NetSpend 2010 Annual Report Download - page 60

Table of Contents
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not
require management's judgment in its application, while in other cases management's judgment is required in selecting among available
alternative accounting standards that allow different accounting treatment for similar transactions. The preparation of consolidated financial
statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses
and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there
are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations
and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future
performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Revenue Recognition
We generate revenue from compensation for the services we provide to our issuing banks resulting from service fees and interchange
revenue. Revenue is recognized when there is persuasive evidence of an arrangement, services have been rendered, the price is fixed or
determinable and collectability is reasonably assured.
Our cardholders are charged fees in connection with the products and services we provide, as follows:
• Transactions—Cardholders are typically charged a fee for each PIN and signature-based purchase transaction made using
their GPR cards, unless the cardholder is on a monthly or annual service plan, in which case the cardholder is instead charged a
monthly or annual subscription fee, as applicable. Cardholders are also charged fees for ATM withdrawals and other
transactions conducted at ATMs.
• Customer Service and Maintenance—Cardholders are typically charged fees for balance inquiries made through our customer
service. Cardholders are also charged a monthly maintenance fee after a specified period of inactivity.
• Additional Products and Services—Cardholders are charged fees associated with additional products and services offered in
connection with certain of our GPR cards, including overdraft protection through our issuing banks, a variety of bill payment
options, custom card designs and card-to-card transfers of funds through our customer service.
• Other—Cardholders are charged fees in connection with the activation of our GPR cards and gift cards at retailers.
Revenue resulting from the service fees charged to our cardholders described above is recognized when the fees are charged because the
earnings process is substantially complete, except for revenue resulting from the initial activation of our cards and annual subscription fees.
Revenue resulting from the initial activation of our cards is recognized ratably, net of commissions paid to our distributors, over the average
account life, which is approximately one year for our GPR cards and three months for our gift cards. Revenue resulting from annual
subscription fees is recognized ratably over the annual period to which the fees relate.
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