Groupon 2011 Annual Report Download - page 56

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Our current merchant partner arrangements are structured such that we collect payments at the time our customers purchase Groupons and make
payments to most of our merchant partners at a subsequent date. Under the redemption payment model, which we utilize in most of our international operations
in conformity with local market practice, merchant partners are not paid until the customer redeems the Groupon that has been purchased. If a customer does not
redeem the Groupon under this payment model, we retain all of the gross billings for the Groupon purchase.
The redemption model generally improves our
overall cash flow because we do not pay our merchant partners until the customer redeems the Groupon.
Under our alternative merchant partner payment model,
we pay our merchant partners in installments over a period of generally sixty days for all Groupons purchased. Under this payment model, merchant partners are
paid regardless of whether the Groupon is redeemed. As a result of these payment models, we experience swings in merchant payables that can cause volatility in
working capital levels and impact cash balances more or less than our operating income or loss would indicate. In general, merchant payable balances have
increased in line with the growth of our overall business, which has created additional cash flow from operations. Furthermore, growth in our international
operations has accelerated cash flow due to more favorable payment terms with our merchant partners. To the extent we offer our merchant partners more
favorable or accelerated payment terms or our gross billings do not continue to grow in the future, our cash flow could be adversely impacted.
For the year ended December 31, 2011, our net cash provided by operating activities of $290.4 million consisted of net loss of $297.8
million, offset by
$164.9 million in adjustments for non-cash items and $423.3 million in cash provided by changes in working capital and other activities. Adjustments for non-
cash items primarily consisted of $93.6 million in stock1
based compensation expense as we continued to offer stock compensation to our employees in 2011
and $32.1
million of depreciation and amortization expense. The increase in cash resulting from changes in working capital activities primarily consisted of a
$380.1 million increase in our merchant payables, due to continued growth in the daily deals business and a $189.1
million increase in accrued expenses and
other current liabilities. Costs primarily included in accrued expenses and other current liabilities are online marketing costs incurred to acquire and retain
customers, operating expenses such as payroll and benefits and costs associated with customer loyalty and reward programs. Increases in accrued expenses and
other current liabilities primarily reflect the significant increase in the number of employees, vendors, and customers resulting from our internal growth and
global expansion through recent acquisitions. These increases were partially offset by a decrease in operating cash flow due to a $70.4
million increase in
accounts receivable, primarily attributable to an increase in revenue for the year ended December 31, 2011, and an increase of $36.3
million in prepaid expenses
and other assets as a result of business growth. The accounts receivable due from payment processors related to our International segment represents a significant
portion of total accounts receivable.
For the year ended December 31, 2010, our net cash provided by operating activities of $86.9 million consisted of a net loss of $413.4 million, offset by
$245.1 million in adjustments for non-cash items and $255.2 million in cash provided by changes in working capital and other activities. Adjustments for non-
cash items primarily consisted of $203.2 million in acquisition1related expenses, $36.2 million in stock1
based compensation expense, $1.9 million in
depreciation expense on property and equipment and $11.0 million in amortization of intangible assets, partially offset by $7.3 million in deferred income taxes.
The increase in cash resulting from changes in working capital activities primarily consisted of a $149.0 million increase in our merchant payable, due to the
growth in the number of Groupons sold, a $94.6 million increase in accrued expenses and other current liabilities primarily related to online marketing costs
incurred to acquire customers and operational expenses such as payroll and benefits, customer refunds and costs associated with customer loyalty and reward
programs, and a $50.8 million increase in accounts payable. These increases were partially offset by a decrease in operating cash flow due to a $34.9 million
increase in accounts receivable, a $2.5 million increase in prepaid expenses and other current assets and a $1.5 million increase in other assets and liabilities. Our
accounts receivable at December 31, 2010 primarily relate to amounts due from credit card processors. The increase in accounts receivable at December 31, 2010
was attributable to the increase in gross billings and the timing of receipt of cash from the credit card processors. The accounts receivable related to our
International segment represent a significant portion of total accounts receivable. Increases in accrued expenses, accounts payable, accounts receivable and other
current assets primarily reflect the significant increase in the number of employees, vendors, and customers resulting from our internal growth and global
expansion through recent acquisitions.
For the year ended December 31, 2009, our net cash provided by operating activities of $7.5 million consisted of a net loss of $1.3 million, offset by
$8.8 million in cash provided by working capital and other items. The increase in cash resulting from changes in working capital primarily consisted of a
$4.3 million increase in accrued merchant payable and $5.0 million in accrued expenses resulting from internal business growth.
Cash Used In Investing Activities
Cash used in investing activities primarily consists of capital expenditures and acquisitions of businesses.
For the year ended December 31, 2011, our net cash used in investing activities of $147.4 million primarily consisted of $74.7
million invested in
subsidiaries and equity interests, $43.8 million in purchases of capital expenditures and internal use
54