Groupon 2014 Annual Report Download - page 110

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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The Company's investments in the Series E and Series F preferred shares of F-tuan are classified as available-for-sale
securities because the investee's Memorandum of Association provides for redemption of the preferred shares at the Company's
option beginning in October 2017. The Company's investment in the common shares of F-tuan, which were held prior to the
August 2013 exchange transaction, was accounted for using the cost method of accounting because the Company did not have the
ability to exercise significant influence over the operating and financial policies of the investee. As discussed below, the Company's
investments in F-tuan were written down to zero through an other-than-temporary impairment charge as of December 31, 2013,
and continue to have an estimated fair value of zero as of December 31, 2014.
Other Investments
In February 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 purchased $2.1 million of additional preferred shares from that entity in July 2014. This investment is accounted
for using the cost method of accounting because the Company does not have the ability to exercise significant influence over the
operating and financial policies of the investee.
Other-Than-Temporary Impairment
For the year ended December 31, 2014, the Company recorded $2.0 million of other-than-temporary impairments,
including a $1.3 million impairment of an investment in convertible debt securities, which are reported within "Other expense,
net" on the consolidated statements of operations.
For the year ended December 31, 2013, the Company recorded an $85.5 million other-than-temporary impairment of its
investments in F-tuan. F-tuan has operated at a loss since its inception and has used proceeds from equity offerings to fund
investments in marketing and other initiatives to grow its business. As discussed above, the Company participated in an equity
funding round in 2013 and the aggregate cash proceeds raised by F-tuan in that round, which were funded in two installments in
September and October 2013 and included proceeds received from another investor, were intended to fund its operations for
approximately six months, at which time additional financing would be required. In December 2013, the Company was notified
by F-tuan's largest shareholder, which had served as a source of funding and operational support, that they had made a strategic
decision to cease providing support to F-tuan. At its December 12, 2013 meeting, the Company's Board of Directors discussed the
Company's strategy with respect to the Chinese market in light of this information. After that meeting, management pursued
opportunities to divest its minority investment in F-tuan either for cash or in exchange for a minority equity investment in a larger
competitor, but no agreement was ultimately reached. At its February 11, 2014 meeting, the Board of Directors determined that
the Company should not provide funding to F-tuan in future periods. At that time, F-tuan required additional financing to continue
its operations. Given the uncertainty as to whether it would be able to obtain such financing and the Company's decision not to
provide significant funding itself, the Company concluded that there was substantial doubt as to F-tuan's ability to operate as a
going concern for the foreseeable future.
The Company's evaluation of other-than-temporary impairments involves consideration of qualitative and quantitative
factors regarding the severity and duration of the unrealized loss, as well as the Company's intent and ability to hold the investment
for a period of time that is sufficient to allow for an anticipated recovery in value. As a result of F-tuan's liquidity needs, the decision
by existing shareholders to cease providing support, the Company's inability to find a buyer for its minority investment, the
Company's decision not to be a source of significant funding itself and the expectation that any subsequent third party investment,
if one occurs, would substantially dilute the existing shareholders, the Company concluded that its investment in F-tuan was other-
than-temporarily impaired and its best estimate of fair value was zero. Accordingly, the Company recognized an $85.5 million
impairment charge in earnings for the year ended December 31, 2013, bringing the fair value of the investment to zero. The
Company's investments in F-tuan continue to have an estimated fair value of zero as of December 31, 2014.
For the year ended December 31, 2012, the Company recorded a $50.6 million other-than-temporary impairment of its
investments in F-tuan. As described above, the Company obtained these investments in June 2012 as part of a transaction in which
it received a 19% interest in F-tuan, in the form of common and Series E preferred shares, in exchange for its 49.8% interest in E-
Commerce and an additional $25.0 million of cash consideration. The $128.1 million acquisition-date fair value of the investments