Groupon 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2

  • Page 3
    ... EPS, and $155 million of free cash flow. 1 We sold 56 million Groupons in the fourth quarter alone. We ended the year with record demand as a result of delivering against our key initiatives: building an always-on marketplace of great deals and expanding the global reach of our mobile business. We...

  • Page 4
    ... local services, our Goods category has become a nearly $2 billion business in just two years, and our Getaways category has approached a $1 billion business in the same time. Both enjoyed a strong 2013, and we added several new categories, Groupon Reserve and Groupon Freebies, to give our customers...

  • Page 5
    ... mobile commerce revolution that not only affects local merchants, but every supplier across all of our categories. As I said at the beginning, in the eyes of our customers, mobile and local are fused together. People use Groupon to book their hotels, order their meals, buy concert tickets, discover...

  • Page 6

  • Page 7
    ..., as presented in the accompanying Annual Report on Form 10-K. However, these measures are not intended to be a substitute for those reported in accordance with U.S. GAAP. These measures may be different from non-GAAP financial measures used by other companies, even when similar terms are used to...

  • Page 8
    ..."Net cash provided by operating activities." Year Ended December 31, 2013 218,432 (63,505) 154,927 (96,315) (81,697) Net cash provided by operating activities Purchases of property and equipment and capitalized software Free cash flow Net cash used in investing activities Net cash used in financing...

  • Page 9
    ... offices) 60654 (Zip Code) 312-334-1579 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Class A Common Stock, par value $0.0001 Name of each exchange on which registered Nasdaq Global Select Market Securities...

  • Page 10
    ... 12b-2 of the Exchange Act). Yes No As of June 30, 2013, the aggregate market value of shares held by non-affiliates of the registrant was $3,972,482,199 based on the number of shares of Class A common stock held by non-affiliates as of June 30, 2013 and based on the last reported sale price of the...

  • Page 11
    ... Disclosures ...PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Item 6. Selected Financial Data...Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...Item 7A. Quantitative and...

  • Page 12
    ... financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict...

  • Page 13
    ... party marketing agent by selling vouchers ("Groupons") that can be redeemed for products or services with a merchant. We also sell merchandise directly to customers in transactions for which we are the merchant of record. Customers access our deal offerings through our mobile platform, our websites...

  • Page 14
    ... world of local commerce onto the Internet, Groupon is helping local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see, buy and where to travel. We earn revenue from deals where we act as a third party marketing...

  • Page 15
    ...and search for deals on goods and services. These marketplaces are accessible through our websites and mobile applications, including through localized groupon.com sites in many countries. On January 2, 2014, we acquired LivingSocial Korea, Inc. ("LS Korea"), a Korean corporation and holding company...

  • Page 16
    ... our "merchant operating system." These tools include Payments, our credit card payment processing service, and Breadcrumb, our point-of-sale solution. Distribution We distribute our deals to customers primarily through three channels: our mobile platform, our websites and email. Our mobile platform...

  • Page 17
    ... with online and offline merchants offering similar products and services. We also compete with businesses that focus on our payment processing and point-of-sale merchant offerings. In addition, we compete with traditional offline coupon and discount services, as well as newspapers, magazines and...

  • Page 18
    ..., product liability, travel, distribution, electronic contracts and other communications, competition, consumer protection, the provision of various online payment and point of sale services, employee, merchant and customer privacy and data security or other areas. The Credit Card Accountability...

  • Page 19
    ...sales representatives and 2,590 corporate, operational and customer service representatives. On January 2, 2014, we acquired Ticket Monster, with approximately 1,000 employees who will be included within our Rest of World segment beginning in 2014. Officers The following table sets forth information...

  • Page 20
    ...to acquire new customers and retain existing customers; attract new merchants and retain existing merchants who wish to offer deals through the sale of Groupons; effectively address and respond to challenges in international markets; expand the number, variety and relevance of products and deals we...

  • Page 21
    ...purchase Groupons and our ability to expand the number and variety of deals that we offer. It is also possible that merchants or customers could broadly determine that they no longer believe in the value of our current services or marketplace. In the event of these or any other changes to the market...

  • Page 22
    ...of deals that offer attractive quality, value and variety to customers or favorable payment terms to us. In addition, if we are unsuccessful in our efforts to introduce services to merchants as part of our local commerce operating system, we will not experience a corresponding growth in our merchant...

  • Page 23
    ... services provides them with a long-term increase in customers, revenue or profits, we may not be able to retain or attract merchants in sufficient numbers to grow our business or we may be required to incur significantly higher marketing expenses or reduce margins in order to attract new merchants...

  • Page 24
    ... the number of merchants we feature; the timing and market acceptance of deals we offer, including the developments and enhancements to those deals offered by us or our competitors; customer and merchant service and support efforts; selling and marketing efforts; ease of use, performance, price and...

  • Page 25
    ... of subscribers, customers or merchants. Customers access our deals through our websites and mobile applications, as well as via emails that are often targeted by location, purchase history and personal preferences. Our reputation and ability to acquire, retain and serve our current customers and...

  • Page 26
    ... to manage customer returns and other costs. If we are unsuccessful in any of these areas, we may be forced to sell our inventory at a discount or loss. The integration of our international operations with our North American technology platform may result in business interruptions. We currently use...

  • Page 27
    ...currency exchange rate fluctuations. Further, we could be subject to the application of U.S. tax rules to acquired international operations and local taxation of our fees or of transactions on our websites. We conduct portions of certain functions, including product development, customer support and...

  • Page 28
    ... on the use of expiration dates and the imposition of certain fees. For example, if Groupons are subject to the CARD Act and are not included in the exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the Groupon, or the...

  • Page 29
    ... to the capture and use of location-based information relating to users of smartphones and other mobile devices. We have posted privacy policies and practices concerning the collection, use and disclosure of subscriber data on our websites and applications. Several Internet companies have incurred...

  • Page 30
    ...of infringing intellectual property rights of third parties. We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, merchant lists, subscriber lists, sales methodology and similar intellectual property as critical to our success, and we rely...

  • Page 31
    ... affect the market price of our Class A common stock. Failure to deal effectively with fraudulent transactions and customer disputes would increase our loss rate and harm our business. Groupons are issued in the form of redeemable coupons with unique identifiers. It is possible that consumers or...

  • Page 32
    ...Act of 2002, including the requirements of Section 404, as well as new rules and regulations subsequently implemented by the Securities and Exchange Commission, or the SEC, the Public Company Accounting Oversight Board and the marketplace rules of the NASDAQ stock market, impose additional reporting...

  • Page 33
    ... or projections made by research analysts; the amount of shares of our Class A common stock that are available for sale; the relative success of competitive products or services; the public's response to press releases or other public announcements by us or others, including our filings with the SEC...

  • Page 34
    ... with our founders, executive officers, employees and directors and their affiliates will limit stockholders' ability to influence corporate matters. Our Class B common stock has 150 votes per share and our Class A common stock has one vote per share. As of February 18, 2014, our founders, Eric...

  • Page 35
    ... Chicago, Illinois, and our principal international executive offices are located in Schaffhausen, Switzerland. Other properties are located throughout the world and largely represent local operating facilities. We believe that our properties are in good condition and meet the needs of our business...

  • Page 36
    ... time, there was no public market for our Class A common stock. The following table sets forth the high and low intraday sales price for our Class A common stock as reported by the NASDAQ Global Select Market for each of the years listed. 2011 Fourth Quarter (from November 4, 2011)...$ 2012 First...

  • Page 37
    ... entitlements issued with respect to such shares of Class A common stock. Issuer Purchases of Equity Securities In August 2013, our Board of Directors authorized a share repurchase program. Under the program, we are authorized to repurchase up to $300 million of our outstanding Class A common stock...

  • Page 38
    ... an initial investment of $100 in each and assuming the reinvestment of any dividends, based on closing prices. Measurement points are Groupon's initial public offering date of November 4, 2011 and the last trading day of each quarterly period throughout 2012 and 2013. Source: Yahoo! Finance 30

  • Page 39
    ... Report on Form 10-K "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results. Year Ended December 31, 2013 Consolidated Statements of Operations Data: Revenue: Third party and other ...Direct...Total...

  • Page 40
    ...2013 Consolidated Balance Sheet Data: Cash and cash equivalents...Working capital (deficit)...Total assets...Total long-term liabilities...Redeemable preferred stock ...Cash dividends per common share...969) 2012 2011 (in thousands) 2010 2009 Total Groupon, Inc. Stockholders' Equity (Deficit) ...$ 32

  • Page 41
    ... and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see, buy and where to travel. Current and potential customers are able to access our deal offerings directly through our websites and mobile applications. We also send emails to our subscribers...

  • Page 42
    ...This metric represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. For third party revenue deals, gross billings differs from third party revenue reported in our consolidated statements of operations, which is presented...

  • Page 43
    ... time, trailing twelve months gross billings per average active customer provides an opportunity to evaluate whether our growth is primarily driven by growth in total customers or in spend per customer in any given period. Units. This metric represents the number of vouchers and products purchased...

  • Page 44
    ... to expand our product and service offerings in order to create more complete online marketplaces for local commerce. In North America and many of our foreign markets, we offer deals in which the merchant has a continuous presence on our websites and mobile applications by offering vouchers on...

  • Page 45
    2012. Increased competition in the future may cause us to continue to lower our margins on Local deals. 37

  • Page 46
    ... of operations, such as order discounts, free shipping on merchandise sales and accepting lower margins on our deals. Marketing is the primary method by which we acquire customers and, as such, is a critical part of our growth strategy. Selling, General and Administrative Selling expenses reported...

  • Page 47
    ...Value Measurements." For the year ended December 31, 2013, acquisitionrelated (benefit) expense, net also includes external transaction costs related to business combinations, primarily consisting of legal and advisory fees. Such costs were not material for the years ended December 31, 2012 and 2011...

  • Page 48
    ... of the Years Ended December 31, 2013 and 2012: Year Ended December 31, 2013 (in thousands) Revenue: Third party and other ...Direct...Total revenue...Cost of revenue: Third party and other ...Direct...Total cost of revenue...Gross profit ...Operating expenses: Marketing...Selling, general and...

  • Page 49
    ...in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period. Gross Billings Gross billings represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Gross billings...

  • Page 50
    ...year ended December 31, 2013 was $40.3 million. We offer goods and services through three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel") within our North America, EMEA and Rest of World segments. We also earn advertising revenue, payment processing...

  • Page 51
    ... gross billings in the short term. Additionally, a more significant portion of our marketing in recent periods has been directed toward increasing downloads of our mobile applications, and we have reduced our spending on email subscriber acquisition. On average, it takes longer for customers...

  • Page 52
    ...to revenue growth. We also increased the number of merchant relationships and the volume of deals we offer to our customers. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2013 was $11.7 million. Third Party Revenue Third party...

  • Page 53
    ...of World segments as we continue to build out our global supply chain infrastructure. Additionally, we acquired Ideeli for $43.0 million cash on January 13, 2014. Ideeli is a fashion flash site that sells apparel to consumers in direct revenue transactions, and its operations will be reported within...

  • Page 54
    ... to accept lower deal margins in order to improve the quality and increase the number of deals offered to customers by offering more attractive terms to merchants. The increase in revenue was also due to an increase in active customers and higher unit sales for the year ended December 31, 2013, as...

  • Page 55
    ... prior year. We were willing to accept lower deal margins, as compared to the prior year, in order to improve the quality and increase the number of deals offered to our customers by offering more attractive terms to merchants. The decrease in revenue was also due to lower gross billings per average...

  • Page 56
    ...other processing fees, are allocated to cost of third party revenue, direct revenue, and other revenue in proportion to gross billings during the period. As a result of the significant growth we have experienced from direct revenue transactions relative to our total gross billings for the year ended...

  • Page 57
    ...2013, as compared to $116.3 million for the year ended December 31, 2012. The increase in cost of revenue was primarily driven by the cost of inventory and shipping and fulfillment costs related to direct revenue deals in our Goods category, as we began increasing the number of product deals offered...

  • Page 58
    ...credit card processing fees, editorial costs, certain technology costs, web hosting and other processing fees. An increased share of those costs was allocated to the cost of direct revenue due to the increase in billings from direct revenue transactions relative to total gross billings. Gross profit...

  • Page 59
    ... - 170,100 $ 1,113,406 (782) 1,112,624 $ 1,149,002 1,909 1,150,911 2012 EMEA Year Ended December 31, 2013 2012 Rest of World Year Ended December 31, 2013 2012 Consolidated Year Ended December 31, 2013 2012 Goods: Third party...Direct ...Total gross profit...15,319 66,753 82,072 48,288 36,188 84,476...

  • Page 60
    ..., as compared to $336.9 million for the year ended December 31, 2012. As our markets have continued to develop throughout 2013, the focus of our marketing spend has shifted from subscriber acquisition marketing to customer activation and mobile application downloads, which has contributed to lower...

  • Page 61
    ....4% for the year ended December 31, 2012. The decreases were primarily attributable to a decrease in online marketing spend. This reflects the continued shift in marketing spend from subscriber acquisition to customer activation and mobile application downloads and our enhanced return on investment...

  • Page 62
    ... gross profit of $114.0 million and the increase in selling, general and administrative expense of $31.9 million, partially offset by the decrease in marketing expense of $122.0 million. The favorable impact on income from operations from year-over-year changes in foreign exchange rates for the year...

  • Page 63
    ...able to benefit due to uncertainty as to the realization of those losses, amortization of the tax effects of intercompany sales of intellectual property and nondeductible stock-based compensation expense. The effective tax rate for the year ended December 31, 2013 was also impacted by the release of...

  • Page 64
    ... of the Years Ended December 31, 2012 and 2011: Year Ended December 31, 2012 (in thousands) Revenue: Third party and other ...Direct...Total revenue...Cost of revenue: Third party and other ...Direct...Total cost of revenue...Gross profit ...Operating expenses: Marketing...Selling, general and...

  • Page 65
    ...in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period. Gross Billings Gross billings represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Gross billings...

  • Page 66
    ... on gross billings from year-overyear changes in foreign exchange rates for the year ended December 31, 2012 was $183.5 million. We offers goods and services through three primary categories: Local, Goods and Travel. We also earned advertising revenue, payment processing revenue and point of sale...

  • Page 67
    ... third party revenue growth for the year ended December 31, 2012 as compared to the prior year. We added to our sales force in early 2012, allowing us to increase the number of merchant partner relationships and the volume of deals we offered to our customers on our websites and mobile applications...

  • Page 68
    ... of gross billings that we retained after deducting the merchant's share from sales in our Local category. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2012 was $54.6 million. Rest of World Rest of World segment revenue...

  • Page 69
    ... half of 2011. The increase in cost of revenue for the year ended December 31, 2012, as compared to the prior year, was also due to an increase in estimated refunds for which the merchant's share is not recoverable related to our third party revenue deals, increased processing fees directly related...

  • Page 70
    ... 31, 2012, as compared to $45.5 million for the year ended December 31, 2011. The increase in cost of revenue was primarily driven by the continued growth of our third party and direct revenue deals during the year ended December 31, 2012, as compared to the prior year. Gross Profit Gross profit for...

  • Page 71
    ... direct revenue deals in 2011. Gross Profit by Segment Gross profit by segment for the years ended December 31, 2012 and 2011 was as follows: Year Ended December 31, 2012 North America: Third party and other ...Direct...Total gross profit...EMEA: Third party and other ...Direct...Total gross profit...

  • Page 72
    ...in new markets. We continued to invest heavily in subscriber acquisition throughout 2011. Additionally, the increase in revenue, including direct revenue that is reported on a gross basis, contributed to the decline in marketing expense as a percentage of revenue for the year ended December 31, 2012...

  • Page 73
    ...benefits (excluding stock-based compensation) within selling, general and administrative expense increased by $220.2 million to $653.6 million for the year ended December 31, 2012, as compared to the prior year, as we added sales force, technology and administrative personnel to support our business...

  • Page 74
    ...During the year ended December 31, 2011, other income, net included $4.9 million related to the return of 400,000 shares of non-voting common stock from a former executive officer in connection with a separation agreement. Provision for Income Taxes For the years ended December 31, 2012 and 2011, we...

  • Page 75
    ...Represents stock-based compensation expense recorded within "Selling, general and administrative," "Cost of revenue," and "Marketing" on the consolidated statements of operations. Represents changes in the fair value of contingent consideration related to business combinations and, beginning in 2013...

  • Page 76
    ... fees. Those external transaction costs were not material for the years ended December 31, 2012 and 2011. Free cash flow. Free cash flow is a non-GAAP financial measure that comprises net cash provided by operating activities less purchases of property and equipment and capitalized software. We use...

  • Page 77
    ... $7.3 million was paid for in cash (net of cash acquired), and we expect to continue to use cash to make strategic acquisitions. In order to support our current and future global expansion, we expect to continue to make significant investments in our technology platforms and business processes, as...

  • Page 78
    ... 4,432,800 shares of Class A common stock for an aggregate purchase price of $46.6 million (including fees and commissions) under the share repurchase program. Cash Flow Our net cash flows from operating, investing and financing activities for the years ended December 31, 2013, 2012 and 2011 were as...

  • Page 79
    ... to search for goods and services that are offered by merchants for an extended period of time through our websites and mobile applications has reduced our overall cash flow benefits from the timing differences between when we receive cash from customers and remit payments to our merchants. We pay...

  • Page 80
    ...capitalized internal-use software, $14.5 million for purchases of intangible assets and $14.4 million in net cash paid for business acquisitions. Intangible assets purchased in 2011 relate primarily to domain names. Cash (Used in) Provided by Financing Activities For the year ended December 31, 2013...

  • Page 81
    ... and renewal and expansion options. Operating lease obligations expire at various dates with the latest maturity in 2023. Purchase obligations primarily represent non-cancelable contractual obligations related to information technology products and services. (3) Off-Balance Sheet Arrangements...

  • Page 82
    ... goods and services provided by third party merchants at a discount through our online local commerce marketplaces that connect merchants to consumers. Our marketplaces include deals offered in three primary categories: Local, Goods and Travel. Customers purchase the discount vouchers ("Groupons...

  • Page 83
    ...made to customer terms and conditions in the fourth quarter of 2013 to specify that title to products transfers upon delivery. As a result of this change, we began recognizing direct revenue upon delivery, rather than shipment. Discounts We provide discount offers to encourage purchases of goods and...

  • Page 84
    ... cash flows, we make assumptions about risk-adjusted discount rates, future price levels, rates of increase in revenue, cost of revenue, and operating expenses, weighted average cost of capital, rates of long-term growth, and income tax rates. Valuations are performed by management or third party...

  • Page 85
    ... under the tax laws of the applicable jurisdiction, and (d) tax planning strategies, which represent prudent and feasible actions that a company ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused. To the extent that evidence...

  • Page 86
    ...for available-for-sale securities. For the year ended December 31, 2013, we recorded an $85.5 million other-than-temporary impairment of our investments in F-tuan. F-tuan has operated at a loss since its inception and has used proceeds from equity offerings to fund investments in marketing and other...

  • Page 87
    ... in forecasted revenues in future years as compared to the adjusted financial projections used at the time of our investments due to reduced gross billings and deal margin forecasts. As of December 31, 2012, we continued to apply a discounted cash flow approach, corroborated by a market approach, to...

  • Page 88
    There are no accounting standards that have been issued but not yet adopted that we believe will have a material impact on our consolidated financial position or results of operations. 80

  • Page 89
    ... to market risk for changes in interest rates is limited because our cash and cash equivalents have a short-term maturity and are used primarily for working capital purposes. The Company has investments in convertible debt securities and convertible redeemable preferred shares issued by nonpublic...

  • Page 90
    ... of Contents Groupon, Inc. Consolidated Financial Statements As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011 Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements...

  • Page 91
    ...as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Groupon, Inc.'s internal control over financial reporting as of December 31, 2013, based on...

  • Page 92
    ... ...Other non-current liabilities ...Total Liabilities ...Commitments and contingencies (see Note 8) Stockholders' Equity Class A common stock, par value $0.0001 per share, 2,000,000,000 shares authorized, 670,149,976 shares issued and 665,717,176 shares outstanding at December 31, 2013 and 654,523...

  • Page 93
    ... (in thousands, except share and per share amounts) Year Ended December 31, 2013 Revenue: Third party and other ...$ Direct...Total revenue...Cost of revenue: Third party and other ...Direct...Total cost of revenue...Gross profit ...Operating expenses: Marketing...Selling, general and administrative...

  • Page 94
    GROUPON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2013 Net loss...$ Other comprehensive income, net of tax: Foreign currency translation adjustments ...Unrealized (loss) gain on available-for-sale debt securities ...Other comprehensive income ......

  • Page 95
    ...' Equity Class A and Class B Common Stock Treasury Stock Additional Paid-In Capital Shares Amount Stockholder Receivable Accumulated Deficit Shares Amount Noncontrolling Interests Series B, D, E, F, and G Preferred Stock Amount Accumulated Other Comprehensive Income Total Groupon Inc. Stockholders...

  • Page 96
    ...-forsale debt securities, net of tax... - Stock issued in connection with acquisitions... - Shares issued to settle liabilityclassified awards ... - Exercise of stock options... - Vesting of restricted stock units ... - Shares issued under employee stock purchase plan ... - Tax withholdings...

  • Page 97
    ... stock option exercises and employee stock purchase plan...Partnership distributions to noncontrolling interest holders...Repayments of loans with related parties...Payments of capital lease obligations...Net cash (used in) provided by financing activities ...Effect of exchange rate changes on cash...

  • Page 98
    ... acquired under capital lease obligations ...$ Shares issued to settle liability-classified awards...$ Accounts payable and accrued expenses related to purchases of property and equipment and capitalized software ...$ Contribution of investment in E-Commerce transaction...$ Stock issued in exchange...

  • Page 99
    ... to consumers by offering goods and services at a discount. The Company also offers deals on products for which it acts as the merchant of record. Customers can access the Company's deal offerings directly through its websites and mobile applications. The Company also sends emails to its subscribers...

  • Page 100
    ..., 2012. Restricted cash primarily represents amounts that the Company is unable to access for operational purposes pursuant to its contractual arrangements with certain financial institutions and entities who process merchant payments on the Company's behalf. Internal-Use Software The Company incurs...

  • Page 101
    ...or loss on equity method investments is presented within "Loss on equity method investments" on the consolidated statements of operations. Available-for-Sale Securities The Company has investments in convertible debt securities and convertible redeemable preferred shares issued by nonpublic entities...

  • Page 102
    ... Company generates third party revenue, where it acts as a third party marketing agent, by offering goods and services provided by third party merchants at a discount through its online local commerce marketplaces that connect merchants to consumers. The Company's marketplaces include deals offered...

  • Page 103
    ... for payment processing, restaurant reservations and for customers accessing coupons through the Company's website and making purchases with retailers. The Company recognizes revenue from those activities when the underlying transactions are completed. Discounts The Company provides discount offers...

  • Page 104
    ...deals is estimated based on the refunds that are expected to be issued after expiration of the related vouchers, the refunds that are expected to be issued due to the merchant bankruptcy or poor customer experience, and whether the payment terms of the related merchant contracts are structured using...

  • Page 105
    ...and 2012. 2013 Acquisition Activity The primary purpose of the Company's seven acquisitions during the year ended December 31, 2013 was to enhance the Company's technology capabilities, acquire experienced workforces and expand and advance product offerings. The aggregate acquisition-date fair value...

  • Page 106
    ... results of operations. 2012 Acquisition Activity The primary purpose of the Company's acquisitions during the year ended December 31, 2012 was to enhance the Company's technology and marketing capabilities and to expand and advance product offerings. The aggregate acquisition-date fair value of the...

  • Page 107
    ...the Company acquired certain businesses that specialize in developing mobile technology and marketing services to expand and advance the Company's product offerings. The aggregate acquisition-date fair value of the consideration transferred and noncontrolling interests for these acquisitions totaled...

  • Page 108
    ... sell their shares back to the Company. During the year ended December 31, 2012, the Company acquired additional interests in majority-owned subsidiaries for an aggregate acquisition price of $16.7 million, including $16.1 million of cash consideration and $0.6 million of Class A common stock. Cash...

  • Page 109
    ... statements of operations. Depreciation and amortization expense on property, equipment and software, including internally-developed software, was $67.8 million, $35.9 million and $12.8 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company recognized amortization...

  • Page 110
    ...for either the APAC or LATAM reporting units. The following table summarizes the Company's goodwill activity by segment for the years ended December 31, 2013 and 2012 (in thousands): North America International EMEA Rest of World Consolidated Balance as of December 31, 2011 ...$ Goodwill related to...

  • Page 111
    ... 14,675 1,195 - 3,491 9,082 28,443 December 31, 2012 Asset Category Gross Carrying Value Accumulated Amortization Net Carrying Value Subscriber relationships...Merchant relationships ...Trade names...Developed technology ...Other intangible assets...Total... $ $ 42,075 8,187 6,490 20,000 15,601...

  • Page 112
    ... a domestic operating company headquartered in Beijing, China. On July 31, 2011, the Company entered into an agreement to purchase additional interests in E-Commerce from Rocket Asia for an acquisition price of $45.2 million, consisting of 2,908,856 shares of non-voting common stock. The investment...

  • Page 113
    ...$13.6 million. This investment is accounted for using the cost method of accounting because the Company does not have the ability to exercise significant influence over the operating and financial policies of the investee. In November 2012, the Company purchased convertible debt securities issued by...

  • Page 114
    ... revenues in future years, as compared to the adjusted financial projections used at the time of the Company's investment, due to reduced gross billings and deal margin forecasts. As of December 31, 2012, the Company continued to apply a discounted cash flow approach, corroborated by a market...

  • Page 115
    ... to an online travel company in connection with a two-year agreement to offer discounted airline ticket deals. These prepayments were recorded within "Prepayments of inventory purchases and other" as of December 31, 2012. In 2013, the parties entered into amendments to the agreement whereby the...

  • Page 116
    ... (Continued) The following table summarizes the Company's accrued expenses as of December 31, 2013 and 2012 (in thousands): December 31, 2013 2012 Marketing ...$ Refunds reserve...Payroll and benefits...Subscriber credits ...Professional fees ...Other...Total accrued expenses...$ 12,001 38,597 64...

  • Page 117
    ... world, with remaining lease periods expiring between 2014 and 2023. Rent expense under operating leases was $42.3 million, $43.1 million and $25.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company has lease arrangements for its headquarters located in Chicago...

  • Page 118
    ...that participated in the initial public offering of the Company's Class A common stock. Originally filed in April 2012, the case is currently pending before the United States District Court for the Northern District of Illinois: In re Groupon, Inc. Securities Litigation. The complaint asserts claims...

  • Page 119
    ... In re Groupon Marketing and Sales Practices Litigation. The Company denies liability, but the parties agreed to settle the litigation for $8.5 million before any determination had been made on the merits or with respect to class certification. Because the case had been filed as a class action, the...

  • Page 120
    ... these agreements have not had a material impact on the operating results, financial position or cash flows of the Company. 9. STOCKHOLDERS' EQUITY Initial Public Offering In November 2011, the Company issued 40,250,000 shares of Class A common stock and received approximately $744.2 million, net...

  • Page 121
    ... or a series of related transactions, of voting securities representing more than 2% of the total voting power of the Company (assuming the Class A common stock and Class B common stock each have one vote per share) to any person or group of affiliated persons who prior to such issuance held less...

  • Page 122
    ... the year ended December 31, 2013, the Company purchased 4,432,800 shares of Class A common stock for an aggregate purchase price of $46.6 million (including fees and commissions) under the share repurchase program. Return of Common Shares On September 22, 2011, the Company's former chief operating...

  • Page 123
    ... 10,000,000 shares of common stock under its employee stock purchase plan ("ESPP"). For the year ended December 31, 2013, 774,288 shares of common stock were issued under the ESPP. No shares of common stock were issued under the ESPP for the years ended December 31, 2012 and 2011. Stock Options The...

  • Page 124
    ... December 31, 2011 was $6.00. The total intrinsic value of options that were exercised during the years ended December 31, 2013, 2012 and 2011 was $30.0 million, $75.2 million and $56.9 million, respectively. Restricted Stock Units The restricted stock units granted under the Plans generally vest...

  • Page 125
    ... in 2012 by paying $17.0 million in cash and issuing 660,539 shares of the Company's common stock to settle the vested portion and providing for future settlement of the unvested portion in cash or shares of the Company's common stock upon completion of the requisite service period. See Purchases of...

  • Page 126
    ...follows: Year Ended December 31, 2013 2012 2011 U.S. federal income tax (benefit) provision at statutory rate...$ Foreign income and losses taxed at different rates ...Unrecognized tax benefits on E-Commerce transaction...State income taxes, net of federal benefits and state tax credits.. Change in...

  • Page 127
    ... might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused. The Company has incurred significant losses in recent years and had accumulated deficits of $848.9 million and $753.5 million as of December 31, 2013 and 2012, respectively. A cumulative...

  • Page 128
    ... to current year tax positions ...Foreign currency translation ...Ending Balance ... $ 85,481 $ 10,494 (2,103) 14,565 1,868 110,305 55,127 $ 602 (790) 29,465 1,077 85,481 $ $ $ - - - 55,127 - 55,127 The total amount of unrecognized tax benefits as of December 31, 2013, 2012 and 2011 that...

  • Page 129
    ... performance. In particular, the Company identifies and promotes the deal vouchers, provides all of the back office support (i.e. website, contracts, personnel resources, accounting, etc.), presents the LLC's deals via email and the Company's website and provides the editorial resources that create...

  • Page 130
    ... be settled in a variable number of shares of common stock, the Company used the most recent Groupon stock price as reported on the NASDAQ to determine the fair value of the shares potentially issuable as of December 31, 2013 and December 31, 2012. The Company has generally classified the contingent...

  • Page 131
    ...,514 - 3,174 Cash equivalents ...$ Available-for-sale securities: Life Media Limited (F-tuan) preferred shares ...$ Convertible debt securities...$ Liabilities: Contingent consideration ...$ 606 $ - $ - $ 606 Fair Value Measurement at Reporting Date Using Quoted Prices in Active Markets for...

  • Page 132
    ...The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2013, 2012 and 2011 (in thousands): Year Ended December 31, 2013 Assets Available-for-sale securities Life Media Limited (F-tuan) preferred shares(1): Beginning...

  • Page 133
    ... for the years ended December 31, 2013 and 2011. The following table summarizes the Company's assets that were measured at fair value on a nonrecurring basis as of December 31, 2012 (in thousands): Fair Value Measurement at Reporting Date Using Quoted Prices in Active Markets for Identical...

  • Page 134
    ... (Continued) 14. LOSS PER SHARE OF CLASS A AND CLASS B COMMON STOCK The Company computes loss per share of Class A and Class B common stock using the two-class method. Basic loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted loss...

  • Page 135
    ... two-class common share structure was not implemented until the Company's initial public offering on November 4, 2011. The impact of applying the two-class method from November 4, 2011 to December 31, 2011 would not have impacted the Company's loss per share for 2011. (2) The following outstanding...

  • Page 136
    ... of businesses that became part of the EMEA and Rest of World segments, which is consistent with the attribution used for internal reporting purposes. EMEA segment revenue for the year ended December 31, 2012 included an $18.5 million one-time increase to third party revenue for unredeemed Groupons...

  • Page 137
    ... and amortization of property, equipment and software and intangible assets by reportable segment for the years ended December 31, 2013, 2012 and 2011 (in thousands): Year Ended December 31, 2013 2012 2011 North America...$ EMEA...Rest of World...Consolidated total ...$ 57,700 24,157 7,592 89...

  • Page 138
    ...Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). The Company also earns advertising revenue, payment processing revenue, point of sale revenue, reservation revenue and commission revenue. The Company's other revenue and related gross profit are presented within "Travel...

  • Page 139
    ...a private investment firm specializing in information technology companies. They are the majority shareholders of Lightbank, and Mr. Keywell is the managing director. Marketing Services During 2011, the Company engaged InnerWorkings, Inc. ("InnerWorkings") to provide marketing services. At that time...

  • Page 140
    ...283 shares of Class A common stock with an acquisition date fair value of $162.9 million. Ticket Monster is an e-commerce company based in the Republic of Korea that connects merchants to consumers by offering goods and services at a discount. The operations of Ticket Monster will be reported within...

  • Page 141
    ... Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer...

  • Page 142
    ... designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies...

  • Page 143
    ... employment agreement with Mr. Raman on February 18, 2014 (the "Amendment"). The Amendment clarifies that his title is "Chief Operating Officer" and that he reports directly to the Company's current Chief Executive Officer. The Amendment sets his base salary and target bonus at $600,000 per year. If...

  • Page 144
    ...the Exchange Act is incorporated by reference from the information under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for the 2014 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2013. Code of...

  • Page 145
    ... 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) We have filed the following documents as part of the Annual Report on Form 10-K Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss...

  • Page 146
    ...place and stead in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full...

  • Page 147
    ... the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 20th day of February 2014. Signature Title /s/ Eric P. Lefkofsky Eric P. Lefkofsky /s/ Jason...

  • Page 148
    ...LLC and Groupon, Inc. Form of Indemnification Agreement** 2011 Incentive Plan, as amended and restated effective as of June 13, 2013** Form of Notice of Restricted Stock Award under 2011 Incentive Plan (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December...

  • Page 149
    ... 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Interactive data file _____ * ** Incorporated by reference to the Company's registration statement on Form S-1 (registration number 333-174661) Management contract or compensatory plan or arrangement. 141

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