NetSpend 2011 Annual Report Download - page 81

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)
Cardholder funds and deposits related to the Company's products are held at FDIC insured Issuing Banks for the benefit of the
cardholders. Although the Company currently has agreements with six Issuing Banks, MetaBank holds a large majority of cardholder funds. In
September 2010, the Company amended its agreement with INB and agreed to transition the cards issued by INB to another bank on or prior to
July 2011, at which time INB would cease serving as one of the Company's Issuing Banks. In May 2011, the Company further amended its
agreement with INB to extend this agreement through September 30, 2011. The Company is in the process of transitioning the distributors of
cards issued by INB to another Issuing Bank and is operating under the wind-down provisions of its agreement with INB.
Interchange revenue, which is recorded net of sponsorship, licensing and processing fees charged by the Networks for the services they
provide in processing purchase transactions routed through them, represented approximately 22.4%, 21.6% and 19.2% of the Company's
revenues during the years ended December 31, 2011, 2010 and 2009, respectively. The amounts of these fees were previously fixed by the
Networks in their sole discretion. The enactment of the Dodd Frank Wall Street Reform and Consumer Protection Act in May 2010 and the
issuance of final regulations under this Act in June 2011 has imposed limits on the interchange fees that can be paid in connection with certain
prepaid programs, effective October 2011. The Company programs are largely exempt from these restrictions.
The Company derived more than one-third of its revenues during each of the years ended December 31, 2011, 2010 and 2009 from GPR
cards sold through one of its third-party distributors, ACE Cash Express, Inc. ("ACE"). The Company's current distribution agreement with
ACE is effective through March of 2016.
NOTE 3: IMMATERIAL ERROR CORRECTION
During the quarter ended March 31, 2011, management identified an error related to the accounting for excess tax benefits associated with
the exercise of certain incentive stock options in conjunction with the Company's initial public offering ("IPO") during the three months ended
December 31, 2010. The Company reduced retained earnings and increased additional paid-in capital by approximately $1.0 million to correct
this immaterial error on the Consolidated Balance Sheet as of December 31, 2010 contained in this Annual Report on Form 10-
K. Additionally,
the Company revised its Statements of Operations, Changes in Stockholders' Equity and Cash Flows for the year ended December 31, 2010 and
the Statement of Operations for the three months ended December 31, 2010 contained in this Annual Report on Form 10-K, to reflect this
correction. The adjustments increased previously reported income tax expense and decreased the previously reported net income for 2010 and
for the fourth quarter of 2010 by approximately $1.0 million, which resulted in a $0.01 decrease in both basic and diluted net income per
common share. Additionally, cash provided by operating activities was decreased by $1.0 million and cash provided by financing activities was
increased by $1.0 million to reflect the excess tax benefit associated with these stock options. Management does not consider these adjustments
to be material to the Company's prior period financial statements.
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