NetSpend 2011 Annual Report Download - page 76

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Table 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 cardholder. Some of these compensating balance accounts are included in the Consolidated Balance Sheets as cash and cash equivalents
because there are no legal or contractual restrictions over the deposits in these accounts. As of December 31, 2011 and 2010 these
compensating balances totaled $0.2 million and $0.3 million, respectively.
RESTRICTED CASH —Restricted cash is cash with statutory or contractual restrictions that prevent it from being used in the
Company's operations. Restricted cash is classified in other non-current assets on the Company's Consolidated Balance Sheets.
As of December 31, 2011 and 2010, the Company had restricted cash of $0.5 million and $0.8 million, respectively.
ACCOUNTS RECEIVABLE —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 receivable are recorded net of the allowance for doubtful accounts. The Company
records an allowance when it becomes probable that a receivable will not be collected and receivables are written off against the allowance
when management makes the determination to cease collection efforts.
PREPAID CARD SUPPLY —Prepaid card supply consists of costs incurred primarily for purchasing card stock and embossing,
encoding, packaging and shipping cards. These costs are expensed to direct operating costs within the Consolidated Statements of Operations
when the cards are shipped from the Company's fulfillment warehouses into the distribution channel or to end customers.
UP-FRONT DISTRIBUTOR PAYMENTS —Occasionally, the Company makes up-front contractual payments to third-party
distribution partners. The Company assesses each up-front payment to determine whether it meets the criteria of an asset (having a future
benefit) as defined by U.S. GAAP. If these criteria are met, the Company capitalizes the up-front payment and recognizes the capitalized
amount as expense ratably over the benefit period, which is generally the contract period. If the contract requires the distributor to perform
specific acts (i.e. achieve a sales goal) and no other conditions exist for the distributor to earn or retain the up-
front payment, then the Company
capitalizes the payment and recognizes it as an expense when the performance conditions have been met. Up-front distributor payments are
classified on the Consolidated Balance Sheets as other non-
current assets and recorded as a direct operating cost in the Consolidated Statements
of Operations.
PROPERTY AND EQUIPMENT, NET —Property and equipment are stated at cost and depreciated using the straight-
line method over
their estimated useful lives. Office equipment and furniture and fixtures are depreciated over three to seven years, computer equipment is
depreciated over three to five years, computer software is depreciated over three years and leasehold improvements are amortized over the
shorter of their estimated useful life or the term of the related lease. When assets are sold or retired, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is credited or charged to income. Costs for repairs and maintenance are expensed as incurred.
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