NetSpend 2011 Annual Report Download - page 52

Table of Contents
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 call centers.
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 the use of overdraft features, a variety of bill payment options, custom card
designs and card-to-card transfers of funds initiated through our call centers.
• Other—Cardholders are charged fees in connection with the acquisition and reloading of our GPR cards at retailers and we
receive a portion of these amounts in some cases.
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 (three months for the gift cards we marketed prior to August 2010). Revenue
resulting from annual subscription fees is recognized ratably over the annual period to which the fees relate.
Our revenues also include fees charged in connection with program management and processing services we provide for private-label
programs, as well as fees charged to MetaBank based on interest earned on cardholder funds. Under our current arrangement with MetaBank,
we would only be entitled 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.
Stock
-Based Compensation
We have one stock-based employee compensation plan. We measure stock options at fair value on the date of grant using the Binomial
Lattice model for determining fair value. Compensation expense is recognized on a straight-line basis over the requisite service period, net of
estimated forfeitures. We consider many factors when estimating expected forfeitures, including the award type, the employee class and
historical experience. We present excess tax benefits from the exercise of stock options as financing cash flows.
Goodwill
Goodwill represents the excess of the purchase price of an acquired company over the fair value of the assets acquired and liabilities
assumed. We evaluate goodwill and intangible assets with indefinite lives for impairment annually or at an interim period if events occur or
circumstances indicate it is more likely than not that the carrying value of the associated reporting unit exceeds its fair value. We assign
goodwill to our reporting units for the purpose of impairment testing. In 2011, we adopted
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