e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-34819
GREEN DOT CORPORATION
(Exact name of
Registrant as specified in its charter)
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Delaware
(State or other
jurisdiction
of incorporation or organization)
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95-4766827
(IRS Employer
Identification No.)
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605 E. Huntington Drive, Suite 205
Monrovia, California
(Address of principal
executive offices)
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91016
(Zip
Code)
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Registrants telephone number, including area code:
(626) 775-3400
Securities registered pursuant to Section 12(b) of the
Act:
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Class A Common Stock, $0.001 par value
(Title of each
class)
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New York Stock Exchange
(Name of each exchange on
which registered)
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting company o
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(Do not check if a smaller
reporting company.)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2010, the registrants Class A
common stock was not listed on any exchange or
over-the-counter
market. The registrants Class A common stock began
trading on the New York Stock Exchange on July 22, 2010. At
December 31, 2010, the aggregate market value of the
registrants Class A common stock held by
non-affiliates of the registrant (based upon the closing sale
price of such shares on the New York Stock Exchange on
December 31, 2010) was $810,723,703.
There were 17,029,850 shares of registrants
Class A common stock, par value $0.001 per share, and
24,847,799 shares of registrants Class B common
stock, par value $0.001 per share, outstanding as of
January 31, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants proxy statement relating to
the registrants 2011 Annual Meeting of Stockholders, to be
held on or about June 2, 2011, are incorporated by
reference into Part III of this Annual Report on
Form 10-K
where indicated.
GREEN DOT
CORPORATION
TABLE OF
CONTENTS
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements regarding future
events and our future results that are subject to the safe
harbors created under the Securities Act of 1933 (the
Securities Act) and the Securities Exchange Act of
1934 (the Exchange Act). All statements other than
statements of historical facts are statements that could be
deemed to be forward-looking statements. These statements are
based on current expectations, estimates, forecasts and
projections about the industries in which we operate and the
beliefs and assumptions of our management. Words such as
expects, anticipates,
targets, goals, projects,
intends, plans, believes,
seeks, estimates, continues,
endeavors, strives, may and
assumes, variations of such words and similar
expressions are intended to identify forward-looking statements.
In addition, any statements that refer to projections of our
future financial performance, our anticipated growth and trends
in our businesses, and other characterizations of future events
or circumstances are forward-looking statements. Readers are
cautioned that these forward-looking statements are subject to
risks, uncertainties, and assumptions that are difficult to
predict, including those identified below, under
Part I, Item 1A. Risk Factors, and
elsewhere herein. Therefore, actual results may differ
materially and adversely from those expressed in any
forward-looking statements. We undertake no obligation to revise
or update any forward-looking statements for any reason.
In this report, unless otherwise specified or the context
otherwise requires, Green Dot, we,
us, and our refer to Green Dot
Corporation and its consolidated subsidiaries, the term
GPR cards refers to general purpose reloadable
prepaid debit cards, the term prepaid cards refers
to prepaid debit cards and the term our cards refers
to our Green Dot-branded and co-branded GPR cards. In addition,
prepaid financial services refers to GPR cards and
associated reload services, a segment of the prepaid card
industry.
PART I
Overview
Green Dot is a leading prepaid financial services company
providing simple, low-cost and convenient money management
solutions to a broad base of U.S. consumers. We believe
that we are the leading provider of general purpose reloadable,
or GPR, prepaid debit cards in the United States and that our
Green Dot Network is the leading reload network for prepaid
cards in the United States. We sell our cards and offer our
reload services nationwide at approximately 55,000 retail store
locations, which provide consumers convenient access to our
products and services. Our technology platform, Green PlaNET,
provides essential functionality, including
point-of-sale
connectivity and interoperability with Visa, MasterCard and
other payment or funds transfer networks, and compliance and
other capabilities to our Green Dot Network, enabling real-time
transactions in a secure environment. The combination of our
innovative products, broad retail distribution and proprietary
technology creates powerful network effects, which we believe
enhance the value we deliver to our customers, our retail
distributors and other participants in our network.
We were incorporated in Delaware in October 1999 as Next Estate
Communications, Inc. and changed our name to Green Dot
Corporation in October 2005. In May 2001, we sold our first
basic prepaid card with simple loading and spending
functionality. As we have grown and our technological
capabilities have increased, we have broadened our offerings and
their functionality to provide consumers access to products and
services with a more comprehensive set of features. In 2007, we
began managing a co-branded GPR card program for Walmart and
providing reload network services at Walmart stores through our
Green Dot Network, augmenting our then existing major retail
distribution relationships with CVS, Rite Aid and Walgreens.
Since 2007, we have expanded our distribution capacity by
entering into new relationships with distributors, such as
7-Eleven, and developing our online distribution channel. We
completed our initial public offering of Class A common
stock in July 2010.
In February 2010, we entered into a definitive agreement to
acquire Utah-based Bonneville Bancorp, a bank holding company,
and its subsidiary commercial bank, Bonneville Bank, and filed
applications with the appropriate federal and state regulators
seeking approvals for this transaction. Upon consummation of the
acquisition, we will become a bank holding company regulated by
the Federal Reserve Board. Our proposed bank acquisition is
subject to regulatory approval and other customary closing
conditions. The parties intend to consummate the transaction as
soon as practicable following regulatory approval of our
proposed bank acquisition, although there can be no assurance
that we will obtain regulatory approval or that our proposed
bank acquisition will close.
We manage our operations and allocate resources as a single
operating segment. Financial information regarding our
operations, assets and liabilities, including our total
operating revenues and net income for the year ended
December 31, 2010, the five months ended December 31,
2009 and the years ended July 31, 2009 and 2008 and our
total assets as of December 31, 2010 and 2009, is included
in our consolidated financial statements and related notes in
Item 8 Financial Statements and Supplementary
Data.
Our principal executive offices are located at 605 East
Huntington Drive, Suite 205, Monrovia, California 91016,
and our telephone number is
(626) 739-3942.
We maintain a website at www.greendot.com. We make available
free of charge on or through our website via the Investor
Relations section at
http://ir.greendot.com
our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the Securities and Exchange
Commission, or the SEC. References to website addresses in this
report are intended to be inactive textual references only, and
none of the information contained on our website is part of this
report or incorporated in this report by reference.
1
Our Business
Model
Our business model focuses on four major elements: our
consumers; our distribution; our products and services; and our
proprietary technology, which provides functionality for and
connectivity to the Green Dot Network and supports the platform
that brings the other three elements together.
Our
Consumers
We have designed our products and services to appeal primarily
to consumers living in households that earn less than $75,000
annually across the following four consumer segments:
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Never-banked households in which no one has
ever had a bank account;
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Previously-banked households in which at
least one member has previously had a bank account, but no one
has one currently;
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Underbanked households in which at least one
member currently has a bank account, but that also use non-bank
financial service providers to conduct routine transactions like
check cashing or bill payment; and
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Fully-banked households that primarily rely
on traditional financial services.
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Based on data from the FDIC, the Federal Reserve Bank, the
U.S. Census and the Center for Financial Services
Innovation and our proprietary data, we believe these four
consumer segments collectively represent an addressable market
of approximately 160 million people in the United States.
Customers in these different segments tend to purchase and use
our products for different reasons and in different ways. For
example, we believe never-banked consumers use our products as a
safe, controlled way to spend cash and as a means to access
channels of trade, such as online purchases, where cash cannot
be used. We believe previously-banked consumers use our products
as a convenient and affordable substitute for a traditional
checking account by depositing payroll checks (via direct or
in-store deposit) on a Green Dot GPR card and using our products
to pay bills, shop online, monitor spending and withdraw cash
from ATM machines.
We believe underbanked consumers use our products in ways
similar to those of the never- and previously-banked segments,
but additionally view our products as a credit card substitute.
For example, underbanked consumers use our products to make
purchases at physical and online merchants, make travel
arrangements and guarantee reservations. We believe fully-banked
consumers use our products as companion products to their bank
checking account, segregating funds into separate accounts for a
variety of uses. For example, fully-banked consumers often use
our cards to shop on the Internet without providing their bank
debit card account information online. These consumers also use
our products to control spending, designate funds for specific
uses, prevent overdrafts in their checking accounts, or load
funds into specific accounts, such as a PayPal account.
Our
Distribution
We achieve broad distribution of our products and services
through our retail distributors, the Internet and relationships
with other businesses. In addition, our distribution is enhanced
by businesses that accept reloads or payments through the Green
Dot Network, which we refer to as our network acceptance
members, because they encourage their customers to use our
prepaid financial services.
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Retail Distributors. Our prepaid financial
services are sold in approximately 55,000 retail store
locations, including those of major national mass merchandisers,
national and regional drug store and convenience store chains,
and national and regional supermarket chains. Our retail
distributors include:
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Type of Distributor
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Representative Distributors
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Mass merchandise retailers
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Walmart, Kmart, Meijer
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Drug store retailers
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Walgreens, CVS, Rite-Aid, Duane Reade
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Convenience store retailers
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7-Eleven, The Pantry (Kangaroo Express), Circle K
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Supermarket retailers
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Kroger
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Other
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RadioShack
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Most of these retailers have been our distributors for several
years and all have contracts with us, subject to termination
rights, which expire at various dates from 2011 to 2015. In
general, our agreements with our retail distributors give us the
right to provide Green Dot-branded
and/or
co-branded GPR cards and reload services in their retail
locations and require us to share with them by way of
commissions the revenues generated by sales of these cards and
reload services. We and the retail distributor generally also
agree to certain marketing arrangements, such as promotions and
advertising. Our operating revenues derived from products and
services sold at the store locations of Walmart and our three
other largest retail distributors, as a group, represented the
following percentages of our total operating revenues:
approximately 63% and 20%, respectively, for the year ended
December 31, 2010, 66% and 23%, respectively, for the five
months ended December 31, 2009, 56% and 27%, respectively,
for the year ended July 31, 2009, and 39% and 41%,
respectively, for the year ended July 31, 2008. In fiscal
2008, operating revenues derived from products and services sold
at the store locations of Walgreens, CVS and Rite Aid
represented 17%, 13% and 11%, respectively, of our total
operating revenues. In addition, such sales at store locations
of Walgreens represented 11% of our total operating revenues in
fiscal 2009.
Our Relationship with Walmart. Walmart is our
largest retail distributor. We have been the exclusive provider
of GPR cards sold at Walmart since Walmart initiated its Walmart
MoneyCard program in 2007. In October 2006, we entered into
agreements with Walmart and GE Money Bank (the card issuing
bank), which set forth the terms and conditions of our
relationship with Walmart. Pursuant to the terms of these
agreements, Green Dot designs and delivers the Walmart MoneyCard
product and provides all ongoing program support, including
network IT, regulatory and legal compliance, website
functionality, customer service and loss management. Walmart
displays and sells the cards and GE Money Bank serves as the
issuer of the cards and holds the associated FDIC-insured
deposits. All Walmart MoneyCard products are reloadable
exclusively on the Green Dot Network.
In May 2010, the term of the agreement among Green Dot, Walmart
and GE Money Bank was extended through May 2015. The parties
also agreed to various other changes to the terms of the
agreement. In particular, the sales commission percentages that
we pay to Walmart for the Walmart MoneyCard program increased
significantly. Walmart has the right to terminate this agreement
prior to its expiration or renewal, but subject to notice
periods of varying lengths, for a number of specified reasons,
including;
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a change by GE Money Bank in its card operating procedures that
Walmart reasonably believes will have a material adverse effect
on Walmarts operations;
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our or GE Money Banks inability or unwillingness to agree
to program-related pricing changes proposed by Walmart;
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our inability or unwillingness to make Walmart MoneyCards
reloadable outside of our reload network in the event that our
reload network does not meet particular size requirements in the
future;
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in the event Walmart reasonably believes that it is reasonably
possible, after the parties have explored and been unable to
agree on any alternatives, that the Federal Reserve Board may
determine that Walmart exercises a controlling influence over
our management or policies;
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in the event of specified changes in control of GE Money Bank or
us that are not otherwise permitted by the agreement; or
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our failure to meet
agreed-upon
service levels.
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In connection with our entry into this commercial agreement, we
issued to Walmart 2,208,552 shares of our Class A
common stock. These shares also are subject to our right to
repurchase them at $0.01 per share upon termination of our
commercial agreement with Walmart and GE Money Bank, other than
a termination arising out of our knowing, intentional and
material breach of the agreement. Our right to repurchase lapses
with respect to 36,810 shares per month over the
60-month
term of the agreement. The repurchase right will expire as to
all shares of Class A common stock that remain subject to
the repurchase right if we experience a prohibited change
of control, as defined in the commercial agreement, if we
experience a change of control, as defined in the
stock issuance agreement, or under certain other limited
circumstances, such as a termination of our commercial agreement
with Walmart and GE Money Bank for the reason described in the
fourth bullet of the preceding paragraph. However, should it
become reasonably possible that such termination right could be
exercised, we would take all steps within our power to address
the concerns of the Federal Reserve Board or its staff to avoid
a termination under our commercial agreement with Walmart and GE
Money Bank. Prior to the earliest to occur of
(i) December 24, 2012, (ii) the termination of
our commercial agreement under certain limited circumstances and
(iii) an event that would cause our repurchase right to
lapse in full prior to May 2015, Walmart is required to pay us
$25.00 per share for each share it sells in excess of
309,839 shares in any consecutive six-month period
following January 18, 2011. We have also granted Walmart
registration rights for all of its shares of our Class A
common stock that are no longer subject to our repurchase right.
Network Acceptance Members. A large number of
institutions accept funds through our reload network, using our
MoneyPak product. We provide reload services to over 100
third-party prepaid card programs, including programs offered by
H&R Block, AccountNow and Rushcard. MasterCards
RePower Reload Network also uses the Green Dot Network to
facilitate cash reloads for its own member programs.
Furthermore, in February 2009, we entered into a five-year
agreement with PayPal that enables PayPal customers to use a
MoneyPak to fund a new or existing PayPal account. As a result
of this agreement, consumers without a bank account or credit
card are able to fund PayPal accounts.
Other Channels. An increasing portion of our
card sales is generated from our online distribution channel and
other non-retail channels. We offer Green Dot-branded cards
through our website, www.greendot.com. We promote this
distribution channel through television and online advertising.
Customers who activate their cards through this channel
typically receive an unfunded card in the mail and then can
reload the card either through a cash reload or a payroll direct
deposit transaction. In October 2009, we entered into a joint
marketing and referral agreement with Intuit. Under this
agreement, Intuit customers can elect to receive their tax
refunds via a co-branded card program. We will manage this
program for Intuit through the 2011 tax season. The initial term
of our agreement with Intuit expires in October 2011, and we do
not currently expect that this agreement will be renewed.
Our Products
and Services
Our principal products and services consist of Green Dot-branded
GPR cards, co-branded GPR cards, and MoneyPak and
point-of-sale,
or POS, swipe reload transactions facilitated by the Green Dot
Network. We also service general purpose gift cards, which have
historically represented only a small percentage of our
operating revenues. GPR cards are designed for general spending
purposes and can be used anywhere their applicable payment
network, such as Visa or MasterCard, is accepted. Unlike gift
cards, GPR cards are reloadable for ongoing, long-term use and
require the completion of various identification, verification
and other USA PATRIOT Act-compliant processes before a
cardholder relationship can be established. The GPR cards we
offer are issued primarily by Columbus Bank and
Trust Company, a division of Synovus Bank, and, in the case
of certain of our co-branded cards discussed below, GE Money
Bank. Card balances are FDIC-insured and have either Visa or
MasterCard zero liability card protection.
4
Card
Products
Green Dot-Branded GPR Cards. Our Green
Dot-branded GPR cards provide consumers with an affordable and
convenient way to manage their money and make payments without
undergoing a credit check or possessing a pre-existing bank
account. In addition to standard prepaid Visa or
MasterCard-branded GPR cards, we also offer GPR cards marketed
for a specific use or market, such as our Online Shopping card,
our Prepaid Student card and our Prepaid NASCAR card.
To purchase a GPR card in a retail store location, consumers
typically select the GPR card from an in-store display and pay
the cashier a one-time purchase fee plus the initial amount they
would like to load onto their card. Consumers then go online or
call a toll-free number to register their personal information
with us so that we can activate their temporary prepaid card and
mail them a personalized GPR card. As explained below, consumers
can then reload their personalized GPR cards using a MoneyPak
or, at enabled retailers, via a
point-of-sale
process, which we refer to as a POS swipe reload transaction.
Funds can also be loaded on the card via direct deposit of a
customers government or payroll check.
Our GPR cards are issued as Visa- or MasterCard-branded cards
and are accepted worldwide by merchants and other businesses
belonging to the applicable payment network, including for bill
payments, online shopping, everyday store purchases and ATM
withdrawals. As of December 31, 2009, Visa and MasterCard
each were accepted at approximately 29 million acceptance
locations worldwide. As of December 31, 2009, our
cardholders could complete ATM transactions at approximately
1.4 million Visa PLUS or 1.0 million MasterCard Cirrus
ATMs worldwide, including over 17,000 MoneyPass fee-free ATMs in
all 50 states and Puerto Rico.
We have instituted a simple fee structure that includes a new
card fee (if the card is purchased from one of our retail
distributors), a monthly maintenance fee (which may be waived
based on usage), a cash reload fee and an ATM withdrawal fee for
non-MoneyPass ATMs. Most of the features and functions of our
cards are provided without surcharges. Our free services include
account management and balance inquiry services via the
Internet, telephone and mobile applications. In addition, via an
online tool, we allow cardholders to manage household and other
bills and to make payments to companies or individuals.
For regulatory compliance, risk management, operational and
other reasons, our GPR cards and reload products have certain
limitations and restrictions, including but not limited to
maximum dollar reload amounts, maximum numbers of reloads in a
given time period (e.g., per day), and limitations of uses of
our temporary cards versus our permanent personalized cards.
Co-Branded GPR Cards. We provide co-branded
GPR cards on behalf of certain retail distributors and other
business entities. Co-branded cards generally bear the
trademarks or logos of the retail distributor or business
entity, and our trademark on the packaging and back of the card.
These cards have the same features and characteristics as our
Green Dot-branded GPR cards, and are accepted at the same
locations. We typically are responsible for managing all aspects
of these programs, including strategy, product design,
marketing, customer service and operations/compliance.
Representative co-branded cards include the Walmart MoneyCard,
the TurboTax Refund Card, the Kmart Prepaid Visa and MasterCard
cards and the Meijer Prepaid MasterCard.
Reload
Services
We generate cash transfer revenues when consumers purchase our
reload services. We offer consumers affordable and convenient
ways to reload any of our GPR cards and to conduct other cash
loading transactions through our reload network, using our
MoneyPak product or through retailers specially-enabled
POS devices. MoneyPak is offered in all of the retail locations
where our GPR cards are sold. MoneyPak is a cash reload product
that we market on a display like our Green Dot-branded GPR
cards. Cash reloads using a MoneyPak involve a two-step process:
consumers pay the cashier the desired amount to be reloaded onto
the MoneyPak, plus a service fee, and then go online or call a
toll-free number to submit the MoneyPak number and add the funds
to a GPR card or other account, such as a PayPal account.
Alternatively, at many retail locations, consumers can add funds
directly to their Green Dot-
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branded and co-branded cards at the point of sale through a POS
swipe reload transaction. Unlike a MoneyPak, these POS swipe
reload transactions involve a single-step process: consumers pay
the cashier the desired amount to be reloaded, plus a service
fee, and funds are reloaded onto the GPR card at the point of
sale without further action required on the part of the consumer.
Our Technology
Platform Green PlaNET
Green PlaNET is our technology platform that enables our network
participants, which include consumers, retail distributors and
businesses that accept reloads or payments through the Green Dot
Network, to communicate with us in a real-time, secure
environment. Green PlaNET is a centralized, client-server based
processing system that gives us the ability to centrally develop
and distribute product applications, manage customer accounts,
authorize, process and settle transactions, ensure security and
regulatory compliance, and provide customer services across a
variety of points of contact and technologies.
Green PlaNET enables Green Dot cardholders to activate and use
their card accounts for a variety of transactions, such as cash
loads and online bill payments. Green PlaNET also provides a
single and secure point of integration for all our network
participants, enabling them to communicate with us and our
customers and facilitating the initiation, authorization and
settlement of transactions.
Green PlaNET has the following components:
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The Green PlaNET front-end processing system communicates with
the host systems of retail distributors and network acceptance
members through a proprietary application programming interface,
or API, and runs a variety of proprietary and third-party
software applications that facilitate the purchase of a card at
a retail location as well as the loading of cash onto a card or
MoneyPak. It enables our reload network to interoperate with
funds transfer networks and engages in real-time transaction
verification so that cards do not exceed applicable limits, thus
ensuring compliance with our anti-money laundering program.
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The Green PlaNET back-end processing system runs a variety of
proprietary and third-party software applications that enable
the activation, daily use and maintenance of our cardholder
accounts. It executes a variety of transaction-enabling
processes and initiates several customer verification modules,
such as internally developed anti-money laundering programs,
Know Your Customer and Office of Foreign Assets
Control requirements, and external data requests from outsourced
vendors, such as Experian and LexisNexis, that together ensure
compliance with all federal requirements for the opening of a
new account. It interfaces with our database to generate account
statements and initiate account notification communications,
such as emails and text messages. It also enables our cards to
interoperate with Visa, MasterCard and other payment or funds
transfer networks, interacts with the systems of other
processors and executes back-end batch processes, such as
transaction fee calculations, charge-back transactions, retailer
invoicing and account write-offs, that facilitate the daily
accounting, reconciliation and settlement of transactions and
account activity. In addition, the Green PlaNET back-end
processing system houses a variety of security applications that
provide customer and card data encryption, fraud monitoring,
information security administration and firewalls that protect
the Green PlaNET infrastructure.
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The Green PlaNET customer-facing systems include a service
processing system and various communication systems. The Green
PlaNET service processing system includes several customer
relationship management software applications that operate a
variety of support services, providing real-time account history
access and pending transaction data, contact information,
personal identification number request and issuance services and
balance inquiry applications. It also enables consumers to
direct cash transfers using our MoneyPak product. In addition,
Green PlaNET provides our consumers, retail distributors and
network acceptance members with the ability to communicate with
us and access accounts using a variety of technologies. These
technologies integrate with our customer care applications and
allow us, among other things, to address customer inquiries and
automatically prompt customer support agents to sell upgrades
and
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make cross-sales. We have also integrated Green PlaNET with our
website, www.greentdot.com, to provide a full range of
interactive services, including online card sales, full
activation and personalization services, electronic funds
transfers, and access to account histories and management
services.
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Sales and
Marketing
The primary objective of our sales and marketing efforts is to
educate consumers on the utility of our products and services in
order to generate demand, and to instruct consumers on where
they may purchase our products and services. We also seek to
educate existing customers on the use of our products and
services to encourage use and retention of our products. We
accomplish these objectives through various types of
consumer-oriented marketing and advertising and by expanding our
group of retail distributors to gain access to additional
customers.
Marketing to
Consumers
We market our products to a broad group of consumers, ranging
from never-banked to fully-banked consumers. We are focusing our
current sales and marketing efforts on acquisition of long-term
users of our products, enhancing our brand and image, building
market awareness of our products, improving cardholder retention
and increasing card usage. To achieve these objectives, we
highlight to consumers the core benefits of our products, which
we believe are affordability, access to funds, utility,
convenience, transparency and security.
Our marketing campaigns involve creating a compelling in-store
presence and conducting television advertising, retailer
promotions such as newspaper inserts and circulars, online
advertisements, and co-op advertising with select retail
distributors. We focus on raising brand awareness while
educating our customers.
We also design, and provide to our retail distributors for use
in their stores, innovative packaging and in-store displays that
we believe generate consumer interest and differentiate our
products from other card products on their racks. Our packaging
and displays help ensure that our products are promoted in a
consistent, visual manner that is designed to invite consumers
to browse and learn about our products, and thus to increase our
sales opportunities.
We employ a number of strategies to improve cardholder retention
and increase card usage. These strategies are based on research
we conduct on an ongoing basis to understand consumer behavior
and improve consumer loyalty and satisfaction. For example, we
use our points of contact with customers (e.g., our website,
email, interactive voice response system, or IVR, and mobile
applications) to educate our customers and promote new card
features. We also provide incentives for behaviors, such as cash
reloading, establishing payroll direct deposit and making
frequent purchases with our cards, that we believe increase
cardholder retention.
Marketing to
Retail Distributors
When marketing to potential new retail distributors, we
highlight the key benefits of our products, including our
national brand, our in-store presence and merchandising
expertise, our cash reload network, the profitability to them of
our products and our commitment to national television and other
advertising. In addition, we communicate the peripheral benefits
of our products, such as their ability to generate additional
foot traffic and sales in their stores.
Marketing to
Our Network Acceptance Members
We market our reload network to a broad range of banks,
third-party processors, program managers and others that have
uses for our reload networks cash transfer technology.
When marketing to potential network acceptance members, we
highlight the key benefits of our cash loading network,
including the breadth of our distribution capabilities, our
leadership position in the industry, the profitability to them
of our
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products, consumer satisfaction and our commitment to national
television and other advertising and marketing support.
Customer
Service
We provide customer service for all GPR card and gift card
programs that we manage and for MoneyPak on a
24-hour per
day, 365-day
per year basis, primarily through third-party service providers
in Guatemala and the Philippines, and also through our staff in
the United States. All card activations, reloads, support and
lost/stolen inquiries are handled online and through various
toll-free numbers at these locations. We also operate our own
call center at our headquarters for handling customer and
corporate escalations. Customer service is provided in both
English and Spanish.
Competition
We operate in highly competitive and developing markets, which
we expect to become increasingly competitive in the future. In
addition to the direct competitors described below, we compete
for access to retail distribution channels and for the attention
of consumers at the retail level.
Prepaid Card
Issuance and Program Management
We compete against the full spectrum of providers of GPR cards.
We compete with traditional providers of financial services,
such as banks that offer demand deposit accounts and card
issuers that offer credit cards, private label retail cards and
gift cards. Many of these institutions are substantially larger
and have greater resources, larger and more diversified customer
bases and greater brand recognition than we do. Many of these
companies can also leverage their extensive customer bases and
adopt aggressive pricing policies to gain market share. Our
primary competitors in the prepaid card issuance and program
management market are traditional credit, debit and prepaid card
account issuers and prepaid card program managers like First
Data, Netspend, AccountNow, PreCash, Rush Card, Western Union
and MoneyGram. Our Green Dot-branded cards also compete with our
co-branded GPR cards, such as the Walmart MoneyCard.
We believe that the principal competitive factors for the
prepaid card issuance and program management market include:
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breadth of distribution;
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brand recognition;
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the ability to reload funds;
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compliance and regulatory capabilities;
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enterprise-class and scalable IT;
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customer support capabilities; and
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pricing.
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We believe our products compete favorably on each of these
factors.
Reload
Networks
While we believe our Green Dot Network is the leading reload
network for prepaid cards in the United States, a growing number
of companies are attempting to establish and grow their own
reload networks. In this market, new companies, or alliances
among existing companies, may be formed that rapidly achieve a
significant market position. Many of these companies are
substantially larger than we are and have greater resources,
larger and more diversified customer bases and greater name
recognition than we do. Our primary competitors in the reload
services market are: Visa, MasterCard, Western Union, MoneyGram,
Blackhawk and Netspend. Visa and MasterCard each have broad
brand recognition and a large base of
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merchant acquiring and card issuing banks. Western Union,
MoneyGram, Blackhawk and Netspend each have a national network
of retail
and/or agent
locations. In addition, we compete for consumers and billers
with financial institutions that provide their retail customers
with billing, payment and funds transfer services. Many of these
institutions are substantially larger and have greater
resources, larger and more diversified customer bases and
greater brand recognition than we do.
We believe that the principal competitive factors for reload
network services include:
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the number and quality of retail locations;
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brand recognition;
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product and service functionality;
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number of cardholders and customers using the service;
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reliability of the service;
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retail price;
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enterprise-class and scalable IT;
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ability to integrate quickly with multiple payment platforms and
distributors;
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customer support capabilities; and
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compliance and regulatory capabilities.
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We believe the Green Dot Network competes favorably on each of
these factors.
Prepaid Card
Distribution
We compete against the full spectrum of prepaid card
distributors and third-party processors that sell competing
prepaid card programs through retail and online channels. Many
of these institutions are substantially larger and have greater
resources, larger and more diversified customer bases and
greater brand recognition than we do. Many of these companies
can also leverage their extensive customer bases and adopt
aggressive pricing policies to gain market share. As new payment
methods are developed, we also expect to experience competition
from new entrants. Our primary competitors in the prepaid card
distribution market are: InComm, Blackhawk, First Data, Netspend
and AccountNow. In addition, we face potential competition from
Western Union, MoneyGram and a number of retail banks if they
enter this market.
We believe that the principal competitive factors for the
prepaid card distribution market include:
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brand recognition with consumers and retailers;
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the ability to reload funds;
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ability to develop and maintain strong relationship with retail
distributors;
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compliance and regulatory capabilities;
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pricing; and
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large customer base.
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We believe our products compete favorably on each of these
factors.
Intellectual
Property
We rely on a combination of trademark and copyright laws and
trade secret protection in the United States, as well as
confidentiality procedures and contractual provisions, to
protect the intellectual property rights related to our products
and services.
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We own several trademarks, including Green Dot, MoneyPak and the
Green Dot logo. These assets are essential to our business.
Through agreements with our network acceptance members, retail
distributors and customers, we authorize and monitor the use of
our trademarks in connection with their activities with us.
We have one patent application under consideration in the United
States related to the retail packaging of our cards.
Regulation
Compliance with legal and regulatory requirements is a highly
complex and integral part of our
day-to-day
operations. Our products and services are generally subject to
federal, state and local laws and regulations, including:
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anti-money laundering laws;
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money transfer and payment instrument licensing regulations;
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escheatment laws;
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privacy and information safeguard laws;
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bank regulations; and
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consumer protection laws.
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These laws are often evolving and sometimes ambiguous or
inconsistent, and the extent to which they apply to us or the
banks that issue our cards, our retail distributors, our network
acceptance members or our third-party processors is at times
unclear. Any failure to comply with applicable law
either by us or by the card issuing banks, retail distributors,
network acceptance members or third-party processors, over which
we have limited legal and practical control could
result in restrictions on our ability to provide our products
and services, as well as the imposition of civil fines and
criminal penalties and the suspension or revocation of a license
or registration required to sell our products and services.
We continually monitor and enhance our compliance program to
stay current with the most recent legal and regulatory changes.
We also continue to implement policies and programs and to adapt
our business practices and strategies to help us comply with
current legal standards, as well as with new and changing legal
requirements affecting particular services or the conduct of our
business generally. These programs include dedicated compliance
personnel and training and monitoring programs, as well as
support and guidance to our retail distributors and network
acceptance members on compliance programs.
Anti-Money
Laundering Laws
Our products and services are generally subject to federal
anti-money laundering laws, including the Bank Secrecy Act, as
amended by the USA PATRIOT Act, and similar state laws. On an
ongoing basis, these laws require us, among other things, to:
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report large cash transactions and suspicious activity;
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screen transactions against the U.S. governments
watch-lists, such as the watch-list maintained by the Office of
Foreign Assets Control;
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prevent the processing of transactions to or from certain
countries, individuals, nationals and entities;
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identify the dollar amounts loaded or transferred at any one
time or over specified periods of time, which requires the
aggregation of information over multiple transactions;
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gather and, in certain circumstances, report customer
information;
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comply with consumer disclosure requirements; and
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register or obtain licenses with state and federal agencies in
the United States and seek registration of our retail
distributors and network acceptance members when necessary.
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Anti-money laundering regulations are constantly evolving. We
continuously monitor our compliance with anti-money laundering
regulations and implement policies and procedures to make our
business practices flexible, so we can comply with the most
current legal requirements. We cannot predict how these future
regulations might affect us. Complying with future regulation
could be expensive or require us to change the way we operate
our business. For example, in June 2010, the Financial Crimes
Enforcement Network, or FinCEN, of the U.S. Department of
Treasury published for comment proposed new rules regarding,
among other things, the applicability of the Bank Secrecy
Acts anti-money laundering provisions to prepaid products
such as ours. If adopted as proposed, the rules would establish
a more comprehensive regulatory framework for access to prepaid
financial services. As currently drafted, the proposed rules
would significantly change the way customer data, including
identification information, is collected for certain prepaid
products (including our cards) by shifting the point of
collection from us to our retail distributors. We believe that,
if the rules are adopted as currently proposed, we and our
retail distributors would need to modify operational elements of
our product offering to comply with the proposed rules. If we or
any of our retail distributors were unwilling or unable to make
any required operational changes to comply with the proposed
rules as adopted, we would no longer be able to sell our cards
through that noncompliant retail distributor, which could have a
material adverse effect on our business, financial position and
results of operations. However, as the proposed rules are
subject to further comment and revision, it is difficult to
determine with any certainty what obligations the final rules
might impose or what impact they might have on our business or
that of our retail distributors.
We are voluntarily registered with FinCEN as a money services
business. As a result of being so registered, we are required to
establish anti-money laundering compliance programs that
include: (i) internal policies and controls;
(ii) designation of a compliance officer;
(iii) ongoing employee training and (iv) an
independent review function. We have developed and deployed
compliance programs comprised of policies, procedures, systems
and internal controls to monitor and address various aspects of
legal requirements and developments. To assist in managing and
monitoring money laundering risks, we continue to enhance our
anti-money laundering compliance program. We offer our services
largely through our retail distributor and network acceptance
member relationships. We have developed an anti-money laundering
training manual and a program to assist in educating our retail
distributors on applicable anti-money laundering laws and
regulations.
Money Transfer
and Payment Instrument Licensing Regulations
We are subject to money transfer and payment instrument
licensing regulations. We have obtained licenses to operate as a
money transmitter in 39 U.S. jurisdictions. The remaining
U.S. jurisdictions either do not currently regulate money
transmitters or have rendered a regulatory determination or a
legal interpretation that the money services laws of that
jurisdiction do not require us to obtain a license in connection
with the conduct of our business. As a licensee, we are subject
to certain restrictions and requirements, including reporting,
net worth and surety bonding requirements and requirements for
regulatory approval of controlling stockholders, agent locations
and consumer forms and disclosures. We are also subject to
inspection by the regulators in the jurisdictions in which we
are licensed, many of which conduct regular examinations.
In addition, we must at all times maintain permissible
investments in an amount equivalent to all
outstanding payment obligations. While, technically,
the outstanding payment obligations represented by the balances
on our card products are liabilities of the issuing bank and not
us, it is possible that some states will require us to maintain
permissible investments in an amount equal to the outstanding
payment obligations of the bank that issues our cards. The types
of securities that are considered permissible
investments vary from state to state, but generally
include cash and cash equivalents, U.S. government
securities and other highly rated debt instruments.
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Escheatment
Laws
Unclaimed property laws of every U.S. jurisdiction require
that we track certain information on our card products and
services and that, if customer funds are unclaimed at the end of
an applicable statutory abandonment period, the proceeds of the
unclaimed property be remitted to the appropriate jurisdiction.
We have agreed with the banks that issue our cards to manage
escheatment law compliance with respect to our card products and
services and have an ongoing program to comply with those laws.
Statutory abandonment periods applicable to our card products
and services typically range from three to seven years.
Privacy and
Information Safeguard Laws
In the ordinary course of our business, we collect certain types
of data, which subjects us to certain privacy and information
security laws in the United States, including, for example, the
Gramm-Leach-Bliley Act of 1999, or the GLB Act, and other laws
or rules designed to regulate consumer information and mitigate
identity theft. We are also subject to privacy laws of various
states. These state and federal laws impose obligations with
respect to the collection, processing, storage, disposal, use
and disclosure of personal information, and require that
financial institutions have in place policies regarding
information privacy and security. In addition, under federal and
certain state financial privacy laws, we must provide notice to
consumers of our policies and practices for sharing nonpublic
information with third parties, provide advance notice of any
changes to our policies and, with limited exceptions, give
consumers the right to prevent use of their nonpublic personal
information and disclosure of it to unaffiliated third parties.
Certain state laws may, in some circumstances, require us to
notify affected individuals of security breaches of computer
databases that contain their personal information. These laws
may also require us to notify state law enforcement, regulators
or consumer reporting agencies in the event of a data breach, as
well as businesses and governmental agencies that own data. In
order to comply with the privacy and information safeguard laws,
we have confidentiality/information security standards and
procedures in place for our business activities and with network
acceptance members and our third-party vendors and service
providers. Privacy and information security laws evolve
regularly, requiring us to adjust our compliance program on an
ongoing basis and presenting compliance challenges.
Bank
Regulations
All of the GPR cards that we provide and the Walmart gift cards
we service are issued by either a federally- or state-chartered
bank. Thus, we are subject to the oversight of the regulators
for, and certain laws applicable to, these card issuing banks.
These banking laws require us, as a servicer to the banks that
issue our cards, among other things, to undertake compliance
actions similar to those described under Anti-Money
Laundering Laws above and to comply with the privacy
regulations promulgated under the GLB Act as discussed under
Privacy and Information Safeguard Laws above.
In addition, in February 2010, we entered into a definitive
agreement to acquire a bank holding company and its subsidiary
commercial bank, and filed applications with the appropriate
federal and state regulators seeking approval for this
transaction. Should we complete our proposed bank acquisition,
we will become a bank holding company as provided in the Bank
Holding Company Act of 1956, or the BHC Act. Bank holding
companies and banks are subject to supervision by the Federal
Reserve Board and are extensively regulated under federal and
state laws. In general, this supervision and regulation will
increase our compliance costs and other expenses, as we and our
proposed subsidiary bank will be required to undergo regular
on-site
examinations and to comply with additional reporting
requirements. In addition, bank holding companies are subject to
certain restrictions on their business and activities, although
we do not believe our current or currently proposed business
will be restricted materially, if at all, by these restrictions.
Activities. Federal laws restrict the types of
activities in which bank holding companies may engage, and
subject them to a range of supervisory requirements, including
regulatory enforcement actions for violations of laws and
policies. Bank holding companies may engage in the business of
banking and
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managing and controlling banks, as well as closely related
activities. The business activities that we currently conduct
are permissible activities for bank holding companies under
U.S. law, and we do not expect the limitations described
above will adversely affect our current operations or materially
prohibit us from engaging in activities that are currently
contemplated by our business strategies. It is possible,
however, that these restrictions might limit our ability to
enter other businesses in which we may wish to engage at some
time in the future. It is also possible that in the future these
laws may be amended in ways, or new laws or regulations may be
adopted, that adversely affect our ability to engage in our
current or additional businesses.
Even if our activities are permissible for a bank holding
company, as discussed under Capital Adequacy and
Prompt Corrective Action below, the Federal Reserve Board
has the authority to order a bank holding company or its
subsidiaries to terminate any activity or to require divestiture
of ownership or control of a subsidiary in the event that it has
reasonable cause to believe that the activity or continued
ownership or control poses a serious risk to the financial
safety, soundness or stability of the bank holding company or
any of its bank subsidiaries.
Dividend Restrictions. Bank holding companies
are subject to various restrictions that may affect their
ability to pay dividends. Federal and state banking regulations
applicable to bank holding companies and banks generally require
that dividends be paid from earnings and, as described under
Capital Adequacy and Prompt Corrective Action
below, require minimum levels of capital, which limits the funds
available for payment of dividends. Other restrictions include
the Federal Reserve Boards general policy that bank
holding companies should pay cash dividends on common stock only
out of net income available to stockholders for the preceding
year or four quarters and only if the prospective rate of
earnings retention is consistent with the organizations
expected future needs and financial condition, including the
needs of each of its bank subsidiaries. In the current financial
and economic environment, the Federal Reserve Board has
indicated that bank holding companies should carefully review
their dividend policies and has discouraged dividend pay-out
ratios that are at the 100% level unless both their asset
quality and capital are very strong. A bank holding company also
should not maintain a dividend level that places undue pressure
on the capital of its bank subsidiaries, or that may undermine
the bank holding companys ability to serve as a source of
strength for its bank subsidiaries. See Source of
Strength below.
In addition, various federal and state statutory provisions and
regulations limit the amount of dividends that banks may pay. We
expect that our new state-chartered bank subsidiary will become
a member of the Federal Reserve System following completion of
our pending bank acquisition. State-chartered banks that are
members of the Federal Reserve System may not pay dividends in
an amount that exceeds the lesser of the amounts calculated
under a recent earnings test and an undivided
profits test. Under the recent earnings test, a bank may
not pay a dividend if the total of all dividends it declares in
any calendar year is in excess of the current years net
income combined with the retained net income of the two
preceding years, unless the bank obtains the approval of its
chartering authority. Under the undivided profits test, a bank
may not pay a dividend in excess of its undivided
profits.
Capital Adequacy and Prompt Corrective
Action. Bank holding companies and banks are
subject to various federal requirements relating to capital
adequacy. These include meeting minimum leverage ratio
requirements. As a bank holding company, we will be required to
be well-capitalized, meaning we will need to
maintain a ratio of Tier 1 capital to assets of at least
5%, a ratio of Tier 1 capital to risk-weighted assets of at
least 6% and a ratio of total capital to risk-weighted assets of
at least 10%. Tier 1 capital, or core capital,
generally consists of common stockholders equity,
perpetual non-cumulative preferred stock and, up to certain
limits, other capital elements. Tier 2 capital consists of
supplemental capital items such as the allowance for loan and
lease losses, certain types of preferred stock, hybrid capital
securities and certain types of debt, all subject to certain
limits. Total capital is the sum of Tier 1 capital plus
Tier 2 capital. When measuring compliance with certain of
these capital requirements, bank regulators adjust the asset
values in accordance with their perceived risk. We believe that
we and our proposed subsidiary bank will be well
capitalized under these standards and we will be able to
maintain these ratios in future periods. It is possible,
however, that regulators may require us or our proposed
subsidiary bank to maintain
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higher levels of capital in the future, and there can be no
assurance that we will be able to maintain the required ratios
in future periods.
Under the regulatory framework that Congress has established and
bank regulators have implemented, banks are either
well-capitalized, adequately
capitalized, undercapitalized,
significantly undercapitalized or critically
undercapitalized. Banks are generally subject to greater
restrictions and supervision than bank holding companies, and
these restrictions increase as the financial condition of the
bank worsens. For instance, a bank that is not well-capitalized
may not accept, renew or roll over brokered deposits without the
consent of the FDIC. If our proposed subsidiary bank were to
become less than adequately capitalized, the bank would need to
submit to bank regulators a capital restoration plan that was
guaranteed by us, as its bank holding company. The bank would
also likely become subject to broad restrictions on activities,
including establishing new branches, entering into new lines of
business or conducting activities that have the effect of
limiting asset growth or preventing acquisitions. A bank that is
undercapitalized would also be prohibited from making capital
distributions, including dividends, and from paying management
fees to its bank holding company if the institution would be
undercapitalized after any such distribution or payment. A
significantly undercapitalized institution would be subject to
mandatory capital raising activities, restrictions on interest
rates paid and transactions with affiliates, removal of
management and other restrictions. The FDIC has only very
limited discretion in dealing with a critically undercapitalized
institution and is virtually required to appoint a receiver or
conservator.
Source of Strength. Under Federal Reserve
Board policy, bank holding companies are expected to act as a
source of strength to their bank subsidiaries and to commit
capital and financial resources to support them. This support
may theoretically be required by the Federal Reserve Board at
times when the bank holding company might otherwise determine
not to provide it. As noted above, if a bank becomes less than
adequately capitalized, it would need to submit an acceptable
capital restoration plan that, in order to be acceptable, would
need to be guaranteed by the parent holding company. In the
event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank
regulator to maintain the capital of a subsidiary bank would be
assumed by the bankruptcy trustee and entitled to a priority of
payment.
Acquisitions of Bank Holding Companies. Under
the BHC Act and the Change in Bank Control Act, and their
implementing regulations, Federal Reserve Board approval is
necessary prior to any person or company acquiring control of a
bank or bank holding company, subject to certain exceptions.
Control is conclusively presumed to exist if an individual or
company acquires 25% or more of any class of voting securities,
and may be presumed to exist if a person acquires 10% or more of
any class of voting securities. These restrictions could affect
the willingness or ability of a third party to acquire control
of us following completion of our proposed bank acquisition and
for so long as we are a bank holding company.
Deposit Insurance and Deposit Insurance
Assessments. Deposits accepted by banks, such as
our prospective bank subsidiary, have the benefit of FDIC
insurance up to the applicable limits. The FDICs Deposit
Insurance Fund is funded by assessments on insured depository
institutions, the level of which depends on the risk category of
an institution and the amount of insured deposits that it holds.
These rates currently range from 7 to 77.5 basis points on
deposits. The FDIC may increase or decrease the assessment rate
schedule semi-annually, and has in the past required and may in
the future require banks to prepay their estimated assessments
for future periods. The Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Dodd-Frank Act, changes the
method of calculating deposit assessments, requiring the FDIC to
assess premiums on the basis of assets less tangible
stockholders equity. The FDIC has indicated that this
change will likely result in a lower assessment rate because of
the larger assessment base. Because of the current stress on the
FDICs Deposit Insurance Fund resulting from the banking
crisis, those fees have increased and are likely to stay at a
relatively high level.
Community Reinvestment Act. The Community
Reinvestment Act of 1977, or CRA, and the regulations
promulgated by the FDIC to implement the CRA are intended to
ensure that banks meet the credit needs of their respective
service areas, including low and moderate income communities and
individuals, consistent with safe and sound banking practices.
The CRA regulations also require the banking
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regulatory authorities to evaluate a banks record in
meeting the needs of its service area when considering
applications to establish new offices or consummate any merger
or acquisition transaction. The federal banking agencies are
required to rate each insured institutions performance
under the CRA and to make that information publicly available.
Our proposed subsidiary bank intends to comply with the CRA
through investments and other activities that it believes will
benefit the needs of low and moderate income communities. If
banking regulatory authorities do not approve the banks
compliance plan, the bank could be required to engage in lending
and other community outreach activities in the community in
which it is located.
Restrictions on Transactions with Affiliates and
Insiders. Transactions between a bank and its
nonbanking affiliates are regulated by the Federal Reserve
Board. These regulations limit the types and amount of these
transactions, require certain levels of collateral for loans to
affiliated parties and generally require those transactions to
be on an arms-length basis. As a bank holding company, our
transactions with our proposed subsidiary bank could be limited
by these regulations, although we do not anticipate that these
restrictions will adversely affect our ability to conduct our
current operations or materially prohibit us from engaging in
activities that are currently contemplated by our business
strategies.
Other. The policies of regulatory authorities,
including the monetary policy of the Federal Reserve Board, have
a significant effect on the operating results of bank holding
companies and their subsidiaries. Moreover, additional changes
to banking laws and regulations are possible in the near future.
The Dodd-Frank Act made numerous changes to the regulatory
framework governing banking organizations, and many of the
provisions must be implemented by regulation. These regulations
could likewise substantially affect our business and operations.
In addition, the U.S. Congress is considering various
proposals relating to the activities and supervision of banks
and bank holding companies, some of which could materially
affect our operations and those of the bank we are seeking to
acquire. Although there can be no assurance regarding the
ultimate impact that adoption of these proposals will have on
us, if the proposals are enacted, we expect that the benefits we
seek to realize from our pending bank acquisition will be
reduced.
Consumer
Protection Laws
We are subject to state and federal consumer protection laws,
including laws prohibiting unfair and deceptive practices,
regulating electronic fund transfers and protecting consumer
nonpublic information. We believe that we have appropriate
procedures in place for compliance with these consumer
protection laws, but many issues regarding our service have not
yet been addressed by the federal and state agencies charged
with interpreting the applicable laws.
Although not expressly required to do so under the Electronic
Fund Transfer Act and Regulation E of the Federal
Reserve Board, we disclose, consistent with banking industry
practice, the terms of our electronic fund transfer services to
consumers prior to their use of the service, provide
21 days advance notice of material changes, establish
specific error resolution procedures and timetables, and limit
customer liability for transactions that are not authorized by
the consumer.
Card
Associations
In order to provide our products and services, we, as well as
the banks that issue our cards, must register with Visa and
MasterCard and, as a result, are subject to card association
rules that could subject us to a variety of fines or penalties
that may be levied by the card association or network for
certain acts or omissions. The banks that issue our cards are
specifically registered as members of the Visa
and/or
MasterCard card associations. Visa and MasterCard set the
standards with which we and the card issuing banks must comply.
Employees
As of December 31, 2010, we had 352 employees,
including 307 in general and administrative, 37 in sales and
marketing and 8 in research and product development. None of our
employees is represented by a labor union or is covered by a
collective bargaining agreement. We have never experienced any
15
employment-related work stoppages and consider relations with
our employees to be good. As of December 31, 2010, we also
had arrangements with third-party call center providers in
Guatemala and the Philippines that provided us with
approximately 1,076 contractors for customer service and similar
functions.
Risks Related to
Our Business
Our growth
rates may decline in the future.
In recent quarters, our operating income and net income have
fluctuated and the rate of growth of our operating revenues
generally has declined on a sequential basis, and in the second
and third quarter of 2010, sequential growth was negative.
Accordingly, there can be no assurance that we will be able to
continue our historical growth rates in future periods, and we
would expect seasonal or other influences and fluctuations in
stock-based retailer incentive compensation caused by variations
in our stock price to cause sequential quarterly fluctuations
and periodic declines in our operating revenues, operating
income and net income. In particular, our results for the three
months ended March 31, 2010 were favorably affected by
large numbers of taxpayers electing to receive their refunds via
direct deposit on our cards, and our results for the subsequent
three quarters were adversely affected by stock-based retailer
incentive compensation that reduced our total operating
revenues. We expect to experience similar patterns in our
results of operations in 2011, with total operating revenues
being higher during the first half of 2011, as compared to the
second half of the year, as a result of large numbers of
taxpayers electing to receive their refunds via direct deposit
on our cards.
In the near term, our continued growth depends in significant
part on our ability, among other things, to attract new
long-term users of our products, to expand our reload network
and to increase our operating revenues per customer. Since the
value we provide to our network participants relates in large
part to the number of long-term users of, businesses that accept
reloads or payments through, and applications enabled by, the
Green Dot Network, our operating revenues could suffer if we
were unable to increase such users of our GPR cards and to
expand and adapt our reload network to meet consumers
evolving needs. In addition, the negative impact on our
operating revenues caused by any failure to increase the number
of long-term users of our products could be exacerbated by the
loss of other users of our products as we focus our marketing
efforts on attracting new long-term users. We may fail to expand
our reload network for a number of reasons, including our
inability to produce products and services that appeal to
consumers and lead to increased new card sales, our loss of one
or more key retail distributors or our loss of key, or failure
to add, network acceptance members.
We may not be able to increase card usage and cardholder
retention, which have been two important contributors to our
growth. Currently, many of our cardholders use their cards
infrequently or do not reload their cards. We may be unable to
generate increases in card usage or cardholder retention for a
number of reasons, including our inability to maintain our
existing distribution channels, the failure of our cardholder
retention and usage incentives to influence cardholder behavior,
our inability to predict accurately consumer preferences or
industry changes and to modify our products and services on a
timely basis in response thereto, and our inability to produce
new features and services that appeal to cardholders.
As the prepaid financial services industry continues to develop,
our competitors may be able to offer products and services that
are, or that are perceived to be, substantially similar to or
better than ours. This may force us to compete on the basis of
price and to expend significant advertising, marketing and other
resources in order to remain competitive. Even if we are
successful at increasing our operating revenues through our
various initiatives and strategies, we will experience an
inevitable decline in growth rates as our operating revenues
increase to higher levels and we may also experience a decline
in margins. If our operating revenue growth rates slow
materially or decline, our business, operating results and
financial condition would be adversely affected.
16
Operating
revenues derived from sales at Walmart and from our three other
largest retail distributors, as a group, represented 63% and
20%, respectively, of our total operating revenues and 64% and
18%, respectively, of our total operating revenues, excluding
stock-based retailer incentive compensation, during the year
ended December 31, 2010, and the loss of operating revenues
from any of these retail distributors would adversely affect our
business.
Most of our operating revenues are derived from prepaid
financial services sold at our four largest retail distributors.
As a percentage of total operating revenues, operating revenues
derived from products and services sold at the store locations
of Walmart and from products and services sold at the store
locations of our three other largest retail distributors, as a
group, were approximately 63% and 20%, respectively, in the year
ended December 31, 2010. We do not expect calendar 2011
operating revenues derived from products and services sold at
Walmart stores to change significantly as a percentage of our
total operating revenues from the percentage in the year ended
December 31, 2010, and expect that Walmart and our other
three largest retail distributors will continue to have a
significant impact on our operating revenues in future years. It
would be difficult to replace any of our large retail
distributors, particularly Walmart, and the operating revenues
derived from sales of our products and services at their stores.
Accordingly, the loss of Walmart or any of our other three
largest retail distributors would have a material adverse effect
on our business, and might have a positive impact on the
business of one of our competitors if it were able to replace
us. In addition, any publicity associated with the loss of any
of our large retail distributors could harm our reputation,
making it more difficult to attract and retain consumers and
other retail distributors, and could lessen our negotiating
power with our remaining and prospective retail distributors.
Our contracts with these retail distributors have terms that
expire at various dates between 2011 and 2015, but they can in
limited circumstances, such as our material breach or insolvency
or, in the case of Walmart, our failure to meet
agreed-upon
service levels, certain changes in control of GE Money Bank or
us, or our inability or unwillingness to agree to requested
pricing changes, be terminated by these retail distributors on
relatively short notice. See Business Our
Business Model Our Distribution Our
Relationship with Walmart for more information regarding
the termination rights under our contract with Walmart. There
can be no assurance that we will be able to continue our
relationships with our largest retail distributors on the same
or more favorable terms in future periods or that our
relationships will continue beyond the terms of our existing
contracts with them. Our operating revenues and operating
results could suffer if, among other things, any of our retail
distributors renegotiates, terminates or fails to renew, or to
renew on similar or favorable terms, its agreement with us or
otherwise chooses to modify the level of support it provides for
our products.
Our future
success depends upon our retail distributors active and
effective promotion of our products and services, but their
interests and operational decisions might not always align with
our interests.
Most of our operating revenues are derived from our products and
services sold at the stores of our retail distributors. Revenues
from our retail distributors depend on a number of factors
outside our control and may vary from period to period. Because
we compete with many other providers of consumer products for
placement and promotion of products in the stores of our retail
distributors, our success depends on our retail distributors and
their willingness to promote our products and services
successfully. In general, our contracts with these third parties
allow them to exercise significant discretion over the placement
and promotion of our products in their stores, and they could
give higher priority to the products and services of other
companies. Accordingly, losing the support of our retail
distributors might limit or reduce the sales of our cards and
MoneyPak reload product. Our operating revenues may also be
negatively affected by our retail distributors operational
decisions. For example, if a retail distributor fails to train
its cashiers to sell our products and services or implements
changes in its systems that disrupt the integration between its
systems and ours, we could experience a decline in our product
sales. Even if our retail distributors actively and effectively
promote our products and services, there can be no assurance
that their efforts will result in growth of our operating
revenues.
17
Our operating
results may fluctuate in the future, which could cause our stock
price to decline.
Our quarterly and annual results of operations may fluctuate in
the future as a result of a variety of factors, many of which
are outside of our control. If our results of operations fall
below the expectations of investors or any securities analysts
who follow our Class A common stock, the trading price of
our Class A common stock could decline substantially.
Fluctuations in our quarterly or annual results of operations
might result from a number of factors, including, but not
limited to:
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the timing and volume of purchases, use and reloads of our
prepaid cards and related products and services;
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the timing and success of new product or service introductions
by us or our competitors;
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seasonality in the purchase or use of our products and services;
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reductions in the level of interchange rates that can be charged;
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fluctuations in customer retention rates;
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changes in the mix of products and services that we sell;
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changes in the mix of retail distributors through which we sell
our products and services;
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the timing of commencement, renegotiation or termination of
relationships with significant retail distributors and network
acceptance members;
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the timing of commencement of new initiatives that cause us to
expand into new distribution channels, such as payroll, and the
length of time we must invest in those channels before they
generate material operating revenues;
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changes in our or our competitors pricing policies or
sales terms;
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the timing of commencement and termination of major advertising
campaigns;
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the timing of costs related to the development or acquisition of
complementary businesses;
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the timing of costs of any major litigation to which we are a
party;
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the amount and timing of operating costs related to the
maintenance and expansion of our business, operations and
infrastructure;
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our ability to control costs, including third-party service
provider costs;
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volatility in the trading price of our Class A common
stock, which may lead to higher stock-based compensation
expenses or fluctuations in the valuations of vesting equity
that cause variations in our stock-based retailer incentive
compensation; and
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changes in the political or regulatory environment affecting the
banking or electronic payments industries generally or prepaid
financial services specifically.
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The industry
in which we compete is highly competitive, which could adversely
affect our operating revenue growth.
The prepaid financial services industry is highly competitive
and includes a variety of financial and non-financial services
vendors. Our current and potential competitors include:
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prepaid card program managers, such as First Data Corporation
(or First Data), NetSpend Holdings, Inc. (or Netspend),
AccountNow, Inc. (or AccountNow), PreCash Inc. (or PreCash) and
UniRush, LLC (or Rush Card);
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reload network providers, such as Visa, Inc. (or Visa),
MasterCard International Incorporated (or MasterCard), The
Western Union Company (or Western Union) and MoneyGram
International, Inc. (or MoneyGram); and
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prepaid card distributors, such as InComm and Blackhawk Network,
Inc. (or Blackhawk).
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Some of these vendors compete with us in more than one of the
vendor categories described above, while others are primarily
focused in a single category. In addition, competitors in one
category have worked or are working with competitors in other
categories to compete with us. A portion of our cash transfer
revenues is derived from reloads to cards managed by companies
that compete with us as program managers. We also face potential
competition from retail distributors or from other companies,
such as Visa, that may in the future decide to compete, or
compete more aggressively, in the prepaid financial services
industry.
We also compete with businesses outside of the prepaid financial
services industry, including traditional providers of financial
services, such as banks that offer demand deposit accounts and
card issuers that offer credit cards, private label retail cards
and gift cards.
Many existing and potential competitors have longer operating
histories and greater name recognition than we do. In addition,
many of our existing and potential competitors are substantially
larger than we are, may already have or could develop
substantially greater financial and other resources than we
have, may offer, develop or introduce a wider range of programs
and services than we offer or may use more effective advertising
and marketing strategies than we do to achieve broader brand
recognition, customer awareness and retail penetration. We may
also face price competition that results in decreases in the
purchase and use of our products and services. To stay
competitive, we may have to increase the incentives that we
offer to our retail distributors and decrease the prices of our
products and services, which could adversely affect our
operating results.
Our continued growth depends on our ability to compete
effectively against existing and potential competitors that seek
to provide prepaid cards or other electronic payment products
and services. If we fail to compete effectively against any of
the foregoing threats, our revenues, operating results,
prospects for future growth and overall business could be
materially and adversely affected.
We operate in
a highly regulated environment, and failure by us, the banks
that issue our cards or the businesses that participate in our
reload network to comply with applicable laws and regulations
could have an adverse effect on our business, financial position
and results of operations.
We operate in a highly regulated environment, and failure by us,
the banks that issue our cards or the businesses that
participate in our reload network to comply with the laws and
regulations to which we are subject could negatively impact our
business. We are subject to state money transmission licensing
requirements and a wide range of federal and other state laws
and regulations, which are described under
Business Regulation above. In
particular, our products and services are subject to an
increasingly strict set of legal and regulatory requirements
intended to protect consumers and to help detect and prevent
money laundering, terrorist financing and other illicit
activities.
Many of these laws and regulations are evolving, unclear and
inconsistent across various jurisdictions, and ensuring
compliance with them is difficult and costly. For example, with
increasing frequency, federal and state regulators are holding
businesses like ours to higher standards of training, monitoring
and compliance, including monitoring for possible violations of
laws by the businesses that participate in our reload network.
Failure by us or those businesses to comply with the laws and
regulations to which we are subject could result in fines,
penalties or limitations on our ability to conduct our business,
or federal or state actions, any of which could significantly
harm our reputation with consumers and other network
participants, banks that issue our cards and regulators, and
could materially and adversely affect our business, operating
results and financial condition.
19
Changes in
credit card association or other network rules or standards set
by Visa and MasterCard, or changes in card association and debit
network fees or products or interchange rates, could adversely
affect our business, financial position and results of
operations.
We and the banks that issue our cards are subject to Visa and
MasterCard association rules that could subject us to a variety
of fines or penalties that may be levied by the card
associations or networks for acts or omissions by us or
businesses that work with us, including card processors, such as
Total Systems Services, Inc. The termination of the card
association registrations held by us or any of the banks that
issue our cards or any changes in card association or other
debit network rules or standards, including interpretation and
implementation of existing rules or standards, that increase the
cost of doing business or limit our ability to provide our
products and services could have an adverse effect on our
business, operating results and financial condition. In
addition, from time to time, card associations increase the
organization
and/or
processing fees that they charge, which could increase our
operating expenses, reduce our profit margin and adversely
affect our business, operating results and financial condition.
Furthermore, a substantial portion of our operating revenues is
derived from interchange fees. For the year ended
December 31, 2010, interchange revenues represented 29.8%
of our total operating revenues, and we expect interchange
revenues to continue to represent a significant percentage of
our total operating revenues in the near term. The amount of
interchange revenues that we earn is highly dependent on the
interchange rates that Visa and MasterCard set and adjust from
time to time. There is a substantial likelihood that interchange
rates for certain products and certain issuing banks will
decline significantly in the future as a result of the
implementation of the Dodd-Frank Act, which requires the Federal
Reserve Board to implement regulations that will likely
substantially limit interchange fees for many issuers. While the
interchange rates that may be earned by us and the bank we
propose to acquire will be unaffected by this new law, there can
be no assurance that future legislation or regulation will not
impact our interchange revenues substantially. If interchange
rates decline, whether due to actions by Visa or MasterCard or
future legislation or regulation, we would likely need to change
our fee structure to compensate for lost interchange revenues.
To the extent we increase the pricing of our products and
services, we might find it more difficult to acquire consumers
and to maintain or grow card usage and customer retention. We
also might have to discontinue certain products or services. As
a result, our operating revenues, operating results, prospects
for future growth and overall business could be materially and
adversely affected.
Changes in
laws and regulations to which we are subject, or to which we may
become subject, may increase our costs of operation, decrease
our operating revenues and disrupt our business.
Changes in laws and regulations may occur that could increase
our compliance and other costs of doing business, require
significant systems redevelopment, or render our products or
services less profitable or obsolete, any of which could have an
adverse effect on our results of operations. We could face more
stringent anti-money laundering rules and regulations, as well
as more stringent licensing rules and regulations, compliance
with which could be expensive and time consuming.
Changes in laws and regulations governing the way our products
and services are sold could adversely affect our ability to
distribute our products and services and the cost of providing
those products and services. If onerous regulatory requirements
were imposed on the sale of our products and services, the
requirements could lead to a loss of retail distributors, which,
in turn, could materially and adversely impact our operations.
For example, in June 2010, the FinCEN published for comment
proposed new rules regarding, among other things, the
applicability of the Bank Secrecy Acts anti-money
laundering provisions to prepaid products such as ours. If
adopted as proposed, these new rules would establish a more
comprehensive regulatory framework for access to prepaid
financial services. As currently drafted, the proposed rules
would significantly change the way customer data, including
identification information, is collected for certain prepaid
products (including our cards) by shifting the point of
collection from us to our retail distributors. We believe that,
if the rules are adopted as currently proposed, we and our
retail
20
distributors would need to modify operational elements of our
product offering to comply with the proposed rules. If we or any
of our retail distributors were unwilling or unable to make any
required operational changes to comply with the proposed rules
as adopted, we would no longer be able to sell our cards through
that noncompliant retail distributor, which could have a
material adverse effect on our business, financial position and
results of operations. However, as the proposed rules are
subject to further comment and revision, it is difficult to
determine with any certainty what obligations the final rules
might impose or what impact they might have on our business or
that of our retail distributors.
State and federal legislators and regulatory authorities have
become increasingly focused on the banking and consumer
financial services industries, and continue to propose and adopt
new legislation that could result in significant adverse changes
in the regulatory landscape for financial institutions
(including card issuing banks) and other financial services
companies (including us). For example, changes in the way we or
the banks that issue our cards are regulated, such as the
changes under the Dodd-Frank Act, related to the consolidation
of the primary federal regulator for savings banks with the
primary federal regulator for national banks and the
establishment of a federal Bureau of Consumer Financial
Protection with oversight over us and our products and services,
could expose us and the banks that issue our cards to increased
regulatory oversight, more burdensome regulation of our
business, and increased litigation risk, each of which could
increase our costs and decrease our operating revenues.
Additionally, changes to the limitations placed on fees, the
interchange rates that can be charged or the disclosures that
must be provided with respect to our products and services could
increase our costs and decrease our operating revenues.
Our actual
operating results may differ significantly from our
guidance.
From time to time, we may release guidance in our quarterly
results conference calls, or otherwise, regarding our future
performance that represents our managements estimates as
of the date of release. This guidance, which includes
forward-looking statements, is based on projections prepared by
our management. These projections are not prepared with a view
toward compliance with published guidelines of the American
Institute of Certified Public Accountants, and neither our
independent registered public accounting firm nor any other
independent expert or outside party compiles or examines the
projections. Accordingly, no such person expresses any opinion
or any other form of assurance with respect to those projections.
Projections are based upon a number of assumptions and estimates
that, while presented with numerical specificity, are inherently
subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our
control, and are based upon specific assumptions with respect to
future business decisions, some of which will change. We intend
to state possible outcomes as high and low ranges that are
intended to provide a sensitivity analysis as variables are
changed but we can provide no assurances that actual results
will not fall outside of the suggested ranges.
The principal reason that we release guidance is to provide a
basis for our management to discuss our business outlook with
analysts and investors. We do not accept any responsibility for
any projections or reports published by any of these persons.
Guidance is necessarily speculative in nature, and it can be
expected that some or all of the assumptions underlying the
guidance furnished by us will prove to be incorrect or will vary
significantly from actual results. Accordingly, our guidance is
only an estimate of what management believes is realizable as of
the date of release. Actual results will vary from our guidance
and the variations may be material. In light of the foregoing,
investors are urged not to rely upon our guidance in making an
investment decision with respect to our Class A common
stock.
Any failure to implement our operating strategy successfully or
the occurrence of any of the events or circumstances set forth
in this Item 1.A. section could result in our actual
operating results being different from our guidance, and such
differences may be adverse and material.
21
Our proposed
bank acquisition will, if completed, subject our business to
significant new, and potentially changing, regulatory
requirements, which may adversely affect our business, financial
position and results of operations.
If we complete our proposed bank acquisition, we will become a
bank holding company under the BHC Act. As a bank
holding company, we would be required to file periodic reports
with, and would be subject to comprehensive supervision and
examination by, the Federal Reserve Board. Among other things,
we and our proposed subsidiary bank would be subject to
risk-based and leverage capital requirements, which could
adversely affect our results of operations and restrict our
ability to grow. These capital requirements, as well as other
federal laws applicable to banks and bank holding companies,
could also limit our ability to pay dividends. We also would
likely incur additional costs associated with legal and
regulatory compliance as a bank holding company, which could
adversely affect our results of operations. In addition, as a
bank holding company, we would generally be prohibited from
engaging, directly or indirectly, in any activities other than
those permissible for bank holding companies. This restriction
might limit our ability to pursue future business opportunities
we might otherwise consider but which might fall outside the
activities permissible for a bank holding company.
Moreover, substantial changes to banking laws and regulations
are possible in the near future. The Dodd-Frank Act made
numerous changes to the regulatory framework governing banking
organizations, and many of the provisions must be implemented by
regulation. These regulations could likewise substantially
affect our business and operations. There are proposals in the
U.S. Congress that could make additional changes to the
regulatory framework affecting our operations. These changes, if
they are made, could have an adverse effect on our business,
financial position and results of operations.
We rely on
relationships with card issuing banks to conduct our business,
and our results of operations and financial position could be
materially and adversely affected if we fail to maintain these
relationships or we maintain them under new terms that are less
favorable to us.
Substantially all of our cards are issued by GE Money Bank or
Columbus Bank and Trust Company, a division of Synovus
Bank. Our relationships with these banks are currently, and will
be for the foreseeable future, a critical component of our
ability to conduct our business and to maintain our revenue and
expense structure, because we are currently unable to issue our
own cards, and, even if we consummate our pending bank
acquisition, will be unable to do so for the foreseeable future
at the volume necessary to conduct our business, if at all. If
we lose or do not maintain existing banking relationships, we
would incur significant switching and other costs and expenses
and we and users of our products and services could be
significantly affected, creating contingent liabilities for us.
As a result, the failure to maintain adequate banking
relationships could have a material adverse effect on our
business, results of operations and financial condition. Our
agreements with the banks that issue our cards provide for
revenue-sharing arrangements and cost and expense allocations
between the parties. Changes in the revenue-sharing arrangements
or the costs and expenses that we have to bear under these
relationships could have a material impact on our operating
expenses. In addition, we may be unable to maintain adequate
banking relationships or, following their expiration in 2015 and
2012, respectively, renew our agreements with the banks that
currently issue substantially all of our cards under terms at
least as favorable to us as those existing before renewal.
We receive
important services from third-party vendors, including card
processing from Total System Services, Inc. Replacing them would
be difficult and disruptive to our business.
Some services relating to our business, including fraud
management and other customer verification services, transaction
processing and settlement, card production and customer service,
are outsourced to third-party vendors, such as Total System
Services, Inc. for card processing and Genpact International,
Inc. for call center services. It would be difficult to replace
some of our third-party vendors, particularly Total
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System Services, in a timely manner if they were unwilling or
unable to provide us with these services in the future, and our
business and operations could be adversely affected.
Our business
could suffer if there is a decline in the use of prepaid cards
as a payment mechanism or there are adverse developments with
respect to the prepaid financial services industry in
general.
As the prepaid financial services industry evolves, consumers
may find prepaid financial services to be less attractive than
traditional or other financial services. Consumers might not use
prepaid financial services for any number of reasons, including
the general perception of our industry. For example, negative
publicity surrounding other prepaid financial service providers
could impact our business and prospects for growth to the extent
it adversely impacts the perception of prepaid financial
services among consumers. If consumers do not continue or
increase their usage of prepaid cards, our operating revenues
may remain at current levels or decline. Predictions by industry
analysts and others concerning the growth of prepaid financial
services as an electronic payment mechanism may overstate the
growth of an industry, segment or category, and you should not
rely upon them. The projected growth may not occur or may occur
more slowly than estimated. If consumer acceptance of prepaid
financial services does not continue to develop or develops more
slowly than expected or if there is a shift in the mix of
payment forms, such as cash, credit cards, traditional debit
cards and prepaid cards, away from our products and services, it
could have a material adverse effect on our financial position
and results of operations.
Fraudulent and
other illegal activity involving our products and services could
lead to reputational damage to us and reduce the use and
acceptance of our cards and reload network.
Criminals are using increasingly sophisticated methods to engage
in illegal activities involving our cards or cardholder
information, such as counterfeiting, fraudulent payment or
refund schemes and identity theft. We rely upon third parties
for some transaction processing services, which subjects us and
our cardholders to risks related to the vulnerabilities of those
third parties. A single significant incident of fraud, or
increases in the overall level of fraud, involving our cards and
other products and services, could result in reputational damage
to us, which could reduce the use and acceptance of our cards
and other products and services, cause retail distributors or
network acceptance members to cease doing business with us or
lead to greater regulation that would increase our compliance
costs.
A data
security breach could expose us to liability and protracted and
costly litigation, and could adversely affect our reputation and
operating revenues.
We, the banks that issue our cards and our retail distributors,
network acceptance members and third-party processors receive,
transmit and store confidential customer and other information
in connection with the sale and use of our prepaid financial
services. Our encryption software and the other technologies we
use to provide security for storage, processing and transmission
of confidential customer and other information may not be
effective to protect against data security breaches by third
parties. The risk of unauthorized circumvention of our security
measures has been heightened by advances in computer
capabilities and the increasing sophistication of hackers. The
banks that issue our cards and our retail distributors, network
acceptance members and third-party processors also may
experience similar security breaches involving the receipt,
transmission and storage of our confidential customer and other
information. Improper access to our or these third parties
systems or databases could result in the theft, publication,
deletion or modification of confidential customer and other
information.
A data security breach of the systems on which sensitive
cardholder data and account information are stored could lead to
fraudulent activity involving our products and services,
reputational damage and claims or regulatory actions against us.
If we are sued in connection with any data security breach, we
could be involved in protracted and costly litigation. If
unsuccessful in defending that litigation, we might be forced to
pay damages
and/or
change our business practices or pricing structure, any of which
could have a material adverse effect on our operating revenues
and profitability. We would also likely have to pay (or
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indemnify the banks that issue our cards for) fines, penalties
and/or other
assessments imposed by Visa or MasterCard as a result of any
data security breach. Further, a significant data security
breach could lead to additional regulation, which could impose
new and costly compliance obligations. In addition, a data
security breach at one of the banks that issue our cards or at
our retail distributors, network acceptance members or
third-party processors could result in significant reputational
harm to us and cause the use and acceptance of our cards to
decline, either of which could have a significant adverse impact
on our operating revenues and future growth prospects.
Litigation or
investigations could result in significant settlements, fines or
penalties.
We have been the subject of general litigation and regulatory
oversight in the past, and could be the subject of litigation,
including class actions, and regulatory or judicial proceedings
or investigations in the future. The outcome of litigation and
regulatory or judicial proceedings or investigations is
difficult to predict. Plaintiffs or regulatory agencies in these
matters may seek recovery of very large or indeterminate amounts
or seek to have aspects of our business suspended or modified.
The monetary and other impact of these actions may remain
unknown for substantial periods of time. The cost to defend,
settle or otherwise resolve these matters may be significant.
If regulatory or judicial proceedings or investigations were to
be initiated against us by private or governmental entities, our
business, results of operations and financial condition could be
adversely affected. Adverse publicity that may be associated
with regulatory or judicial proceedings or investigations could
negatively impact our relationships with retail distributors,
network acceptance members and card processors and decrease
acceptance and use of, and loyalty to, our products and related
services.
We must
adequately protect our brand and the intellectual property
rights related to our products and services and avoid infringing
on the proprietary rights of others.
The Green Dot brand is important to our business, and we utilize
trademark registrations and other means to protect it. Our
business would be harmed if we were unable to protect our brand
against infringement and its value was to decrease as a result.
We rely on a combination of trademark and copyright laws, trade
secret protection and confidentiality and license agreements to
protect the intellectual property rights related to our products
and services. We may unknowingly violate the intellectual
property or other proprietary rights of others and, thus, may be
subject to claims by third parties. If so, we may be required to
devote significant time and resources to defending against these
claims or to protecting and enforcing our own rights. Some of
our intellectual property rights may not be protected by
intellectual property laws, particularly in foreign
jurisdictions. The loss of our intellectual property or the
inability to secure or enforce our intellectual property rights
or to defend successfully against an infringement action could
harm our business, results of operations, financial condition
and prospects.
We are exposed
to losses from cardholder account overdrafts.
Our cardholders can incur charges in excess of the funds
available in their accounts, and we may become liable for these
overdrafts. While we decline authorization attempts for amounts
that exceed the available balance in a cardholders
account, the application of card association rules, the timing
of the settlement of transactions and the assessment of the
cards monthly maintenance fee, among other things, can
result in overdrawn accounts.
Maintenance fee assessment overdrafts accounted for
approximately 95% of aggregate overdrawn account balances in the
year ended December 31, 2010. Maintenance fee assessment
overdrafts occur as a result of our charging a cardholder,
pursuant to the cards terms and conditions, the monthly
maintenance fee at a time when he or she does not have
sufficient funds in his or her account.
Our remaining overdraft exposure arises primarily from
late-posting. A late-post occurs when a merchant posts a
transaction within a card association-permitted timeframe but
subsequent to our release
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of the authorization for that transaction, as permitted by card
association rules. Under card association rules, we may be
liable for the amount of the transaction even if the cardholder
has made additional purchases in the intervening period and
funds are no longer available on the card at the time the
transaction is posted.
Overdrawn account balances are funded on our behalf by the bank
that issued the overdrawn card. We are responsible to this card
issuing bank for any losses associated with these overdrafts.
Overdrawn account balances are therefore deemed to be our
receivables due from cardholders. We maintain reserves to cover
the risk that we may not recover these receivables due from our
cardholders, but our exposure may increase above these reserves
for a variety of reasons, including our failure to predict the
actual recovery rate accurately. To the extent we incur losses
from overdrafts above our reserves or we determine that it is
necessary to increase our reserves substantially, our business,
results of operations and financial condition could be
materially and adversely affected.
We face
settlement risks from our retail distributors, which may
increase during an economic downturn.
The vast majority of our business is conducted through retail
distributors that sell our products and services to consumers at
their store locations. Our retail distributors collect funds
from the consumers who purchase our products and services and
then must remit these funds directly to accounts established for
the benefit of these consumers at the banks that issue our
cards. The remittance of these funds by the retail distributor
takes on average three business days. If a retail distributor
becomes insolvent, files for bankruptcy, commits fraud or
otherwise fails to remit proceeds to the card issuing bank from
the sales of our products and services, we are liable for any
amounts owed to the card issuing bank. As of December 31,
2010, we had assets subject to settlement risk of
$20.0 million. Given the possibility of recurring
volatility in global financial markets, the approaches we use to
assess and monitor the creditworthiness of our retail
distributors may be inadequate, and we may be unable to detect
and take steps to mitigate an increased credit risk in a timely
manner.
Economic downturns could result in settlement losses, whether or
not directly related to our business. We are not insured against
these risks. Significant settlement losses could have a material
adverse effect on our business, results of operations and
financial condition.
Future
acquisitions or investments could disrupt our business and harm
our financial condition.
We are in the process of acquiring a bank holding company and
its subsidiary commercial bank, although we cannot guarantee
when, if ever, this acquisition will be completed. In addition,
we may pursue other acquisitions or investments that we believe
will help us to achieve our strategic objectives. The process of
integrating an acquired business, product or technology can
create unforeseen operating difficulties, expenditures and other
challenges such as:
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increased regulatory and compliance requirements, including, if
we complete our pending bank acquisition, capital requirements
applicable to us and our acquired subsidiary bank;
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implementation or remediation of controls, procedures and
policies at the acquired company;
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diversion of management time and focus from operation of our
then-existing business to acquisition integration challenges;
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coordination of product, sales, marketing and program and
systems management functions;
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transition of the acquired companys users and customers
onto our systems;
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retention and motivation of employees from the acquired company;
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integrating employees from the acquired company into our
organization;
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integration of the acquired companys accounting,
information management, human resource and other administrative
systems and operations generally with ours;
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liability for activities of the acquired company prior to the
acquisition, including violations of law, active litigation,
intellectual property or commercial disputes, and tax and other
known and unknown liabilities; and
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litigation or other claims in connection with the acquired
company, including claims brought by terminated employees,
customers, former stockholders or other third parties.
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If we are unable to address these difficulties and challenges or
other problems encountered in connection with our bank
acquisition or any future acquisition or investment, we might
not realize the anticipated benefits of that acquisition or
investment, we might incur unanticipated liabilities or we might
otherwise suffer harm to our business generally.
To the extent we pay the consideration for any future
acquisitions or investments in cash, it would reduce the amount
of cash available to us for other purposes. Future acquisitions
or investments could also result in dilutive issuances of our
equity securities or the incurrence of debt, contingent
liabilities, amortization expenses, or impairment charges
against goodwill on our balance sheet, any of which could harm
our financial condition and negatively impact our stockholders.
Economic,
political and other conditions may adversely affect trends in
consumer spending.
The electronic payments industry, including the prepaid
financial services segment within that industry, depends heavily
upon the overall level of consumer spending. Sustained
deterioration in general economic conditions in the United
States might reduce the number of our cards that are purchased
or reloaded, the number of transactions involving our cards and
the use of our reload network and related services. If general
economic conditions result in a sustained reduction in the use
of our products and related services, either as a result of a
general reduction in consumer spending or as a result of a
disproportionate reduction in the use of card-based payment
systems, our business, results of operations and financial
condition would be materially harmed.
Our business
is dependent on the efficient and uninterrupted operation of
computer network systems and data centers.
Our ability to provide reliable service to cardholders and other
network participants depends on the efficient and uninterrupted
operation of our computer network systems and data centers as
well as those of our retail distributors, network acceptance
members and third-party processors. Our business involves
movement of large sums of money, processing of large numbers of
transactions and management of the data necessary to do both.
Our success depends upon the efficient and error-free handling
of the money that is collected by our retail distributors and
remitted to network acceptance members or the banks that issue
our cards. We rely on the ability of our employees, systems and
processes and those of the banks that issue our cards, our
retail distributors, our network acceptance members and
third-party processors to process and facilitate these
transactions in an efficient, uninterrupted and error-free
manner.
In the event of a breakdown, a catastrophic event (such as fire,
natural disaster, power loss, telecommunications failure or
physical break-in), a security breach or malicious attack, an
improper operation or any other event impacting our systems or
processes, or those of our vendors, or an improper action by our
employees, agents or third-party vendors, we could suffer
financial loss, loss of customers, regulatory sanctions and
damage to our reputation. The measures we have taken, including
the implementation of disaster recovery plans and redundant
computer systems, may not be successful, and we may experience
other problems unrelated to system failures. We may also
experience software defects, development delays and installation
difficulties, any of which could harm our business and
reputation and expose us to potential liability and increased
operating expenses. Some of our contracts with retail
distributors, including our contract with Walmart, contain
service level standards pertaining to the
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operation of our systems, and provide the retail distributor
with the right to collect damages and potentially to terminate
its contract with us for system downtime exceeding stated
limits. If we face system interruptions or failures, our
business interruption insurance may not be adequate to cover the
losses or damages that we incur.
We must be
able to operate and scale our technology effectively to match
our business growth.
Our ability to continue to provide our products and services to
a growing number of network participants, as well as to enhance
our existing products and services and offer new products and
services, is dependent on our information technology systems. If
we are unable to manage the technology associated with our
business effectively, we could experience increased costs,
reductions in system availability and losses of our network
participants. Any failure of our systems in scalability and
functionality would adversely impact our business, financial
condition and results of operations.
If we are
unable to keep pace with the rapid technological developments in
our industry and the larger electronic payments industry
necessary to continue providing our network acceptance members
and cardholders with new and innovative products and services,
the use of our cards and other products and services could
decline.
The electronic payments industry is subject to rapid and
significant technological changes, including continuing
advancements in the areas of radio frequency and proximity
payment devices (such as contactless cards),
e-commerce
and mobile commerce, among others. We cannot predict the effect
of technological changes on our business. We rely in part on
third parties, including some of our competitors and potential
competitors, for the development of, and access to, new
technologies. We expect that new services and technologies
applicable to our industry will continue to emerge, and these
new services and technologies may be superior to, or render
obsolete, the technologies we currently utilize in our products
and services. Additionally, we may make future investments in,
or enter into strategic alliances to develop, new technologies
and services or to implement infrastructure change to further
our strategic objectives, strengthen our existing businesses and
remain competitive. However, our ability to transition to new
services and technologies that we develop may be inhibited by a
lack of industry-wide standards, by resistance from our retail
distributors, network acceptance members, third-party processors
or consumers to these changes, or by the intellectual property
rights of third parties. Our future success will depend, in
part, on our ability to develop new technologies and adapt to
technological changes and evolving industry standards. These
initiatives are inherently risky, and they may not be successful
or may have an adverse effect on our business, financial
condition and results of operations.
As a newly
public company, we are subject to financial and other reporting
and corporate governance requirements that may be difficult for
us to satisfy, and which have raised and may continue to raise
our costs and which have diverted and may continue to divert
resources and management attention from operating our
business.
We have historically operated as a private company. On
July 27, 2010, we completed an initial public offering. As
a result, we are required to file with the SEC annual and
quarterly information and other reports that are specified in
the Exchange Act and SEC regulations. Thus, we must be certain
that we have the ability to prepare on a timely basis financial
statements that comply with SEC reporting requirements. We are
also subject to other reporting and corporate governance
requirements, including the listing standards of the New York
Stock Exchange, or the NYSE, and the provisions of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the
regulations promulgated thereunder, which impose significant new
compliance obligations upon us. As a public company, we are
required, among other things, to:
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prepare and distribute periodic reports and other stockholder
communications in compliance with our obligations under the
federal securities laws and the NYSE rules;
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institute more comprehensive compliance, investor relations and
internal audit functions;
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evaluate and maintain our system of internal control over
financial reporting, and report on managements assessment
thereof, in compliance with the requirements of Section 404
of the Sarbanes-Oxley Act and related rules and regulations of
the SEC and the Public Company Accounting Oversight
Board; and
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involve and retain outside legal counsel and accountants in
connection with the activities listed above.
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The adequacy of our internal control over financial reporting
must be assessed by management for each year commencing with the
year ending December 31, 2011. We have documented our
internal control over financial reporting and are in the process
of documenting our compliance with these controls on a periodic
basis in accordance with Section 404 of the Sarbanes- Oxley
Act. If we were unable to implement the controls and procedures
required by Section 404 in a timely manner or otherwise to
comply with Section 404, management might not be able to
certify, and our independent registered public accounting firm
might not be able to report on, the adequacy of our internal
control over financial reporting. If we are unable to maintain
adequate internal control over financial reporting, we might be
unable to report our financial information on a timely basis and
might suffer adverse regulatory consequences or violate NYSE
listing standards. There could also be a negative reaction in
the financial markets due to a loss of investor confidence in us
and the reliability of our financial statements.
The changes necessitated by becoming a public company require a
significant commitment of resources and management oversight
that has increased and may continue to increase our costs and
might place a strain on our systems and resources. As a result,
our managements attention might be diverted from other
business concerns. In addition, we might not be successful in
implementing and maintaining controls and procedures that comply
with these requirements. If we fail to maintain an effective
internal control environment or to comply with the numerous
legal and regulatory requirements imposed on public companies,
we could make material errors in, and be required to restate,
our financial statements. Any such restatement could result in a
loss of public confidence in the reliability of our financial
statements and sanctions imposed on us by the SEC.
Our future
success depends on our ability to attract, integrate, retain and
incentivize key personnel.
Our future success will depend, to a significant extent, on our
ability to attract, integrate, retain and recognize key
personnel, namely our management team and experienced sales,
marketing and program and systems management personnel. We must
retain and motivate existing personnel, and we must also
attract, assimilate and motivate additional highly-qualified
employees. We may experience difficulty assimilating our
newly-hired personnel, which may adversely affect our business.
Competition for qualified management, sales, marketing and
program and systems management personnel can be intense.
Competitors have in the past and may in the future attempt to
recruit our top management and employees. If we fail to attract,
integrate, retain and incentivize key personnel, our ability to
manage and grow our business could be harmed.
We might
require additional capital to support our business in the
future, and this capital might not be available on acceptable
terms, or at all.
If our unrestricted cash and cash equivalents balances and any
cash generated from operations are not sufficient to meet our
future cash requirements, we will need to access additional
capital to fund our operations. We may also need to raise
additional capital to take advantage of new business or
acquisition opportunities. We may seek to raise capital by,
among other things:
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issuing additional shares of our Class A common stock or
other equity securities;
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issuing debt securities; and
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borrowing funds under a credit facility.
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We may not be able to raise needed cash in a timely basis on
terms acceptable to us or at all. Financings, if available, may
be on terms that are dilutive or potentially dilutive to our
stockholders. The holders of new securities may also receive
rights, preferences or privileges that are senior to those of
existing holders of our Class A common stock. In addition,
if we were to raise cash through a debt financing, the terms of
the financing might impose additional conditions or restrictions
on our operations that could adversely affect our business. If
we require new sources of financing but they are insufficient or
unavailable, we would be required to modify our operating plans
to take into account the limitations of available funding, which
would harm our ability to maintain or grow our business.
The occurrence
of catastrophic events could damage our facilities or the
facilities of third parties on which we depend, which could
force us to curtail our operations.
We and some of the third-party service providers on which we
depend for various support functions, such as customer service
and card processing, are vulnerable to damage from catastrophic
events, such as power loss, natural disasters, terrorism and
similar unforeseen events beyond our control. Our principal
offices, for example, are situated in the foothills of southern
California near known earthquake fault zones and areas of
elevated wild fire danger. If any catastrophic event were to
occur, our ability to operate our business could be seriously
impaired, as we do not maintain redundant systems for critical
business functions, such as finance and accounting. In addition,
we might not have adequate insurance to cover our losses
resulting from catastrophic events or other significant business
interruptions. Any significant losses that are not recoverable
under our insurance policies, as well as the damage to, or
interruption of, our infrastructure and processes, could
seriously impair our business and financial condition.
Risks Related to
Ownership of Our Class A Common Stock
The price of
our Class A common stock may be volatile.
In the recent past, stocks generally, and financial services
company stocks in particular, have experienced high levels of
volatility. The trading price of our Class A common stock
may fluctuate substantially. The trading price of our
Class A common stock depends on a number of factors,
including those described in this Risk Factors
section, many of which are beyond our control and may not be
related to our operating performance. Factors that could cause
fluctuations in the trading price of our Class A common
stock include the following:
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price and volume fluctuations in the overall stock market from
time to time;
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significant volatility in the market prices and trading volumes
of financial services company stocks;
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actual or anticipated changes in our results of operations or
fluctuations in our operating results;
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actual or anticipated changes in the expectations of investors
or the recommendations of any securities analysts who follow our
Class A common stock;
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actual or anticipated developments in our business or our
competitors businesses or the competitive landscape
generally;
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the publics reaction to our press releases, other public
announcements and filings with the SEC;
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litigation involving us, our industry or both or investigations
by regulators into our operations or those of our competitors;
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new laws or regulations or new interpretations of existing laws
or regulations applicable to our business;
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changes in accounting standards, policies, guidelines,
interpretations or principles;
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general economic conditions; and
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sales of shares of our Class A common stock by us or our
stockholders.
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In the past, many companies that have experienced volatility in
the market price of their stock have become subject to
securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our
managements attention from other business concerns, which
could seriously harm our business.
Concentration
of ownership among our existing directors, executive officers
and principal stockholders may prevent new investors from
influencing significant corporate decisions.
Our Class B common stock has ten votes per share and our
Class A common stock has one vote per share. Based upon
beneficial ownership as of December 31, 2010, our current
directors, executive officers, holders of more than 5% of our
total shares of common stock outstanding and their respective
affiliates will, in the aggregate, beneficially own
approximately 52.7% of our outstanding Class A and
Class B common stock, representing approximately 69.2% of
the voting power of our outstanding capital stock. As a result,
these stockholders are able to exercise a controlling influence
over matters requiring stockholder approval, including the
election of directors and approval of significant corporate
transactions, and have significant influence over our management
and policies for the foreseeable future. Some of these persons
or entities may have interests that are different from yours.
For example, these stockholders may support proposals and
actions with which you may disagree or which are not in your
interests. The concentration of ownership could delay or prevent
a change in control of our company or otherwise discourage a
potential acquirer from attempting to obtain control of our
company, which in turn could reduce the price of our
Class A common stock. In addition, these stockholders, some
of which have representatives sitting on our board of directors,
could use their voting control to maintain our existing
management and directors in office, delay or prevent changes of
control of our company, or support or reject other management
and board of director proposals that are subject to stockholder
approval, such as amendments to our employee stock plans and
approvals of significant financing transactions.
Our stock
price could decline due to the large number of outstanding
shares of our common stock becoming eligible for sale in the
near future.
Sales of substantial amounts of our Class A common stock in
the public market, or even the perception that these sales could
occur, could cause the trading price of our Class A common
stock to decline. These sales could also make it more difficult
for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate.
Our Class A common stock began trading on the NYSE on
July 22, 2010; however, to date there have been a limited
number of shares trading in the public market. As of
December 31, 2010, we had 14,761,743 outstanding shares of
Class A common stock and 27,090,638 outstanding shares of
Class B common stock. Approximately 29.6 million of
these shares are immediately tradable without restriction,
subject in some cases to the volume and other restrictions of
Rule 144 and Rule 701 promulgated under the Securities
Act and, in the case of shares held by Walmart, the lapse of our
right of repurchase with respect to any unvested shares.
Approximately 12.3 million shares will be eligible for sale
in the public market upon the expiration of
lock-up
agreements for our follow-on offering that was completed on
December 13, 2010, subject in some cases to the volume and
other restrictions of Rule 144 and Rule 701
promulgated under the Securities Act.
The lock-up
agreements for our following-on offering on December 13,
2010 expire on March 7, 2011, except the
lock-up
period may be extended for up to 34 additional days under
specified circumstances where we announce or pre-announce
earnings or a material event occurs within 17 days prior
to, or 16 days after, the termination of the
lock-up
period. The representatives of the underwriters for that
offering may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to
lock-up
agreements.
Pursuant to the terms of our ninth amended and restated
registration rights agreement, the holders of approximately
25.3 million shares of our Class A and Class B
common stock and warrants to purchase our Class B common
stock have rights with respect to the registration of these
shares under the Securities Act. If we register the resale of
their shares following the expiration of the
lock-up
agreements, these
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stockholders could sell those shares in the public market
without being subject to the volume and other restrictions of
Rules 144 and 701.
In addition, there are approximately 6.5 million shares of
our Class A and Class B common stock that have been
registered and are subject to options outstanding or reserved
for future issuance under our stock incentive plans. Of these
shares, approximately 2.7 million shares are eligible for
sale upon the exercise of vested options. In addition, the
shares subject to an unvested warrant to purchase up to
approximately 4.3 million shares of our Class B common
stock would be eligible for sale after the vesting and
subsequent exercise of that warrant.
Our charter
documents and Delaware law could discourage, delay or prevent a
takeover that stockholders consider favorable and could also
reduce the market price of our stock.
Our certificate of incorporation and bylaws contain provisions
that could delay or prevent a change in control of our company.
These provisions could also make it more difficult for
stockholders to nominate directors for election to our board of
directors and take other corporate actions. These provisions,
among other things:
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provide our Class B common stock with disproportionate
voting rights;
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provide for non-cumulative voting in the election of directors;
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provide for a classified board of directors;
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authorize our board of directors, without stockholder approval,
to issue preferred stock with terms determined by our board of
directors and to issue additional shares of our Class A and
Class B common stock;
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limit the voting power of a holder, or group of affiliated
holders, of more than 24.9% of our common stock to 14.9%, if we
become a bank holding company;
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provide that only our board of directors may set the number of
directors constituting our board of directors or fill vacant
directorships;
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prohibit stockholder action by written consent and limit who may
call a special meeting of stockholders; and
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require advance notification of stockholder nominations for
election to our board of directors and of stockholder proposals.
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These and other provisions in our certificate of incorporation
and bylaws, as well as provisions under Delaware law, could
discourage potential takeover attempts, reduce the price that
investors might be willing to pay in the future for shares of
our Class A common stock and result in the trading price of
our Class A common stock being lower than it otherwise
would be.
If securities
analysts do not continue to publish research or reports about
our business or if they publish negative evaluations of our
Class A common stock, the trading price of our Class A
common stock could decline.
We expect that the trading price for our Class A common
stock will be affected by any research or reports that
securities analysts publish about us or our business. If one or
more of the analysts who currently cover us or our business
downgrade their evaluations of our Class A common stock,
the price of our Class A common stock would likely decline.
If one or more of these analysts cease coverage of our company,
we could lose visibility in the market for our Class A
common stock, which in turn could cause our stock price to
decline.
We do not
intend to pay dividends for the foreseeable
future.
We have never declared or paid any cash dividends on our capital
stock. We currently intend to retain any future earnings and do
not expect to pay any dividends in the foreseeable future.
Should we complete
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our proposed acquisition of a bank holding company and its
subsidiary commercial bank, as a bank holding company, our
ability to pay future dividends could be limited by the capital
requirements imposed under the BHC Act, as well as other federal
laws applicable to banks and bank holding companies.
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ITEM 1B.
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Unresolved
Staff Comments
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Not applicable.
We lease approximately 80,000 square feet in Monrovia,
California for our corporate headquarters, pursuant to a
noncancelable lease agreement for approximately
53,000 square feet that expires, as to approximately
4,000 square feet, in December 2011 and, as to the
remainder, in September 2012 and
sub-lease
agreements for a total of approximately 27,000 square feet
that expire in December 2011. We believe our space is adequate
for our current needs and that suitable additional or substitute
space will be available to accommodate the foreseeable expansion
of our operations.
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ITEM 3.
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Legal
Proceedings
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From time to time, we may be subject to legal proceedings and
claims in the ordinary course of business. We are not currently
a party to any material legal proceedings, and to our knowledge
none is threatened.
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ITEM 4.
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(Removed
and Reserved)
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PART II
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ITEM 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Market
Information
Our Class A common stock has been listed on the NYSE under
the symbol GDOT since July 22, 2010. Prior to
that date, there was no public trading market for our
Class A common stock. Our initial public offering was
priced at $36.00 per share on July 21, 2010. The following
table sets forth for the periods indicated the high and low
sales prices per share of our Class A common stock as
reported on the NYSE. Our Class B common stock is not
publicly traded.
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Low
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High
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Year ended December 31, 2010
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Fourth Quarter
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$
|
44.50
|
|
|
$
|
65.10
|
|
Third Quarter (beginning July 22, 2010)
|
|
$
|
41.13
|
|
|
$
|
54.24
|
|
Holders of
Record
As of January 31, 2011, we had 66 holders of record of our
Class A common stock and 146 holders of record of our
Class B common stock. The actual number of stockholders is
greater than this number of record holders, and includes
stockholders who are beneficial owners, but whose shares are
held in street name by brokers and other nominees. This number
of holders of record also does not include stockholders whose
shares may be held in trust by other entities.
Dividends
We have never declared or paid any cash dividends on our capital
stock, and we do not currently intend to pay any cash dividends
on our Class A common stock for the foreseeable future.
Should we complete our proposed acquisition of a bank holding
company and its subsidiary commercial bank, as a bank holding
company, the Federal Reserve Boards risk-based and
leverage capital requirements, as well as other federal laws
applicable to banks and bank holding companies, could limit our
ability to pay
32
dividends. We expect to retain future earnings, if any, to fund
the development and growth of our business. Any future
determination to pay dividends on our Class A common stock,
if permissible, will be at the discretion of our board of
directors and will depend upon, among other factors, our
financial condition, operating results, current and anticipated
cash needs, plans for expansion and other factors that our board
of directors may deem relevant.
Unregistered
Sales of Equity Securities
On February 4, 2010, we granted options to purchase
130,500 shares of our Class B common stock under our
2001 Stock Plan with a per share exercise price of $25.00. Also
in February 2010, we issued 1,600 fully-vested shares of our
Class B common stock to Timothy R. Greenleaf under our 2001
Stock Plan as compensation for his services as chair of the
audit committee of our board of directors. This award had a
grant date fair value of $40,000. From January 1, 2010 to
March 31, 2010, certain of our employees and executive
officers exercised options to purchase 80,033 shares of our
Class B common stock pursuant to options issued under our
2001 Stock Plan for an aggregate purchase price of $291,854.
These issuances were exempt from registration under the
Securities Act of 1933, in reliance upon Rule 701
promulgated under Section 3(b) of the Securities Act as
transactions pursuant to benefit plans and contracts relating to
compensation as provided under Rule 701 or
Section 4(2) of the Securities Act
Purchases of
Equity Securities by the Issuer and Affiliated
Purchasers
None.
Stock Performance
Graph
This performance graph shall not be deemed filed
for purposes of section 18 of the Exchange Act, or
otherwise subject to the liabilities under that section and
shall not be deemed to be incorporated by reference into any
filing of Green Dot Corporation under the Securities Act or the
Exchange Act.
The graph and table below compare the cumulative total
stockholder return of Green Dot Corporation Class A common
stock, the Russell 2000 Index and the S&P 500 Financials
Index for the period beginning on the close of trading on the
NYSE on July 22, 2010 (the date our Class A common
stock began trading on the NYSE), and ending on the close of
trading on the NYSE on December 31, 2010. The graph assumes
a $100 investment in our Class A common stock and each of
the indices, and the reinvestment of dividends. Our Class B
common stock is not publicly traded or listed on any exchange or
dealer quotation system.
The comparisons in the graph and table below are based on
historical data and are not intended to forecast the possible
future performance of our Class A common stock.
33
COMPARISON OF
6-MONTH CUMULATIVE TOTAL RETURN*
Among Green Dot Corporation, the Russell 2000 Index
and the S&P Financials Index
|
|
|
|
*
|
$100 invested on 7/22/10 in stock or 6/30/10 in index, including
reinvestment of dividends. Fiscal year ending December 31.
|
Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
Total Return to
Shareholders
(Includes reinvestment of dividends)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
|
Indexed Returns
|
|
|
|
Period
|
|
|
Months Ending
|
|
Company / Index
|
|
07/22/10
|
|
|
07/31/10
|
|
|
08/31/10
|
|
|
09/30/10
|
|
|
10/31/10
|
|
|
11/30/10
|
|
|
12/31/10
|
|
|
|
|
Green Dot Corporation
|
|
$
|
100.00
|
|
|
$
|
98.89
|
|
|
$
|
102.89
|
|
|
$
|
110.21
|
|
|
$
|
115.48
|
|
|
$
|
131.58
|
|
|
$
|
128.98
|
|
Russell 2000 Index
|
|
$
|
100.00
|
|
|
$
|
106.87
|
|
|
$
|
98.96
|
|
|
$
|
111.29
|
|
|
$
|
115.84
|
|
|
$
|
119.86
|
|
|
$
|
129.38
|
|
S&P 500 Financials Index
|
|
$
|
100.00
|
|
|
$
|
106.67
|
|
|
$
|
98.35
|
|
|
$
|
104.33
|
|
|
$
|
105.83
|
|
|
$
|
105.12
|
|
|
$
|
116.40
|
|
|
|
ITEM 6.
|
Selected
Financial Data
|
The following tables present selected historical financial data
for our business. You should read this information together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, related notes and other financial
information, each included in Item 8 of this report. The
selected consolidated financial data in this section is not
intended to replace the financial statements and is qualified in
its entirety by the consolidated financial statements and
related notes.
We derived the statement of operations data for the year ended
December 31, 2010, the five months ended December 31,
2009, and the years ended July 31, 2008 and 2009, and the
balance sheet data as of December 31, 2010 and 2009 and
July 31, 2009 and 2008 from our audited consolidated
financial statements included in Item 8 of this report. We
derived the statement of operations data for the year ended
July 31, 2007 and balance sheet data as of July 31,
2007 from our audited consolidated financial statements not
included in this report. We derived the statement of operations
data for the year ended
34
July 31, 2006 and the balance sheet data as of
July 31, 2006 from our unaudited consolidated financial
statements not included in this report. In the opinion of our
management, our unaudited financial data reflect all
adjustments, consisting of normal and recurring adjustments,
necessary for a fair statement of our results for those periods.
Our historical results are not necessarily indicative of our
results to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Year Ended July 31,
|
|
|
|
2010
|
|
|
2009(1)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
167,375
|
|
|
$
|
50,895
|
|
|
$
|
119,356
|
|
|
$
|
91,233
|
|
|
$
|
45,717
|
|
|
$
|
36,359
|
|
Cash transfer revenues
|
|
|
101,502
|
|
|
|
30,509
|
|
|
|
62,396
|
|
|
|
45,310
|
|
|
|
25,419
|
|
|
|
20,616
|
|
Interchange revenues
|
|
|
108,380
|
|
|
|
31,353
|
|
|
|
53,064
|
|
|
|
31,583
|
|
|
|
12,488
|
|
|
|
9,975
|
|
Stock-based retailer incentive compensation(2)
|
|
|
(13,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
363,888
|
|
|
|
112,757
|
|
|
|
234,816
|
|
|
|
168,126
|
|
|
|
83,624
|
|
|
|
66,951
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
122,890
|
|
|
|
31,333
|
|
|
|
75,786
|
|
|
|
69,577
|
|
|
|
38,838
|
|
|
|
28,660
|
|
Compensation and benefits expenses(3)
|
|
|
70,102
|
|
|
|
26,610
|
|
|
|
40,096
|
|
|
|
28,303
|
|
|
|
20,610
|
|
|
|
18,499
|
|
Processing expenses
|
|
|
56,978
|
|
|
|
17,480
|
|
|
|
32,320
|
|
|
|
21,944
|
|
|
|
9,809
|
|
|
|
8,547
|
|
Other general and administrative expenses
|
|
|
44,599
|
|
|
|
14,020
|
|
|
|
22,944
|
|
|
|
19,124
|
|
|
|
13,212
|
|
|
|
10,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
294,569
|
|
|
|
89,443
|
|
|
|
171,146
|
|
|
|
138,948
|
|
|
|
82,469
|
|
|
|
65,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
69,319
|
|
|
|
23,314
|
|
|
|
63,670
|
|
|
|
29,178
|
|
|
|
1,155
|
|
|
|
1,168
|
|
Interest income
|
|
|
365
|
|
|
|
115
|
|
|
|
396
|
|
|
|
665
|
|
|
|
771
|
|
|
|
301
|
|
Interest expense
|
|
|
(52
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(247
|
)
|
|
|
(625
|
)
|
|
|
(823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
69,632
|
|
|
|
23,427
|
|
|
|
64,065
|
|
|
|
29,596
|
|
|
|
1,301
|
|
|
|
645
|
|
Income tax expense (benefit)
|
|
|
27,400
|
|
|
|
9,764
|
|
|
|
26,902
|
|
|
|
12,261
|
|
|
|
(3,346
|
)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
42,232
|
|
|
|
13,663
|
|
|
|
37,163
|
|
|
|
17,335
|
|
|
|
4,647
|
|
|
|
535
|
|
Dividends, accretion and allocated earnings of preferred stock
|
|
|
(14,659
|
)
|
|
|
(9,170
|
)
|
|
|
(29,000
|
)
|
|
|
(13,650
|
)
|
|
|
(5,157
|
)
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders
|
|
$
|
27,573
|
|
|
$
|
4,493
|
|
|
$
|
8,163
|
|
|
$
|
3,685
|
|
|
$
|
(510
|
)
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
1.06
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Class B common stock
|
|
$
|
1.06
|
|
|
$
|
0.37
|
|
|
$
|
0.68
|
|
|
$
|
0.34
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
Basic weighted-average common shares issued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
|
21,589
|
|
|
|
12,222
|
|
|
|
12,036
|
|
|
|
10,757
|
|
|
|
11,100
|
|
|
|
10,873
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Year Ended July 31,
|
|
|
|
2010
|
|
|
2009(1)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
0.98
|
|
|
$
|
$
|
|
|
$
|
$
|
|
|
$
|
$
|
|
|
$
|
$
|
|
|
$
|
$
|
|
Class B common stock
|
|
$
|
0.98
|
|
|
$
|
0.29
|
|
|
$
|
0.52
|
|
|
$
|
0.26
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
Diluted weighted-average common shares issued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
27,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
|
24,796
|
|
|
|
15,425
|
|
|
|
15,712
|
|
|
|
14,154
|
|
|
|
11,100
|
|
|
|
13,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of July 31,
|
|
|
2010
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash(4)
|
|
|
172,638
|
|
|
|
71,684
|
|
|
|
41,931
|
|
|
|
41,613
|
|
|
|
14,991
|
|
|
|
16,670
|
|
Settlement assets(5)
|
|
|
19,968
|
|
|
|
42,569
|
|
|
|
35,570
|
|
|
|
17,445
|
|
|
|
15,412
|
|
|
|
12,868
|
|
Total assets
|
|
|
285,758
|
|
|
|
183,108
|
|
|
|
123,269
|
|
|
|
97,246
|
|
|
|
56,441
|
|
|
|
42,626
|
|
Settlement obligations(5)
|
|
|
19,968
|
|
|
|
42,569
|
|
|
|
35,570
|
|
|
|
17,445
|
|
|
|
12,916
|
|
|
|
8,933
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,446
|
|
|
|
5,030
|
|
Total liabilities
|
|
|
120,627
|
|
|
|
111,744
|
|
|
|
81,031
|
|
|
|
65,962
|
|
|
|
45,237
|
|
|
|
37,004
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,816
|
|
|
|
22,336
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
165,131
|
|
|
|
71,364
|
|
|
|
42,238
|
|
|
|
4,468
|
|
|
|
(11,130
|
)
|
|
|
5,623
|
|
|
|
|
(1) |
|
In September 2009, we changed our fiscal year-end from
July 31 to December 31. |
|
(2) |
|
Represents the recorded fair value of the shares for which our
right to repurchase lapsed during the specified period pursuant
to the terms of the agreement under which we issued
2,208,552 shares of our Class A common stock to
Walmart. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Overview May 2010 Changes to Our Relationship with
Walmart for more information. Prior to the three months
ended June 30, 2010, we did not incur any stock-based
retailer incentive compensation. |
|
(3) |
|
Includes stock-based compensation expense of $7.3 million
for the year ended December 31, 2010, $6.8 million for
the five months ended December 31, 2009 and
$2.5 million, $1.2 million, $156,000, and $0 for
fiscal 2009, 2008, 2007, and 2006, respectively. |
|
(4) |
|
Includes $5.1 million, $15.4 million,
$15.4 million, $2.3 million, $2.3 million and
$2.0 million of restricted cash as of December 31,
2010 and 2009 and July 31, 2009, 2008, 2007 and 2006,
respectively. |
|
(5) |
|
Our retail distributors collect customer funds for purchases of
new cards and reloads and then remit these funds directly to
bank accounts established for the benefit of these customers by
the banks that issue our cards. Our retail distributors
remittance of these funds takes an average of three business
days. Settlement assets represent the amounts due from our
retail distributors for customer funds collected at the point of
sale that have not yet been remitted to the card issuing banks.
Settlement obligations represent the amounts that are due from
us to the card issuing banks for funds collected but not yet
remitted by our retail distributors and not funded by our line
of credit. We have no control over or access to customer funds
remitted by our retail distributors to the card issuing banks.
Customer funds therefore are not our assets, and we do not
recognize them in our consolidated financial statements. |
36
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This report, including this Managements Discussion and
Analysis of Financial Condition and Results of Operations,
contains forward-looking statements regarding future events and
our future results that are subject to the safe harbors created
under the Securities Act and the Exchange Act. All statements
other than statements of historical facts are statements that
could be deemed to be forward-looking statements. These
statements are based on current expectations, estimates,
forecasts and projections about the industries in which we
operate and the beliefs and assumptions of our management. Words
such as expects, anticipates,
targets, goals, projects,
intends, plans, believes,
seeks, estimates, continues,
endeavors, strives, may and
assumes, variations of such words and similar
expressions are intended to identify forward-looking statements.
In addition, any statements that refer to projections of our
future financial performance, our anticipated growth and trends
in our businesses, and other characterizations of future events
or circumstances are forward-looking statements. Readers are
cautioned that these forward-looking statements are subject to
risks, uncertainties, and assumptions that are difficult to
predict, including those identified below, under
Part I, Item 1A. Risk Factors, and
elsewhere herein. Therefore, actual results may differ
materially and adversely from those expressed in any
forward-looking statements. We undertake no obligation to revise
or update any forward-looking statements for any reason.
The following is a discussion and analysis of our financial
condition and results of operations and should be read together
with our audited consolidated financial statements and related
notes to consolidated financial statements included elsewhere in
this report.
In September 2009, we changed our fiscal year-end from
July 31 to December 31. Throughout this report,
references to fiscal 2009 and fiscal
2008 are to the fiscal years ended July 31, 2009 and
2008, respectively.
Overview
Green Dot is a leading prepaid financial services company
providing simple, low-cost and convenient money management
solutions to a broad base of U.S. consumers. We believe
that we are the leading provider of general purpose reloadable
prepaid debit cards in the United States and that our Green Dot
Network is the leading reload network for prepaid cards in the
United States. We sell our cards and offer our reload services
nationwide at approximately 55,000 retail store locations, which
provide consumers convenient access to our products and services.
We review a number of metrics to help us monitor the performance
of, and identify trends affecting, our business. We believe the
following measures are the primary indicators of our quarterly
and annual performance.
Number of GPR Cards Activated represents the
total number of GPR cards sold through our retail and online
distribution channels that are activated (and, in the case of
our online channel, also funded) by cardholders in a specified
period. We activated 6.26 million and 4.27 million GPR
cards in the twelve months ended December 31, 2010 and
2009, respectively, 2.12 million and 976,000 GPR cards in
the five months ended December 31, 2009 and 2008,
respectively, and 3.14 million and 2.19 million GPR
cards in fiscal 2009 and 2008, respectively.
Number of Cash Transfers represents the total
number of MoneyPak and POS swipe reload transactions that we
sell through our retail distributors in a specified period. We
sold 26.49 million and 17.28 million MoneyPak and POS
swipe reload transactions for the twelve months ended
December 31, 2010 and 2009, respectively, 8.19 and
5.00 million MoneyPak and POS swipe reload transactions for
the five months ended December 2009 and 2008, respectively, and
14.09 million and 9.15 million MoneyPak and POS swipe
reload transactions for fiscal 2009 and 2008, respectively.
Number of Active Cards represents the total
number of GPR cards in our portfolio that had a purchase, reload
or ATM withdrawal transaction during the previous
90-day
period. We had 3.40 million,
37
2.69 million and 1.40 million active cards outstanding
as of December 31, 2010, 2009 and 2008, respectively, and
2.06 million and 1.27 million active cards outstanding
as of July 31, 2009 and 2008, respectively.
Gross Dollar Volume represents the total
dollar volume of funds loaded to our GPR card and reload
products. Our gross dollar volume was $10.4 billion and
$5.8 billion for the twelve months ended December 31,
2010 and 2009, respectively, $2.7 billion and
$1.6 billion for the five months ended December 31,
2009 and 2008, respectively, and $4.7 billion and
$2.8 billion for fiscal 2009 and 2008, respectively.
During the fourth quarter of 2010, it became apparent that some
of our retail distributors were experiencing challenges
implementing changes to their in-store displays in accordance
with requirements of the Credit Card Accountability
Responsibility and Disclosure Act of 2009, or the Card Act, that
became effective in August 2010. We believe these challenges
adversely impacted the number of GPR cards activated and number
of active cards during the fourth quarter of 2010. We expect to
mitigate the adverse impacts associated with the Card Act in the
short term.
Net income for the year ended December 31, 2010 was
$42.2 million as compared to $40.6 million for the
corresponding period in 2009. Results for the year ended
December 31, 2010 were favorably impacted by increases in
card revenues, cash transfer revenues and interchange revenues
primarily due to
period-over-period
growth in all of our key metrics described above. In particular,
our results for the year ended December 31, 2010 were
favorably affected by an increasing number of direct deposit
customers and a large numbers of taxpayers electing to receive
their refunds via direct deposit on our cards and our
advertising efforts during the period.
Our results of operations for the year ended December 31,
2010 were adversely impacted by stock-based retailer incentive
compensation recognized and by increases in our total operating
expenses due to increased sales commission percentages that we
pay to Walmart, as described under May 2010 Changes to Our
Relationship With Walmart below, increased sales
commission paid to our retail distributors due to a higher
number of GPR cards activated and cash transfers sold, growth in
our headcount, professional services related to our initial
public offering and our proposed bank acquisition, and overall
growth in our infrastructure.
May 2010
Changes to Our Relationship with Walmart
In May 2010, we entered into an amended prepaid card program
agreement with Walmart and GE Money Bank and issued
2,208,552 shares of our Class A common stock to
Walmart in connection therewith. The agreement with Walmart and
GE Money Bank extended the term of our commercial relationship
with those parties to May 2015 and significantly increased the
sales commission percentages that we pay to Walmart for the
Walmart MoneyCard program to an estimated 22%, or a level
approximately equal to what they had been during the three
months ended December 31, 2008. Prior to this increase, the
sales commission percentage that we paid to Walmart for
virtually all of 2009 and the first quarter of 2010 was lower
than 8%. Additionally, the amended agreement provides
volume-based incentives that allow Walmart to earn higher sales
commission percentages as sales volumes of our products in its
stores grow. The Walmart MoneyCard program currently accounts
for approximately 90% of the total operating revenues that we
derive from products sold at Walmart.
These shares of our Class A common stock that we issued to
Walmart are subject to our right to repurchase them at $0.01 per
share upon termination of our agreement with Walmart other than
a termination arising out of our knowing, intentional and
material breach of the agreement. Our right to repurchase the
shares lapses with respect to 36,810 shares per month over
the 60-month
term of the agreement, requiring us to record the fair value of
shares as to which our repurchase right has lapsed as
stock-based retailer incentive compensation, a contra-revenue
component of our total operating revenues. See
Key components of our results of
operations Operating revenues
Stock-based retailer incentive compensation below.
38
As a result of entering into our amended agreement with Walmart,
we changed the manner in which customer funds for certain
products sold at Walmart are settled, eliminating the need to
record settlement assets and liabilities related to these
products. This change resulted in a significant reduction in our
settlement assets and settlement obligations associated with
Walmart and GE Money Bank, respectively.
Key components of
our results of operations
Operating
Revenues
We classify our operating revenues into the following four
categories:
Card Revenues Card revenues consist of new
card fees, monthly maintenance fees, ATM fees and other
revenues. We charge new card fees when a consumer purchases a
GPR or gift card in a retail store. We charge maintenance fees
on GPR cards to cardholders on a monthly basis pursuant to the
terms and conditions in our cardholder agreements. We charge ATM
fees to cardholders when they withdraw money or conduct other
transactions at certain ATMs in accordance with the terms and
conditions in our cardholder agreements. Other revenues consist
primarily of fees associated with optional products or services,
which we generally offer to consumers during the card activation
process. Optional products and services that generate other
revenues include providing a second card for an account,
expediting delivery of the personalized GPR card that replaces
the temporary card obtained at the retail store and upgrading a
cardholder account to one of our premium programs
the VIP program or Premier Card program
which provide benefits for our more active cardholders.
Historically, our card revenues have also included customer
service fees that we charged in accordance with the terms and
conditions in our cardholder agreements.
Our aggregate new card fee revenues vary based upon the number
of GPR cards activated and the average new card fee. The average
new card fee depends primarily upon the mix of products that we
sell since there are variations in new card fees among Green
Dot-branded and co-branded products and between GPR cards and
general purpose gift cards. Our aggregate monthly maintenance
fee revenues vary primarily based upon the number of active
cards in our portfolio and the average fee assessed per account.
Our average monthly maintenance fee per active account depends
upon the mix of Green Dot-branded and co-branded cards in our
portfolio and upon the extent to which fees are waived based on
significant usage. Our aggregate ATM fee revenues vary based
upon the number of cardholder ATM transactions and the average
fee per ATM transaction. The average fee per ATM transaction
depends upon the mix of Green Dot-branded and co-branded active
cards in our portfolio and the extent to which cardholders
enroll in our VIP program, which has no ATM fees, or conduct ATM
transactions on our fee-free ATM network.
Cash Transfer Revenues We earn cash transfer
revenues when consumers purchase and use a MoneyPak or fund
their cards through a POS swipe reload transaction in a retail
store. Our aggregate cash transfer revenues vary based upon the
total number of MoneyPak and POS swipe reload transactions and
the average price per MoneyPak or POS swipe reload transaction.
The average price per MoneyPak or POS swipe reload transaction
depends upon the relative numbers of cash transfer sales at our
different retail distributors and on the mix of MoneyPak and POS
swipe reload transactions at certain retailers that have
different fees for the two types of reload transactions.
Interchange Revenues We earn interchange
revenues from fees remitted by the merchants bank, which
are based on rates established by Visa and MasterCard, when
cardholders make purchase transactions using our cards. Our
aggregate interchange revenues vary based primarily on the
number of active cards in our portfolio, the average
transactional volume of the active cards in our portfolio and on
the mix of cardholder purchases between those using signature
identification technologies and those using personal
identification numbers.
Stock-based retailer incentive compensation
We recognize each month the fair value of the 36,810 shares
issued to Walmart for which our right to repurchase has lapsed
using the then-current fair market value of our Class A
common stock (and we would be required to recognize the fair
value of all
39
shares still subject to repurchase if there were an early
expiration of our right to repurchase). We record the fair value
recognized as stock-based retailer incentive compensation, a
contra-revenue component of our total operating revenues. In
addition, it is possible that, in the future, a warrant to
purchase Class B common stock will vest and become
exercisable upon the achievement of certain performance goals by
PayPal. If this warrant vests, we will need to determine its
fair value on the vesting date using an option pricing model,
such as Black-Scholes, and will record that value as additional
contra-revenue.
Operating
Expenses
We classify our operating expenses into the following four
categories:
Sales and Marketing Expenses Sales and
marketing expenses consist primarily of the sales commissions we
pay to our retail distributors and brokers for sales of our GPR
and gift cards and reload services in their stores, advertising
and marketing expenses, and the costs of manufacturing and
distributing card packages, placards and promotional materials
to our retail distributors and personalized GPR cards to
consumers who have activated their cards. We generally establish
sales commission percentages in long-term distribution
agreements with our retail distributors, and aggregate sales
commissions are determined by the number of prepaid cards and
cash transfers sold at their respective retail stores. We incur
advertising and marketing expenses for television and online
advertisements of our products and through retailer-based print
promotions and in-store displays. Advertising and marketing
expenses are recognized as incurred and typically deliver a
benefit over an extended period of time. For this reason, these
expenses do not always track changes in our operating revenues.
Our manufacturing and distribution costs vary primarily based on
the number of GPR cards activated.
Compensation and Benefits Expenses
Compensation and benefits expenses represent the
compensation and benefits that we provide to our employees and
the payments we make to third-party contractors. While we have
an in-house customer service function, we employ third-party
contractors to conduct all call center operations, handle
routine customer service inquiries and provide temporary support
in the area of IT operations and elsewhere. Compensation and
benefits expenses associated with our customer service and loss
management functions generally vary in line with the size of our
active card portfolio, while the expenses associated with other
functions do not.
Processing Expenses Processing expenses
consist primarily of the fees charged to us by the banks that
issue our prepaid cards, the third-party card processor that
maintains the records of our customers accounts and
processes transaction authorizations and postings for us, and
Visa and MasterCard, which process transactions for us through
their respective payment networks. These costs generally vary
based on the total number of active cards in our portfolio and
gross dollar volume.
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,
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 unrecovered customer purchase transaction overdrafts and
fraud. Costs associated with professional services, depreciation
and amortization of our property and equipment, and rent and
utilities vary based upon our investment in infrastructure, 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. Since the majority of our
operations are based in California, most of our state taxes are
paid to that state.
40
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
managements 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 forty-two 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 nine 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 nine 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
all of our significant revenue-generating arrangements,
including GPR and gift cards, we recognize revenues on a gross
basis.
Generally, customers have limited rights to a refund of the 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 these
incentives, 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.
41
Reserve for
Uncollectible Overdrawn Accounts
Cardholder account overdrafts may arise from maintenance fee
assessments on our GPR cards or from purchase transactions that
we honor on GPR or gift cards, in each case in excess of the
funds in the cardholders account. We are responsible to
the banks that issue our cards for any losses associated with
these overdrafts. Overdrawn account balances are therefore
deemed to be our receivables due from cardholders, and we
include them as a component of accounts receivable, net, on our
consolidated balance sheets. The banks that issue our cards fund
the overdrawn account balances on our behalf. We include our
obligations to them on our consolidated balance sheets as
amounts due to card issuing banks for overdrawn accounts, a
current liability, and we settle our obligations to them based
on the terms specified in their agreements with us. These
settlement terms generally require us to settle on a monthly
basis or when the cardholder account is closed, depending on the
card issuing bank.
We generally recover overdrawn account balances from those GPR
cardholders that perform a reload transaction. In addition, we
recover some purchase transaction overdrafts through enforcement
of payment network rules, which allow us to recover the amounts
from the merchant where the purchase transaction was conducted.
However, we are exposed to losses from unrecovered GPR
cardholder account overdrafts. The probability of recovering
these amounts is primarily related to the number of days that
have elapsed since an account had activity, such as a purchase,
ATM transaction or fee assessment. Generally, we recover
50-60% of
overdrawn account balances in accounts that have had activity in
the last 30 days,
10-15% in
accounts that have had activity in the last 30 to 60 days,
and less than 10% when more than 60 days have elapsed.
We establish a reserve for uncollectible overdrawn accounts for
maintenance fees we assess and purchase transactions we honor,
in each case in excess of a cardholders account balance.
We classify overdrawn accounts into age groups based on the
number of days since the account last had activity. We then
calculate a reserve factor for each age group based on the
average recovery rate for the most recent six months. These
factors are applied to these age groups to estimate our overall
reserve. We rely on these historical rates because they have
remained relatively consistent for several years. When more than
90 days have passed without any activity in an account, we
consider recovery to be remote and charge off the full amount of
the overdrawn account balance against the reserve for
uncollectible overdrawn accounts.
Overdrafts due to maintenance fee assessments comprised
approximately 95% of our total overdrawn account balances due
from cardholders for the year ended December 31, 2010. We
charge our GPR cardholder accounts maintenance fees on a monthly
basis pursuant to the terms and conditions in the applicable
cardholder agreements. Although cardholder accounts become
inactive or overdrawn, we continue to provide cardholders the
ongoing functionality of our GPR cards, which allows them to
reload and use their cards at any time. As a result, we continue
to assess a maintenance fee until a cardholder account becomes
overdrawn by an amount equal to two maintenance fees, currently
$6.00 for the Walmart MoneyCard and $11.90 for our Green
Dot-branded GPR cards. We recognize the fees ratably over the
month for which they are assessed, net of the related reserve
for uncollectible overdrawn accounts, as a component of card
revenues in our consolidated statements of operations.
We include our reserve for uncollectible overdrawn accounts
related to purchase transactions in other general and
administrative expenses in our consolidated statements of
operations.
Our recovery rates may change in the future in response to
factors such as the pricing of reloads and new cards and the
availability of substitute products.
Employee
Stock-Based Compensation
Effective August 1, 2006, we adopted a new accounting
standard using the prospective transition method, which required
compensation expense to be recognized on a prospective basis.
Compensation expense recognized relates to stock options
granted, modified, repurchased, or cancelled on or after
August 1, 2006 and stock purchases under our employee stock
purchase plan, or ESPP. We record compensation expense using the
fair value method of accounting. For stock options and stock
purchases under the ESPP, we base compensation expense on fair
values estimated at the grant date using the
42
Black-Scholes option-pricing model. For stock awards, we base
compensation expense on the estimated 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.
We continue to account for stock options granted to employees
prior to August 1, 2006, using the intrinsic value method.
Under the intrinsic value method, compensation associated with
stock awards to employees was determined as the difference, if
any, between the fair value of the underlying Class A or
Class B common stock on the grant date, and the price an
employee must pay to exercise the award.
We measure the fair value of equity instruments issued to
non-employees as of the earlier of the date a performance
commitment has been reached by the counterparty or the date
performance is completed by the counterparty. We determine the
fair value using the Black-Scholes option-pricing model or the
fair value of our Class A or Class B common stock, as
applicable, and recognize related expense in the same periods
that the goods or services are received.
Comparison of
Twelve Months Ended December 31, 2010 and 2009
Operating
Revenues
The following table presents a breakdown of our operating
revenues among card, cash transfer and interchange revenues as
well as contra-revenue items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
167,375
|
|
|
|
46.0
|
%
|
|
$
|
123,790
|
|
|
|
47.9
|
%
|
Cash transfer revenues
|
|
|
101,502
|
|
|
|
27.9
|
|
|
|
68,515
|
|
|
|
26.5
|
|
Interchange revenues
|
|
|
108,380
|
|
|
|
29.8
|
|
|
|
66,205
|
|
|
|
25.6
|
|
Stock-based retailer incentive compensation
|
|
|
(13,369
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
363,888
|
|
|
|
100.0
|
%
|
|
$
|
258,510
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues Card revenues totaled
$167.4 million for the year ended December 31, 2010,
an increase of $43.6 million, or 35%, from the comparable
period in 2009. The increase was primarily the result of
period-over-period
growth of 47% in the number of GPR cards activated and 26% in
the number of active cards in our portfolio. This growth was
driven by a variety of factors including growth in the number of
our cards sold through our established distribution channels and
expansion through our online distribution channel and the launch
of new retailers like 7-Eleven. Additionally, the fee reductions
and new product features that we launched in July 2009
helped us attract significant numbers of new users of our Green
Dot branded products. These fee reductions also contributed to
the decline in card revenues as a percentage of total operating
revenues.
Cash Transfer Revenues Cash transfer revenues
totaled $101.5 million for the year ended December 31,
2010, an increase of $33.0 million, or 48%, from the
comparable period in 2009. The increase was primarily the result
of
period-over-period
growth of 53% in the number of cash transfers sold, partially
offset by a shift in our mix of retail distributors toward
Walmart. The increase in cash transfer volume was driven both by
growth in our active card base and growth in cash transfer
volume from third-party programs participating in our network.
Interchange Revenues Interchange revenues
totaled $108.4 million for the year ended December 31,
2010, an increase of $42.2 million, or 64%, from the
comparable period in 2009. The increase was primarily the result
of
period-over-period
growth of 26% in the number of active cards in our
43
portfolio and 80% in gross dollar volume, driven by the factors
discussed above under Card Revenues, and an increase
in the average transactional volume of the active cards in our
portfolio. We expect to experience seasonality in our
interchange revenues during 2011, as we believe that gross
dollar volume loaded to our cards will be significantly higher
during the first six months of 2011, as compared to the second
half of the year, due to taxpayers electing to receive their tax
refunds via direct deposit on our cards.
Stock-based retailer incentive compensation
Our right to repurchase lapsed as to 294,480 shares issued
to Walmart during the year ended December 31, 2010. We
recognized the fair value of the shares using the then-current
fair market value of our Class A common stock, resulting in
$13.4 million of stock-based retailer incentive
compensation. Since we did not begin to recognize stock-based
retailer incentive compensation until May 2010, we expect
that this contra-revenue item will increase as a percentage of
our total operating revenues in 2011 from the percentage for the
year ended December 31, 2010.
Operating
Expenses
The following table presents a breakdown of our operating
expenses among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
122,890
|
|
|
|
33.8
|
%
|
|
$
|
72,119
|
|
|
|
27.9
|
%
|
Compensation and benefits expenses
|
|
|
70,102
|
|
|
|
19.3
|
|
|
|
51,297
|
|
|
|
19.8
|
|
Processing expenses
|
|
|
56,978
|
|
|
|
15.7
|
|
|
|
38,035
|
|
|
|
14.7
|
|
Other general and administrative expenses
|
|
|
44,599
|
|
|
|
12.2
|
|
|
|
27,500
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
294,569
|
|
|
|
81.0
|
%
|
|
$
|
188,951
|
|
|
|
73.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses Sales and
marketing expenses totaled $122.9 million for the year
ended December 31, 2010, an increase of $50.8 million,
or 70%, from the comparable period in 2009. The increase was
primarily the result of a $37.8 million increase in sales
commissions and manufacturing and distribution costs due to
increased sales commissions paid to Walmart as a result of
entering into our amended prepaid card agreement and the
increased numbers of GPR cards and cash transfer products sold
compared with the corresponding period in 2009. The increase in
sales and marketing expenses was also due to a
$13.0 million increase in advertising and marketing
expenses, as we significantly increased our television and
online advertising and deployed more in-store displays than in
the 2009 comparison period. We expect our sales and marketing
expenses as a percentage of our total operating revenues,
excluding stock-based retailer incentive compensation, to
increase significantly in future periods from the percentage in
the year ended December 31, 2010 because of the increased
contractual sales commission percentages that we are obligated
to pay to Walmart as a result of the May 2010 amendment to our
agreement with Walmart.
Compensation and Benefits Expenses
Compensation and benefits expenses totaled $70.1 million
for the year ended December 31, 2010, an increase of
$18.8 million, or 37%, from the comparable period in 2009.
This increase was primarily the result of a $10.0 million
increase in employee compensation and benefits, which included a
$1.0 million decrease in employee stock-based compensation.
The
period-over-period
growth in employee compensation and benefits is due to
additional employee headcount as we continued to expand our
operations and assumed the reporting requirements and compliance
obligations of a public company. The increase in compensation
and benefits expenses was also due to an $8.8 million
increase in third-party call center contractor expenses as the
number of active cards in our portfolio and associated call
volumes increased during the year ended December 31, 2010.
44
Processing Expenses Processing expenses
totaled $57.0 million for the year ended December 31,
2010, an increase of $19.0 million, or 50%, from the
comparable period in 2009. The increase was primarily the result
of
period-over-period
growth of 26% in the number of active cards in our portfolio and
80% in gross dollar volume.
Other General and Administrative Expenses
Other general and administrative expenses totaled
$44.6 million for the year ended December 31, 2010, an
increase of $17.1 million, or 62%, from the comparable
period in 2009. The increase was partly the result of an
increase of $6.4 million relating to professional services
expenses, $5.1 million of which resulted from expenses
related to our initial public offering, and $1.3 million of
which represented an increase in professional services fees
primarily incurred in connection with our proposed bank
acquisition and other corporate development initiatives. The
increase in other general and administrative expenses was also
the result of a $3.2 million increase in telephone and
communications expenses resulting from increased use of our call
center and our IVR, as the number of active cards in our
portfolio increased. Additionally, depreciation and amortization
of property and equipment increased by $2.6 million due to
expansion of our infrastructure to support our growth and we
experienced a $2.4 million increase in transaction losses,
primarily associated with customer disputed transactions.
Income Tax
Expense
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.8
|
|
|
|
6.0
|
|
Non-deductible offering costs
|
|
|
2.4
|
|
|
|
|
|
Change in state tax apportionment method
|
|
|
(4.6
|
)
|
|
|
|
|
Other
|
|
|
2.7
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
39.3
|
%
|
|
|
41.9
|
%
|
|
|
|
|
|
|
|
|
|
Our income tax expense decreased by $1.8 million to
$27.4 million in the year ended December 31, 2010 from
the comparable period in 2009, and our effective tax rate
decreased 2.6% from 41.9% to 39.3% primarily as a result of a
lower effective state tax rate in the year ended
December 31, 2010. The lower effective state tax rate was
the result of a change in the apportionment method we use to
allocate income to California. Under the alternative
apportionment method, approved by the California Franchise Tax
Board, or FTB, in May 2010, we apportion less income to
California, resulting in a lower effective state tax rate.
Additionally, the effective tax rate for the year ended
December 31, 2010 was impacted by several discrete items.
The FTB approved a retroactive application of the alternative
apportionment method to our income tax returns filed for the
five months ended December 31, 2009 and the year ended
July 31, 2009. We recognized this for tax benefit in the
year ended December 31, 2010. This tax benefit was
partially offset by non-deductible expenses related to our
initial public offering recognized in the year ended
December 31, 2010. Excluding the impact of these discrete
items, our effective tax rate would have been 39.7%.
45
Comparison of
Five Months Ended December 31, 2009 and 2008
Operating
Revenues
The following table presents a breakdown of our operating
revenues among card, cash transfer and interchange revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
50,895
|
|
|
|
45.1
|
%
|
|
$
|
46,460
|
|
|
|
52.2
|
%
|
Cash transfer revenues
|
|
|
30,509
|
|
|
|
27.1
|
|
|
|
24,391
|
|
|
|
27.4
|
|
Interchange revenues
|
|
|
31,353
|
|
|
|
27.8
|
|
|
|
18,212
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
112,757
|
|
|
|
100.0
|
%
|
|
$
|
89,063
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues Our card revenues totaled
$50.9 million in the five months ended December 31,
2009, an increase of $4.4 million, or 10%, from the
comparable period in 2008. This increase was primarily due to
period-over-period
growth of 116% in the number of GPR cards activated and 92% in
the number of active cards in our portfolio, largely offset by
the February 2009 reduction in new card and monthly maintenance
fees for the Walmart MoneyCard and the July 2009 reduction in
the new card fee for Green Dot-branded cards. These fee
reductions also contributed to the decline in card revenues as a
percentage of total operating revenues.
Cash Transfer Revenues Our cash transfer
revenues totaled $30.5 million in the five months ended
December 31, 2009, an increase of $6.1 million, or
25%, from the comparable period in 2008. This increase was
primarily due to
period-over-period
growth of 64% in the number of cash transfers sold, partially
offset by a shift in our retail distributor mix toward Walmart,
which generally has lower fees than our other retail
distributors and significantly reduced the POS swipe reload fee
in February 2009.
Interchange Revenues Our interchange revenues
totaled $31.4 million in the five months ended
December 31, 2009, an increase of $13.1 million, or
72%, from the comparable period in 2008. This increase was
primarily due to
period-over-period
growth of 92% in the number of active cards in our portfolio and
69% in gross dollar volume.
46
Operating
Expenses
The following table presents a breakdown of our operating
expenses among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
31,333
|
|
|
|
27.8
|
%
|
|
$
|
35,001
|
|
|
|
39.3
|
%
|
Compensation and benefits expenses
|
|
|
26,610
|
|
|
|
23.6
|
|
|
|
15,409
|
|
|
|
17.3
|
|
Processing expenses
|
|
|
17,480
|
|
|
|
15.5
|
|
|
|
11,765
|
|
|
|
13.2
|
|
Other general and administrative expenses
|
|
|
14,020
|
|
|
|
12.4
|
|
|
|
9,463
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
89,443
|
|
|
|
79.3
|
%
|
|
$
|
71,638
|
|
|
|
80.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses Our sales and
marketing expenses were $31.3 million in the five months
ended December 31, 2009, a decrease of $3.7 million,
or 10%, from the comparable period in 2008. This decrease was
primarily the result of a $4.3 million decline in
advertising and marketing expenses. During the 2009 comparison
period, we did no television advertising and deployed fewer new
in-store displays. The decrease in sales and marketing expenses
was also the result of a $2.7 million, or 12%, decline in
the sales commissions we paid to our retail distributors and
brokers because of reductions in the commission percentages we
paid to our retail distributors, most significantly Walmart.
These declines were partially offset by a $3.3 million
increase in our manufacturing and distribution costs due to
increased numbers of GPR cards and MoneyPaks sold.
Compensation and Benefits Expenses Our
compensation and benefits expenses were $26.6 million in
the five months ended December 31, 2009, an increase of
$11.2 million, or 73%, from the comparable period in 2008.
This increase was primarily the result of a $7.1 million
increase in employee compensation and benefits, which included a
$5.8 million increase in stock-based compensation. In
December 2009, our board of directors awarded
257,984 shares of common stock to our Chief Executive
Officer to compensate him for past services rendered to our
company. The number of shares awarded was equal to the number of
shares subject to fully vested options that unintentionally
expired unexercised in June 2009. The aggregate grant date fair
value of this award was approximately $5.2 million, based
on an estimated fair value of our common stock of $20.01, as
determined by our board of directors on the date of the award.
We recorded the aggregate grant date fair value as stock-based
compensation on the date of the award. The increase in
compensation and benefits expenses was also the result of a
$4.1 million increase in third-party contractor expenses as
the number of active cards in our portfolio and associated call
volumes grew from the five months ended December 31, 2008
to the five months ended December 31, 2009.
Processing Expenses Our processing expenses
were $17.5 million in the five months ended
December 31, 2009, an increase of $5.7 million, or
49%, from the comparable period in 2008. This increase was
primarily the result of
period-over-period
growth of 92% in the number of active cards in our portfolio,
partially offset by lower fees charged to us under agreements
with one of the banks that issue our cards and our third-party
card processor that became effective in November 2008 and by
more efficient use of our card processor through the purging of
inactive accounts and more effective use of analysis and
reporting tools.
Other General and Administrative Expenses Our
other general and administrative expenses were
$14.0 million in the five months ended December 31,
2009, an increase of $4.6 million, or 48%, from the
comparable period in 2008. This increase was primarily the
result of a $2.6 million increase in professional service
fees due to our potential bank acquisition and other corporate
development initiatives and a
47
$1.2 million increase in telephone and communication
expenses due to increased use of our call center and our IVR, as
the number of active cards in our portfolio increased.
Income Tax
Expense
|
|
|
|
|
|
|
|
|
|
|
Five Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.7
|
|
|
|
5.9
|
|
Other
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
41.7
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
Our income tax expense increased by $2.3 million to
$9.8 million in the five months ended December 31,
2009 from the comparable period in 2008, and there was a slight
decline in the effective tax rate.
Comparison of
Fiscal 2009 and 2008
Operating
Revenues
The following table presents a breakdown of our operating
revenues among card, cash transfer and interchange revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
119,356
|
|
|
|
50.8
|
%
|
|
$
|
91,233
|
|
|
|
54.3
|
%
|
Cash transfer revenues
|
|
|
62,396
|
|
|
|
26.6
|
|
|
|
45,310
|
|
|
|
26.9
|
|
Interchange revenues
|
|
|
53,064
|
|
|
|
22.6
|
|
|
|
31,583
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
234,816
|
|
|
|
100.0
|
%
|
|
$
|
168,126
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Revenues Our card revenues totaled
$119.4 million in fiscal 2009, an increase of
$28.1 million, or 31%, from fiscal 2008. This increase was
primarily due to
year-over-year
growth of 43% in the number of GPR cards activated and 62% in
the number of active cards in our portfolio, partially offset by
the February 2009 reduction in new card and monthly maintenance
fees for the Walmart MoneyCard. This reduction in fees also
contributed to the decline in card revenues as a percentage of
total operating revenues.
Cash Transfer Revenues Our cash transfer
revenues totaled $62.4 million in fiscal 2009, an increase
of $17.1 million, or 38%, from fiscal 2008. This increase
was primarily due to
year-over-year
growth of 54% in the number of cash transfers, partially offset
by a shift in our retail distributor mix toward Walmart, which
generally has lower fees than our other retail distributors and
significantly reduced the POS swipe reload fee in February 2009.
Interchange Revenues Our interchange revenues
totaled $53.1 million in fiscal 2009, an increase of
$21.5 million, or 68%, from fiscal 2008. This increase was
primarily due to
year-over-year
growth of 62% in the number of active cards in our portfolio and
68% in gross dollar volume.
48
Operating
Expenses
The following table presents a breakdown of our operating
expenses among sales and marketing, compensation and benefits,
processing, and other general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Total
|
|
|
|
|
|
% of Total
|
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
Amount
|
|
|
Operating Revenues
|
|
|
|
(In thousands, except percentages)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
$
|
75,786
|
|
|
|
32.3
|
%
|
|
$
|
69,577
|
|
|
|
41.4
|
%
|
Compensation and benefits expenses
|
|
|
40,096
|
|
|
|
17.1
|
|
|
|
28,303
|
|
|
|
16.8
|
|
Processing expenses
|
|
|
32,320
|
|
|
|
13.7
|
|
|
|
21,944
|
|
|
|
13.0
|
|
Other general and administrative expenses
|
|
|
22,944
|
|
|
|
9.8
|
|
|
|
19,124
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
171,146
|
|
|
|
72.9
|
%
|
|
$
|
138,948
|
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing Expenses Our sales and
marketing expenses were $75.8 million in fiscal 2009, an
increase of $6.2 million, or 9%, from fiscal 2008. This
increase was primarily the result of a $10.1 million, or
25%, increase in the sales commissions we paid to our retail
distributors and brokers. Aggregate commissions increased
because of increased sales, but the impact of these increased
sales was offset in part by a reduction in pricing and
commission rates at Walmart. The increase in sales and marketing
expenses was also the result of a $2.7 million increase in
our manufacturing and distribution costs due to the re-launch of
our Green Dot-branded products and increased numbers of GPR
cards and MoneyPaks sold. These sales and marketing expense
increases were partially offset by a $6.6 million decline
in advertising and marketing expenses, principally as a result
of our decision not to use television advertising during fiscal
2009.
Compensation and Benefits Expenses Our
compensation and benefits expenses were $40.1 million in
fiscal 2009, an increase of $11.8 million, or 42%, from
fiscal 2008. This increase was primarily the result of a
$9.0 million increase in employee compensation and
benefits, including a $1.2 million increase in stock-based
compensation, as our headcount grew from 209 at the end of
fiscal 2008 to 248 at the end of fiscal 2009 and we hired
several new members of management. Third-party contractor
expenses also increased by $2.8 million as the number of
active cards in our portfolio and associated call volumes grew
from fiscal 2008 to fiscal 2009.
Processing Expenses Our processing expenses
were $32.3 million in fiscal 2009, an increase of
$10.4 million, or 47%, from fiscal 2008. This increase was
primarily the result of
year-over-year
growth of 62% in the number of active cards in our portfolio.
This growth was partially offset by lower fees charged to us
under agreements with one of the banks that issue our cards and
with our third-party card processor that became effective in
November 2008 and by more efficient use of that card processor.
Other General and Administrative Expenses Our
other general and administrative expenses were
$22.9 million in fiscal 2009, an increase of
$3.8 million, or 20%, from fiscal 2008. This increase was
primarily the result of a $1.6 million increase in
telephone and communication expenses due to increased call
volumes as the number of active cards in our portfolio increased
and a $1.4 million increase in professional service fees
primarily associated with corporate development initiatives. We
also had increases of $0.4 million in rent due to
additional office space that we leased to support our increased
headcount and $0.4 million related to the write-off of
abandoned internal-use software. These increases were partially
offset by the reversal of a $0.5 million reserve that was
accrued in fiscal 2008 for a potential litigation settlement.
49
Income Tax
Expense
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.1
|
|
|
|
5.7
|
|
Other
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
42.0
|
%
|
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
|
Our income tax expense increased by $14.6 million to
$26.9 million in fiscal 2009 from fiscal 2008, and there
was a slight increase in the effective tax rate. This increase
was primarily due to the utilization in fiscal 2008 of our
remaining net operating loss carryforwards to reduce taxable
income.
Liquidity and
Capital Resources
The following table summarizes our major sources and uses of
cash for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Five Months Ended
|
|
|
Year Ended July 31,
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Total cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
83,503
|
|
|
$
|
26,121
|
|
|
$
|
35,297
|
|
|
$
|
35,006
|
|
Investing activities
|
|
$
|
(3,213
|
)
|
|
$
|
(5,063
|
)
|
|
$
|
(19,400
|
)
|
|
$
|
(5,163
|
)
|
Financing activities
|
|
$
|
30,910
|
|
|
$
|
8,681
|
|
|
$
|
(28,618
|
)
|
|
$
|
(3,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
111,200
|
|
|
$
|
29,739
|
|
|
$
|
(12,721
|
)
|
|
$
|
26,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the year ended December 31, 2010, the five months ended
December 31, 2009 and fiscal 2009 and 2008, we financed our
operations primarily through our cash flows from operations. At
December 31, 2010, our primary source of liquidity was
unrestricted cash and cash equivalents totaling
$167.5 million.
We use trend and variance analyses to project future cash needs,
making adjustments to the projections when needed. We believe
that our current unrestricted cash and cash equivalents and cash
flows from operations will be sufficient to meet our working
capital and capital expenditure requirements for at least the
next twelve months. Thereafter, we may need to raise additional
funds through public or private financings or borrowings. Any
additional financing we require may not be available on terms
that are favorable to us, or at all. If we raise additional
funds through the issuance of equity or convertible debt
securities, our existing stockholders could suffer significant
dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders
of our Class A and Class B common stock. No assurance
can be given that additional financing will be available or
that, if available, such financing can be obtained on terms
favorable to our stockholders and us.
In February 2010, we entered into a definitive agreement for our
proposed bank acquisition. Under the terms of the agreement, we
have agreed to acquire all of the outstanding common shares and
voting interest of Bonneville Bancorp for an aggregate purchase
price of approximately $15.7 million in cash. We plan to
pay for the acquisition with existing cash balances. Our
proposed bank acquisition is subject to regulatory approval and
other customary closing conditions. The parties intend to
consummate the transaction as soon as practicable following
regulatory approval of our proposed bank acquisition, although
there can be no assurance that we will obtain regulatory
approval or that our proposed bank acquisition will close.
50
Cash Flows
from Operating Activities
Our $83.5 million of net cash provided by operating
activities in the year ended December 31, 2010 principally
resulted from $42.2 million of net income and adjustments
for non-cash operating expenses of $49.2 million.
Our $26.1 million of net cash provided by operating
activities in the five months ended December 31, 2009
resulted from $13.7 million of net income and adjustments
for non-cash operating expenses of $22.1 million.
Our $35.3 million of net cash provided by operating
activities in fiscal 2009 resulted from $37.2 million of
net income and adjustments for non-cash operating expenses of
$28.3 million, offset by settlement payments to banks that
issue our cards amounts due to them for overdrawn card accounts.
During fiscal 2009, we amended our agreement with one of the
banks that issue our cards, expediting the settlement timing of
these amounts.
Our $35.0 million of net cash provided by operating
activities in fiscal 2008 resulted from $17.3 million of
net income and adjustments for non-cash operating expenses of
$21.3 million.
Cash Flows
from Investing Activities
Our $3.2 million of net cash used in investing activities
in the year ended December 31, 2010 consisted of payments
for acquisition of property and equipment of $13.5 million
partially offset by a $10.2 million decrease in restricted
cash. Our net cash used in investing activities in the five
months ended December 31, 2009 consisted almost entirely of
payments for acquisition of property and equipment of
$5.1 million. Our net cash used in investing activities in
fiscal 2009 consisted of an increase in restricted cash of
$13.0 million and payments for acquisition of property and
equipment of $6.4 million. In fiscal 2009, we renewed our
line of credit, which is used to fund timing differences between
funds remitted by our retail distributors to the banks that
issue our cards and funds utilized by our cardholders, and
elected to increase our restricted deposits to
$15.0 million at the lending institution as collateral in
order to reduce the commitment fees we would incur on this line
of credit.
Cash Flows
from Financing Activities
Our $30.9 million of net cash provided by financing
activities in the year ended December 31, 2010 was the
result of excess tax benefits and proceeds from the exercise of
stock options and warrants in connection with our public
offerings. Our $8.7 million of net cash provided by
financing activities for the five months ended December 31,
2009 was the result of the repayment to us of $5.9 million
of related party notes receivable and excess tax benefits and
proceeds from the exercise of stock options for an aggregate of
$2.8 million. Our $28.6 million of net cash used in
financing activities in fiscal 2009 was primarily associated
with the redemption in full of our Series D redeemable
preferred stock. We entered into an agreement in December 2008
with the sole holder of these securities to pay
$39.2 million for an early redemption of all outstanding
shares of our Series D redeemable preferred stock and the
purchase of a call option on a common stock warrant held by this
stockholder. In June 2009, we exercised the call option on the
warrant for $2.0 million. We also received proceeds of
$13.0 million related to the issuance of our
Series C-2
preferred stock in fiscal 2009. Our $3.3 million of net
cash used in financing activities in fiscal 2008 resulted from
net repayments on our line of credit of $2.5 million and
principal payments on our short-term debt of $2.4 million,
offset by excess tax benefits and proceeds from the exercise of
stock options for an aggregate of $1.7 million.
Contractual
Obligations and Commitments
Our contractual commitments will have an impact on our future
liquidity. The following table summarizes our contractual
obligations, including both on- and off-balance sheet
transactions that represent material
51
expected or contractually committed future obligations, at
December 31, 2010. We believe that we will be able to fund
these obligations through cash generated from operations and
from our existing cash balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less than
|
|
|
|
|
|
More than
|
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
5 Years
|
|
Long-term debt obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
4,246
|
|
|
|
2,212
|
|
|
|
1,563
|
|
|
|
471
|
|
|
|
|
|
Purchase obligations(1)
|
|
|
36,066
|
|
|
|
27,201
|
|
|
|
8,865
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,312
|
|
|
$
|
29,413
|
|
|
$
|
10,428
|
|
|
$
|
471
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Primarily future minimum payments under agreements with vendors
and our retail distributors. See note 13 of the notes to
our audited consolidated financial statements. |
Off-Balance Sheet
Arrangements
During the year ended December 31, 2010, the five months
ended December 31, 2009 and fiscal 2009 and 2008, we did
not have any relationships with unconsolidated organizations or
financial partnerships, such as structured finance or special
purpose entities that would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk is the potential for economic losses from changes in
market factors such as foreign currency exchange rates, credit,
interest rates and equity prices. We believe that we have
limited exposure to risks associated with changes in foreign
currency exchange rates, interest rates and equity prices. We
have no foreign operations, and we do not transact business in
foreign currencies. We do not hold or enter into derivatives or
other financial instruments for trading or speculative purposes.
We do not consider our cash and cash equivalents to be subject
to interest rate risk due to their short periods of time to
maturity.
We do have exposure to credit and liquidity risk associated with
the financial institutions that hold our cash, cash equivalents
and restricted cash, our settlement assets due from our retail
distributors that collect funds and fees from our customers, and
amounts due from our issuing banks for fees collected on our
behalf.
We manage the credit and liquidity risk associated with our cash
and cash equivalents and amounts due from issuing banks by
maintaining an investment policy that restricts our
correspondent banking relationships to approved, well
capitalized institutions and restricts investments to highly
liquid, low credit risk related assets. Our policy has limits
related to liquidity ratios, the concentration that we may have
with a single institution or issuer and effective maturity dates
as well as restrictions on the type of assets that may be
invested in. The management Asset Liability Committee is
responsible for monitoring compliance with our Capital Asset
Liability Management policy and related limits on an ongoing
basis, and reports regularly to the audit committee of our board
of directors.
Our exposure to credit risk associated with our retail
distributors is mitigated due to the short time period,
currently an average of three days, that retailer settlement
assets are outstanding. We perform an initial credit review and
assign a credit limit to each new retail distributor . We
monitor each retail distributors settlement asset exposure
and its compliance with its specified contractual settlement
terms on a daily basis and assess their credit limit and
financial condition on a periodic basis. The management
Enterprise Risk Management Committee is responsible for
monitoring our retail distributor exposure and assigning credit
limits and reports regularly to the audit committee of our board
of directors.
52
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements
All financial statement schedules have been omitted, since the
required information is not applicable or is not present in
amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated
financial statements and notes thereto.
53
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Green Dot Corporation
We have audited the accompanying consolidated balance sheets of
Green Dot Corporation (the Company) as of December 31, 2010
and 2009, and the related consolidated statements of operations,
changes in redeemable convertible preferred stock and in
stockholders equity (deficit), and cash flows for the year
ended December 31, 2010, for the five months ended
December 31, 2009, and for each of the two years in the
period ended July 31, 2009. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Green Dot Corporation at December 31,
2010 and 2009, and the related consolidated statements of
operations, changes in redeemable convertible preferred stock
and in stockholders equity (deficit), and cash flows for
the year ended December 31, 2010, for the five months ended
December 31, 2009, and for each of the two years in the
period ended July 31, 2009, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
February 25, 2011
54
GREEN DOT
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except par value)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Unrestricted cash and cash equivalents
|
|
$
|
167,503
|
|
|
$
|
56,303
|
|
Settlement assets
|
|
|
19,968
|
|
|
|
42,569
|
|
Accounts receivable, net
|
|
|
33,412
|
|
|
|
29,157
|
|
Prepaid expenses and other assets
|
|
|
8,608
|
|
|
|
7,262
|
|
Income tax receivable
|
|
|
15,004
|
|
|
|
5,452
|
|
Net deferred tax assets
|
|
|
5,398
|
|
|
|
4,634
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
249,893
|
|
|
|
145,377
|
|
Restricted cash
|
|
|
5,135
|
|
|
|
15,381
|
|
Accounts receivable, net
|
|
|
2,549
|
|
|
|
1,130
|
|
Prepaid expenses and other assets
|
|
|
643
|
|
|
|
1,047
|
|
Property and equipment, net
|
|
|
18,034
|
|
|
|
11,973
|
|
Deferred expenses
|
|
|
9,504
|
|
|
|
8,200
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
285,758
|
|
|
$
|
183,108
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,625
|
|
|
$
|
9,777
|
|
Settlement obligations
|
|
|
19,968
|
|
|
|
42,569
|
|
Amounts due to card issuing banks for overdrawn accounts
|
|
|
35,068
|
|
|
|
23,422
|
|
Other accrued liabilities
|
|
|
21,633
|
|
|
|
13,916
|
|
Deferred revenue
|
|
|
17,214
|
|
|
|
15,048
|
|
Total current liabilities
|
|
|
111,508
|
|
|
|
104,732
|
|
Other accrued liabilities
|
|
|
3,737
|
|
|
|
2,761
|
|
Deferred revenue
|
|
|
44
|
|
|
|
97
|
|
Net deferred tax liabilities
|
|
|
5,338
|
|
|
|
4,154
|
|
Total liabilities
|
|
|
120,627
|
|
|
|
111,744
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.001 par value: 5,000 and
25,554 shares authorized as of December 31, 2010 and 2009,
respectively; no shares issued and outstanding as of
December 31, 2010, 24,942 shares issued and
outstanding as of December 31, 2009; liquidation preference
of $0 as of December 31, 2010 and $31,322 as of
December 31, 2009
|
|
|
|
|
|
|
31,322
|
|
Class A common stock, $0.001 par value;
100,000 shares authorized as of December 31, 2010, no
shares authorized as of December 31, 2009;
14,762 shares issued and outstanding as of
December 31, 2010, no shares issued and outstanding as of
December 31, 2009
|
|
|
13
|
|
|
|
|
|
Class B convertible common stock, $0.001 par value,
100,000 and 50,000 shares authorized as of
December 31, 2010 and 2009, respectively; 27,091 and
12,860 shares issued and outstanding as of
December 31, 2010 and 2009, respectively
|
|
|
27
|
|
|
|
13
|
|
Additional paid-in capital
|
|
|
95,433
|
|
|
|
12,603
|
|
Retained earnings
|
|
|
69,658
|
|
|
|
27,426
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
165,131
|
|
|
|
71,364
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
285,758
|
|
|
$
|
183,108
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statement
55
GREEN DOT
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Five Months Ended
|
|
|
Year Ended July 31,
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card revenues
|
|
$
|
167,375
|
|
|
$
|
50,895
|
|
|
$
|
119,356
|
|
|
$
|
91,233
|
|
Cash transfer revenues
|
|
|
101,502
|
|
|
|
30,509
|
|
|
|
62,396
|
|
|
|
45,310
|
|
Interchange revenues
|
|
|
108,380
|
|
|
|
31,353
|
|
|
|
53,064
|
|
|
|
31,583
|
|
Stock-based retailer incentive compensation
|
|
|
(13,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
363,888
|
|
|
|
112,757
|
|
|
|
234,816
|
|
|
|
168,126
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
122,890
|
|
|
|
31,333
|
|
|
|
75,786
|
|
|
|
69,577
|
|
Compensation and benefits expenses
|
|
|
70,102
|
|
|
|
26,610
|
|
|
|
40,096
|
|
|
|
28,303
|
|
Processing expenses
|
|
|
56,978
|
|
|
|
17,480
|
|
|
|
32,320
|
|
|
|
21,944
|
|
Other general and administrative expenses
|
|
|
44,599
|
|
|
|
14,020
|
|
|
|
22,944
|
|
|
|
19,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
294,569
|
|
|
|
89,443
|
|
|
|
171,146
|
|
|
|
138,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
69,319
|
|
|
|
23,314
|
|
|
|
63,670
|
|
|
|
29,178
|
|
Interest income
|
|
|
365
|
|
|
|
115
|
|
|
|
396
|
|
|
|
665
|
|
Interest expense
|
|
|
(52
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
69,632
|
|
|
|
23,427
|
|
|
|
64,065
|
|
|
|
29,596
|
|
Income tax expense
|
|
|
27,400
|
|
|
|
9,764
|
|
|
|
26,902
|
|
|
|
12,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
42,232
|
|
|
$
|
13,663
|
|
|
$
|
37,163
|
|
|
$
|
17,335
|
|
Dividends, accretion, and allocated earnings of preferred stock
|
|
|
(14,659
|
)
|
|
|
(9,170
|
)
|
|
|
(29,000
|
)
|
|
|
(13,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stockholders
|
|
$
|
27,573
|
|
|
$
|
4,493
|
|
|
$
|
8,163
|
|
|
$
|
3,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
1.06
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
$
|
1.06
|
|
|
$
|
0.37
|
|
|
$
|
0.68
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
|
21,589
|
|
|
|
12,222
|
|
|
|
12,036
|
|
|
|
10,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
$
|
0.98
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
$
|
0.98
|
|
|
$
|
0.29
|
|
|
$
|
0.52
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
27,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
|
24,796
|
|
|
|
15,425
|
|
|
|
15,712
|
|
|
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
56
GREEN DOT
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND IN STOCKHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Total
|
|
|
|
Redeemable Convertible
|
|
|
Convertible Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Related
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Paid-in
|
|
|
Party Notes
|
|
|
(Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit)
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
2,926
|
|
|
$
|
22,336
|
|
|
|
23,837
|
|
|
$
|
18,345
|
|
|
|
|
|
|
$
|
|
|
|
|
10,194
|
|
|
$
|
10
|
|
|
$
|
539
|
|
|
$
|
(4,922
|
)
|
|
$
|
(25,102
|
)
|
|
$
|
(11,130
|
)
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559
|
|
|
|
2
|
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
1,623
|
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
1,240
|
|
Accretion fo redeemable convertible preferred stock
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,480
|
)
|
|
|
(4,480
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,335
|
|
|
|
17,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2008
|
|
|
2,926
|
|
|
|
26,816
|
|
|
|
23,837
|
|
|
|
18,345
|
|
|
|
|
|
|
|
|
|
|
|
11,753
|
|
|
|
12
|
|
|
|
3,593
|
|
|
|
(5,235
|
)
|
|
|
(12,247
|
)
|
|
|
4,468
|
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
415
|
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
|
|
|
|
(364
|
)
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,468
|
|
|
|
|
|
|
|
|
|
|
|
2,468
|
|
Accretion fo redeemable convertible preferred stock
|
|
|
|
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,956
|
)
|
|
|
(1,956
|
)
|
Issuance of new shares and repurchase of existing shares, net
|
|
|
(2,926
|
)
|
|
|
(28,772
|
)
|
|
|
1,105
|
|
|
|
12,977
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(1,778
|
)
|
|
|
|
|
|
|
(9,197
|
)
|
|
|
2,002
|
|
Exercise of call option on warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,163
|
|
|
|
37,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
24,942
|
|
|
|
31,322
|
|
|
|
|
|
|
|
|
|
|
|
12,040
|
|
|
|
12
|
|
|
|
2,955
|
|
|
|
(5,814
|
)
|
|
|
13,763
|
|
|
|
42,238
|
|
Exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
|
1
|
|
|
|
2,811
|
|
|
|
|
|
|
|
|
|
|
|
2,812
|
|
Interest on related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
Repayment of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,869
|
|
|
|
|
|
|
|
5,869
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
6,782
|
|
|
|
|
|
|
|
|
|
|
|
6,782
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,663
|
|
|
|
13,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
24,942
|
|
|
|
31,322
|
|
|
|
|
|
|
|
|
|
|
|
12,860
|
|
|
|
13
|
|
|
|
12,603
|
|
|
|
|
|
|
|
27,426
|
|
|
|
71,364
|
|
Exercise of options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,840
|
|
|
|
2
|
|
|
|
30,873
|
|
|
|
|
|
|
|
|
|
|
|
30,875
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
7,256
|
|
|
|
|
|
|
|
|
|
|
|
7,256
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Total
|
|
|
|
Redeemable Convertible
|
|
|
Convertible Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Related
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Paid-in
|
|
|
Party Notes
|
|
|
(Accumulated
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit)
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Stock-based retailer incentive compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,369
|
|
|
|
|
|
|
|
|
|
|
|
13,369
|
|
Conversion of preferred stock upon IPO
|
|
|
|
|
|
|
|
|
|
|
(24,942
|
)
|
|
|
(31,322
|
)
|
|
|
|
|
|
|
|
|
|
|
24,942
|
|
|
|
25
|
|
|
|
31,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B common stock upon IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,242
|
|
|
|
5
|
|
|
|
(5,242
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B common stock upon follow-on offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,686
|
|
|
|
4
|
|
|
|
(3,686
|
)
|
|
|
(4
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Conversion of Class B common stock by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,625
|
|
|
|
4
|
|
|
|
(3,625
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,232
|
|
|
|
42,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
14,762
|
|
|
$
|
13
|
|
|
|
27,091
|
|
|
$
|
27
|
|
|
$
|
95,433
|
|
|
$
|
|
|
|
$
|
69,658
|
|
|
$
|
165,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
58
GREEN DOT
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Five Months Ended
|
|
|
Year Ended July 31,
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
42,232
|
|
|
$
|
13,663
|
|
|
$
|
37,163
|
|
|
$
|
17,335
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,588
|
|
|
|
2,254
|
|
|
|
4,593
|
|
|
|
4,407
|
|
Provision for uncollectible overdrawn accounts
|
|
|
46,093
|
|
|
|
11,218
|
|
|
|
22,548
|
|
|
|
16,135
|
|
Employee stock-based compensation
|
|
|
7,256
|
|
|
|
6,782
|
|
|
|
2,468
|
|
|
|
1,240
|
|
Stock-based retailer incentive compensation
|
|
|
13,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for uncollectible trade receivables
|
|
|
(13
|
)
|
|
|
60
|
|
|
|
61
|
|
|
|
50
|
|
Impairment of capitalized software
|
|
|
409
|
|
|
|
77
|
|
|
|
405
|
|
|
|
|
|
Deferred income taxes
|
|
|
(704
|
)
|
|
|
3,530
|
|
|
|
(1,731
|
)
|
|
|
40
|
|
Excess tax benefits from exercise of options
|
|
|
(24,842
|
)
|
|
|
(1,866
|
)
|
|
|
|
|
|
|
(524
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement assets
|
|
|
22,601
|
|
|
|
(6,999
|
)
|
|
|
(18,125
|
)
|
|
|
(2,033
|
)
|
Accounts receivable, net
|
|
|
(51,754
|
)
|
|
|
(20,241
|
)
|
|
|
(29,853
|
)
|
|
|
(24,717
|
)
|
Prepaid expenses and other assets
|
|
|
(1,042
|
)
|
|
|
(919
|
)
|
|
|
(903
|
)
|
|
|
(2,263
|
)
|
Deferred expenses
|
|
|
(1,304
|
)
|
|
|
(5,548
|
)
|
|
|
2,297
|
|
|
|
(2,750
|
)
|
Accounts payable and accrued liabilities
|
|
|
16,042
|
|
|
|
8,135
|
|
|
|
3,170
|
|
|
|
4,665
|
|
Settlement obligations
|
|
|
(22,601
|
)
|
|
|
6,999
|
|
|
|
18,125
|
|
|
|
4,529
|
|
Amounts due issuing bank for overdrawn accounts
|
|
|
11,646
|
|
|
|
5,153
|
|
|
|
(5,309
|
)
|
|
|
10,785
|
|
Deferred revenue
|
|
|
2,113
|
|
|
|
7,603
|
|
|
|
(978
|
)
|
|
|
4,394
|
|
Income tax payable/receivable
|
|
|
16,414
|
|
|
|
(3,780
|
)
|
|
|
1,366
|
|
|
|
3,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
83,503
|
|
|
|
26,121
|
|
|
|
35,297
|
|
|
|
35,006
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in restricted cash
|
|
|
10,246
|
|
|
|
(14
|
)
|
|
|
(13,039
|
)
|
|
|
(43
|
)
|
Payments for acquisition of property and equipment
|
|
|
(13,459
|
)
|
|
|
(5,049
|
)
|
|
|
(6,361
|
)
|
|
|
(5,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,213
|
)
|
|
|
(5,063
|
)
|
|
|
(19,400
|
)
|
|
|
(5,163
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,446
|
)
|
Repayments on line of credit
|
|
|
|
|
|
|
|
|
|
|
(12,404
|
)
|
|
|
(76,961
|
)
|
Borrowings from line of credit
|
|
|
|
|
|
|
|
|
|
|
12,404
|
|
|
|
74,465
|
|
Proceeds from exercise of warrants and options
|
|
|
6,068
|
|
|
|
946
|
|
|
|
110
|
|
|
|
1,154
|
|
Excess tax benefits from exercise of options
|
|
|
24,842
|
|
|
|
1,866
|
|
|
|
|
|
|
|
524
|
|
Exercise of call option on warrant
|
|
|
|
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
|
|
Issuance of preferred shares and freestanding warrant
|
|
|
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
Redemption of preferred and common shares
|
|
|
|
|
|
|
|
|
|
|
(39,770
|
)
|
|
|
|
|
Proceeds from the repayment of related party notes receivable
|
|
|
|
|
|
|
5,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
30,910
|
|
|
|
8,681
|
|
|
|
(28,618
|
)
|
|
|
(3,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in unrestricted cash and cash equivalents
|
|
|
111,200
|
|
|
|
29,739
|
|
|
|
(12,721
|
)
|
|
|
26,579
|
|
Unrestricted cash and cash equivalents, beginning of year
|
|
|
56,303
|
|
|
|
26,564
|
|
|
|
39,285
|
|
|
|
12,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash and cash equivalents, end of year
|
|
$
|
167,503
|
|
|
$
|
56,303
|
|
|
$
|
26,564
|
|
|
$
|
39,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
100
|
|
Cash paid for income taxes
|
|
$
|
14,282
|
|
|
$
|
10,032
|
|
|
$
|
27,403
|
|
|
$
|
8,104
|
|
See notes to consolidated financial statements
59
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Green Dot Corporation (we, us and
our refer to Green Dot Corporation and its
wholly-owned subsidiaries, Next Estate Communications, Inc. and
Green Dot Acquisition Corp.) is one of the leading providers of
general purpose reloadable prepaid debit cards and cash loading
and transfer services in the United States. Our products include
Green Dot MasterCard and Visa-branded prepaid debit cards and
several co-branded reloadable prepaid card programs,
collectively referred to as our GPR cards; Visa-branded gift
cards; and our MoneyPak and swipe reload proprietary products,
collectively referred to as our cash transfer products, which
enable cash loading and transfer services through our Green Dot
Network. The Green Dot Network enables consumers to use cash to
reload our prepaid debit cards or to transfer cash to any of our
Green Dot Network acceptance members, including competing
prepaid card programs and other online accounts.
We market our cards and financial services to banked,
underbanked and unbanked consumers in the United States using
distribution channels other than traditional bank branches, such
as third-party retailer locations nationwide and the Internet.
Our prepaid debit cards are issued by third-party issuing banks,
and we have relationships with several card issuers, including
GE Money Bank and Columbus Bank and Trust Company, a
division of Synovus Bank. We also have distribution arrangements
with many large and medium-sized retailers, such as Walmart,
Walgreens, CVS, Rite Aid, 7-Eleven, Kroger, Kmart, Meijer and
Radio Shack, and with various industry resellers, such as Incomm
and PaySpot. We refer to participating retailers collectively as
our retail distributors.
Initial Public
Offering
On July 27, 2010, we completed an initial public offering
of 5,241,758 shares of our Class A common stock at an
initial public offering price of $36.00 per share, all of which
were sold by existing stockholders. We did not receive any
proceeds from the sale of shares of our Class A common
stock in the offering. Concurrent with the completion of the
initial public offering, certain selling stockholders exercised
a warrant to purchase 283,786 shares of
Series C-1
preferred stock at an exercise price of $1.41 per share and
vested options to purchase 377,840 shares of Class B
common stock with a weighted-average exercise price of $2.63 in
order to sell the underlying shares of Class A common stock
in the offering. We received aggregate proceeds of
$1.4 million from these exercises. Additionally, all of our
outstanding shares of convertible preferred stock were
automatically converted to 24,941,421 shares of our
Class B common stock, and all shares of our Class B
common stock sold in the offering were automatically converted
into a like number of Class A common stock.
|
|
Note 2
|
Summary of
Significant Accounting Policies
|
Basis of
Presentation
We have prepared the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States, or GAAP. We have eliminated all
significant intercompany balances and transactions in
consolidation. Our results of operations for the year ended
December 31, 2010, the five months ended December 31,
2009 and the years ended July 31, 209 and 2008 are not
necessarily indicative of future results.
We consider an operating segment to be any component of our
business whose operating results are regularly reviewed by our
chief operating decision-maker to make decisions about resources
to be allocated to the segment and assess its performance based
on discrete financial information. Our Chief Executive Officer,
our chief operating decision-maker, reviews our operating
results on an aggregate basis and manages our operations and the
allocation of resources as a single operating
segment prepaid cards and related services.
60
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
We have evaluated subsequent events through the date that the
financial statements were issued, based on the accounting
guidance for subsequent events. Based on our evaluation, we did
not identify any recognized or nonrecognized subsequent events
that would have required adjustment to or disclosure in the
consolidated financial statements.
Change in Fiscal
Year
On September 29, 2009, our board of directors approved a
change to our fiscal year-end from July 31 to December 31.
Included in this report is the transition period for the five
months ended December 31, 2009. Accordingly, these
financial statements present our financial position as of
December 31, 2010, December 31, 2009 and July 31,
2009, and the results of our operations, changes in redeemable
convertible preferred stock and in stockholders equity and
cash flows for the year ended December 31, 2010, five
months ended December 31, 2009 and years ended
July 31, 2009 and 2008.
Unaudited
Comparative Financial Information
As a result of our change in fiscal year-end, we have presented
below, for comparative purposes, our unaudited consolidated
statement of operations and condensed consolidated statement of
cash flows for the five months ended December 31, 2008. In
our opinion, the unaudited consolidated financial information
reflects all adjustments, consisting of normal and recurring
adjustments, necessary for the fair presentation of the results
of our operations and our cash flows for the five months ended
December 31, 2008.
|
|
|
|
|
|
|
Five Months Ended
|
|
|
|
December 31, 2008
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Operating revenues:
|
|
|
|
|
Card revenues
|
|
$
|
46,460
|
|
Cash transfer revenues
|
|
|
24,391
|
|
Interchange revenues
|
|
|
18,212
|
|
|
|
|
|
|
Total operating revenues
|
|
|
89,063
|
|
Operating expenses:
|
|
|
|
|
Sales and marketing expenses
|
|
|
35,001
|
|
Compensation and benefits expenses
|
|
|
15,409
|
|
Processing expenses
|
|
|
11,765
|
|
Other general and administrative expenses
|
|
|
9,463
|
|
|
|
|
|
|
Total operating expenses
|
|
|
71,638
|
|
Operating income
|
|
|
17,425
|
|
Interest income
|
|
|
255
|
|
Interest expense
|
|
|
(1
|
)
|
|
|
|
|
|
Income before income taxes
|
|
|
17,679
|
|
Income tax expense
|
|
|
7,424
|
|
|
|
|
|
|
Net income
|
|
|
10,255
|
|
Dividends, accretion, and allocated earnings of preferred stock
|
|
|
(11,153
|
)
|
|
|
|
|
|
Net loss allocated to common stockholders
|
|
$
|
(898
|
)
|
|
|
|
|
|
61
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
|
|
|
|
|
|
|
Five Months Ended
|
|
|
|
December 31, 2008
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Loss per common share
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.07
|
)
|
Weighted-average common shares issued and outstanding
|
|
|
12,028
|
|
Weighted-average diluted common shares issued and outstanding
|
|
|
12,028
|
|
|
|
|
|
|
|
|
Five Months Ended
|
|
|
|
December 31, 2008
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
5,999
|
|
Net cash used in operating activities
|
|
|
(2,452
|
)
|
Net cash used in financing activities
|
|
|
(26,140
|
)
|
|
|
|
|
|
Net decrease in unrestricted cash and cash equivalents
|
|
$
|
(22,593
|
)
|
|
|
|
|
|
Use of Estimates
and Assumptions
The preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements,
including the accompanying notes. We base our estimates and
assumptions on historical factors, current circumstances, and
the experience and judgment of management. We evaluate our
estimates and assumptions on an ongoing basis. Actual results
could differ from those estimates.
Unrestricted Cash
and Cash Equivalents
We consider all unrestricted highly liquid investments with an
original maturity of three months or less to be unrestricted
cash and cash equivalents.
Restricted
Cash
We maintain restricted deposits in bank accounts to
collateralize our line of credit.
Settlement Assets
and Obligations
Our retail distributors collect customer funds for purchases of
new cards and cash transfer products and then remit these funds
directly to bank accounts established for the benefit of these
customers by the third-party card issuing banks. The remittance
of these funds by our retail distributors takes an average of
three business days.
Settlement assets represent the amounts due from our retail
distributors for customer funds collected at the point of sale
that have not yet been remitted to the card issuing banks.
Settlement obligations represent the amounts due from us to the
card issuing banks for funds collected but not yet remitted by
our retail distributors and not funded by our line of credit.
We have no control over or access to customer funds remitted by
our retail distributors to the bank accounts. Customer funds
therefore are not our assets, and we do not recognize them in
our consolidated financial statements. As of December 31,
2010 and 2009, total funds held in the bank accounts for the
62
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
benefit of our customers totaled $251.8 million and
$194.1 million, respectively, of which $9.4 million
and $19.8 million, respectively, related to funds for
prepaid debit cards and cash transfer products that had not yet
been activated by the customers.
Accounts
Receivable, Net
Accounts receivable is comprised principally of receivables due
from card issuing banks, overdrawn account balances due from
cardholders, trade accounts receivable and other receivables. We
record accounts receivable net of reserves for estimated
uncollectible accounts. Receivables due from card issuing banks
primarily represent revenue-related funds collected by the card
issuing banks from our retail distributors, merchant banks and
cardholders that have yet to be remitted to us. These
receivables are generally collected within a short period of
time based on the remittance terms in our agreements with the
card issuing banks.
Overdrawn Account
Balances Due from Cardholders and Reserve for Uncollectible
Overdrawn Accounts
Cardholder account overdrafts may arise from maintenance fee
assessments on our GPR cards or from purchase transactions that
we honor on GPR or gift cards, in each case in excess of the
funds in a cardholders account. We are exposed to losses
from unrecovered cardholder account overdrafts. We establish a
reserve for uncollectible overdrawn accounts. We classify
overdrawn accounts into age groups based on the number of days
that have elapsed since an account has had activity, such as a
purchase, ATM transaction or maintenance fee assessment. We
calculate a reserve factor for each age group based on the
average recovery rate for the most recent six months. These
factors are applied to these age groups to estimate our overall
reserve. When more than 90 days have passed without
activity in an account, we consider recovery to be remote and
write off the full amount of the overdrawn account balance. We
include our provision for uncollectible overdrawn accounts
related to maintenance fees as an offset to card revenues in the
accompanying consolidated statements of operations. We include
our provision for uncollectible overdrawn accounts related to
purchase transactions in other general and administrative
expenses in the accompanying consolidated statements of
operations.
Property and
Equipment
We carry our property and equipment at cost less accumulated
depreciation and amortization. We generally compute depreciation
on property and equipment using the straight-line method over
the estimated useful lives of the assets, except for
internal-use software in development, which is not depreciated.
We generally compute amortization on tenant improvements using
the straight-line method over the shorter of the related lease
term or estimated useful lives of the improvements. We expense
expenditures for maintenance and repairs as incurred.
The estimated useful lives of the respective classes of assets
are as follows:
|
|
|
Computer equipment, furniture and office equipment
|
|
3-4 years
|
Computer software purchased
|
|
3 years
|
Capitalized internal-use software
|
|
2 years
|
Tenant improvements
|
|
Shorter of the useful life or the lease term
|
We capitalize certain internal and external costs incurred to
develop internal-use software during the application development
stage. We also capitalize the cost of specified upgrades and
enhancements to internal-use software that result in additional
functionality. Once a development project is substantially
63
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
complete and the software is ready for its intended use, we
begin depreciating these costs on a straight-line basis over the
internal-use softwares estimated useful life.
Impairment of
Long Lived Assets
We evaluate long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of expected
undiscounted future cash flows from an asset is less than the
carrying amount of the asset, we recognize an impairment loss.
We measure the loss as the amount by which the carrying amount
exceeds its fair value calculated using the present value of
estimated net future cash flows. Included in other general and
administrative expenses in our consolidated statements of
operations for the year ended December 31, 2010, the five
months ended December 31, 2009 and the year ended
July 31, 2009 were $409,000, $77,000 and $405,000,
respectively, of recognized impairment losses on internal-use
software. We identified no indicators of impairment during the
year ended July 31, 2008.
Amounts Due to
Card Issuing Banks for Overdrawn Accounts
Our card issuing banks fund overdrawn cardholder account
balances on our behalf. Amounts funded are due from us to the
card issuing banks based on terms specified in the agreements
with the card issuing banks. Generally, we expect to settle
these obligations within 12 months.
Amounts Due Under
Line of Credit
After a consumer purchases a new card or cash transfer product
at a retail location, we make the funds immediately available
once the consumer goes online or calls a toll-free number to
activate the new card or add funds from a cash transfer product.
Since our retail distributors do not remit funds to our card
issuing banks, on average, for three business days, we maintain
a line of credit with certain card issuing banks that is
available to fund any cash requirements related to the timing
difference between funds remitted by our retail distributors to
the card issuing banks and funds utilized by consumers. We repay
any draws on this line of credit when our retail distributors
remit the funds to the card issuing banks bank accounts.
Revenue
Recognition
Our operating revenues consist of card revenues, cash transfer
revenues and interchange revenues. 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.
Card revenues consist of new card fees, monthly maintenance
fees, ATM fees, and other revenues. We charge new card fees when
a consumer purchases a new card in a retail store. We defer and
recognize new card fee revenues on a straight-line basis over
our average card lifetime, which is currently nine months for
our GPR cards and six months for our gift cards. We determine
the average card lifetime based on our recent historical data
for comparable products. We measure card lifetime for our GPR
cards as the period of time, inclusive of reload activity,
between sale (or activation) of the card and the date of the
last positive balance. We measure the card lifetime for our gift
cards as the redemption period during which cardholders perform
the substantial majority of their transactions. We reassess
average card lifetime quarterly. We report the unearned portion
of new card fees as a component of deferred revenue in our
consolidated balance sheets. We charge maintenance fees on a
monthly basis pursuant to the terms and conditions in the
applicable cardholder agreements. We recognize monthly
maintenance fees ratably over the month for which they are
assessed. We charge ATM fees to cardholders when they withdraw
money or
64
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
conduct other transactions at certain ATMs in accordance with
the terms and conditions in the applicable cardholder
agreements. We recognize ATM fees when the withdrawal is made by
the cardholder, which is the same time our service is completed
and the fees are assessed. Other revenues consist of customer
service fees, and fees associated with optional products or
services, which we generally offer to consumers during the card
activation process. We charge customer service fees pursuant to
the terms and conditions in the applicable cardholder agreements
and recognize them when the underlying services are completed.
Optional products and services that generate other revenues
include providing a second card for an account, expediting
delivery of the personalized debit card that replaces the
temporary card obtained at the retail store, and upgrading a
cardholder account to one of our upgrade programs. We generally
recognize revenue related to optional products and services when
the underlying services are completed, but we treat revenues
related to our upgrade programs in a manner similar to new card
fees and monthly maintenance fees.
We generate cash transfer revenues when consumers purchase our
cash transfer products (reload services) in a retail store. We
recognize these revenues when the cash transfer transactions are
completed, generally within three business days from the time of
sale of these products.
We earn interchange revenues from fees remitted by the
merchants bank, which are based on rates established by
Visa and MasterCard, when cardholders make purchase transactions
using our cards. We recognize interchange revenues as these
transactions occur.
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 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 $82.4 million for the year ended
December 31,
65
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
2010, $19.0 million for the five months ended
December 31, 2009, and $50.8 million and
$40.7 million for the years ended July 31, 2009 and
2008, respectively.
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
$15.6 million for the year ended December 31, 2010,
$1.5 million for the five months ended December 31,
2009, and $7.0 million and $13.6 million for the years
ended July 31, 2009 and 2008, respectively.
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 $24.9 million for the year ended December 31,
2010, $10.8 million for the five months ended
December 31, 2009, and $18.0 million and
$15.3 million for the years ended July 31, 2009 and
2008, respectively. Included in our manufacturing and
distributing costs were shipping and handling costs of
$2.7 million, $1.2 million, and $2.3 million and
$1.3 million for the year ended December 31, 2010,
five months ended December 31, 2009, and years ended
July 31, 2009 and 2008, respectively. 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
Effective August 1, 2006, we adopted a new accounting
standard using the prospective transition method, which required
compensation expense to be recognized on a prospective basis.
Compensation expense recognized relates to stock options
granted, modified, repurchased, or cancelled on or after
August 1, 2006 and stock purchases under our employee stock
purchase plan, or ESPP. We record compensation expense using the
fair value method of accounting. For stock options and stock
purchases under our ESPP, we base compensation expense on fair
values estimated at the grant date using the Black-Scholes
option-pricing model. For stock awards, we base compensation
expense on the estimated 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.
We continue to account for stock options granted to employees
prior to August 1, 2006, using the intrinsic value method.
Under the intrinsic value method, compensation associated with
stock awards to employees was determined as the difference, if
any, between the fair value of the underlying common stock on
the grant date, and the price an employee must pay to exercise
the award. We measure the fair value of equity instruments
issued to non-employees as of the earlier of the date a
performance commitment has been reached by the counterparty or
the date performance is completed by the counterparty. We
determine the fair value using the Black-Scholes option-pricing
model or the fair value of our common stock, as applicable, and
recognize related expense in the same periods that the goods or
services are received.
For additional information, refer to Note 10
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
66
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2
|
Summary of
Significant Accounting Policies (continued)
|
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.
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.
For additional information, refer to Note 6
Income Taxes.
Earnings Per
Common Share
We have multiple classes of common stock and our preferred
stockholders, during the periods their shares were outstanding,
were entitled to participate with common stockholders in the
distributions of earnings through dividends. Therefore, we apply
the two-class method in calculating earnings per common share,
or EPS. The two-class method requires net income, after
deduction of any preferred stock dividends, deemed dividends on
preferred stock redemptions, and accretions in the carrying
value on preferred stock, to be allocated between each class or
series of common and preferred stockholders based on their
respective rights to receive dividends, whether or not declared.
Basic EPS is then calculated by dividing net income allocated to
each class of common stockholders by the respective
weighted-average common shares issued and outstanding.
In addition, for diluted EPS, the conversion of Class B
common stock can affect net income allocated to Class A
common stockholders. Where the effect of this conversion is
dilutive, we adjust net income allocated to Class A common
stockholders by the associated allocated earnings of the
convertible securities. We divide adjusted net income for each
class of common stock by the respective weighted-average number
of the common shares issued and outstanding for each period plus
amounts representing the dilutive effect of outstanding stock
options and outstanding warrants, shares to be purchased under
our employee stock purchase plan and the dilution resulting from
the conversion of convertible securities, if applicable. We
exclude the effects of convertible securities and outstanding
warrants and stock options from the computation of diluted EPS
in periods in which the effect would be antidilutive. We
calculate dilutive potential common shares using the treasury
stock method, if-converted method and the two-class method, as
applicable.
For additional information, refer to Note 11
Earnings Per Common Share.
Fair Values of
Financial Instruments
Our financial instruments, including unrestricted cash and cash
equivalents, restricted cash, settlement assets and obligations,
accounts receivable, certain other assets, accounts payable, and
other accrued liabilities, are short-term, and, accordingly, we
believe their carrying amounts approximate their respective fair
values.
67
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3
|
Accounts
Receivable
|
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
|
Overdrawn account balances due from cardholders
|
|
$
|
17,560
|
|
|
$
|
12,072
|
|
Reserve for uncollectible overdrawn accounts
|
|
|
(11,823
|
)
|
|
|
(7,460
|
)
|
|
|
|
|
|
|
|
|
|
Net overdrawn account balances due from cardholders
|
|
|
5,737
|
|
|
|
4,612
|
|
Trade receivables
|
|
|
968
|
|
|
|
647
|
|
Reserve for uncollectible trade accounts
|
|
|
(3
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
Net trade receivables
|
|
|
965
|
|
|
|
537
|
|
Receivables due from card issuing banks
|
|
|
27,588
|
|
|
|
22,123
|
|
Payroll taxes due from related parties (Note 5)
|
|
|
|
|
|
|
2,417
|
|
Other receivables
|
|
|
1,671
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
35,961
|
|
|
$
|
30,287
|
|
|
|
|
|
|
|
|
|
|
Activity in the reserve for uncollectible overdrawn accounts
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Five Months Ended
|
|
|
Year Ended July 31,
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of period
|
|
$
|
7,460
|
|
|
$
|
6,448
|
|
|
$
|
5,277
|
|
|
$
|
2,718
|
|
Provision for uncollectible overdrawn accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
43,634
|
|
|
|
10,255
|
|
|
|
20,187
|
|
|
|
13,652
|
|
Purchase transactions
|
|
|
2,459
|
|
|
|
963
|
|
|
|
2,361
|
|
|
|
2,483
|
|
Charge-offs
|
|
|
(41,730
|
)
|
|
|
(10,206
|
)
|
|
|
(21,377
|
)
|
|
|
(13,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
11,823
|
|
|
$
|
7,460
|
|
|
$
|
6,448
|
|
|
$
|
5,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Property
and Equipment
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
|
Computer equipment, furniture, and office equipment
|
|
$
|
14,643
|
|
|
$
|
10,180
|
|
Computer software purchased
|
|
|
6,035
|
|
|
|
3,802
|
|
Capitalized internal-use software
|
|
|
21,816
|
|
|
|
15,114
|
|
Tenant improvements
|
|
|
1,427
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,921
|
|
|
|
30,373
|
|
Less accumulated depreciation and amortization
|
|
|
(25,887
|
)
|
|
|
(18,400
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
18,034
|
|
|
$
|
11,973
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $7.6 million for
the year ended December 31, 2010, $2.3 million for the
five months ended December 31, 2009 and $4.6 million
and $4.4 million for the years ended July 31, 2009 and
2008, respectively. Included in those amounts are depreciation
expense related to
68
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4
|
Property
and Equipment (continued)
|
internal-use software of $3.8 million for the year ended
December 31, 2010, $1.3 million for the five months
ended December 31, 2009 and $2.5 million and
$2.4 million for the years ended July 31, 2009 and
2008, respectively. The net carrying value of capitalized
internal-use software was $8.4 million and
$5.5 million at December 31, 2010 and 2009,
respectively.
|
|
Note 5
|
Related
Party Transactions
|
At December 31, 2010, we had no related party receivables
or payables. At December 31, 2009, we had receivables of
$2.3 million due from our Chief Executive Officer and
$0.1 million due from our Chief Financial Officer. These
receivables were related to federal and state payroll taxes
arising from stock awards granted and stock options exercised
that we are required to remit to the various taxing authorities.
We recorded these receivables as a component of accounts
receivable, net, on our consolidated balance sheet as of
December 31, 2009. We collected these receivables in cash
in January 2010.
Prior to December 31, 2009, we had related party notes
receivable, as described below. All of these related party notes
receivable were repaid in full, including accrued interest of
$936,000, in November 2009.
We loaned $3.0 million in March 2004 and $0.8 million
in February 2006 to our current Chief Executive Officer bearing
interest at rates of 3.5% and 4.5%, respectively, compounded
semiannually. All principal and unpaid interest outstanding
under the loans was due in March 2011. The loans were
collateralized by 2,500,000 shares of our common stock
owned by the officer and pledged under a stock pledge agreement.
We classified the outstanding balance of these loans, including
capitalized interest of $735,000 and $575,000 at
July 31, 2009 and 2008, respectively, as a reduction in
stockholders equity. We recorded interest on these loans
of $41,000 for the five months ended December 31, 2009 and
$160,000 and $155,000 for the years ended July 31, 2009 and
2008, respectively, as additional
paid-in-capital.
During the three-year period ended July 31, 2009, we loaned
an aggregate amount of $1.1 million to an executive to
purchase common stock. The $1.1 million was loaned in seven
installments, each installment ranging from $18,000 to $622,000.
The interest rate on the loan was specified for each installment
and ranged from 2.72% to 5.14%, compounded semiannually. All
principal and unpaid interest outstanding under the loan was due
in May 2013. The loan was collateralized by 898,000 shares
of our common stock owned by the officer and a full recourse
promissory note. We classified the outstanding balance of the
loan, including capitalized interest of $127,000 and $77,000 at
July 31, 2009 and 2008, respectively, as a reduction in
stockholders equity. We recorded interest on these loans
of $13,000 for the five months ended December 31, 2009 and
$50,000 and $36,000 for the years ended July 31, 2009 and
2008, respectively, as additional
paid-in-capital.
We loaned $120,000 in February 2008 to our current Chief
Financial Officer to purchase common stock. The loan had an
interest rate of 3.48%, compounded semiannually. All principal
and unpaid interest outstanding under the loan was due in
February 2015. The loan was collateralized by 85,000 shares
of our common stock owned by the officer and a full recourse
promissory note. We classified the outstanding balance of the
loan, including capitalized interest of $7,000 and $2,000 at
July 31, 2009 and 2008, respectively, as a reduction in
stockholders equity. We recorded interest on the loan of
$1,000 for the five months ended December 31, 2009 and
$5,000 and $2,000 for the years ended July 31, 2009 and
2008, respectively, as additional
paid-in-capital.
69
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Five Months Ended
|
|
|
Year Ended July 31,
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,638
|
|
|
$
|
4,389
|
|
|
$
|
22,645
|
|
|
$
|
9,611
|
|
State
|
|
|
1,466
|
|
|
|
1,845
|
|
|
|
5,988
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
28,104
|
|
|
|
6,234
|
|
|
|
28,633
|
|
|
|
12,221
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(579
|
)
|
|
|
3,114
|
|
|
|
(1,662
|
)
|
|
|
74
|
|
State
|
|
|
(125
|
)
|
|
|
416
|
|
|
|
(69
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
(704
|
)
|
|
|
3,530
|
|
|
|
(1,731
|
)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
27,400
|
|
|
$
|
9,764
|
|
|
$
|
26,902
|
|
|
$
|
12,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense for the year ended December 31, 2010,
the five months ended December 31, 2009 and the years ended
July 31, 2009 and 2008 varied from the amount computed by
applying the federal statutory income tax rate to income before
income taxes. A reconciliation between the expected federal
income tax expense using the federal statutory tax rate of 35%
and our actual income tax expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Five Months Ended
|
|
Year Ended July 31,
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
2009
|
|
2008
|
|
U.S. federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35
|
%
|
State income taxes, net of federal benefit
|
|
|
3.8
|
|
|
|
6.7
|
|
|
|
6.1
|
|
|
|
5.7
|
|
Non-deductible offering costs
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in state tax apportionment method
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2.7
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
39.3
|
%
|
|
|
41.7
|
%
|
|
|
42.0
|
%
|
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rates for the periods above differ from the
expected federal statutory tax rate of 35% primarily due to
state income taxes, net of the federal tax benefit. For the year
ended December 31, 2010, our effective tax rate was also
impacted by several discrete items. In May 2010, the California
Franchise Tax Board, or FTB, approved our petition to use an
alternative apportionment method provided for in Revenue and Tax
Code Section 25137. The alternative method, known as the
market-source approach, allows us to apportion income to
California based on a customers address, rather than
apportion income based on cost of performance, which is the
standard method under existing law. Under the market-source
approach, we apportion less income to California, resulting in a
lower effective state tax rate. The petition is retroactive to
our 2009 tax year, prior to the change in our fiscal year from
July 31 to December 31. We recognized the effect of the
change in apportionment method, including the retroactive tax
benefit, in our consolidated financial statements for the year
ended December 31, 2010. The benefit from the change in
apportionment method was partially offset by non-deductible
offering costs recognized during the year
70
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Income
Taxes (continued)
|
ended December 31, 2010. Excluding the impact of these
discrete items, our effective tax rate would have been 39.7%.
The tax effects of temporary differences that give rise to
significant portions of our deferred tax assets and liabilities
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserve for overdrawn accounts
|
|
$
|
4,811
|
|
|
$
|
3,280
|
|
State income taxes
|
|
|
(8
|
)
|
|
|
479
|
|
Stock-based compensation
|
|
|
2,632
|
|
|
|
1,454
|
|
Other
|
|
|
595
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
8,030
|
|
|
|
6,087
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Internal-use software costs
|
|
|
(3,254
|
)
|
|
|
(2,423
|
)
|
Deferred expenses
|
|
|
(3,378
|
)
|
|
|
(2,697
|
)
|
Property and equipment, net
|
|
|
(1,338
|
)
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,970
|
)
|
|
|
(5,607
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
60
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets and liabilities are included in
our consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
(In thousands)
|
|
Current net deferred tax assets
|
|
$
|
5,398
|
|
|
$
|
4,634
|
|
Noncurrent net deferred tax liabilities
|
|
|
(5,338
|
)
|
|
|
(4,154
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
60
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
In assessing whether a valuation allowance is needed for our
deferred tax assets, we consider whether it is more
likely-than-not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of our deferred tax assets is
dependent upon our generation of sufficient taxable income of
the appropriate character during the periods in which those
temporary differences become deductible. We consider the
scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Based upon the
level of our historical taxable income and projections of our
future taxable income over the periods in which the temporary
differences resulting in the deferred tax assets are deductible,
we believe it is more likely than not that we will realize the
benefits of our deferred tax assets. Accordingly, we recorded no
valuation allowance as of December 31, 2010 or 2009.
As of December 31, 2010 and 2009, we had no unutilized net
operating loss carryforwards.
In accounting for income taxes, we followed the guidance related
to uncertainty in income taxes. The guidance prescribes a
comprehensive framework for the financial statement recognition,
measurement, presentation, and disclosure of uncertain income
tax positions that we have taken or anticipate taking in a tax
return, and includes guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, and
transition rules. We have concluded that we have no significant
unrecognized tax benefits. We are subject to examination by the
Internal Revenue Service, or IRS, and various state tax
authorities. Our consolidated federal income tax returns for the
years ended July 31, 2005 and 2008 have
71
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6
|
Income
Taxes (continued)
|
been examined by the IRS, and there have been no material
changes in our tax liabilities for those years. We generally
remain subject to examination of our federal income tax returns
for the year ended July 31, 2007 and later years. We
generally remain subject to examination of our various state
income tax returns for a period of four to five years from the
respective dates the returns were filed.
|
|
Note 7
|
Borrowing
Agreements
|
In March 2009, we increased the balance available on our line of
credit from $12.0 million to $15.0 million. In March
2010, we renewed our line of credit, reducing the balance
available from $15.0 million to $10.0 million. This
line of credit matures on March 24, 2011, and bears
interest at LIBOR (as published in The Wall Street
Journal) plus 3.50%. We also reduced our cash collateral
requirements from $15.0 million to $5.0 million. We
present our cash collateral requirements on our consolidated
balance sheets as restricted cash. There was no outstanding
borrowing on this line of credit at December 31, 2010 or
2009.
|
|
Note 8
|
Concentrations of
Credit Risk
|
Financial instruments that subject us to concentration of credit
risk consist primarily of unrestricted cash and cash
equivalents, restricted cash, accounts receivable, and
settlement assets. We deposit our unrestricted cash and cash
equivalents and our restricted cash with regional and national
banking institutions, including certain of our card issuing
banks, that we periodically monitor and evaluate for
creditworthiness. Credit risk for our accounts receivable is
concentrated with card issuing banks and our customers, and this
risk is mitigated by the relatively short collection period and
our large customer base. We do not require or maintain
collateral for accounts receivable. We maintain reserves for
uncollectible overdrawn accounts and uncollectible trade
receivables. Credit risk for our settlement assets is
concentrated with our retail distributors, which we periodically
monitor.
|
|
Note 9
|
Stockholders
Equity
|
In March 2010, our board of directors amended our Certificate of
Incorporation to adopt a dual class structure for our common
stock. The two classes of common stock are Class A common
stock and Class B common stock. Upon adoption, all our
common stock outstanding converted to Class B common stock.
In July 2010, we filed a restated Certificate of Incorporation
that increased the number of authorized Class A and
Class B common stock from 75,000,000 shares each to
100,000,000 shares each and reduced the number of
authorized shares of preferred stock from 25,553,267 to
5,000,000.
Common
Stock
Our Certificate of Incorporation specifies the following rights,
preferences, and privileges for our common stockholders.
Voting
Holders of our Class A common stock are entitled to one
vote per share and holders of our Class B common stock are
entitled to ten votes per share. In general, holders of our
Class A common stock and Class B common stock will
vote together as a single class on all matters (including the
election of directors) submitted to a vote of stockholders,
unless otherwise required by law. Delaware law could require
either
72
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Stockholders
Equity (continued)
|
our Class A common stock or our Class B common stock
to vote separately as a single class in the following
circumstances:
|
|
|
|
|
If we were to seek to amend our Certificate of Incorporation to
increase the authorized number of shares of a class of stock, or
to increase or decrease the par value of a class of stock, then
that class would be required to vote separately to approve the
proposed amendment; and
|
|
|
|
If we were to seek to amend our Certificate of Incorporation in
a manner that altered or changed the powers, preferences or
special rights of a class of stock in a manner that affected its
holders adversely, then that class would be required to vote
separately to approve the proposed amendment.
|
Our Certificate of Incorporation requires the separate vote and
majority approval of each class of our common stock prior to
distributions, reclassifications and mergers or consolidations
that would result in one class of common stock being treated in
a manner different from the other, subject to limited
exceptions, and amendments of our Certificate of Incorporation
that would affect our dual class stock structure.
We have not provided for cumulative voting for the election of
directors in our restated Certificate of Incorporation. In
addition, our Certificate of Incorporation provides that, if we
become a bank holding company, a holder, or group of affiliated
holders, of more than 24.9% of our common stock may not vote
shares representing more than 14.9% of the voting power
represented by the outstanding shares of our Class A and
Class B common stock.
Dividends
Subject to preferences that may apply to any shares of preferred
stock outstanding at the time, the holders of outstanding shares
of our Class A and Class B common stock are entitled
to receive dividends out of funds legally available at the times
and in the amounts that our board of directors may determine. In
the event a dividend is paid in the form of shares of common
stock or rights to acquire shares of common stock, the holders
of Class A common stock will receive Class A common
stock, or rights to acquire Class A common stock, as the
case may be, and the holders of Class B common stock will
receive Class B common stock, or rights to acquire
Class B common stock, as the case may be. However, in
general and subject to certain limited exceptions, without
approval of each class of our common stock, we may not pay any
dividends or make other distributions with respect to any class
of common stock unless at the same time we make a ratable
dividend or distribution with respect to each outstanding share
of common stock, regardless of class.
Liquidation
Upon our liquidation, dissolution or
winding-up,
the assets legally available for distribution to our
stockholders would be distributable ratably among the holders of
our Class A and Class B common stock and any
participating preferred stock outstanding at that time after
payment of liquidation preferences, if any, on any outstanding
shares of our preferred stock and payment of other claims of
creditors.
Preemptive or
Similar Rights
Neither our Class A nor our Class B common stock is
entitled to preemptive rights, and neither is subject to
redemption.
73
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Stockholders
Equity (continued)
|
Conversion
Our Class A common stock is not convertible into any other
shares of our capital stock. Each share of our Class B
common stock is convertible at any time at the option of the
holder into one share of our Class A common stock. In
addition, each share of our Class B common stock will
convert automatically into one share of our Class A common
stock upon any transfer, whether or not for value, except for
estate planning, intercompany and other similar transfers or
upon the date that the total number of shares of our
Class B common stock outstanding represents less than 10%
of the total number of shares of our Class A and
Class B common stock outstanding. Once transferred and
converted into Class A common stock, the Class B
common stock may not be reissued. No class of our common stock
may be subdivided or combined unless the other class of our
common stock concurrently is subdivided or combined in the same
proportion and in the same manner.
Non-Employee
Stock-Based Payments
Shares Subject
to Repurchase
In May 2010, we amended our commercial agreement with Walmart,
our largest retail distributor, and GE Money Bank. The
amendment modifies the terms of our agreement related to our
co-branded GPR MoneyCard, which significantly increased the
sales commission rates we pay to Walmart for our products sold
in their stores. The new agreement has a five-year term
commencing May 1, 2010. As an incentive to amend our
prepaid card program agreement, we issued Walmart
2,208,552 shares of our Class A common stock. These
shares are subject to our right to repurchase them at $0.01 per
share upon termination of our agreement with Walmart other than
a termination arising out of our knowing, intentional and
material breach of the agreement. Our right to repurchase the
shares lapses with respect to 36,810 shares per month over
the 60-month
term of the agreement. The repurchase right will expire as to
all shares of Class A common stock that remain subject to
the repurchase right if we experience a prohibited change
of control, as defined in the agreement, if we experience
a change of control, as defined in the stock
issuance agreement, or under certain other limited
circumstances, which we currently believe are remote. We have
also granted Walmart registration rights for all of its shares
of our Class A common stock that are no longer subject to
our repurchase right. In connection with the share issuance,
Walmart entered into an agreement to vote its shares in
proportion to the way the rest of our stockholders vote their
shares. As of December 31, 2010, 294,480 shares of
Class A common stock issued to Walmart were no longer
subject to the repurchase right.
Warrant
On March 3, 2009, we entered into a sales and marketing
agreement with a third party that contained a contingent warrant
feature. The warrant provides the third party with an option to
purchase 3,426,765 shares of our common stock at a per
share price of $23.70 if certain sales volume or revenue targets
are achieved. A further 856,691 shares become eligible for
purchase under the warrant should either of these targets be
achieved and additional specified marketing and promotional
activities take place.
The shares become eligible for purchase under the warrant at any
time the targets are achieved prior to the earlier of
March 3, 2014 or the termination of the sales and marketing
agreement. Once eligible for purchase, the purchase option
expires on the earliest of: (1) the date at which the sales
and marketing agreement with the third party is terminated;
(2) the date of a change of control transaction of our
company; or (3) March 3, 2017.
74
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Stockholders
Equity (continued)
|
The warrant is redeemable for cash by the holder if we fail to
perform in accordance with the customary contractual terms of
the sales and marketing agreement. Should the third party fail
to perform in accordance with the terms of the sales and
marketing agreement, we obtain an option to repurchase any
shares previously issued under the warrant.
As the option to purchase shares under the warrant is contingent
upon the achievement of certain sales volume or revenue targets,
there is a possibility that no shares will become eligible for
purchase. Based on different possible outcomes, we developed a
range of fair values for the warrant, and we measured the
warrant at its current lowest aggregate fair value within that
range. As none of the performance conditions have been met, the
lowest aggregate fair value is zero. Accordingly, we have not
assigned any value to the warrant in our consolidated financial
statements as of December 31, 2010 or 2009.
Follow-on
Offering
On December 13, 2010, we completed a follow-on offering of
4,269,051 shares of our Class A common stock at an
offering price of $61.00 per share, all of which were sold by
existing stockholders. We did not receive any proceeds from the
sale of shares of our Class A common stock on the follow-on
offering. Concurrent with the completion of the follow-on
offering, certain selling stockholders exercised vested options
to purchase 936,301 shares of Class B common stock
with a weighted-average exercise price of $4.32 in order to sell
the underlying shares of Class A common stock in the
follow-on offering. We received aggregate proceeds of
$4.0 million from these exercises.
Convertible
Preferred Stock
We had no shares of convertible preferred stock outstanding as
of December 31, 2010. Our convertible preferred stock at
December 31, 2009 consisted of the following:
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Liquidation
|
|
|
Proceeds Net of
|
|
|
|
Authorized
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Issuance Costs
|
|
|
|
(In thousands)
|
|
|
Series
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
6,520
|
|
|
|
6,404
|
|
|
$
|
1,930
|
|
|
$
|
1,877
|
|
Series B
|
|
|
3,197
|
|
|
|
3,177
|
|
|
|
2,186
|
|
|
|
2,008
|
|
Series C
|
|
|
10,114
|
|
|
|
9,939
|
|
|
|
8,230
|
|
|
|
8,136
|
|
Series C-1
|
|
|
4,541
|
|
|
|
4,240
|
|
|
|
5,976
|
|
|
|
5,976
|
|
Series C-2
|
|
|
1,182
|
|
|
|
1,182
|
|
|
|
13,000
|
|
|
|
12,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,554
|
|
|
|
24,942
|
|
|
$
|
31,322
|
|
|
$
|
30,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to our initial public offering, our Certificate of
Incorporation specified the following rights, preferences, and
privileges for our preferred stockholders.
Voting
Each share of Series A, B, C, C-1, and C-2 convertible
preferred stock had voting rights equal to the number of shares
of common stock into which it was convertible and voted together
as one class with the common stock. Our preferred stockholders
were entitled to elect four directors. Additionally, the holders
of our Series C, C-1 and
C-2 shares,
voting together, were entitled to elect one director. The
approval of at
75
GREEN DOT
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)