Groupon 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 Groupon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

2014 ANNUAL REPORT

Table of contents

  • Page 1
    2014 ANNUAL REPORT

  • Page 2

  • Page 3
    ... 400,000 new merchants to our platform and nearly 7 million new customers bought a Groupon, driving annual units from 176 million to 214 million in this period. Two years ago, we were not predominantly mobile. At the end of 2012, 35 million people had downloaded our apps globally. By the end of 2014...

  • Page 4
    .... In 2015, we intend to continue the marketplace transformation we started a few years ago, adding more merchants to our platform and allowing our customers to buy, book, reserve, redeem and pay for local goods and services seamlessly through our app. As we aggregate more inventory and improve user...

  • Page 5
    ... 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 6
    ... 2014, the aggregate market value of shares held by non-affiliates of the registrant was $3,340,614,720 based on the number of shares of Class A common stock held by non-affiliates as of June 30, 2014 and based on the last reported sale price of the registrant's Class A common stock on June 30, 2014...

  • Page 7
    ... and Procedures...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance...Item 11. Executive Compensation...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Item 13. Certain Relationships...

  • Page 8
    ... 16.0% in 2013. Gross billings represent the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Gross billings differs from our revenue, which is presented net of the merchant's share of the transaction price for transactions in...

  • Page 9
    ...our investor relations hotline, which is (312) 999-3098. Our website is www.groupon.com. Information contained on our website is not a part of this Annual Report on Form 10-K. We completed our initial public offering in November 2011 and our Class A common stock is listed on the Nasdaq Global Select...

  • Page 10
    ... 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 11
    ...and activities, beauty and spa, health and fitness, home and garden and automotive. In the United States, customers can book reservations at selected restaurants through our website and mobile applications. National merchants also have used our marketplaces as an alternative to traditional marketing...

  • Page 12
    ...of our international markets, we use targeting technology to distribute deals to current and potential customers based on their locations and personal preferences. A subscriber who clicks on a deal within an email is directed to our website or mobile application to learn more about the deal and make...

  • Page 13
    ...other traditional media companies that provide coupons and discounts on products and services. We believe the principal competitive factors in our market include the following size of active customer base and breadth merchant relationships; mobile penetration; understanding of local business trends...

  • Page 14
    ... sales representatives and 1,695 corporate, operational and customer service representatives, and 4,727 employees in our Rest of World segment, consisting of 1,719 sales representatives and 3,008 corporate, operational and customer service representatives. Executive Officers The following table sets...

  • Page 15
    ... 2004 to July 2006, Director of Investor Relations from April 2003 to April 2004, Director of Finance, Worldwide Application Software from November 2001 to April 2003, Director of Finance, Marketing and Business Development from November 2000 to November 2001 and Global Controller from October 1999...

  • Page 16
    ... stockholder who requests it. The Company's Code of Conduct, Corporate Governance Guidelines and committee charters are also posted on the site. The Company uses its Investor Relations website (investor.groupon.com) as a means of disclosing material non-public information and for complying with its...

  • Page 17
    ...; shorter payment cycles and greater problems in collecting accounts receivable; higher Internet service provider costs; seasonal reductions in business activity; expenses associated with localizing our products, including offering customers the ability to transact business in the local currency...

  • Page 18
    ... 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 incur significantly higher marketing expenses or reduce margins, as experienced in 2014, in order to attract new merchants...

  • Page 19
    ..., our prominent size and scale, the large number of transactions that we process, our payment processing and point of sale offerings, our expanded geographic footprint and international presence, our use of open source software and technologies, the outsourcing of some of our business operations and...

  • Page 20
    ..., 2013, to $910.6 million as of December 31, 2014, due primarily to our acquisition of Ticket Monster and the continued growth of our Goods category in 2014. We have used the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer...

  • Page 21
    ... 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 22
    ... periods. 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 technology and product development, customer support and other 18

  • Page 23
    ...could affect the tax treatment of our foreign earnings, as well as cash and cash equivalent balances we currently maintain outside of the United States. 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...

  • Page 24
    ... 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 25
    ... 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 26
    ... key employees, customers or suppliers, difficulties in integrating different computer and accounting systems and exposure to unknown or unforeseen liabilities of acquired companies. In addition, the integration of an acquisition could divert management's time and the Company's resources. If we pay...

  • Page 27
    ... which could adversely 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...

  • Page 28
    We offer a credit card payment processing service to merchants. If we process a payment that is successfully disputed by the customer at a later date, the transaction is normally "charged back" to the merchant and the purchase price is credited or otherwise refunded to the cardholder. If we or our ...

  • Page 29
    ...; 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 and announcements relating to litigation...

  • Page 30
    ... 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 stock increases...

  • Page 31
    ...of space. Our corporate headquarters and principal executive offices are located in Chicago, Illinois. 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, and that...

  • Page 32
    ...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. 2013 First Quarter ...$ Second Quarter ...$ Third Quarter...$ Fourth Quarter ...$ 2014 First Quarter ...$ Second Quarter ...$ Third Quarter...

  • Page 33
    ... for an aggregate purchase price of $8.1 million (including fees and commissions) under the share repurchase program. A summary of our Class A common stock repurchases during the three months ended December 31, 2014 under the repurchase program is set forth in the following table: Date October 1-31...

  • Page 34
    ..., based on closing prices. Measurement points are our initial public offering date of November 4, 2011 and the last trading day of each year end period for 2011, 2012, 2013 and 2014. Stock Price Performance Graph $200 $180 $160 $140 $120 Dollars $100 $80 $60 $40 $20 $0 Groupon Nasdaq Composite...

  • Page 35
    ..., 2014 Consolidated Statements of Operations Data: 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...Acquisition-related expense...

  • Page 36
    As of December 31, 2014 Consolidated Balance Sheet Data: Cash and cash equivalents...$ Working capital (deficit)...Total assets...Total long-term liabilities...Total Groupon, Inc. Stockholders' Equity ...1,071,913 75,733 2,... 118,833 (196,564) 381,570 1,621 8,077 2013 2012 (in thousands) 2011 2010 32

  • Page 37
    ... 2013. Our revenue from deals where we act as the third party marketing agent is the purchase price paid by the customer for a Groupon voucher ("Groupon") less an agreed upon portion of the purchase price paid to the featured merchants, excluding applicable taxes and net of estimated refunds...

  • Page 38
    ... merchant's share is recoverable. Direct revenue, when the Company is selling the product as the merchant of record, is the purchase price paid by the customer, excluding applicable taxes and net of estimated refunds. Gross profit. Gross profit reflects the net margin earned after deducting our cost...

  • Page 39
    ... 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 an ongoing...

  • Page 40
    ...due to the increase in direct revenue transactions from our Groupon Goods business in EMEA, as direct revenue is presented on a gross basis in our consolidated statements of operations. Marketing activities. We must continue to acquire and retain customers in order to increase revenue and attempt to...

  • Page 41
    ... cost of the related inventory, while third party revenue is net of the merchant's share of the transaction price. Gross profit as a percentage of revenue on direct revenue transactions in our Goods category was 10.5%, 8.7% and 7.1% for the years ended December 31, 2014, 2013 and 2012, respectively...

  • Page 42
    ..., such as order discounts, free shipping on qualifying merchandise sales and accepting lower margins on our deals. Marketing is the primary method by which we acquire customers and promote awareness and, as such, is a critical part of our growth strategy. Selling, General and Administrative...

  • Page 43
    ..., 2014 and 2013: Year Ended December 31, 2014 (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 administrative...Acquisition-related...

  • Page 44
    ... in exchange rates from those in effect in the 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 for the years ended December 31, 2014 and 2013 were...

  • Page 45
    ... the Ticket Monster acquisition and our global efforts to build our marketplaces and increase our offerings to customers. The unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $39.9 million. We offer goods and services...

  • Page 46
    ... are reported as a reduction of gross billings. Order discounts increased to $69.5 million for the year ended December 31, 2014, as compared to $21.2 million in the prior year. Historically, our customers often purchased a Groupon voucher when they received our email with a limited-time offer, even...

  • Page 47
    ... 2013. Our acquisition of Ticket Monster contributed $125.2 million of third party revenue for the year ended December 31, 2014. The decrease in the percentage of gross billings that we retained after deducting the merchant's share primarily reflects the impact of Ticket Monster's lower deal margins...

  • Page 48
    ..., 2014 includes $82.4 million from our Ideel acquisition. We are generally the merchant of record for transactions in our Goods category in North America and also in EMEA beginning in September 2013, such that the resulting revenue is reported on a gross basis within direct revenue. Growth in direct...

  • Page 49
    ... 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 overall increase in revenue in our North America segment was also due to an increase in active customers, partially offset by lower gross billings...

  • Page 50
    ...percentage of gross billings that we retained after deducting the merchant's share primarily reflects the impact of Ticket Monster's lower deal margins. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $20.8 million. 46

  • Page 51
    ... the fourth quarter of 2013. 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 fees, editorial costs, certain technology costs, web hosting...

  • Page 52
    ... by $284.0 million to $1,092.5 million for the year ended December 31, 2014, as compared to $808.5 million for the year ended December 31, 2013. The increase in cost of revenue was primarily driven by the cost of inventory and shipping costs related to direct revenue deals in our Goods category, due...

  • Page 53
    ... year ended December 31, 2013. Cost of revenue for the year ended December 31, 2014 includes $65.7 million from the Ticket Monster acquisition, which primarily consists of credit card processing fees and the cost of inventory and shipping costs. Gross Profit Gross profit for the years ended December...

  • Page 54
    ...Total gross profit...$ 731,983 (1) (2) Includes gross profit from deals with local and national merchants and through local events. During the three months ended March 31, 2014, the Company began classifying other gross profit as a component of the Local category. Other gross profit was previously...

  • Page 55
    ... us an indication of how well our marketing spend is driving gross billings and revenue growth. The favorable impact on marketing from yearover-year changes in foreign exchange rates for the year ended December 31, 2014 was $0.7 million. Our marketing activities also include elements that are not...

  • Page 56
    ... 31, 2014, the net acquisition-related expense included $3.7 million of external transaction costs, primarily related to the acquisitions of Ticket Monster and Ideel as described in Note 3 "Business Combinations," partially offset by $2.4 million related to changes in the fair value of contingent...

  • Page 57
    ... and acquisition-related expense (benefit), net, decreased by $7.4 million to $104.1 million for the year ended December 31, 2014, as compared to $111.5 million for the year ended December 31, 2013. The decrease in segment operating income was attributable to a decrease in segment gross profit and...

  • Page 58
    ..., 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 administrative...Acquisition-related...

  • Page 59
    ... in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period. Gross Billings Gross billings for the years ended December 31, 2013 and 2012 were as follows: Year Ended December 31, 2013 (in thousands) Gross billings: Third party...$ Direct...

  • Page 60
    ...: Local, Goods and Travel within our North America, EMEA and Rest of World segments. We also earn advertising revenue, payment processing revenue, point of sale revenue and commission revenue. Gross billings, revenue, cost of revenue and gross profit from these other sources were previously...

  • Page 61
    ... million. Lower unit sales were attributable, in part, to actions we have taken to reduce the number of local and travel deals offered in many of the smaller cities within our Rest of World segment in order to reduce our marketing and selling costs by focusing on markets that provide better scaling...

  • Page 62
    ...German tax ruling, which requires us to remit value-added taxes (VAT) earlier on unredeemed Groupons, we began recognizing revenue from unredeemed Groupons in Germany shortly after deal expiration, which is consistent with most other jurisdictions in which we pay on redemption. Direct Revenue Direct...

  • Page 63
    ...gross billings, before deducting the cost of the related inventory, while third party revenue is net of the merchant's share of the transaction price. Additionally, our Goods category has lower margins than our Local category, primarily as a result of shipping and fulfillment costs related to direct...

  • Page 64
    ... 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 65
    ...2012. 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 active...

  • Page 66
    ... the fourth quarter of 2013. 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 fees, editorial costs, certain technology costs, web hosting...

  • Page 67
    ... and shipping and fulfillment costs related to direct revenue deals in our Goods category, as we began increasing the number of product deals offered in our EMEA segment for which we are the merchant of record beginning in September 2013. Rest of World Rest of World segment cost of revenue decreased...

  • Page 68
    ..., 2013, as compared to the prior year. These allocable costs include 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 gross billings from...

  • Page 69
    ...1,615,532 Includes gross profit from deals with local merchants and national merchants and through local events. During the three months ended March 31, 2014, the Company began classifying other gross profit as a component of the Local category. Other gross profit was previously aggregated with the...

  • Page 70
    ... $156.5 million 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...

  • Page 71
    ... to changes in the fair value of contingent consideration, partially offset by $3.2 million of external transaction costs related to business combinations. The external transaction costs incurred in 2013 were primarily related to the acquisition of Ticket Monster, which closed on January 2, 2014...

  • Page 72
    ... by a decrease in gross profit. Rest of World Segment operating loss in our Rest of World segment, which excludes stock-based compensation and acquisition-related expense (benefit), net, increased by $12.9 million to a loss of $54.9 million for the year ended December 31, 2013, as compared to a loss...

  • Page 73
    ... fees. External transaction costs were not material for the year ended December 31, 2012. (2) 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 free cash...

  • Page 74
    ... to meet our working capital requirements and other capital expenditures for at least the next twelve months. Uses of Cash On January 2, 2014, we acquired Ticket Monster for total consideration of $259.4 million, consisting of $96.5 million in cash and $162.9 million of our Class A common stock. On...

  • Page 75
    ... of third party deals in our EMEA and Rest of World segments. Under our redemption merchant payment model, we collect payments at the time customers purchase Groupons and make payments to merchants at a subsequent date. Using this payment model, merchants are not paid until the customer redeems the...

  • Page 76
    ... to the seasonal increase in direct revenue in our Goods category during the holiday season. For the year ended December 31, 2012, our net cash provided by operating activities was $266.8 million, which consisted of a $187.3 million net increase related to changes in working capital and other assets...

  • Page 77
    ...from stock option exercises and our employee stock purchase plan. For the year ended December 31, 2013, our net cash used in financing activities of $81.7 million was driven primarily by taxes paid related to net share settlements of stock-based compensation awards of $47.6 million. We also paid $44...

  • Page 78
    ... and renewal and expansion options. Operating lease obligations expire at various dates with the latest maturity in 2024. Purchase obligations primarily represent non-cancelable contractual obligations related to information technology products and services. (3) Off-Balance Sheet Arrangements...

  • Page 79
    ... party marketing agent, by offering 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...

  • Page 80
    ... 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 a redemption payment model or a fixed payment model. We accrue costs...

  • Page 81
    ... to perform the second step of the goodwill impairment test. As of December 31, 2014, our market capitalization of $5.6 billion substantially exceeded our consolidated net book value of $764.9 million. Our seven reporting units as of October 1, 2014 were North America, Southern EMEA, Western EMEA...

  • Page 82
    ...in nature are not recorded for cost method investments and equity method investments, while such losses are recorded, net of tax, in accumulated other comprehensive income (loss) for available-for-sale securities. For the year ended December 31, 2014, we recorded $2.0 million of other-than-temporary...

  • Page 83
    ... the form of common and Series E preferred shares, in exchange for our 49.8% interest in E-Commerce and an additional $25.0 million of cash consideration. We recognized a $56.0 million non-operating gain as a result of this transaction, which represented the excess of the acquisition-date fair value...

  • Page 84
    ... 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer...

  • Page 85
    ...cash and money market funds. Our exposure 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. In August 2014, the Company entered into a three-year Credit Agreement that provides...

  • Page 86
    ...STATEMENTS AND SUPPLEMENTARY DATA Table of Contents Groupon, Inc. Consolidated Financial Statements As of December 31, 2014 and 2013 and for the Years Ended December 31, 2014, 2013 and 2012 Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of...

  • Page 87
    ... Public Company Accounting Oversight Board (United States), Groupon, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013...

  • Page 88
    ... December 31, 2013 ...Class B common stock, par value $0.0001 per share, 10,000,000 shares authorized, 2,399,976 shares issued and outstanding at December 31, 2014 and December 31, 2013 ...Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, no shares issued and outstanding at...

  • Page 89
    ... share and per share amounts) Year Ended December 31, 2014 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...Acquisition-related...

  • Page 90
    ..., 2014) Available-for-sale securities: Net unrealized (loss) gain during the period ...Reclassification adjustment for impairment included in net loss...Net change in unrealized gain (loss) (net of tax effects of $383, $(108) and $34 for the years ended December 31, 2014, 2013 and 2012, respectively...

  • Page 91
    ... connection with acquisition of business, net of issuance costs...Shares issued to settle liability-classified awards and contingent consideration ...Exercise of stock options ... Vesting of restricted stock units... Shares issued under employee stock purchase plan... Tax withholdings related to net...

  • Page 92
    ...issuance costs ...Shares issued to settle liability-classified awards and contingent consideration ...Purchase of interests in consolidated subsidiaries ... Exercise of stock options ... Vesting of restricted stock units... Shares issued under employee stock purchase plan... Tax withholdings related...

  • Page 93
    ...assets ...Net cash used in investing activities ...Financing activities Payments for purchases of treasury stock ...Excess tax benefits on stock-based compensation ...Taxes paid related to net share settlements of stock-based compensation awards...Debt issuance costs...Common stock issuance costs in...

  • Page 94
    ...information Income tax payments ...$ Non-cash investing and financing activities Issuance of common stock in connection with acquisition of business...$ Contingent consideration liabilities incurred in connection with acquisitions ...Equipment acquired under capital lease obligations...Shares issued...

  • Page 95
    ... world that connect merchants 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 and indirectly using...

  • Page 96
    ... and with entities that process merchant payments on the Company's behalf. Internal-Use Software The Company incurs costs related to internal-use software and website development, including purchased software and internally-developed software. Costs incurred in the planning and evaluation stage of...

  • Page 97
    ... its fair value. Investments Investments in nonmarketable equity shares with no redemption provisions that are not common stock or in-substance common stock or for which the Company does not have the ability to exercise significant influence are accounted for using the cost method of accounting and...

  • Page 98
    ... 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 through a variety of categories including: Local, Goods and Travel. Customers purchase the...

  • Page 99
    ... email distributions for the requisite period of time as set forth in the agreement with the advertiser. Commission revenue is earned when customers make purchases with retailers using coupons accessed through the Company's websites and mobile applications. Revenue from payment processing is earned...

  • Page 100
    ... 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer...

  • Page 101
    ... by offering goods and services at a discount. The primary purpose of this acquisition was to grow the Company's merchant and customer base and expand its presence in the Korean e-commerce market. The aggregate acquisition-date fair value of the consideration transferred for the Ticket Monster...

  • Page 102
    ... acquisition price of the Ticket Monster acquisition (in thousands): Cash and cash equivalents ...$ Accounts receivable ...Deferred income taxes ...Prepaid expenses and other current assets ...Property, equipment and software...Goodwill ...Intangible assets:(1) Subscriber relationships...Merchant...

  • Page 103
    ...429,897 shares of Class A common stock...Contingent consideration ...Total...$ 17,364 11,110 4,388 32,862 The fair value of the Class A Common Stock issued as consideration for one of the acquisitions was measured based on the stock price upon closing of the related transaction on November 13, 2014...

  • Page 104
    ... aggregate purchase price of these other acquisitions (in thousands): Net working capital (including acquired cash of $0.2 million) ...$ Goodwill ...Intangible assets: Subscriber relationships ...Developed technology...Brand relationships...Deferred income taxes, non-current ...Total purchase price...

  • Page 105
    ...31, 2012 (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...Net deferred tax liabilities ...Total acquisition price...$ (1) Acquired...

  • Page 106
    ... 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 consideration of $14.1 million was paid in 2012 and the...

  • Page 107
    ..., 2014, 2013 and 2012. The following tables summarize the Company's intangible assets (in thousands): December 31, 2014 Asset Category Gross Carrying Value Accumulated Amortization Net Carrying Value Subscriber relationships ...$ Merchant relationships...Trade names ...Developed technology ...Brand...

  • Page 108
    ... $47.1 million, $21.6 million and $19.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, the Company's estimated future amortization expense related to intangible assets is as follows (in thousands): Years Ended December 31, 2015 ...2016 ...2017...

  • Page 109
    ... carrying value of its E-Commerce investment as of the date of the transaction and the $25.0 million of cash consideration. In August 2013, the Company entered into an exchange transaction with F-tuan whereby it received newly issued shares of Series F preferred stock in exchange for all shares of...

  • Page 110
    ... 2014, the Company acquired redeemable preferred shares in an online home services company for $4.6 million. The shares are accounted for as available-for-sale securities. In February 2013, the Company purchased preferred shares in a non-U.S.-based payment processor for $13.6 million. The Company...

  • Page 111
    ... 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 approach, to estimate the fair value of the investments...

  • Page 112
    ...the Company's other expense, net for the years ended December 31, 2014, 2013 and 2012 (in thousands): Year Ended December 31, 2014 2013 2012 Interest income ...$ Interest expense ...Gain on E-Commerce transaction ...Impairments of investments ...Loss on equity method investments ...Foreign exchange...

  • Page 113
    ... and providers of shipping and fulfillment services. The following table summarizes the Company's accrued expenses as of December 31, 2014 and 2013 (in thousands): December 31, 2014 2013 Marketing ...$ Refunds reserve...Payroll and benefits...Customer credits ...Professional fees ...Other...

  • Page 114
    ... was $55.0 million, $42.3 million and $43.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. The Company has lease arrangements for its headquarters located in Chicago, Illinois ("600 West Leases"), which account for 14% of its estimated future payments under operating...

  • Page 115
    ..., stored value cards and coupons. Additionally, the Company is subject to general customer complaints seeking monetary damages, particularly in its Rest of World segment. The following is a brief description of significant legal proceedings. On February 8, 2012, the Company issued a press release...

  • Page 116
    ... and prospectus for the Company's initial public offering of Class A common stock and in the Company's subsequently-issued earnings release dated February 8, 2012. The class action lawsuit seeks an unspecified amount of monetary damages, reimbursement for fees and costs incurred in connection with...

  • Page 117
    ...significant operational resources or otherwise harm the Company's business. During the fourth quarter of 2014, two foreign tax authorities issued assessments totaling $46.5 million to subsidiaries of the Company for additional value-added taxes (VAT) covering periods ranging from January 2011 to May...

  • Page 118
    ... margin ranging between 0.25% and 2.00%. The Company is required to pay quarterly commitment fees ranging from 0.20% to 0.35% per annum of the average daily amount available under the Credit Agreement. The Credit Agreement also provides for the issuance of up to $45.0 million in letters of credit...

  • Page 119
    ...of the outstanding shares of Class B common stock. There is no cumulative voting for the election of directors. Except as otherwise expressly provided in the Company's certificate of incorporation or as required by applicable law, shares of Class A common stock and Class B common stock will have the...

  • Page 120
    ...time. During the years ended December 31, 2014 and 2013, the Company purchased 22,806,304 and 4,432,800 shares of Class A common stock, respectively, for an aggregate purchase price of $151.9 million and $46.6 million (including fees and commissions), respectively, under the share repurchase program...

  • Page 121
    ... December 31, 2014 and 2013, respectively. The fair value of stock options granted was estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Expected volatility was based on historical volatilities for publicly-traded options of comparable companies over the estimated...

  • Page 122
    .... The fair value of restricted stock units that vested during each of the three years ended December 31, 2014, 2013 and 2012 was $139.8 million, $126.5 million and $50.2 million, respectively. Performance Share Units The Company completed its acquisition of Ticket Monster on January 2, 2014, as...

  • Page 123
    ...2014, 2013 and 2012 was $0.7 million, $4.1 million and $10.2 million, respectively. Subsidiary Awards The Company made several acquisitions during the years ended December 31, 2011 and 2010 in which the selling shareholders of the acquired companies were granted RSUs and stock options in the Company...

  • Page 124
    ... Ended December 31, 2014 2013 2012 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 valuation...

  • Page 125
    ... 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 $922.0 million and $848.9 million as of December 31, 2014 and 2013, respectively. A cumulative loss in the most recent...

  • Page 126
    ... activity related to the Company's gross unrecognized tax benefits, excluding interest and penalties, from January 1 to December 31, 2014, 2013 and 2012 (in thousands): Year Ended December 31, 2014 2013 2012 Beginning Balance ...Increases related to prior year tax positions...Decreases related...

  • Page 127
    ... the power to direct the activities of the LLC that most significantly impact the LLC's economic 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...

  • Page 128
    ... up to $1.1 million of cash or shares to the former owners of an acquired business if the Company's share price is less than $6.48 per share on June 8, 2015. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as...

  • Page 129
    ...) Fair Value Measurement at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) $ 585,514 - - Significant Other Observable Inputs (Level 2) $ - - - $ Significant Unobservable Inputs (Level 3) - 3,174 - Description Assets: December 31, 2013 585,514 3,174 - Cash...

  • Page 130
    ... table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2014, 2013 and 2012 (in thousands): Year Ended December 31, 2014 Assets Available-for-sale securities Convertible debt securities: Beginning Balance ...Purchases of...

  • Page 131
    ... fair values as of December 31, 2014 and 2013 due to their short term nature. 15. 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...

  • Page 132
    ... Weighted-average common shares outstanding used in basic computation ...Conversion of Class B ...Employee stock options(1)...Restricted shares and RSUs(1) ...Weighted-average diluted shares outstanding(1) ...Diluted loss per share ...(1) $ (1) 2013 Class B Class A Class B Class A 2012 Class...

  • Page 133
    ... addition to the antidilutive awards as set forth in the table above, the Company also granted approximately 2,000,000 performance share units in connection with its acquisition of Ticket Monster during the year ended December 31, 2014. Contingently issuable shares are excluded from the computation...

  • Page 134
    ... operating income ...Rest of World Revenue ...Segment cost of revenue and operating expenses(2)...Segment operating loss ...Consolidated Revenue ...Segment cost of revenue and operating expenses(2)...Segment operating income ...Stock-based compensation...Acquisition-related expense (benefit), net...

  • Page 135
    ... assets acquired as a part of our acquisition of Ticket Monster described in Note 3 "Business Combinations," of $388.0 million as of December 31, 2014. There were no other individual countries that represented more than 10% of consolidated total assets as of December 31, 2014 and 2013, respectively...

  • Page 136
    ... Information The Company offers goods and services through three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). The Company also earns advertising revenue, payment processing revenue, point of sale revenue and commission revenue. Revenue and gross...

  • Page 137
    The following table summarizes the Company's third party and other and direct revenue by category for its three reportable segments for the years ended December 31, 2014, 2013 and 2012 (in thousands): North America Year Ended December 31, 2014 $ 671,846 1,772 673,618 677,624 391,179 430,020 501,782 ...

  • Page 138
    The following table summarizes the Company's gross profit by category for its three reportable segments for the years ended December 31, 2014, 2013 and 2012 (in thousands): North America Year Ended December 31, 2014 $ 582,723 (782) 581,941 543,625 364,545 383,725 453,970 138,527 153,406 173,735 1,...

  • 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
    ... we file or submit under the 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...

  • Page 141
    ... of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Groupon, Inc. We have audited Groupon, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee...

  • Page 142
    ...-disclosure of former employer information, accepting and rejecting gifts, charitable contributions and political activities and signing contracts, among others. In connection with the amendments to our Code of Conduct, we also amended our Insider Trading Policy to provide a limited exception to our...

  • Page 143
    ...Corporate Governance at Groupon," "Board Independence" and "Certain Relationships and Related Party Transactions" in our Proxy Statement for our 2015 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of December 31, 2014. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES...

  • Page 144
    ... Statement Schedules Schedule II-Valuation and Qualifying Accounts Balance at Beginning of Year Charged to Expense Acquisitions and Other Balance at End of Year (in thousands) TAX VALUATION ALLOWANCE: Year ended December 31, 2014...$ Year ended December 31, 2013...Year ended December 31, 2012...

  • Page 145
    ...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 12th day of February 2015. GROUPON, INC. By: /s/ ERIC P. LEFKOFSKY Name: Eric P. Lefkofsky Title: Chief Executive Officer POWER OF...

  • Page 146
    ... 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 12th day of February 2015. Signature Title /s/ Eric P. Lefkofsky Eric P. Lefkofsky /s/ Jason...

  • Page 147
    ... Report on Form 8-K filed on August 5, 2014). 2011 Incentive Plan, as amended and restated effective as of May 20, 2014.** Non-Employee Directors' Compensation Plan.** Subsidiaries of Groupon, Inc. Consent of Ernst & Young LLP Certification of Chief Executive Officer pursuant to Exchange Act Rules...

  • Page 148
    ...and Chief Financial Officer pursuant to 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...

  • Page 149
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 150
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 151

  • Page 152