Green Dot 2014 Annual Report Download - page 42

and processes transaction authorizations and postings for us, and the banks that issue our accounts, including our
subsidiary bank. These costs generally vary based on the total number of active accounts in our portfolio and gross
dollar volume transacted by those accounts.
Other General and Administrative Expenses — Other general and administrative expenses consist primarily of
professional service fees, telephone and communication costs, depreciation and amortization of our property and
equipment and intangible assets, transaction losses (losses from customer disputed transactions, unrecovered
customer purchase transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and
communication costs primarily from customers contacting us through our toll-free telephone numbers. These costs
vary with the total number of active cards in our portfolio, as do losses from customer disputed transactions, unrecovered
customer purchase transaction overdrafts and fraud. Costs associated with professional services, depreciation and
amortization of our property and equipment and intangible assets, and rent and utilities vary based upon our investment
in infrastructure, business development, risk management and internal controls and are generally not correlated with
our operating revenues or other transaction metrics.
Income Tax Expense
Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting
from the sale of our products and services.
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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of our consolidated
financial statements requires our management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical
experience, current circumstances and various other assumptions that our management believes to be reasonable
under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some
instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual
results could differ significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition, results of
operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to
understanding our historical and future performance, as these policies relate to the more significant areas involving
management’s judgments and estimates.
Revenue Recognition
We recognize revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the
product is sold or the service is performed, and collectibility of the resulting receivable is reasonably assured.
We defer and recognize new card fee revenues on a straight-line basis over the period commensurate with our
service obligation to our customers. We consider the service obligation period to be the average card lifetime. We
determine the average card lifetime for each pool of homogeneous products (e.g., products that exhibit the same
characteristics such as nature of service and terms and conditions) based on company-specific historical data. Currently,
we determine the average card lifetime separately for our GPR cards and gift cards. For our GPR cards, we measure
the card lifetime as the period of time, inclusive of reload activity, between sale (or activation) of a card and the date
of the last positive balance on that card. We analyze GPR cards activated between six and thirty months prior to each
balance sheet date. We use this historical look-back period as a basis for determining our average card lifetime because
it provides sufficient time for meaningful behavioral trends to develop. Currently, our GPR cards have an average card
lifetime of six months. The usage of gift cards is limited to the initial funds loaded to the card. Therefore, we measure
these gift cards’ lifetime as the redemption period over which cardholders perform the substantial majority of their
transactions. Currently, gift cards have an average lifetime of six months. We reassess average card lifetime quarterly.
Average card lifetimes may vary in the future as cardholder behavior changes relative to historical experience because
customers are influenced by changes in the pricing of our services, the availability of substitute products, and other
factors.
We also defer and expense commissions paid to retail distributors related to new card sales ratably over the
average card lifetime, which is currently six months for our GPR cards and six months for gift cards.
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 most of our significant