NetSpend 2010 Annual Report Download - page 83

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Table of Contents
NetSpend Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2008, 2009 and 2010
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SALARIES, BENEFITS AND OTHER PERSONNEL COSTS —Salaries, benefits and other personnel costs primarily consist of
expenses related to non-customer service employee wages, bonuses, equity-based compensation and benefits, including 401(k) match and
employee health insurance. Salaries, benefits and other personnel costs related to customer service employees are included in direct operating
costs in the Consolidated Statements of Operations.
ADVERTISING COSTS —The Company expenses advertising costs as they are incurred except for direct-response advertising, which
is capitalized and amortized over its expected period of future benefit. Direct-response advertising consists of web based advertising costs paid
for new funded customer accounts. These capitalized costs are amortized over the average account life, which is approximately one year.
As of December 31, 2009 and 2010, $1.0 million and $0.1 million, respectively, of capitalized direct response advertising costs were
included in other current assets on the Consolidated Balance Sheets.
SIGNIFICANT CONCENTRATIONS —Financial instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and accounts receivable. A significant portion of the Company's cash is deposited in cash at large
depository institutions. Deposits of cash and cash equivalents exceed federally insured limits; however, the Company has not experienced any
losses on its deposits. Accounts receivable at December 31, 2009 and 2010 are primarily receivables due from cardholders for service and card
activation fees and for interchange revenues due from card associations related to merchant point of sale transactions.
Cardholder funds and deposits related to the Company's products are held in trust at FDIC insured issuing banks for the benefit of the
cardholders. The Company has several issuing banks; however, MetaBank holds a majority of cardholder funds. The failure of any of these
issuing banks could have a material adverse effect on the Company's business.
Interchange represented approximately 17.0%, 19.2% and 21.6% of the Company's revenues during the years ended December 31, 2008,
2009 and 2010, respectively. The amounts of these interchange fees are currently fixed by the card associations and network organizations in
their sole discretion.
The Company derived approximately one third of its revenues during the years ended December 31, 2008, 2009 and 2010, respectively,
from GPR cards sold through one of its third-party distributors, ACE Cash Express, Inc. ("ACE"). The Company's current distribution
agreement with ACE is effective through March of 2016.
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements or changes in existing accounting pronouncements may have a significant effect on the results of
operations, the financial condition, or the net worth of the Company's business operations.
In January 2010, the FASB issued guidance on fair value measurements and disclosures to require new disclosures related to transfers into
and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements. The guidance also
clarifies existing
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