issuing banks fund transactions up to
$1.0 million that exceed the available balance in the cardholders' card accounts. The Company is responsible to the issuing banks for any losses
associated with these overdrawn account balances. As of December 31, 2009 and 2010, the Company's reserves
99
(in thousands of dollars)
2011
$
11,039
2012
9,727
2013
7,296
2014
4,480
2015
1,038
Thereafter
—
Total minimum payments
$
33,580