NetSpend 2011 Annual Report Download - page 80

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)
rose significantly above current levels. Revenue resulting from these fees is recognized when the Company has fulfilled its obligations under
the underlying service agreements.
The Company earns 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 card associations and network organizations
(collectively, 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.
DIRECT OPERATING COSTS —Direct operating costs consist of internal and external customer service costs, commissions paid to
third-party distributors, ATM processing fees, card supply costs, costs for fraud and other losses related to the Company's card programs,
customer verification costs, customer service costs and fees paid to the 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 primarily consist of
expenses related to non-customer service employee wages, bonuses, equity-based compensation and benefits, including 401(k) matching
expenses and the Company's portion of employee health insurance costs. Salaries, benefits and other personnel costs related to customer service
employees are included in direct operating costs in the Consolidated Statements of Operations.
ADVERTISING COSTS —The Company expenses advertising costs as they are incurred except for direct-response advertising and
television advertising production costs. Direct-response advertising consists of commissions paid to consumer marketers for the new funded
customer accounts generated by them. Direct-response advertising costs are capitalized and amortized over the average life of the new
accounts, which is approximately one year. Television advertising production costs consist of the costs of developing and filming television
ads. Television advertising production costs are capitalized when the production services are received and expensed in the period when the
advertising first takes place.
As of December 31, 2011 and 2010, $0.2 million and $0.1 million, respectively, of capitalized direct response advertising costs and
television advertising production costs were included in current assets on the Consolidated Balance Sheets.
SIGNIFICANT CONCENTRATIONS —Financial instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and accounts receivable. A significant portion of the Company's cash is deposited in cash and
money market funds at large depository institutions and is not eligible for FDIC insurance. The Company has not experienced any losses on its
deposits to date. None of the Company's cash and cash equivalents are held in offshore accounts. Accounts receivable as of December 31, 2011
and 2010 are primarily receivables due from cardholders for service fees and for interchange revenues due from the Networks related to
merchant point of sale transactions.
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