NetSpend 2011 Annual Report Download - page 40

Table of Contents
to receive interest on cardholder funds if market interest rates rose significantly above current levels. Revenue resulting from these fees is
recognized when we have fulfilled our obligations under the underlying service agreements.
We earn revenues from a portion of the interchange fees remitted by merchants when cardholders make purchase transactions using their
prepaid debit cards. Subject to applicable law, interchange fees are fixed by the Networks. Interchange revenues are recognized net of
sponsorship, licensing and processing fees charged by the Networks for services they provide in processing purchase transactions routed
through them. Interchange revenue is recognized during the period that the purchase transactions occur. Also included in interchange revenue
are fees earned from branding agreements with the Networks.
Our quarterly operating revenues fluctuate as a result of certain seasonal factors. The most significant increases in the number of our
active cards and our GDV typically occur in the first three months of each year as a result of consumers acquiring new cards and loading them
with their tax refunds.
Operating Expenses
We classify our operating expenses into the following categories:
Direct Operating Costs —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 paid to our Issuing Banks. These costs are driven by transaction volumes and the number of
active cards.
Salaries, Benefits and Other Personnel Costs —Salaries, benefits and other personnel costs consist of the compensation costs associated
with our employees, including base salaries, benefits, bonus compensation and stock-based compensation. This excludes any personnel costs
associated with customer service personnel. Costs associated with these employees are included in direct operating costs.
Advertising, Marketing and Promotion Costs —Advertising, marketing and promotion costs primarily consist of the costs of our
marketing programs to potential cardholders including direct mailings, internet advertising, promotional events run in conjunction with our
distributors, conferences, trade shows and the creation of marketing collateral and other materials. We plan to advertise our products on
television in 2012.
Other General and Administrative Costs —Other general and administrative costs primarily consist of costs for legal, accounting,
information technology, travel, facility and other corporate expenses.
Depreciation and Amortization —Depreciation and amortization consists of depreciation of our long-lived assets and amortization of
finite-lived intangibles.
Settlements (Gains) and Other Losses —Settlements (gains) and other losses consist of recoveries of excess funds from our Issuing Banks
for fee and chargeback recoveries, legal settlements and other infrequent losses.
Other Income (Expense)
Other income (expense) primarily consists of interest income and interest expense. Interest income represents interest we receive on our
cash and cash equivalents. Interest expense is associated with our long-term debt and capital leases.
Income Tax Expense
Income tax expense primarily consists of corporate income taxes on our profits.
36