Groupon 2012 Annual Report Download - page 56

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2011 compared to 2010
The effective tax rate was (17.2)% for the year ended December 31, 2011, as compared to 1.6% for the year
ended December 31, 2010. The most significant drivers of our effective tax rate for the years ended December 31,
2011 and 2010 included the impact of losses in jurisdictions that we were not able to benefit due to valuation
allowances and nondeductible stock-based compensation expense. We recorded deferred charges during 2011 related
to income taxes on intercompany sales of certain intellectual property rights, including intellectual property that was
acquired in 2011, between various subsidiaries within the Company’s international structure. The deferred charges are
amortized as a component of income tax expense over the life of the intellectual property. As of December 31, 2011,
unamortized tax effects of intercompany transactions of $33.3 million and $78.4 million are included within “Prepaid
expenses and other current assets” and “Other non-current assets,” respectively, on the consolidated balance sheet.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following
non-GAAP financial measures: operating income (loss) excluding stock-based compensation and acquisition-
related expense (benefit), net, free cash flow and foreign exchange rate neutral operating results. These non-
GAAP financial measures are used in addition to and in conjunction with results presented in accordance with
U.S. GAAP. 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.
Operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net.
Operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net is a
non-GAAP measure that comprises the consolidated total of the segment operating income (loss) of our two
segments, North America and International. Stock-based compensation expense and acquisition-related (benefit)
expense, net are excluded from segment operating income (loss) that we report under U.S. GAAP for our
segments. Stock-based compensation expense is primarily a non-cash item. Acquisition-related expense (benefit),
net represents the change in the fair value of contingent consideration arrangements related to business
combinations. We use consolidated operating income (loss) excluding stock-based compensation and acquisition-
related expense (benefit), net to allocate resources and evaluate performance internally.
We consider operating income (loss) excluding stock-based compensation and acquisition-related expense
(benefit), net to be an important measure for management to evaluate the performance of our business as it excludes
changes in the fair value of contingent consideration related to business combinations and stock-based compensation
expenses. We believe it is important to view operating income (loss) excluding stock-based compensation and
acquisition-related expense (benefit), net as a complement to our entire consolidated statements of operations. When
evaluating our performance, you should consider operating income (loss) excluding stock-based compensation and
acquisition-related expense (benefit), net as a complement to other financial performance measures, including various
cash flow metrics, net income (loss) and our other U.S. GAAP results.
The following is a reconciliation of operating income (loss) excluding stock-based compensation and
acquisition-related expense (benefit), net to the most comparable U.S. GAAP measure, ‘‘Income (loss) from
operations,’’ for the years ended December 31, 2012, 2011 and 2010.
Year Ended December 31,
2012 2011 2010
(in thousands)
Income (loss) from operations .................. $ 98,701 $(233,386) $(420,344)
Adjustments:
Stock-based compensation(1) ............... 104,117 93,590 36,168
Acquisition-related expense (benefit), net(2) . . . 897 (4,537) 203,183
Total adjustments ............................ 105,014 89,053 239,351
Operating income (loss) excluding stock-based
compensation and acquisition-related expense
(benefit), net .............................. $203,715 $(144,333) $(180,993)
(1) Represents stock-based compensation expense recorded within “Selling, general and
administrative,” “Cost of revenue,” and “Marketing” on the consolidated statements of operations.
(2) Represents changes in the fair value of contingent consideration related to acquisitions made by
the Company.
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