Green Dot 2013 Annual Report Download - page 70

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
63
Note 2—Summary of Significant Accounting Policies (continued)
We report our different types of revenues on a gross or net basis based on our assessment of whether we act as
a principal or an agent in the transaction. To the extent we act as a principal in the transaction, we report revenues on
a gross basis. In concluding whether or not we act as a principal or an agent, we evaluate whether we have the
substantial risks and rewards under the terms of the revenue-generating arrangements, whether we are the party
responsible for fulfillment of the services purchased by the cardholders, and other factors. For all of our significant
revenue-generating arrangements, including GPR and gift cards, we record revenues on a gross basis.
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 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,
2013 2012 2011
(In thousands)
Sales commissions $ 161,859 $ 145,462 $ 121,430
Advertising and marketing expenses 10,369 21,765 14,673
Manufacturing and distributing costs 46,142 42,643 32,644
Sales and marketing expenses $ 218,370 $ 209,870 $ 168,747
Included in our manufacturing and distributing costs were shipping and handling costs of $4.0 million, $3.4 million
and $3.4 million for the years ended December 31, 2013, 2012 and 2011. 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.