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Table of Contents
NetSpend Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
NOTE 1: ORGANIZATION AND BUSINESS
NATURE OF OPERATIONS —
NetSpend Holdings, Inc. (the "Company") was formed as a Delaware corporation on February 18, 2004
in connection with the recapitalization of one of the Company's current subsidiaries, NetSpend Corporation, which was founded in 1999. The
Company operates in one reportable business segment to provide general purpose reloadable ("GPR") prepaid debit and payroll cards and
alternative financial service solutions to underbanked and other consumers in the United States. The Company's products provide underbanked
consumers with access to FDIC-insured depository accounts with a menu of pricing and features specifically tailored to their needs. The
Company has an extensive distribution and reload network comprised of financial service centers and other retail locations throughout the
United States.
The Company's common stock trades on the NASDAQ stock exchange under the symbol "NTSP."
The Company is a program manager for the FDIC-insured depository institutions that issue the card products that the Company develops,
promotes and distributes. The Company has agreements with, among others, Meta Payment Systems ("MetaBank"), a division of Meta
Financial Group ("MFG"), Inter National Bank ("INB"), U.S. Bank ("USB"), SunTrust Bank ("SunTrust"), Regions Bank ("Regions"), a large
bank headquartered in New England and The Bancorp Bank ("Bancorp" and, collectively with MetaBank, INB, USB, Regions, the other bank
and SunTrust, the "Issuing Banks") whereby the Issuing Banks issue MasterCard International ("MasterCard") or Visa USA, Inc. ("Visa")
branded 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
Holdings, Inc. and its wholly owned subsidiaries, NetSpend Corporation, Skylight Financial, Inc. and NetSpend Payment Services, Inc. All
intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES —The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions about future events. These
estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Among the more
significant assumptions are those that relate to the valuation of goodwill and intangible assets, cardholders' reserve, legal contingencies and
stock-based compensation. These accounting estimates reflect the best judgment of management. Actual results could significantly differ from
management's estimates and judgments.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS —The Company considers cash invested in interest-bearing deposits and short-term investments
with original maturities of three months or less at the date of purchase to be cash equivalents.
The Company has established compensating balances at certain of its Issuing Banks as security for its obligation to reimburse the Issuing
Banks for overdrawn cardholder accounts that are not repaid by
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