Green Dot 2011 Annual Report Download - page 71

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 2—Summary of Significant Accounting Policies (continued)
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Generally, customers have limited rights to a refund of a new card fee or a cash transfer fee. We have elected to
recognize revenues prior to the expiration of the refund period, but reduce revenues by the amount of expected refunds,
which we estimate based on actual historical refunds.
On occasion, we enter into incentive agreements with our retail distributors and offer incentives to customers
designed to increase product acceptance and sales volume. We record incentive payments, including the issuance
of equity instruments, as a reduction of revenues and recognize them over the period the related revenues are
recognized or as services are rendered, as applicable.
Sales and Marketing Expenses
Sales and marketing expenses primarily consist of sales commissions, advertising and marketing expenses, and
the costs of manufacturing and distributing card packages, placards, and promotional materials to our retail distributors’
locations and personalized GPR cards to consumers who have activated their cards.
We pay our retail distributors and brokers commissions based on sales of our prepaid debit cards and cash transfer
products in their stores. We defer and expense commissions related to new cards sales ratably over the average card
lifetime, which is currently nine months for our GPR cards and six months for our gift cards. We expense commissions
related to cash transfer products when the cash transfer transactions are completed. Sales commissions were $121.4
million and $82.4 million for the years ended December 31, 2011 and 2010, respectively, $19.0 million for the five
months ended December 31, 2009, and $50.8 million for the year ended July 31, 2009.
We expense costs for the production of advertising as incurred. The cost of media advertising is expensed when
the advertising first takes place. Advertising and marketing expenses were $14.7 million and $15.6 million for the years
ended December 31, 2011 and 2010, respectively, $1.5 million for the five months ended December 31, 2009, and
$7.0 million for the year ended July 31, 2009.
We record the costs associated with card packages and placards as prepaid expenses, and we record the costs
associated with personalized GPR cards as deferred expenses. We recognize the prepaid cost of card packages and
placards over the related sales period, and we amortize the deferred cost of personalized GPR cards, when activated,
over the average card lifetime, currently nine months. Our manufacturing and distributing costs were $32.6 million and
$24.9 million for the years ended December 31, 2011 and 2010, respectively, $10.8 million for the five months ended
December 31, 2009, and $18.0 million for the year ended July 31, 2009. Included in our manufacturing and distributing
costs were shipping and handling costs of $3.4 million and $2.7 million for the years ended December 31, 2011 and
2010, respectively, $1.2 million for the five months ended December 31, 2009, and $2.3 million for the year ended July
31, 2009. Also included in our manufacturing and distributing costs was a liability that we incurred for use tax to various
states related to purchases of materials since no sales tax is charged to customers when new cards or cash transfer
transactions are purchased.
Employee Stock-Based Compensation
We record employee stock-based compensation expense using the fair value method of accounting. For stock
options and stock purchases under our employee stock purchase plan, or ESPP, we base compensation expense on
fair values estimated at the grant date using the Black-Scholes option-pricing model. For stock awards, including
restricted stock units, we base compensation expense on the fair value of our common stock at the grant date. We
recognize compensation expense for awards with only service conditions that have graded vesting schedules on a
straight-line basis over the vesting period of the award. Vesting is based upon continued service to our company.
For additional information, refer to Note 14 – Stock-Based Compensation.
Income Taxes
Our income tax expense is comprised of current and deferred income tax expense. Current income tax expense
approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from the changes
in deferred tax assets and liabilities during the periods. These gross deferred tax assets and liabilities represent
decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences
between the bases of assets and liabilities as measured by tax laws and their bases as reported in our consolidated
financial statements. We also recognize deferred tax assets for tax attributes such as net operating loss carryforwards
and tax credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts we conclude
are more likely-than-not to be realized in the foreseeable future.