Groupon 2012 Annual Report Download

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2012 ANNUAL REPORT

Table of contents

  • Page 1
    2012 ANNUAL REPORT

  • Page 2
    ... fourth quarter of 2012, our international results were better, contributing to more than $1.5 billion in gross billings-a record for the company. We also began addressing what we believe is the biggest root cause of the issue. Over the past four years, we made significant technology investments in...

  • Page 3
    ... Groupon is a powerful force to level the playing field for local merchants. Finally, I can't discuss last year without highlighting the growth of our categories. 2012 was the first full year of operations for Live (our events business), Getaways (our travel business) and Goods (our product business...

  • Page 4
    ... mean that from time-totime we may make decisions that will not be in our short-term best interest. The market before us is too vast, and frankly too important, to optimize for the short term. I believe we are better positioned than any company to plug local commerce into the Web. In local, no one...

  • Page 5
    ...2012, the aggregate market value of shares held by non-affiliates of the registrant was $3,699,527,694 based on the number of shares held by non-affiliates as of June 30, 2012 and based on the last reported sale price of the registrant's Class A common stock on June 30, 2012. As of February 25, 2013...

  • Page 6
    ... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules Page...

  • Page 7
    ... products and services, including customizable deal campaigns, credit card payments processing capabilities and point-of-sale solutions to help them attract more customers and run their operations more effectively. By leveraging the company's global relationships and scale, Groupon offers consumers...

  • Page 8
    ... on our website is not a part of this annual report. We completed our initial public offering in November 2011 and our Class A common stock is listed on the Nasdaq Global Select Market under the symbol "GRPN." GROUPON, the GROUPON logo and other GROUPON-formative marks are trademarks of Groupon, Inc...

  • Page 9
    ... commerce marketplace where customers can purchase discount vouchers ("Groupons") for a variety of products and services from local, national and online merchants that can be redeemed immediately upon purchase. We have also expanded beyond local commerce to provide deals on consumer goods, travel...

  • Page 10
    ... markets, which allows customers who purchase deals through Live to be able to bypass the box office and use the bar code on their voucher to enter the event. In late 2012, we also entered into an agreement to become MLB.com's official daily deals site, and Groupon will host deals from a number...

  • Page 11
    ..., rather than customer acquisition, including through programs such as limited time discounts on purchases and referral incentives. Our Merchant Partners To drive merchant partner growth over the long term, we have expanded the number and variety of product and service offerings available through...

  • Page 12
    ...During 2012, we have continued to expand our suite of tools that we make available to merchants. For example, merchants may use our Scheduler application, which allows customers to schedule appointments directly through our website at the time that they purchase a Groupon. Our merchant partners also...

  • Page 13
    ...these tools is accessible through an online account that is personal to the merchant partner and accessed through our website. Customer Service. Our customer service department is responsible for answering questions from customers. They process requests via phone, email, and on our public discussion...

  • Page 14
    ..., 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. The Credit Card Accountability Responsibility...

  • Page 15
    ..., and customer service representatives, and 8,182 employees in our International segment, consisting of 3,526 sales representatives and 4,656 corporate, operational, and customer service representatives. Officers The following table sets forth information about our officers as of December 31, 2012...

  • Page 16
    ... January 2013. Dr. Totty was the Chief Executive Officer of Ludic Labs, Inc., a startup venture developing a new class of software applications from January 2006 through November 2007. We acquired Ludic Labs in November 2010. Dr. Totty also was a co-founder and Senior Vice President of Research and...

  • Page 17
    ...ability to acquire new customers and retain existing customers; attract new merchant partners and retain existing merchant partners who wish to offer deals through the sale of Groupons; effectively address and respond to challenges in international markets, particularly in Europe; expand the number...

  • Page 18
    ... acquisition are less productive and the continued growth of our revenue will require more focus on increasing or maintaining the rate at which our existing customers purchase Groupons and our ability to expand the number and variety of deals that we offer. It is also possible that merchant partners...

  • Page 19
    ...costs associated with our international operations, could adversely affect our business. If we fail to retain our existing customers or acquire new customers, our revenue and business will be harmed. We must continue to retain and acquire customers that purchase Groupons in order to increase revenue...

  • Page 20
    ...our services provides them with a long-term increase in customers, revenue or profits, we may not be able to retain or attract merchant partners 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...

  • Page 21
    ... Our merchant payment terms and revenue growth have provided us with operating cash flow to fund our working capital needs. Our merchant partner arrangements are generally structured such that we collect cash up front when our customers purchase Groupons and make payments to our merchant partners at...

  • Page 22
    ... schedule in those markets. Our accrued merchant and supplier payable balance increased from $520.7 million as of December 31, 2011 to $671.3 million as of December 31, 2012. We use the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs...

  • Page 23
    ..., our Chief Financial Officer and Kal Raman, our Chief Operating Officer. Mr. Mason is one of our founders and his leadership has played an integral role in our growth. The loss of key personnel, including key members of management as well as our marketing, sales, product development and technology...

  • Page 24
    ...Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations. The implementation of the CARD Act and similar state and foreign...

  • Page 25
    ... or limitations 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...

  • Page 26
    ... of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations. Failure...

  • Page 27
    ...in service on our email infrastructure, websites or applications could result in a loss of subscribers, customers or merchant partners. Subscribers access our deals through our websites and mobile applications. Our reputation and ability to acquire, retain and serve our subscribers and customers are...

  • Page 28
    ... provide reliable, trustworthy and high quality deals, which we may not do successfully. We receive a high degree of media coverage around the world. Unfavorable publicity or consumer perception of our websites, applications, practices or service offerings, or the offerings of our merchant partners...

  • Page 29
    ...to manage working capital and to predict financial results accurately, which could adversely affect the market price of our 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...

  • Page 30
    ... on companies that are financial institutions or that provide financial products and services. For these purposes, financial institutions are broadly defined to include money services businesses such as money transmitters, check cashers and sellers or issuers of stored value cards. Examples of...

  • Page 31
    ... our business in the press or the investment community; future sales of our Class A common stock by our significant stockholders, officers and directors; changes in our capital structure, such as future issuances of debt or equity securities; our entry into new markets; regulatory developments in...

  • Page 32
    ...intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. As a result, stockholders can expect to receive a return on their investment in our Class A common stock only if the market price of the...

  • Page 33
    ... to seek additional space as needed to satisfy our growth. Description of Use Square Footage Operating Segment Lease Expiration Corporate office facilities ...Corporate office facilities ...ITEM 3: LEGAL PROCEEDINGS 421,000 87,000 North America International From 2013 through 2018 From 2016...

  • Page 34
    ... plans is incorporated by reference from the Company's Proxy Statement for the 2013 Annual Meeting of Stockholders. Recent Sales of Unregistered Securities During the fourth quarter of 2012, we issued 508,442 shares of Class A common stock to settle certain liability-classified subsidiary...

  • Page 35
    ... to repurchase 69,277 shares of Class A Common from the employee for a purchase price of $.0001 per share. Stock Performance Graph This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by...

  • Page 36
    ... Annual Report on Form 10-K, and the information contained in Item 7 of this Annual 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. 2012 Year Ended December 31, 2011 2010...

  • Page 37
    ... 2010 (in thousands) 2009 2008 Consolidated Balance Sheet Data: Cash and cash equivalents ...$1,209,289 Working capital (deficit) ...$ 319,345 Total assets ...$2,031,474 Total long-term liabilities ...$ 120,932 Redeemable preferred stock ...$ - Cash dividends per common share ...$ - Total Groupon...

  • Page 38
    ... of local commerce onto the Internet, Groupon is helping local merchant partners to attract customers and sell goods and services. In our Goods category, through which we offer deals on merchandise, we often act as the merchant of record, particularly on deals in North America. We provide consumers...

  • Page 39
    ... price paid by the customer for the Groupon less an agreed upon portion of the purchase price paid to the featured merchant partner, excluding any applicable taxes and net of estimated refunds for which the merchant's share is recoverable. Direct revenue, when the Company is selling the product...

  • Page 40
    ... product and service offerings in order to create a more complete online marketplace for local commerce. We generally do not have long-term arrangements to guarantee availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us. If new merchants...

  • Page 41
    ... substantial investments in the foreseeable future as we continue to increase the number and variety of deals we offer each day, broaden our customer base, expand our marketing channels, expand our operations, hire additional employees and develop our technology. Competitive pressure. Our growth and...

  • Page 42
    ... 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 within "Selling, general and administrative" on the consolidated statements of operations consist of payroll and sales commissions for...

  • Page 43
    ... within cost of revenue and operating expenses Cost of revenue and operating expenses include stock-based compensation as follows: Year Ended December 31, 2011 2010 Stock-based Stock-based Stock-based Statement of compensation Statement of compensation Statement of compensation Operations line...

  • Page 44
    ...from changes in exchange rates from those in effect in the comparable prior year period for operating results. Gross Billings Gross billings represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. For third party revenue...

  • Page 45
    ... for the year ended December 31, 2011. Several initiatives have driven third party revenue growth during this 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 offer on a daily basis to our customers on 39

  • Page 46
    ... and internationally through acquiring businesses and entering new markets, several other initiatives drove revenue growth in 2011. We increased our total marketing spend significantly, focusing on acquiring customers through online channels such as social networking websites and search engines...

  • Page 47
    ... new international markets during 2010 and 2011 and due to growth in existing markets, we were able to grow our daily deals business significantly from 2010 to 2011. Cost of Revenue Cost of revenue on third party, other and direct revenue deals for the years ended December 31, 2012, 2011 and 2010...

  • Page 48
    ...purchase price of consumer products, warehousing, shipping costs and inventory markdowns. For third party revenue transactions, cost of revenue includes estimated refunds for which the merchant's share is not recoverable. Other costs incurred to generate revenue, which include credit card processing...

  • Page 49
    ... of operations for much of our International segment for the year ended December 31, 2010, due to the timing of our international acquisitions. The increase was also due to general business growth of third party revenue deals in addition to the introduction of direct revenue deals in 2011. Business...

  • Page 50
    ... segment to accelerate growth and establish our presence in new markets. We continued to invest heavily in customer acquisition in the year ended December 31, 2011, specifically in our International segment. Additionally, the increase in revenue, including direct revenue that is reported on a gross...

  • Page 51
    ... to $290.6 million for the year ended December 31, 2010. Marketing expense increased as we continued to focus on customer acquisition. For the year ended December 31, 2011, customer acquisition costs still represented the primary portion of our marketing spend. Through the course of the year an...

  • Page 52
    ... revenue growth. We are continuing to refine our sales management and selling processes, including through automation, in order to generate increased operating efficiencies. 2012 compared to 2011 Selling, general and administrative expense increased by $358.1 million to $1,179.1 million for the year...

  • Page 53
    ... other group buying companies in an effort to increase our competitive advantage both domestically and internationally. As part of the overall consideration paid in connection with these acquisitions, we were obligated to issue additional shares of our Class A common stock and make cash payments if...

  • Page 54
    ... Deal acquisition, which was settled in late 2010. The unfavorable impact on income from operations from year-over-year changes in foreign exchange rates for the year ended December 31, 2012 was $7.4 million. 2012 compared to 2011 Income from operations increased by $332.1 million to $98.7 million...

  • Page 55
    ... the return of 400,000 shares of non-voting common stock from a former executive officer in connection with a separation agreement. Provision (Benefit) for Income Taxes For the years ended December 31, 2012, 2011 and 2010, we recorded income tax expense (benefit) of $146.0 million, $43.7 million and...

  • Page 56
    ...,993) 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 acquisitions made by the Company. 50

  • Page 57
    ...market accounts and overnight securities. Since our inception, we have funded our working capital requirements and expansion primarily with cash flows from operations and through public and private sales of common and preferred stock, which have yielded net proceeds of approximately $1,857.1 million...

  • Page 58
    ... and technology development during 2013. During the year ended December 31, 2012, we acquired 10 businesses for an aggregate purchase price of $54.9 million, of which $46.9 million was paid for in cash (net of cash acquired), and we expect to continue to use cash to make strategic acquisitions. We...

  • Page 59
    ... party and direct revenue sales transactions, that can cause volatility in working capital levels and impact cash balances more or less than our operating income or loss would indicate. In the current year, we have offered certain merchant partners more favorable and accelerated payment terms, which...

  • Page 60
    ... growth of the business domestically and internationally. We received net cash from our acquisitions in 2010, as a significant portion of the purchase price paid consisted of stock and contingent consideration. Cash Used in Financing Activities For the year ended December 31, 2012, our net cash...

  • Page 61
    ... and information technology support services. (4) Contingent consideration represents our best estimate of the cash payments we will be obligated to make under contingent consideration arrangements with former owners of certain entities we acquired if specified operating objectives and financial...

  • Page 62
    ... includes deals offered through a variety of categories including: Local, National, Goods, Getaways and Live. Customers purchase the discount vouchers ("Groupons") from us and redeem them with our merchant partners. The revenue recognition criteria are met when the number of customers who purchase...

  • Page 63
    ... Goods category. For Goods transactions where we are performing a service by acting as a marketing agent of the merchant, revenue is recorded on a net basis and is presented within third party revenue. Direct revenue, including associated shipping revenue, is recorded when the products are shipped...

  • Page 64
    ... measuring fair value based on discounted 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...

  • Page 65
    ... 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 about one or more of these sources of taxable income is sufficient to support...

  • Page 66
    ... in F-tuan that we acquired over the carrying value of our investment in E-Commerce and the $25.0 million of cash consideration. The $128.1 million acquisition-date fair value of our investment in F-tuan, a nonpublic entity, was determined using the discounted cash flow method, which is an income...

  • Page 67
    ... "Cost of revenue", "Marketing" and "Selling, general and administrative" on our consolidated statements of operations. The fair value of restricted stock and restricted stock units is based on the fair value of our common stock on the date of grant. Prior to the initial public offering, determining...

  • Page 68
    ...price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The assumptions we used in the valuation model were based on future expectations combined with management judgment. In the absence of a public trading market prior to our initial...

  • Page 69
    ... exchange risk based on hypothetical changes in rates utilizing a sensitivity analysis that measures the potential impact on working capital based on a 10% change (increase and decrease) in currency rates. We use a current market pricing model to assess the changes in the value of the U.S. dollar...

  • Page 70
    ... changes in the inflation rate. Inflation and changing prices did not have a material effect on our business, financial condition or results of operations in 2012, 2011 or 2010. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Table of Contents Groupon, Inc. Consolidated Financial Statements...

  • Page 71
    ... 31, 2012 and 2011, and the consolidated results of its operations, and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule when considered...

  • Page 72
    ... December 31, 2012 and 2011 ...Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, no shares issued and outstanding at December 31, 2012 and 2011 ...Additional paid-in capital ...Accumulated deficit ...Accumulated other comprehensive income ...Total Groupon, Inc. Stockholders...

  • Page 73
    GROUPON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) Year Ended December 31, 2011 2012 2010 Revenue: Third party and other revenue ...Direct revenue ...Total revenue ...Cost of revenue: Third party and other revenue ...Direct revenue ...Total cost...

  • Page 74
    GROUPON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) 2012 Year Ended December 31, 2011 2010 Net loss ...Other comprehensive income, net of tax: Foreign currency translation adjustments ...Unrealized gain on available-for-sale debt security ...Other comprehensive income ......

  • Page 75
    ... of common stock ...- - (45,090,184) - Purchase of additional interests in consolidated subsidiaries ...- - 1,454,838 - Return of common stock ...- - (400,000) - Excess tax benefits on stock-based compensation ...- - - - Recapitalization of outstanding shares to Class A and Class B common stock...

  • Page 76
    ...Accounts payable ...Accrued merchant and supplier payables ...Accrued expenses and other current liabilities ...Other, net ...Net cash provided by operating activities ...Investing activities Purchases of property and equipment and capitalized software ...Acquisitions of businesses, net of acquired...

  • Page 77
    ... FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS Groupon, Inc. and subsidiaries (the "Company") is a local commerce marketplace (www.groupon.com) that connects merchants to consumers by offering goods and services at a discount. The Company also offers deals on products for which it acts...

  • Page 78
    ... 31, 2011. Restricted cash primarily represents amounts that we are unable to access for operational purposes pursuant to our contractual arrangements with certain financial institutions and entities who process merchant payments on our behalf. Internal-Use Software The Company incurs costs related...

  • Page 79
    ... Company's proportionate share of income or loss on equity method investees is presented within "Loss on equity method investees" on the consolidated statements of operations. Available-for-Sale Debt Security At December 31, 2012, the Company has an investment in a convertible debt security issued...

  • Page 80
    ... (benefit) for income taxes" on the statements of operations. Lease and Asset Retirement Obligations The Company categorizes leases at their inception as either operating or capital leases and may receive renewal or expansion options, rent holidays, and leasehold improvement and other incentives on...

  • Page 81
    ... deals offered through a variety of categories including: Local, National, Goods, Getaways and Live. Customers purchase the discount vouchers ("Groupons") from the Company and redeem them with the Company's merchant partners. The revenue recognition criteria are met when the number of customers...

  • Page 82
    ... purchase price of consumer products, warehousing, shipping costs and inventory markdowns. For third party revenue transactions, cost of revenue includes estimated refunds that are not recoverable from the merchant. Other costs incurred to generate revenue, which include credit card processing fees...

  • Page 83
    ... within "Cost of revenue," "Marketing" and "Selling, general and administrative," consistent with the respective employees' cash compensation, on the consolidated statements of operations. Prior to the Company's initial public offering in November 2011, the fair value of restricted stock units and...

  • Page 84
    ... purchase price of the 2012 acquisitions (in thousands): Net working capital (including acquired cash of $2.1 million) ...Property and equipment ...Goodwill ...Intangible assets(1): Subscriber relationships ...Merchant relationships ...Developed technology ...Deferred tax liability ...Total purchase...

  • Page 85
    ... the aggregate purchase price and the fair value of noncontrolling interests for these 2011 acquisitions (in thousands): Net working capital (including cash of $3.9 million) ...Property and equipment ...Goodwill ...Intangible assets(1): Subscriber relationships ...Developed technology ...Trade names...

  • Page 86
    ...$18.7 million, consisting of $10.2 million in cash and the fair value of noncontrolling interest of $8.5 million as of the acquisition date. Qpod is a collective buying power business that provides daily deals and online marketing services in Japan which are substantially similar to the Company. The...

  • Page 87
    ... purchase price of the City Deal acquisition (in thousands): Net working capital (including cash of $6.4 million) ...Property and equipment ...Goodwill ...Intangible assets (1) : Subscriber relationships ...Merchant relationships ...Developed technology ...Trade names ...Deferred tax liability...

  • Page 88
    ... local marketing services and developing mobile technology to help expand and advance the Company's product offerings. The following table summarizes the allocation of the aggregate purchase price and the fair value of noncontrolling interests for these 2010 acquisitions (in thousands): Net working...

  • Page 89
    ... years and is payable in $1.3 million of cash and $0.4 million of Class A common stock. 2011 Activity In November 2011, the Company acquired additional interests in one majority-owned subsidiary for an aggregate purchase price of $6.8 million, including $0.3 million of cash and $6.5 million of stock...

  • Page 90
    ... the Company's other intangible assets (in thousands): As of December 31, 2012 Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted-Average Remaining Useful Life (in years) Asset Category Subscriber relationships ...Merchant relationships ...Trade names ...Developed technology...

  • Page 91
    ... statements of operations. Depreciation and amortization expense on property, equipment and software was $35.9 million, $12.8 million and $1.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. 6. INVESTMENTS The following table summarizes the Company's investments (dollars...

  • Page 92
    ... statement of operations. The gain represents the excess of the fair value of the Company's 19% investment in F-tuan over the carrying value of its E-Commerce investment as of the date of the transaction and the $25.0 million of cash consideration. Cost Method Investment in Life Media Limited...

  • Page 93
    ... provided by the investee at year-end indicated significant declines in forecasted 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...

  • Page 94
    ...11,138 18,284 $114,139 Purchase Obligations The Company has entered into non-cancelable service contracts primarily covering sales and information technology support services which expire beginning in the year ended December 31, 2013. As of December 31, 2012, future payments under these contractual...

  • Page 95
    ... the registration statement and prospectus for the Company's initial public offering of Class A common stock and in the Company's subsequently-issued financial statements. The putative class action lawsuit seeks an unspecified amount of monetary damages, reimbursement for fees and costs incurred in...

  • Page 96
    ... Company's November 8, 2012 press release announcing its third quarter 2012 earnings results, and failed to disclose information about the Company's revenue growth and revenue mix. These putative class action lawsuits seek an unspecified amount of monetary damages, reimbursement for fees and costs...

  • Page 97
    ... agreements have not had a material impact on the operating results, financial position, or cash flows of the Company. 8. VARIABLE INTEREST ENTITY On May 9, 2011, the Company entered into a collaborative arrangement which was later amended on January 1, 2012 to create a jointly-owned sales category...

  • Page 98
    ... 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 99
    GROUPON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the Company's accrued expenses as of December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Marketing ...Refunds reserve ...Payroll and benefits ...Subscriber credits ...Professional fees ...

  • Page 100
    GROUPON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. 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 of underwriter fees and other issuance costs, in ...

  • Page 101
    ... 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 shares of Class A common stock, or rights to acquire shares of Class A common stock, as the case may be, and the holders of Class B common stock will receive...

  • Page 102
    ... of Common Shares On September 22, 2011, the Company's former chief operating officer resigned. As a result of the separation agreement, 400,000 shares of non-voting common stock were returned resulting in other income of approximately $4.9 million, which represents the reversal of the originally...

  • Page 103
    ... January 2013, the Company issued 271,402 shares to employees for the Plan period ended December 31, 2012. Stock Options The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from...

  • Page 104
    .... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of stock options granted is estimated on the date of grant using the Black-Scholes-Merton optionpricing model. Expected volatility is based on historical volatilities for publicly-traded options of comparable companies over the...

  • Page 105
    ... per share fair value of the Company's common stock underlying those options on the date of grant. The assumptions used in the valuation model were based on future expectations combined with management judgment. In the absence of a public trading market prior to the Company's initial public offering...

  • Page 106
    ...for the Company's common stock; the market performance of comparable publicly-traded companies; and the U.S. and global capital market conditions. The discounted future earnings method calculates the present value of future economic benefits using a discount rate based on the nature of the business...

  • Page 107
    GROUPON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables set forth the computation of basic and diluted loss per share of Class A and Class B common stock for the year ended December 31, 2012 (in thousands, except share amounts and per share amounts): Year Ended ...

  • Page 108
    ...per share. (2) The two-class method is not applied for 2011 or 2010 because the Company's 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...

  • Page 109
    ... using internal models. The second is an option pricing methodology within a Black-Scholes framework. For contingent consideration to 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...

  • Page 110
    ...): Fair Value Measurement at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Description As of December 31, 2012 Assets: Cash equivalents ...Available-for-sale debt security...

  • Page 111
    ... 31, 2011 and 2010. Fair Value Measurement at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Description As of December 31, 2012 Asset impairments: Cost method investment...

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    GROUPON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. INCOME TAXES The components of pretax loss for the years ended December 31, 2012, 2011 and 2010 were as follows (in thousands): 2012 2011 2010 United States ...International ...Income (loss) before provision (benefit) for ...

  • Page 113
    ... 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 $753.5 million and $698.7 million at December 31, 2012 and 2011, respectively. A cumulative loss in the most...

  • Page 114
    ... 2011 and 2010 that, if recognized, would affect the effective tax rate are $39.3 million, $3.2 million and $0.0 million, respectively. The Company recognized $2.3 million of interest and penalties within "Provision (benefit) for income taxes" on its consolidated statement of operations for the year...

  • Page 115
    ... by the Company's chief operating decision-maker (i.e., chief executive officer) in assessing performance and allocating resources. Revenue for each segment is based on the geographic market where the sales are completed. Revenue and profit or loss information by reportable segment reconciled...

  • Page 116
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $28.7 million, respectively, for the International segment. For the years ended December 31, 2012, 2011 and 2010, acquisition-related expense (benefit), net was approximately a $2.8 million benefit, $0.8 million expense, and $204.6 million expense...

  • Page 117
    ... goods and services at a discount with these merchants. The Company incurred $2.4 million and $1.1 million of costs under the merchant agreements for the years ended December 31, 2011 and 2010, respectively, which are presented as a reduction to revenue in the consolidated statements of operations...

  • Page 118
    ... cost analysis. Echo received payments of approximately $1.9 million for its services under the agreement for the year ended December 31, 2012, which were expensed by the Company through "Cost of revenue" on the consolidated statements of operations. As the Goods category has expanded, the Company...

  • Page 119
    ... 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...

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    ...material weakness as of December 31, 2012. Except for the items described above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months...

  • Page 121
    ...management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

  • Page 122
    ...from the information under the captions "Corporate Governance Policies and Practices" and "Director Independence" in our Proxy Statement for our 2013 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2012. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES...

  • Page 123
    PART IV ITEM 15: 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 124
    ... 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 27th day of February 2013. GROUPON, INC. By: /s/ ANDREW D. MASON Name: Andrew D. Mason Title: Chief Executive Officer POWER OF ATTORNEY...

  • Page 125
    ... Class A common stock certificate of the Registrant. Third Amended and Restated Investors Rights Agreement, dated as of December 10, 2010, between Groupon, Inc. and certain investors named therein. 2008 Stock Option Plan.** Form of Notice of Grant of Stock Option under 2008 Stock Option Plan.** 2010...

  • Page 126
    ..., Inc. and Kal Raman (incorporated by reference to the Company's Current Report on Form 8-K filed on January 29, 2013).** Subsidiaries of Groupon, Inc. Consent of Ernst & Young LLP Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to...

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