Green Dot 2012 Annual Report Download - page 73

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
63
Note 2—Summary of Significant Accounting Policies (continued)
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 seven months for our GPR cards and six months for our gift cards. Absent a new card fee,
we expense the related commissions immediately. We expense commissions related to cash transfer products when
the cash transfer transactions are completed. We expense costs for the production of advertising as incurred. The
cost of media advertising is expensed when the advertising first takes place. 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.
Our sales commissions, advertising and marketing expenses and manufacturing and distributing costs were as
follows:
Year Ended December 31,
2012 2011 2010
(In thousands)
Sales commissions $ 145,462 $ 121,430 $ 82,418
Advertising and marketing expenses 21,765 14,673 15,604
Manufacturing and distributing costs 42,643 32,644 24,868
Sales and marketing expenses $ 209,870 $ 168,747 $ 122,890
Included in our manufacturing and distributing costs were shipping and handling costs of $3.4 million, $3.4 million
and $2.7 million for the years ended December 31, 2012, 2011 and 2010. Also included in our manufacturing and
distributing costs were liabilities that we incurred for use tax to various states related to purchases of materials since
we do not charge sales tax 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 Merton 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.
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 basis of assets and liabilities as measured by tax laws and their basis 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.
We recognize and measure income tax benefits based upon a two-step model: 1) a tax position must be more
likely-than-not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is
measured as the largest dollar amount of that position that is more likely-than-not to be sustained upon settlement.
The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to
as an unrecognized tax benefit. We accrue income tax related interest and penalties, if applicable, within income tax
expense.