NetSpend 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 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 173

  • 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
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173

NETSPEND HOLDINGS, INC.
FORM 10-K
(Annual Report)
Filed 02/24/12 for the Period Ending 12/31/11
Address 701 BRAZOS STREET
SUITE 1300
AUSTIN, TX 78701-2582
Telephone (512) 532-8200
CIK 0001496623
Symbol NTSP
SIC Code 6199 - Finance Services
Industry Consumer Financial Services
Sector Financial
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2012, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ... - Finance Services Consumer Financial Services Financial 12/31 Telephone CIK Symbol SIC Code Industry Sector Fiscal Year http://www.edgar-online.com © Copyright 2012, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

  • Page 2
    ... IV Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission file number: 001-34915 NetSpend Holdings, Inc. (Exact...

  • Page 3
    ...the NASDAQ Global Select Market on June 30, 2011, was $319.9 million. The number of shares of the registrant's common stock outstanding on February 21, 2012 was 76,223,241. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this report, to the extent not set forth herein, is...

  • Page 4
    ... and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART IV Exhibits, Financial Statement...

  • Page 5
    ...-LOOKING STATEMENTS This Annual Report on Form 10-K and the documents incorporated into this Annual Report on Form 10-K by reference contain forwardlooking statements. These forward-looking statements include statements with respect to our financial condition, results of operations and business. The...

  • Page 6
    ...savings accounts, bill pay functionality, card-tocard transfer capability, personal financial management tools and online and mobile phone card account access. Our strategy is to focus on increasing the number of cards that receive direct deposits because cardholders who electronically deposit funds...

  • Page 7
    ... month period preceding the date of determination. Funds may be loaded onto the GPR cards we market at retail locations within our distribution and reload network, through the direct deposit of wages, government benefits or tax refunds, from a cardholder's bank account through our online banking...

  • Page 8
    ... from reloads of cards offered by other prepaid debit card companies. Our reload network is comprised of all of the alternative financial services provider locations and traditional retail locations that market our GPR cards, as well as all MoneyGram and Western Union agent locations. Our long-term...

  • Page 9
    ...Services, Inc. ("BET"). Our marketing programs focus principally on direct deposit enrollment and cardholder lifetime value optimization. Operations Customer Acquisition and Account Activation. Customers that acquire cards through our retail distributors and corporate employers are typically issued...

  • Page 10
    .... Customer Statements and Account Information. Cardholders can verify their account status and recent transactions through our customer service agents, through voice activation responses or by text messages to their mobile phones. Full account statements can be accessed online and printed statements...

  • Page 11
    ... our card issuing activities across at least three Issuing Banks, in addition to the banks that issue our payroll cards. We are focused on doing so in a manner that balances our diversification strategy with the protection of existing cardholder and direct deposit relationships and other operational...

  • Page 12
    ... number of companies that market open-loop prepaid debit cards through retail and online distribution, including Green Dot Corporation, Account Now, Inc. and UniRush, LLC. Many transaction processors, such as First Data Corporation, Total System Services, Inc., Fidelity National Information Services...

  • Page 13
    ... Federal Deposit Insurance Corporation, or the FDIC, up to the applicable limit, the FDIC also serves as the secondary federal regulator for each of our Issuing Banks. As an agent of, and third-party service provider to, our Issuing Banks, we are subject to indirect regulation and direct audit and...

  • Page 14
    ... sale or load of our prepaid debit cards and remit them by electronic transfer directly to our Issuing Banks. In addition, we and our distributors acted as the agents of nationally chartered banks that were exempt from state regulation in the past. We are actively pursuing our own money transmitter...

  • Page 15
    ... limitations on access and use of personal information than GLBA, requiring our cardholders to affirmatively opt-in to certain categories of disclosures. We continue to work with our Issuing Banks to implement and maintain appropriate policies and programs as well as adapt our business practices...

  • Page 16
    ... time to time to ensure our compliance with these standards. We continue to work with our Issuing Banks to implement and maintain appropriate policies and programs as well as adapt our business practices in order to comply with all applicable rules and standards. Employees As of December 31, 2011...

  • Page 17
    ... business, results of operations and financial position. We rely on the arrangements we have with our Issuing Banks to provide us with critical products and services, including the FDIC-insured depository accounts tied to our GPR cards, access to the ATM networks, membership in the card associations...

  • Page 18
    ... states, the termination of our relationship with one or more of these Issuing Banks would force us and our distributors to cease offering prepaid debit cards and related services to the extent that we rely on our status as their agent in order to do so. SunTrust, an issuer and referral partner...

  • Page 19
    ... has been infringing a patent issued to ITS in March of 2011 as a result of providing services that utilize the system described in the patent to transfer funds from NetSpend Reload Packs to NetSpend GPR cards and to transfer funds between NetSpend GPR cards. ITS is seeking a declaration that...

  • Page 20
    ...as we add new issuing banks. We are also subject to direct regulation by those states in which we are licensed as a money transmitter. Because each of our retail distributors offers prepaid cards and reload services either as an agent of our Issuing Banks or, where applicable, of NetSpend or another...

  • Page 21
    ... Title IV of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or CARD Act, which imposes requirements relating to disclosures, fees and expiration dates that are generally applicable to gift certificates, store gift cards and general-use prepaid cards. We believe that our...

  • Page 22
    ... the distribution of our GPR cards through corporate employers and new regulations and/or changes to existing regulations could adversely affect our business. We understand that state banking departments, which are charged with regulating the business of money transmission, have traditionally taken...

  • Page 23
    ...of prepaid access to funds that exceed $10,000 (the "Daily Limit") to any person during any given day in order to avoid being considered a "seller" of prepaid access. Persons considered "sellers" of prepaid access are required to maintain an effective anti-money laundering program; report suspicious...

  • Page 24
    ... our participation in the Networks or changes in the Network rules could materially adversely affect our business. We derive substantially all of our revenue from the compensation paid by our Issuing Banks for the program management and processing services that we provide in support of their prepaid...

  • Page 25
    ... to $10. In addition, eligible cardholders may enroll in our Issuing Banks' overdraft protection programs and fund transactions that exceed the available balance in their accounts. We generally provide the funds used as part of this overdraft program (MetaBank will advance the first $1.0 million on...

  • Page 26
    ... features such as direct deposit loading onto reloadable prepaid debit cards have increased the attractiveness of such cards and increased their utility to underbanked consumers. Because direct deposit active cardholders on average initiate more debit transactions and generate more revenues for us...

  • Page 27
    ... remove our management. These provisions include limitations on the removal of directors; the ability of our board of directors, without stockholder approval, to issue preferred stock with terms determined by our board of directors and to issue additional shares of our common stock; advance notice...

  • Page 28
    ...% of our voting shares of capital stock. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our board of directors has not approved...

  • Page 29
    ... has been infringing a patent issued to ITS in March of 2011 as a result of providing services that utilize the system described in the patent to transfer funds from NetSpend Reload Packs to NetSpend GPR cards and to transfer funds between NetSpend GPR cards. ITS is seeking a declaration that...

  • Page 30
    ...4,319,844 shares of common stock during 2011 and we have an ongoing program pursuant to which we expect to purchase an additional $17.4 million of shares in 2012. Any future determination to pay cash dividends on our common stock would be subject to the discretion of our board of directors and would...

  • Page 31
    ... transaction, the JLL Funds and their affiliates owned less than 20% of our outstanding voting securities. For the twelve months ended December 31, 2010, we issued and sold 1,000,215 shares of common stock to certain of our employees and consultants upon the exercise of options to purchase common...

  • Page 32
    ... stock during the three months ended December 31, 2011. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Calendar Month Total Number of Shares Purchased Average Price Paid...

  • Page 33
    ...) 2011 2007 Revenues Direct operating costs Other operating expenses Goodwill and intangible asset impairment Settlement (gains) and other losses Operating income (loss) Income (loss) before income taxes Income tax expense Net income (loss) Net income (loss) per common share: Basic Common stock...

  • Page 34
    Table of Contents Other Financial and Operating Data Year Ended December 31, 2010 2009 2008 (in thousands, except percentages) (unaudited) 2011 2007 Adjusted EBITDA(1) Adjusted net income(2) Number of active cards (at period end)(3) Number of active cards with direct deposit (at period end)(3) ...

  • Page 35
    ... by unusual or non-recurring items. (3) Number of active cards represents the total number of our GPR card accounts that have had a PIN or signature-based transaction, a load transaction at a retailer location or an ATM withdrawal within three months of the date of determination. Gross dollar volume...

  • Page 36
    ... with our prior credit facility. (1) The 2008 tax rate was adjusted to remove the impact of the goodwill impairment charge recorded during 2008 in order to establish the rate used to book taxes in the absence of this impairment charge consistent with the pre-tax adjustments used to calculate...

  • Page 37
    ...a program manager for the FDIC-insured depository institutions that issue the card products that we develop, promote and distribute. Our cardholders may use their GPR cards to make purchase transactions at any merchant that participates in the MasterCard, Visa or PULSE networks and to withdraw funds...

  • Page 38
    ... Cards -represents the total number of our GPR cards that have had a PIN or signature-based purchase transaction, a load transaction at a retailer location or an ATM withdrawal within three months of the date of determination. We had approximately 2.1 million active cards as of December 31, 2011...

  • Page 39
    ...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...

  • Page 40
    ...Direct operating costs consist primarily of the commissions we pay to members of our distribution and reload network for their services, ATM processing fees, card supply costs, costs for fraud and other losses related to our card programs, customer verification costs, customer service costs and fees...

  • Page 41
    Table of Contents Consolidated Statements of Operations Data Year Ended December 31, 2010 2009 (in thousands of dollars) 2011 Operating Revenues Operating Expenses Direct operating costs Salaries, benefits and other personnel costs Advertising, marketing and promotion costs Other general and ...

  • Page 42
    ...in fiscal 2010 to $237.6 million in fiscal 2011. This year-over-year increase in service fee revenue was substantially driven by the increase in direct deposit accounts (cardholders with direct deposit generally initiate more transactions and generate more revenues for us than those that do not take...

  • Page 43
    ... because ACE, our largest distribution partner, reached their maximum commission tier more often in 2011 due to increasing volumes. We also saw an increase in ATM processing fees resulting from an increase in the number of ATM transactions by our cardholders. Partially offsetting these increases was...

  • Page 44
    ...dispute with an Issuing Bank. Income Tax Expense The following table presents the breakdown of our effective tax rate among federal, state and other taxes: Year Ended December 31, 2011 2010 U.S. federal income tax State income taxes, net of federal benefit Other Income tax expense 35.0% 2.8 1.8 39...

  • Page 45
    ... to cardholders and increased fees for additional products and services, primarily resulting from a 15.2% increase in the average number of our active cards outstanding and a 6.3% increase in the average service revenue per card, which was largely driven by an increase in our direct deposit customer...

  • Page 46
    ... the effective tax rate. The decrease in the effective rate from 2009 to 2010 was primarily caused by stock compensation deductions related to transactions that occurred in conjunction with the Company's initial public offering and research and development tax credits related to internally developed...

  • Page 47
    ... our cardholders' reserve, a $2.3 million increase in other long-term assets and a $2.1 million increase in accounts receivable, offset by a $2.9 million increase in income tax payable. The $48.8 million of 2011 operating cash flows represents a $3.3 million decrease over 2010 operating cash flows...

  • Page 48
    ...Activities Financing activities used $34.2 million of cash in fiscal 2011, primarily to repurchase outstanding shares of common stock ($32.7 million) and for payments under a capital lease ($3.3 million). These cash outflows were partially offset by $1.5 million of tax benefits associated with stock...

  • Page 49
    ... paid in full in 2011. Off-Balance Sheet Arrangements Our off-balance sheet arrangements are comprised of settlement indemnifications and overdraft guarantees issued in favor of our Issuing Banks. We have no off-balance sheet debt, other than operating leases, purchase orders and other commitments...

  • Page 50
    ... to $10. In addition, eligible cardholders may enroll in our Issuing Banks' overdraft protection programs and fund transactions that exceed the available balance in their accounts. We generally provide the funds used as part of this overdraft program (MetaBank will advance the first $1.0 million on...

  • Page 51
    ... by our Issuing Banks in connection with the programs we manage. Revenue is recognized when there is persuasive evidence of an arrangement, the relevant services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Our cardholders are charged fees in...

  • Page 52
    ...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...

  • Page 53
    ... we estimate will arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to non-delivery of goods or services. We establish these reserves based upon historical loss and recovery rates and cardholder activity for...

  • Page 54
    ... otherwise known as netting, is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet). An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those...

  • Page 55
    ... bear interest based on current market rates. We have not historically used derivative financial instruments to manage this market risk. As of December 31, 2011, we had borrowed $58.5 million under our revolving credit facility. This facility has a maturity date of September 2015. Interest on this...

  • Page 56
    ..., management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2011. The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by KPMG LLP, an independent registered public accounting firm...

  • Page 57
    ... the 2004 Plan will increase annually by a number of shares equal to the lesser of (1) 3% of the total outstanding shares of the Company's capital stock immediately prior to the increase, (2) 3,000,000 or (3) such lesser amount as is determined by our board of directors. The 2004 Plan authorizes the...

  • Page 58
    ... Stock Purchase Plan Information In October 2011, the board of directors of the Company approved an employee stock purchase plan (the "Stock Purchase Plan"). Subject to certain limitations, the Stock Purchase Plan enables eligible employees to utilize after-tax payroll deductions to purchase shares...

  • Page 59
    ... Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial...

  • Page 60

  • Page 61
    ... of Exhibits 10.2 Pledge and Security Agreement, dated as of September 24, 2010, by and among NetSpend Holdings, Inc., NetSpend Corporation, Skylight Acquisition I, Inc., Skylight Financial, Inc., NetSpend Payment Services and SunTrust Bank, as Administrative Agent (filed as Exhibit 10.2 to...

  • Page 62
    ..., dba Meta Payment Systems, and NetSpend Corporation (filed as Exhibit 10.20 to the September 17 S-1 and incorporated by reference herein) 10.21 Card Program Management Agreement, dated as of February 1, 2010, by and between MetaBank, dba Meta Payment Systems, and Skylight Financial, Inc. (filed...

  • Page 63

  • Page 64
    ...) 10.35 Management Employment Agreement, dated as of June 20, 2011, by and between Steven F. Coleman and NetSpend Corporation (filed as Exhibit 10.3 to the June 2011 10-Q and incorporated herein by reference) 10.36 Share Exchange Agreement, dated August 17, 2011, by and among JLL Partners Fund IV...

  • Page 65
    ...materials from the NetSpend Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in...

  • Page 66
    ... in the City of Austin, State of Texas on the 24th day of February, 2012. NETSPEND HOLDINGS, INC. By: /s/ DANIEL R. HENRY Daniel R. Henry Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons in the listed...

  • Page 67
    ...all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NetSpend Holdings Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established...

  • Page 68
    Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders NetSpend Holdings, Inc.: We have audited NetSpend Holdings, Inc.'s (the "Company") internal control over financial reporting as of December 31, 2011, based on criteria established in ...

  • Page 69
    ...Equity Current liabilities Accounts payable Accrued expenses (includes $3,791 and $3,433 of related party expenses as of December 31, 2011 and 2010, respectively) Income tax payable Cardholders' reserve Deferred revenue Long-term debt, current portion Total current liabilities Long-term debt, net of...

  • Page 70
    63

  • Page 71
    ... NetSpend Holdings, Inc. Consolidated Statements of Operations Years Ended December 31, 2011, 2010 and 2009 2011 2010 2009 (in thousands, except per share data) Operating Revenues (includes related party revenues of $5,401 in 2011, $4,611 in 2010 and $2,897 in 2009) Operating Expenses Direct...

  • Page 72
    ... paid Net income Balances at December 31, 2009 Purchase of treasury stock Stock-based compensation Exercise of options for common stock Tax benefit associated with stock options Exercise of warrants for common stock Vesting of restricted stock Common stock issued in public offering, net of issuance...

  • Page 73
    ... common stock - Tax benefit associated with stock options - Vesting of restricted stock - Issuance cost of public offering - Dividend equivalents paid - Comprehensive income: Net income - Unrealized gain on availablefor-sale investment - Total comprehensive income - Balances at December 31, 2011 700...

  • Page 74
    ... Income tax receivable or payable Prepaid card supply Prepaid expenses Other current assets Other long-term assets Accounts payable and accrued expenses Cardholders' reserve Deferred revenue Other liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of...

  • Page 75
    ...cards to customers. The Company's products may be used to purchase goods and services wherever MasterCard and Visa are accepted or to withdraw cash via automatic teller machines ("ATMs"). PRINCIPLES OF CONSOLIDATION -The accompanying consolidated financial statements include the accounts of NetSpend...

  • Page 76
    ... -Accounts receivable primarily represents amounts due from cardholders for service and card activation fees and for interchange revenues related to merchant point of sale transactions. These receivables are generally settled by the issuing and merchant acquiring banks within a few days. Accounts...

  • Page 77
    ... of Contents NetSpend Holdings, Inc. Notes to Consolidated Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The costs of internally developed and purchased software are amortized over their estimated useful lives of...

  • Page 78
    ... it estimates will arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to non-delivery of goods or services. These reserves are established based upon historical loss and recovery rates and cardholder activity...

  • Page 79
    ... the annual period to which the fees relate. Revenues also include fees charged in connection with program management and processing services the Company provides for privatelabel programs, as well as fees charged to MetaBank based on interest earned on cardholder funds. Under the Company's current...

  • Page 80
    ... transactions occur. Also included in interchange revenue are fees earned from branding agreements with the Networks. DIRECT OPERATING COSTS -Direct operating costs consist of internal and external customer service costs, commissions paid to third-party distributors, ATM processing fees, card...

  • Page 81
    ... Issuing Bank and is operating under the wind-down provisions of its agreement with INB. Interchange revenue, which is recorded net of sponsorship, licensing and processing fees charged by the Networks for the services they provide in processing purchase transactions routed through them, represented...

  • Page 82
    ... Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS New accounting pronouncements or changes in existing accounting pronouncements may have a significant effect on the results of operations, financial condition or net worth of the Company's business...

  • Page 83
    ... the capital stock of NetSpend Corporation through a recapitalization transaction in 2004; the acquisition of Skylight Financial, Inc. ("Skylight") in 2008, a company that is focused on the market for direct deposit payroll accounts; and Procesa International, LLC ("Procesa"), a service provider for...

  • Page 84
    ... the anticipated future benefits and cash flows the tradename is expected to contribute, the Company accounts for the tradename as an indefinite lived intangible asset. As of December 31, 2011, the Skylight tradename continues to have an indefinite life as the Company continues to use the Skylight...

  • Page 85
    ..., the Company purchased 150,000 shares of the common stock of Meta Financial Group ("MFG"), the holding Company of MetaBank, one of the Company's Issuing Banks, for $3.2 million. The investment in MFG is an availablefor-sale security and is included in the Consolidated Balance Sheets as a long-term...

  • Page 86
    ... DEBT The Company's outstanding borrowings as of December 31, 2011 and 2010 consisted of the following: December 31, 2011 2010 (in thousands of dollars) Revolving credit facility Capital lease Total long-term debt Less: Current portion of capital lease Long-term debt, current portion Long-term debt...

  • Page 87
    ...business days prior to the current credit facility's maturity date. The Company pays a participation fee with respect to each issued letter of credit. This fee accrues at the rate of 2.5% per annum on the average daily amount of the letters of credit outstanding. The Company also pays a fronting fee...

  • Page 88
    ...participants would use, such as inherent risk, transfer restriction and risk of nonperformance. The Company's financial instruments include cash, cash equivalents, accounts receivable, long-term investments, accounts payable and borrowings under its revolving credit facility. As of December 31, 2011...

  • Page 89
    ... reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. The Company had no transfers between Level 1, Level 2 or Level 3 assets during the years ended December 31, 2011 or 2010. As of December 31, 2011 and 2010, the Company's long-term...

  • Page 90
    ... were retained as payment of the warrant exercise price and the remaining 594,205 shares were sold in the offering. In addition, certain employees exercised options to purchase 890,594 shares of the Company's common stock, at a weighted average exercise price of $2.96 per share, and sold the 651,085...

  • Page 91
    ... Company's Consolidated Statement of Operations, and a $0.2 million cash purchase of 170,000 shares of treasury stock. In 2010, the Company repurchased 1,500,000 shares of its common stock for $5.7 million. In 2011, the Company's board of directors approved two $25 million share repurchase programs...

  • Page 92
    ... in March 2009. The Company did not declare or pay any dividends during the years ended December 31, 2011 or 2010. Warrants In 2009, the Company issued warrants to purchase 20,000 shares of common stock to one of its distribution partners at an exercise price of $1.50 per share. These warrants were...

  • Page 93
    .... 2009 Expected volatility Expected dividend yield Expected term Risk free rate Weighted average fair value per warrant at issuance date NOTE 13: SHARE BASED PAYMENT Stock Incentive Plans 60% - 5 years 1.7% $ 1.80 In October 2010, the Company adopted a new equity incentive plan, the Amended and...

  • Page 94
    ... Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 13: SHARE BASED PAYMENT (Continued) The 2004 Plan provides for the grant of stock options and other stock-based awards to key employees, directors and consultants, including executive officers. Under the 2004 Plan, the Company...

  • Page 95
    Table of Contents NetSpend Holdings, Inc. Notes to Consolidated Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 13: SHARE BASED PAYMENT (Continued) the Company were accelerated in accordance with their employment agreements. The Company recorded additional compensation ...

  • Page 96
    ... Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 13: SHARE BASED PAYMENT (Continued) The following table presents a summary of stock option activity for the year ended December 31, 2011: Weighted Average Remaining Contractual Term Shares Weighted Average Exercise Price...

  • Page 97
    ... of the applicable award date. Upon completion of the Company's IPO, the vesting of 0.3 million restricted shares accelerated to vest in six months. During the year ended December 31, 2011, the Company issued less than 0.1 million shares of restricted stock to members of the board of directors under...

  • Page 98
    ...2010 and 2009 NOTE 13: SHARE BASED PAYMENT (Continued) Activity related to the Company's restricted stock awards during the year ended December 31, 2011 is as follows: Shares of Unvested Restricted Stock Outstanding Weighted Average Grant Date Fair Value Balance at December 31, 2010 Granted Vested...

  • Page 99
    ... number of common shares issued and outstanding for the period plus amounts representing the dilutive effect of stock options, warrants, restricted stock and the conversion of convertible preferred stock, as applicable. The Company calculates dilutive potential common shares using the treasury stock...

  • Page 100
    ... of Contents NetSpend Holdings, Inc. Notes to Consolidated Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 15: EARNINGS PER SHARE (Continued) The following is a reconciliation of the numerator (net income) and the denominator (weighted average number of common shares) used in...

  • Page 101
    Weighted-average common shares outstanding used in diluted calculation Diluted earnings per common share 91,284 $ 0.36 $ - - $ 92 88,991 0.26 $ - - $ 86,733 0.21 $ 10,205 0.21

  • Page 102
    ... of Contents NetSpend Holdings, Inc. Notes to Consolidated Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 16: INCOME TAXES The components of the provision for income taxes are as follows for the years ended December 31, 2011, 2010 and 2009: Year Ended December 31, 2011 2010...

  • Page 103
    ... tax assets Deferred revenue Accrued expenses Prepaid card supply costs Net operating loss and tax credit carryforwards Total current deferred tax assets Non-current deferred tax assets Accrued expenses Net operating loss and tax credit carryforwards Unrealized loss on long-term investment Stock...

  • Page 104
    ... Financial Statements (Continued) December 31, 2011, 2010 and 2009 NOTE 16: INCOME TAXES (Continued) The exercise of certain Company stock options results in compensation that is includable in the taxable income of the exercising option holder and deductible by the Company for federal and state...

  • Page 105
    ... vendors and the members of the Company's distribution network to provide card issuance services, network transaction services, internet data center services and other consulting services. The Company generally makes payments under these agreements on a monthly basis. The remaining term of these...

  • Page 106
    ...their card accounts by up to $10. In addition, eligible cardholders may enroll in the Issuing Banks' overdraft protection programs and fund transactions that exceed the available balance in their accounts. The Company generally provides the funds used as part of this overdraft program (MetaBank will...

  • Page 107
    ...of December 31, 2011 and December 31, 2010, the Company's reserves for the losses it estimates will arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to nondelivery of goods or services were $3.9 million and...

  • Page 108
    ...the defendants. The settlement transactions resulted in the Company's non-cash acquisition of 400,000 shares of common stock, which is recorded as a litigation settlement gain of $1.2 million in the Company's Consolidated Statement of Operations and a $0.6 million cash payment to Richard Child which...

  • Page 109
    ... will not have a material effect on the Company's financial position, results of operations, cash flows or liquidity. NOTE 18: EMPLOYEE BENEFIT PLANS The Company has established a defined contribution retirement plan under section 401(k) of the Internal Revenue Code (the "401(k) Plan"). This plan...

  • Page 110
    ... assets. In 2011, the board of directors of the Company approved an employee stock purchase plan (the "Stock Purchase Plan"). Subject to certain limitations, the Stock Purchase Plan enables eligible employees to utilize after-tax payroll deductions to purchase shares of Company's common stock at the...

  • Page 111
    ...) The following tables show the Company's unaudited quarterly results of operations for the years ended December 31, 2011 and 2010. Upon completion of the Company's IPO in October 2010, all shares of the Company's class B common stock were transferred to members of Skylight Holdings I, LLC, which...

  • Page 112
    ... shares of the restricted stock issued to members of the board of directors were issued in lieu of cash retainer fees. The options and restricted stock issued to employees vests in four equal installments on the four succeeding anniversaries of the grant date. The restricted stock issued to members...

  • Page 113
    ... to infringe its patent, damages for NetSpend's alleged prior infringing activity and attorneys' fees and costs. The Company is reviewing the invention claimed in the patent in an effort to form a view regarding its applicability to the operation of NetSpend's website and the validity of the...

  • Page 114
    ...the required information is shown in the consolidated financial statements, or notes thereto, included herein. Schedule II NETSPEND HOLDINGS, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands of dollars) Additional Charges Cardholders' Reserve for the Year Ended December 31, Balance at Beginning...

  • Page 115
    ... by reference herein) 10.2 Pledge and Security Agreement, dated as of September 24, 2010, by and among NetSpend Holdings, Inc., NetSpend Corporation, Skylight Acquisition I, Inc., Skylight Financial, Inc., NetSpend Payment Services and SunTrust Bank, as Administrative Agent (filed as Exhibit 10.2 to...

  • Page 116
    ..., dba Meta Payment Systems, and NetSpend Corporation (filed as Exhibit 10.20 to the September 17 S-1 and incorporated by reference herein) 10.21 Card Program Management Agreement, dated as of February 1, 2010, by and between MetaBank, dba Meta Payment Systems, and Skylight Financial, Inc. (filed...

  • Page 117
    ...) 10.35 Management Employment Agreement, dated as of June 20, 2011, by and between Steven F. Coleman and NetSpend Corporation (filed as Exhibit 10.3 to the June 2011 10-Q and incorporated herein by reference) 10.36 Share Exchange Agreement, dated August 17, 2011, by and among JLL Partners Fund IV...

  • Page 118
    ...materials from the NetSpend Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in...

  • Page 119

  • Page 120
    ... where Employees reside or provide services, as such laws, rules, regulations and requirements shall be in effect from time to time. (c) (d) " Issuer " means NetSpend Holdings, Inc., a Delaware corporation. " Board " means the Board of Directors of Issuer. (e) " Business Day " means any day (other...

  • Page 121
    ...in a form other than cash, fringe benefits (including car allowances, tuition assistance and relocation payments), employee discounts, expense reimbursement or allowances, long-term disability payments, workers' compensation payments, welfare benefits, any contributions that the Company or any other...

  • Page 122
    ...., a Delaware corporation, Skylight Financial, Inc., a Delaware corporation, and NetSpend Payment Services, Inc., a Delaware corporation. The Committee may designate additional subsidiaries (whether now existing or hereafter created or acquired) as employers that are eligible to participate in the...

  • Page 123
    ... of stock is held by Issuer or any corporate subsidiary of Issuer, whether or not such corporation now exists or is hereafter organized or acquired by Issuer or another such subsidiary of Issuer; (ii) an unincorporated business entity, domestic or foreign, such as a limited liability company or...

  • Page 124
    ...least five Business Days before the Commencement Date of the first Contribution Period to be affected by the change; provided, however, however, that no Contribution Period shall exceed 12 months. 5. Participation . (a) Enrollment Process . An eligible Employee may become a Participant by following...

  • Page 125
    ... additional payments into his or her Account. A Participant's Account balance shall remain the property of the Participant at all times, subject to the limitations of Sections 16 and 17, but the funds deducted from his or her paychecks may be commingled with the general funds of the Company, except...

  • Page 126
    ... of the ESPP Broker and Applicable Law. The Participant may dispose of the Shares in his or her ESPP Broker account at any time after the Required Holding Period, whether by sale, exchange, gift or other transfer of title, in which case applicable transaction fees will be charged. After the Required...

  • Page 127
    ... United States tax authorities. The Company or any other Subsidiary employing each Participant shall annually notify the Participant, as part of its periodic reporting obligations under Applicable Laws, of the amount of such withholding applicable to dividends on the Participant's Shares in...

  • Page 128
    ... a time when such maximum number of Shares has not been reached, the Shares not purchased under such Option shall again become available for offering and issuance under the Plan. (b) Application of Limit . If the Plan Administrator determines that, on a given Purchase Date, the number of Shares with...

  • Page 129
    ... progress will terminate. The New Purchase Date shall be on or before the date of consummation of such transaction or liquidation, and the Plan Administrator shall notify each Participant in writing, at least 10 Business Days before the New Purchase Date, that the Purchase Date for his or her Option...

  • Page 130
    ... (at times directed by the Plan Administrator) to participating 18. Employees by the Company and/or the ESPP Broker. For each Contribution Period, those statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased, the remaining Account balance...

  • Page 131
    ...are not limited to the right to participate, procedures for elections to participate, the payment of any interest with respect to amounts received from or credited to Accounts held for the benefit of such employees who elect to participate, the purchase price of any Shares to be acquired, the length...

  • Page 132
    ...are not limited to the right to participate, procedures for elections to participate, the payment of any interest with respect to amounts received from or credited to Accounts held for the benefit of such employees who elect to participate, the purchase price of any Shares to be acquired, the length...

  • Page 133
    ... deemed to constitute income to them under any Applicable Law arising out of their participation in the Plan, the purchase Shares pursuant to the Plan and their subsequent sale or other transfer as well as the distribution of Shares or cash to the Participant in accordance with the Plan. By electing...

  • Page 134
    Exhibit 10.39 NETSPEND HOLDINGS, INC. DEFERRED COMPENSATION PLAN

  • Page 135
    ... and Participation ARTICLE IV. Deferrals ARTICLE V. Company Contributions ARTICLE VI. Benefits ARTICLE VII. Modifications to Payment Schedules ARTICLE VIII. Valuation of Account Balances; Investments ARTICLE IX. Administration ARTICLE X. Amendment and Termination ARTICLE XI. Informal Funding ARTICLE...

  • Page 136
    ... Account as of the most recent Valuation Date. Adopting Employer. Adopting Employer means an Affiliate who, with the consent of the Company, has adopted the Plan for the benefit of its eligible employees. Absent further action by the Company, each of NetSpend Corporation, NetSpend Payment Services...

  • Page 137
    ... the total voting power of the stock of the Participating Employer, taking into account all such stock acquired during the 12-month period ending on the date of the most recent acquisition, or (ii) a majority of the members of the Participating Employer's Board of Directors is replaced during any 12...

  • Page 138
    ... shall have and exercise the powers of the Committee. Company. Company means NetSpend Holdings, Inc., a Delaware corporation. Company Contribution. Company Contribution means a credit by a Participating Employer to a Participant's Account(s) in accordance with the provisions of Article V of the...

  • Page 139
    ... by the Committee as necessary so that it does not exceed 100% of the cash Compensation of the Participant remaining after deduction of all required income and employment taxes, 401(k) and other employee benefit deductions, and other deductions required by law. Changes to payroll withholdings that...

  • Page 140
    ... Eligible Employee. A Participant's continued participation in the Plan shall be governed by Section 3.2 of the Plan. Participating Employer. Participating Employer means the Company and each Adopting Employer. Payment Schedule. Payment Schedule means the date as of which payment of an Account under...

  • Page 141
    ...Benefit means the benefit payable to a Participant under the Plan in accordance with Section 6.1(b). Specified Employee. Specified Employee means an Employee who, as of the date of his or her Separation from Service, is a "key employee" of the Company or any Affiliate, any stock of which is actively...

  • Page 142
    ... Separation from Service. Unless the Participant has established a Specified Date Account, all Deferrals and Company Contributions shall be allocated to a Termination Account on behalf of the Participant. Termination Benefit. Termination Benefit means the benefit payable to a Participant under the...

  • Page 143
    ... may be limited by the Committee. Valuation Date. Valuation Date means each Business Day. 2.43 ARTICLE III. Eligibility and Participation 3.1 3.2 Eligibility and Participation. An Eligible Employee becomes a Participant upon the earlier to occur of: (i) a credit of Company Contributions under...

  • Page 144
    ... it would be considered timely under another rule described in this Section. Company Awards. Participating Employers may unilaterally provide for deferrals of Company awards prior to the date of such awards. Deferrals of Company awards (such as sign-on, retention, or severance pay) may be negotiated...

  • Page 145
    Section 4.2. A Participant whose Compensation Deferral Agreement is cancelled in 10

  • Page 146
    ... 15 th day of the third month following the date the Participant incurs the disability (as defined in this paragraph). 4.4 4.5 4.6 ARTICLE V. Company Contributions 5.1 Discretionary Company Contributions. The Participating Employer may, from time to time in its sole and absolute discretion, credit...

  • Page 147
    ... end of the month designated by the Participant at the time the Account was established. Payment of the Specified Date Benefit will be made or begin in the calendar month following the designated month. Death Benefit. In the event of the Participant's death while an Employee, his or her designated...

  • Page 148
    ...of a form of payment by a Participant, each Specified Date Account maintained on behalf of a Participant, to the extent unpaid as of the date of a Participant's Separation From Service, shall be paid in accordance with the form of payment applicable to the Participant's Termination Benefit if either...

  • Page 149
    ... Small Account Balances. The Committee shall pay the value of the Participant's Accounts upon a Separation from Service in a single lump sum if the balance of such Accounts is not greater than the applicable dollar amount under Code Section 402(g) (1)(B), provided the payment represents the complete...

  • Page 150
    ... of Account Balances; Investments 8.1 Valuation. Deferrals shall be credited to appropriate Accounts on the date such Compensation would have been paid to the Participant absent the Compensation Deferral Agreement. Company Contributions shall be credited to the Termination Account at the times...

  • Page 151
    ... investment allocations received after a time specified by the Committee, the next Business Day. A Participant may change an investment allocation on any Business Day, both with respect to future credits to the Plan and with respect to existing Account Balances, in accordance with procedures adopted...

  • Page 152
    ... for benefits shall be filed with the Committee and resolved in accordance with the claims procedures in Article XII. Withholding. The Participating Employers shall have the right to withhold from any payment due under the Plan (or with respect to any amounts credited to the Plan) any taxes required...

  • Page 153
    ...the Plan and pay Participants and Beneficiaries their Account Balances in a single lump sum at any time, to the extent and in accordance with Treas. Reg. Section 1.409A-3(j)(4)(ix). If a Participating Employer terminates its participation in the Plan, the benefits of affected Employees shall be paid...

  • Page 154
    ... any Employee, spouse, or Beneficiary. Obligations of Each Participating Employer . Each Participating Employer shall be obligated to make payments under the Plan with respect to the portion of a Participant's Account attributable to Deferrals and Company Contributions credited while the Participant...

  • Page 155
    .... Appeal of a denied benefits claim must be filed in writing with the Appeals Committee no later than 60 days after receipt of the written notification of such claim denial. The Appeals Committee shall make its decision regarding the merits of the denied claim within 60 days following receipt of the...

  • Page 156
    ... will indicate the special circumstances requiring the extension of time and the date by which the Appeals Committee expects to render the determination on review. The review will take into account comments, documents, records and other information submitted by the Claimant relating to the claim...

  • Page 157
    ... days of the conclusion of the arbitration hearing, the arbitrator shall issue an award, accompanied by a written decision explaining the basis for the arbitrator's award. (iii) In any arbitration hereunder, the Participating Employer shall pay all administrative fees of the arbitration and all fees...

  • Page 158
    ... in any subsequent action, given great weight by any finder of fact and treated as determinative to the maximum extent permitted by law. Notwithstanding the foregoing, if a Participant and a Participating Employer are parties to a written employment agreement that provides for the arbitration...

  • Page 159
    ... way with the right of the Company or any Participating Employer (subject to the terms of any separate agreement to the contrary), at any time, to terminate such employment or service relationship or to increase or decrease the compensation of the Participant from the rate in existence at any point...

  • Page 160
    ...or to such other address or facsimile number as the Company may from time to time specify by notice to the Participants; if to a Participant or Beneficiary, to such Participant or Beneficiary's last known address. NETSPEND HOLDINGS, INC. C/O NETSPEND CORPORATION ATTN: DIRECTOR OF HUMAN RESOURCES 701...

  • Page 161
    IN WITNESS WHEREOF, the undersigned executed this Plan as of the Effective Date. NetSpend Holdings, Inc. By: CHRISTOPHER T. BROWN (Print Name) (Title) (Signature) 26 day of , 2009, to be effective as of the Its: GENERAL COUNSEL AND SECRETARY /s/ CHRISTOPHER T. BROWN

  • Page 162
    ... three-year period ended December 31, 2011, the related financial statement schedule II, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 Annual Report on Form 10-K of NetSpend Holdings, Inc. /s/ KPMG LLP Austin...

  • Page 163
    QuickLinks Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

  • Page 164
    ...the undersigned directors and officers of NetSpend Holdings, Inc., a Delaware corporation (the "Company"), hereby ...fact, each with full power to act without the other, to sign the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and any and all amendments to such report...

  • Page 165
    QuickLinks Exhibit 24.1 POWER OF ATTORNEY

  • Page 166
    ...'s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process...

  • Page 167
    QuickLinks Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  • Page 168
    ...Gresham, Chief Financial Officer of NetSpend Holdings, Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of NetSpend Holdings, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make...

  • Page 169
    QuickLinks Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  • Page 170
    ... Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ DANIEL R. HENRY Name: Title: Daniel R. Henry Chief Executive Officer Date: February 24, 2012 A signed...

  • Page 171
    QuickLinks Exhibit 32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  • Page 172
    ... In connection with the Annual Report on Form 10-K of NetSpend Holdings, Inc. (the "Company") for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, George W. Gresham, as Chief Financial Officer of the Company, hereby certify...

  • Page 173
    QuickLinks Exhibit 32.2 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002