Groupon, Inc.
Groupon, Inc. (Form: 8-K, Received: 05/17/2017 16:14:56)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): May 17, 2017
 
GROUPON, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
(State or other
jurisdiction
of incorporation)
 
1-35335
(Commission
File Number)
 
27-0903295
(I.R.S. Employer
Identification No.)

 
 
 
600 West Chicago Avenue
Suite 400
Chicago, Illinois
 (Address of principal executive offices)
 
60654
(Zip Code)
 
312-334-1579
(Registrant's telephone number, including area code)
 
N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o      


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o    






Item 8.01.      Other Events.
Groupon, Inc. (the "Company") is filing this Current Report on Form 8-K to present retrospectively revised historical consolidated financial statements and other information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (as amended, the "2016 Form 10-K"). Information included in this Current Report on Form 8-K presents the financial results of businesses recently disposed of as discontinued operations for the years ended December 31, 2016, 2015 and 2014. Information included in this Current Report on Form 8-K also presents updated segment information for the years ended December 31, 2016, 2015 and 2014. These updates are consistent with the presentation of discontinued operations and segment information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the Securities and Exchange Commission (the "SEC") on May 3, 2017. The information contained in this Current Report on Form 8-K does not otherwise amend or restate any information in the 2016 Form 10-K.
In October 2016, the Company completed a strategic review of its international markets in connection with its efforts to optimize its global footprint and focus on the markets that it believes have the greatest potential to benefit the Company's long-term financial performance. Based on that review, the Company decided to focus its business on 15 core countries and to pursue strategic alternatives for its operations in the remaining 11 countries, which were primarily based in Asia and Latin America. The Company completed dispositions of its operations in those countries between November 2016 and March 2017. The Company determined that the decision reached by its management and Board of Directors to exit those 11 non-core countries, which comprised a substantial majority of its operations outside of North America and EMEA, represented a strategic shift in its business. Additionally, based on its review of quantitative and qualitative factors relevant to the dispositions, the Company determined that the disposition of the businesses in those 11 countries will have a major effect on its operations and financial results. As such, the consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 included in this Current Report on Form 8-K have been retrospectively adjusted to present the financial results of the operations in those 11 countries as discontinued operations. In addition, the related financial statement schedule of Valuation and Qualifying Accounts has been retrospectively adjusted to reflect the discontinued operations presentation.
As a result of the dispositions, which represented a substantial majority of the Company's international operations outside of EMEA and resulted in changes to the Company's internal reporting and leadership structure, the Company updated its segments during the first quarter 2017 to report two segments: North America and International. In addition, the Company changed its measure of segment profitability during the first quarter of 2017. Historically, segment operating results reflected operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net. In connection with the internal reporting changes, the measure of segment profitability was changed to operating income (loss), unadjusted. The consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 included in this Current Report on Form 8-K have been retrospectively adjusted to reflect that updated segment information.
To retrospectively reflect the changes resulting from discontinued operations and the updated segment information described above, Exhibit 99.1 of this Current Report on Form 8-K updates information that was originally included in the following sections of the 2016 Form 10-K:
Part II, Item 8 - Financial Statements and Supplementary Data
Part IV, Item 15 - Exhibits and Financial Statement Schedules
Other than the items listed above, the Company is not updating any other information from the 2016 Form 10-K at the present time.
This Current Report on Form 8-K does not modify or update the disclosures contained in the 2016 Form 10-K in any way, nor does it reflect any subsequent information, activities or events, other than those required to reflect the changes in presentation due to discontinued operations and segment information described above. More current information may be included in the Company’s other filings with the SEC from time to time. This Current Report on Form 8-K should be read in conjunction with the 2016 Form 10-K (except for the Company's consolidated financial statements included in Part II, Item 8, and the related financial statement schedule included in Part IV, Item 15) and the Company’s other filings with the SEC.











Item 9.01.      Financial Statements and Exhibits.
(d)
Exhibits:
 
 
Exhibit No.
 
Description
 
 
23.1
 
Consent of Ernst & Young LLP
 
 
99.1
 
Consolidated Financial Statements and Financial Statement Schedule of Groupon, Inc. as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 (revised solely to present discontinued operations and updated segment information as described in this Current Report on Form 8-K)
 
 
101
 
Consolidated Financial Statements of Groupon, Inc. as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 formatted in XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income (Loss); (iv) the Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements filed herewith (revised solely to present discontinued operations and updated segment information as described in this Current Report on Form 8-K)
 
 








SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
GROUPON, INC.
 
 
 
 
 
 
Dated: May 17, 2017
By:
/s/ Michael Randolfi
 
Name:
Michael Randolfi
 
Title:
Chief Financial Officer
















































Exhibit Index
 
Exhibit No.
 
 
 
 
23.1
Consent of Ernst & Young LLP
 
 
99.1
Consolidated Financial Statements and Financial Statement Schedule of Groupon, Inc. as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 (revised solely to present discontinued operations and updated segment information as described in this Current Report on Form 8-K)
 
 
101
Consolidated Financial Statements of Groupon, Inc. as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 formatted in XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income (Loss); (iv) the Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements filed herewith (revised solely to present discontinued operations and updated segment information as described in this Current Report on Form 8-K)
 







Exhibit 23.1

Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in (1) the Registration Statement (Form S-8 No. 333-214351) pertaining to the 2012 Employee Stock Purchase Plan, 2011 Incentive Plan, 2010 Stock Plan, and 2008 Stock Option Plan of Groupon, Inc. and (2) the Registration Statement (Form S-3 ASR No. 333-202060) of Groupon, Inc. of our report dated February 15, 2017 (except for Notes 1, 3 and 18, as to which the date is May 17, 2017), with respect to the consolidated financial statements and schedule of Groupon, Inc., included in this Current Report on Form 8-K .

/s/ Ernst & Young LLP
Chicago, Illinois
May 17, 2017




Exhibit 99.1
Table of Contents
Groupon, Inc.
Consolidated Financial Statements and Financial Statement Schedule
As of December 31, 2016 and 2015 and for the Years Ended December 31, 2016 , 2015 and 2014

 
Page





1


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Groupon, Inc.
We have audited the accompanying consolidated balance sheets of Groupon, Inc. as of December 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016 . Our audits also included the accompanying financial statement schedule. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Groupon, Inc. at December 31, 2016 and 2015 , and the consolidated results of its operations, and its cash flows for each of the three years in the period ended December 31, 2016 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2016, the Company adopted the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting."

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Groupon, Inc.'s internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 15, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Chicago, Illinois
February 15, 2017
except for Notes 1, 3 and 18, as to which the date is May 17, 2017



2




GROUPON, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

 
December 31,
 
2016
 
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
862,977

 
$
824,307

Accounts receivable, net
71,272

 
51,642

Prepaid expenses and other current assets
94,441

 
127,565

Current assets of discontinued operations
63,246

 
71,728

Total current assets
1,091,936

 
1,075,242

Property, equipment and software, net
169,452

 
195,857

Goodwill
274,551

 
278,155

Intangible assets, net
42,915

 
36,483

Investments (including $110,066 and $163,675 at December 31, 2016 and December 31, 2015, respectively, at fair value)
141,882

 
178,236

Deferred income taxes
5,151

 
3,291

Other non-current assets
23,484

 
15,664

Non-current assets of discontinued operations
12,006

 
13,336

Total Assets
$
1,761,377

 
$
1,796,264

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
28,551

 
$
21,809

Accrued merchant and supplier payables
770,992

 
737,503

Accrued expenses and other current liabilities
366,456

 
383,801

Current liabilities of discontinued operations
47,052

 
60,412

Total current liabilities
1,213,051

 
1,203,525

Convertible senior notes, net
178,995

 

Deferred income taxes
1,714

 
5,837

Other non-current liabilities
99,628

 
113,046

Non-current liabilities of discontinued operations
2,927

 
3,269

Total Liabilities
1,496,315

 
1,325,677

Commitments and contingencies (see Note 10)

 

Stockholders' Equity
 
 
 
Class A common stock, par value $0.0001 per share, no shares authorized, issued or outstanding at December 31, 2016 and 2,000,000,000 shares authorized, 717,387,446 shares issued and 588,919,281 shares outstanding at December 31, 2015

 
72

Class B common stock, par value $0.0001 per share, no shares authorized, issued or outstanding at December 31, 2016 and 10,000,000 shares authorized, 2,399,976 shares issued and outstanding at December 31, 2015

 

Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, 736,531,771 shares issued and 564,835,863 shares outstanding at December 31, 2016 and no shares issued or outstanding at December 31, 2015
74

 

Additional paid-in capital
2,112,728

 
1,964,453

Treasury stock, at cost, 171,695,908 shares at December 31, 2016 and 128,468,165 shares at December 31, 2015
(807,424
)
 
(645,041
)
Accumulated deficit
(1,099,010
)
 
(901,292
)
Accumulated other comprehensive income (loss)
58,052

 
51,206

Total Groupon, Inc. Stockholders' Equity
264,420

 
469,398

Noncontrolling interests
642

 
1,189

Total Equity
265,062

 
470,587

Total Liabilities and Equity
$
1,761,377

 
$
1,796,264


See Notes to Consolidated Financial Statements.


3


GROUPON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Revenue:
 
 
 
 
 
 
Third-party and other
 
$
1,206,441

 
$
1,250,149

 
$
1,353,948

Direct
 
1,807,174

 
1,704,667

 
1,504,698

Total revenue
 
3,013,615

 
2,954,816

 
2,858,646

Cost of revenue:
 
 
 
 
 
 
Third-party and other
 
150,031

 
158,095

 
173,204

Direct
 
1,582,931

 
1,508,911

 
1,339,881

Total cost of revenue
 
1,732,962

 
1,667,006

 
1,513,085

Gross profit
 
1,280,653

 
1,287,810

 
1,345,561

Operating expenses:
 
 
 
 
 
 
Marketing
 
352,175

 
241,342

 
227,855

Selling, general and administrative
 
994,027

 
1,100,528

 
1,080,199

Restructuring charges
 
40,438


28,464



Gains on business dispositions
 
(11,399
)

(13,710
)


Acquisition-related expense (benefit), net
 
5,650

 
1,857

 
1,269

  Total operating expenses
 
1,380,891

 
1,358,481

 
1,309,323

Income (loss) from operations
 
(100,238
)
 
(70,671
)
 
36,238

Other income (expense), net
 
(71,289
)
 
(25,586
)
 
(31,655
)
Income (loss) from continuing operations before provision (benefit) for income taxes
 
(171,527
)
 
(96,257
)
 
4,583

Provision (benefit) for income taxes
 
(5,318
)
 
(23,010
)
 
15,308

Income (loss) from continuing operations
 
(166,209
)
 
(73,247
)
 
(10,725
)
Income (loss) from discontinued operations, net of tax
 
(17,114
)
 
106,926

 
(53,194
)
Net income (loss)
 
(183,323
)
 
33,679

 
(63,919
)
Net income attributable to noncontrolling interests
 
(11,264
)
 
(13,011
)
 
(9,171
)
Net income (loss) attributable to Groupon, Inc.
 
$
(194,587
)
 
$
20,668

 
$
(73,090
)
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share (1) :
 
 
 
 
 
 
Continuing operations
 
$
(0.31
)
 
$
(0.13
)
 
$
(0.03
)
Discontinued operations
 
(0.03
)
 
0.16

 
(0.08
)
Basic and diluted net income (loss) per share
 
$
(0.34
)
 
$
0.03

 
$
(0.11
)
 
 
 
 
 
 
 
Weighted average number of shares outstanding (1)
 
 
 
 
 
 
Basic
 
576,354,258

 
650,106,225

 
674,832,393

Diluted
 
576,354,258

 
650,106,225

 
674,832,393


(1)
The structure of the Company's common stock changed during the year ended December 31, 2016. Refer to Note 11, Stockholders' Equity , and Note 17, Income (Loss) per Share , for additional information.


See Notes to Consolidated Financial Statements.


4


GROUPON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Income (loss) from continuing operations
 
$
(166,209
)
 
$
(73,247
)
 
$
(10,725
)
Other comprehensive income (loss) from continuing operations:
 
 
 
 
 
 
   Foreign currency translation adjustments:
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
15,884

 
8,310

 
9,192

Reclassification adjustments included in income (loss) from continuing operations
 
(7,523
)
 
(192
)
 

Net change in unrealized gain (loss)
 
8,361

 
8,118

 
9,192

   Defined benefit pension plan adjustment:
 
 
 
 
 
 
Pension liability adjustment
 
830

 
(113
)
 
(1,500
)
Amortization of pension net actuarial loss (gain) to earnings
 
98

 
100

 

Net change in unrealized gain (loss) (net of tax effect of $176, $3 and $285 for the years ended December 31, 2016, 2015 and 2014, respectively)
 
928

 
(13
)
 
(1,500
)
Available-for-sale securities:
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
(70
)
 
(41
)
 
(210
)
Reclassification adjustment for impairment included in net income (loss) from continuing operations
 

 

 
831

Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $43, $25 and $383 for the years ended December 31, 2016, 2015 and 2014, respectively)
 
(70
)
 
(41
)
 
621

Other comprehensive income (loss) from continuing operations
 
9,219

 
8,064

 
8,313

Comprehensive income (loss) from continuing operations
 
(156,990
)
 
(65,183
)
 
(2,412
)
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
(17,114
)
 
106,926

 
(53,194
)
Other comprehensive income (loss) from discontinued operations
 Foreign currency translation adjustments:
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
(9,305
)
 
(4,934
)
 
2,433

Reclassification adjustment included in net income (loss) from discontinued operations
 
6,932

 
12,313

 

Net change in unrealized gain (loss)
 
(2,373
)
 
7,379

 
2,433

Comprehensive income (loss) from discontinued operations
 
(19,487
)
 
114,305

 
(50,761
)
 
 
 
 
 
 
 
Comprehensive income (loss)
 
(176,477
)
 
49,122

 
(53,173
)
Comprehensive income attributable to noncontrolling interests
 
(11,264
)
 
(13,011
)
 
(8,984
)
Comprehensive income (loss) attributable to Groupon, Inc.
 
$
(187,741
)
 
$
36,111

 
$
(62,157
)

See Notes to Consolidated Financial Statements.


5


GROUPON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
 
Groupon, Inc. Stockholders' Equity
 
 
 
 
 
Common Stock  (1)
 
Additional Paid-In Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
Total Groupon Inc. Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
 
Shares
 
Amount
Shares
 
Amount
 
Balance at December 31, 2013
672,549,952

 
$
67

 
$
1,584,211

 
(4,432,800
)
 
$
(46,587
)
 
$
(848,870
)
 
$
24,830

 
$
713,651

 
$
(1,969
)
 
$
711,682

Net income (loss)

 

 

 

 

 
(73,090
)
 

 
(73,090
)
 
9,171

 
(63,919
)
Foreign currency translation

 

 

 

 

 

 
11,812

 
11,812

 
(187
)
 
11,625

Pension liability adjustment, net of tax

 

 

 

 

 

 
(1,500
)
 
(1,500
)
 

 
(1,500
)
Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 

 

 
621

 
621

 

 
621

Common stock issued in connection with acquisitions of businesses, net of issuance costs
15,255,180

 
2

 
173,813

 

 

 

 

 
173,815

 

 
173,815

Shares issued to settle liability-classified awards and contingent consideration
102,180

 

 
1,041

 

 

 

 

 
1,041

 

 
1,041

Purchase of interests in consolidated subsidiaries

 

 
(6,310
)
 

 

 

 

 
(6,310
)
 
2,415

 
(3,895
)
Exercise of stock options
1,029,471

 

 
1,118

 

 

 

 

 
1,118

 

 
1,118

Vesting of restricted stock units
17,323,096

 
1

 
(1
)
 

 

 

 

 

 

 

Shares issued under employee stock purchase plan
857,171

 

 
5,396

 

 

 

 

 
5,396

 

 
5,396

Tax withholdings related to net share settlements of stock-based compensation awards
(5,708,990
)
 

 
(44,509
)
 

 

 

 

 
(44,509
)
 

 
(44,509
)
Stock-based compensation on equity-classified awards

 

 
133,230

 

 

 

 

 
133,230

 

 
133,230

Tax shortfalls, net of excess tax benefits, on stock-based compensation awards

 

 
(569
)
 

 

 

 

 
(569
)
 

 
(569
)
Purchases of treasury stock

 

 

 
(22,806,304
)
 
(151,880
)
 

 

 
(151,880
)
 

 
(151,880
)
Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

 
(7,312
)
 
(7,312
)
Balance at December 31, 2014
701,408,060

 
$
70

 
$
1,847,420

 
(27,239,104
)
 
$
(198,467
)
 
$
(921,960
)
 
$
35,763

 
$
762,826

 
$
2,118

 
$
764,944

Net income (loss)

 

 

 

 

 
20,668

 

 
20,668

 
13,011

 
33,679

Foreign currency translation

 

 

 

 

 

 
15,497

 
15,497

 

 
15,497

Pension liability adjustment, net of tax

 

 

 

 

 

 
(13
)
 
(13
)
 

 
(13
)
Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 

 

 
(41
)
 
(41
)
 

 
(41
)
Issuance of unvested restricted stock
2,203,861

 

 

 

 

 

 

 

 

 

Exercise of stock options
673,608

 

 
951

 

 

 

 

 
951

 

 
951

Vesting of restricted stock units
21,306,534

 
3

 
(3
)
 

 

 

 

 

 

 

Shares issued under employee stock purchase plan
1,037,198

 

 
4,857

 

 

 

 

 
4,857

 

 
4,857

Tax withholdings related to net share settlements of stock-based compensation awards
(6,841,839
)
 
(1
)
 
(40,818
)
 

 

 

 

 
(40,819
)
 

 
(40,819
)
Stock-based compensation on equity-classified awards

 

 
156,386

 

 

 

 

 
156,386

 

 
156,386

Tax shortfalls, net of excess tax benefits, on stock-based compensation awards

 

 
(4,340
)
 

 

 

 

 
(4,340
)
 

 
(4,340
)


6


Purchases of treasury stock

 

 

 
(101,229,061
)
 
(446,574
)
 

 

 
(446,574
)
 

 
(446,574
)
Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

 
(13,940
)
 
(13,940
)
Balance at December 31, 2015
719,787,422

 
$
72

 
$
1,964,453

 
(128,468,165
)
 
$
(645,041
)
 
$
(901,292
)
 
$
51,206

 
$
469,398

 
$
1,189

 
$
470,587

Cumulative effect of change in accounting principle

 

 

 

 

 
(3,131
)
 

 
(3,131
)
 

 
(3,131
)
Net income (loss)

 

 

 

 

 
(194,587
)
 

 
(194,587
)
 
11,264

 
(183,323
)
Foreign currency translation

 

 

 

 

 

 
5,988

 
5,988

 

 
5,988

Pension liability adjustment, net of tax

 

 

 

 

 

 
928

 
928

 

 
928

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 

 

 
(70
)
 
(70
)
 

 
(70
)
Forfeitures of unvested restricted stock
(196,968
)
 

 

 

 

 

 

 

 

 

Exercise of stock options
491,483

 

 
620

 

 

 

 

 
620

 

 
620

Vesting of restricted stock units
22,698,324

 
3

 
(3
)
 

 

 

 

 

 

 

Shares issued under employee stock purchase plan
1,669,782

 

 
4,358

 

 

 

 

 
4,358

 

 
4,358

Tax withholdings related to net share settlements of stock-based compensation awards
(7,918,272
)
 
(1
)
 
(31,160
)
 

 

 

 

 
(31,161
)
 

 
(31,161
)
Stock-based compensation on equity-classified awards

 

 
131,114

 

 

 

 

 
131,114

 

 
131,114

Equity component of the convertible senior notes, net of tax and issuance costs

 

 
67,014

 

 

 

 

 
67,014

 

 
67,014

Purchase of convertible note hedges

 

 
(59,163
)
 

 

 

 

 
(59,163
)
 

 
(59,163
)
Issuance of warrants

 

 
35,495

 

 

 

 

 
35,495

 

 
35,495

Purchases of treasury stock

 

 

 
(43,227,743
)
 
(162,383
)
 

 

 
(162,383
)
 

 
(162,383
)
Distributions to noncontrolling interest holders

 

 


 

 

 

 

 

 
(11,811
)
 
(11,811
)
Balance at December 31, 2016
736,531,771

 
$
74

 
$
2,112,728

 
(171,695,908
)
 
$
(807,424
)
 
$
(1,099,010
)
 
$
58,052

 
$
264,420

 
$
642

 
$
265,062


(1)
The structure of the Company's common stock changed during the year ended December 31, 2016. Refer to Note 11, Stockholders' Equity , and Note 17, Income (Loss) per Share , for additional information.
See Notes to Consolidated Financial Statements.


7


GROUPON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
Operating activities
 
 
 
 
 
Net income (loss)
$
(183,323
)
 
$
33,679

 
$
(63,919
)
Less: Income (loss) from discontinued operations, net of tax
(17,114
)
 
106,926

 
(53,194
)
Income (loss) from continuing operations
(166,209
)
 
(73,247
)
 
(10,725
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization of property, equipment and software
116,961

 
111,072

 
91,707

Amortization of acquired intangible assets
18,948

 
18,310

 
19,116

Stock-based compensation
115,123

 
138,748

 
111,850

Restructuring-related long-lived asset impairments
328

 
7,214

 

Gains on business dispositions
(11,399
)
 
(13,710
)
 

Deferred income taxes
(10,448
)
 
(11,042
)
 
(8,400
)
Loss on equity method investments

 

 
459

(Gain) loss, net from changes in fair value of contingent consideration
4,092

 
240

 
(2,444
)
(Gain) loss from changes in fair value of investments
48,141

 
2,943

 

Impairments of investments

 

 
2,036

Amortization of debt discount on convertible senior notes
7,376

 

 

Change in assets and liabilities, net of acquisitions:
 
 
 
 
 
Restricted cash
(1,317
)
 
4,556

 
7,180

Accounts receivable
(16,584
)
 
5,989

 
76

Prepaid expenses and other current assets
35,043

 
41,630

 
16,859

Accounts payable
5,121

 
7,898

 
(11,153
)
Accrued merchant and supplier payables
26,729

 
40,232

 
55,296

Accrued expenses and other current liabilities
(32,124
)
 
54,019

 
1,573

Other, net
(10,853
)
 
(18,439
)
 
32,684

Net cash provided by (used in) operating activities from continuing operations
128,928

 
316,413

 
306,114

Net cash provided by (used in) operating activities from discontinued operations
(11,823
)
 
(53,914
)
 
(1,310
)
Net cash provided by (used in) operating activities
117,105

 
262,499

 
304,804

Investing activities
 
 
 
 
 
Purchases of property and equipment and capitalized software
(68,287
)
 
(81,946
)
 
(81,293
)
Cash derecognized upon dispositions of subsidiaries
(1,128
)
 
(1,404
)
 

Acquisitions of businesses, net of acquired cash
14,539

 
(69,888
)
 
(59,735
)
Purchases of investments

 
(25,289
)
 
(6,726
)
Proceeds from sale or maturity of investments
1,685

 
6,010

 

Acquisitions of intangible assets and other investing activities
(2,395
)
 
(2,691
)
 
(1,547
)
Net cash provided by (used in) investing activities from continuing operations
(55,586
)
 
(175,208
)
 
(149,301
)
Net cash provided by (used in) investing activities from discontinued operations
(1,900
)
 
242,428

 
(80,155
)
Net cash provided by (used in) investing activities
(57,486
)
 
67,220

 
(229,456
)
Financing activities
 
 
 
 
 
Proceeds from borrowings under revolving credit facility

 
195,000

 

Repayments of borrowings under revolving credit facility

 
(195,000
)
 

Proceeds from issuance of convertible senior notes
250,000

 

 

Issuance costs for convertible senior notes and revolving credit agreement
(8,147
)
 

 
(1,029
)
Purchase of convertible note hedges
(59,163
)
 

 

Proceeds from issuance of warrants
35,495

 

 

Payments for purchases of treasury stock
(165,357
)
 
(442,767
)
 
(153,253
)
Taxes paid related to net share settlements of stock-based compensation awards
(29,777
)
 
(40,101
)
 
(43,618
)
Common stock issuance costs in connection with acquisition of business

 

 
(158
)
Settlements of purchase price obligations related to acquisitions

 

 
(3,136
)
Proceeds from stock option exercises and employee stock purchase plan
4,978

 
5,808

 
6,514

Distributions to noncontrolling interest holders
(11,811
)
 
(13,940
)
 
(8,034
)
Payments of contingent consideration from acquisitions
(285
)
 
(382
)
 

Payments of capital lease obligations
(30,598
)
 
(24,403
)
 
(7,422
)
Net cash provided by (used in) financing activities
(14,665
)
 
(515,785
)
 
(210,136
)


8


Effect of exchange rate changes on cash and cash equivalents, including cash classified within current assets of discontinued operations
(6,470
)
 
(32,485
)
 
(33,771
)
Net increase (decrease) in cash and cash equivalents, including cash classified within current assets of discontinued operations
38,484

 
(218,551
)
 
(168,559
)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations
(186
)
 
(59,996
)
 
41,018

Net increase (decrease) in cash and cash equivalents
38,670

 
(158,555
)
 
(209,577
)
Cash and cash equivalents, beginning of period
824,307

 
982,862

 
1,192,439

Cash and cash equivalents, end of period
$
862,977

 
$
824,307

 
$
982,862

 
 
 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
 
 
Income tax payments (refunds) for continuing operations
$
(7,208
)
 
$
(5,461
)
 
$
21,411

Income tax payments for discontinued operations
2,953

 
15,735

 
2,595

Non-cash investing and financing activities
 
 
 
 
 
Continuing operations:
 
 
 
 
 
Equipment acquired under capital lease obligations
21,611

 
44,539

 
36,574

Leasehold improvements funded by lessor
4,990

 
6,711

 

Issuance of common stock in connection with acquisition of business

 

 
11,110

Liability for purchases of treasury stock
1,207

 
4,181

 
374

Contingent consideration liabilities incurred in connection with acquisitions

 
9,605

 
4,388

Accounts payable and accrued expenses related to purchases of property and equipment and capitalized software
3,855

 
2,426

 
1,863

Liability for purchase of additional interest in consolidated subsidiaries
526

 
526

 
1,598

Minority investment recognized in connection with disposition of Ticket Monster

 
122,075

 

Minority investment recognized in connection with disposition of Groupon India

 
16,400

 

Cost method investments acquired in connection with business dispositions
13,507

 

 

Discontinued operations:
 
 
 
 
 
Issuance of common stock in connection with acquisition of Ticket Monster

 

 
162,862

Accounts payable and accrued expenses related to purchases of property and equipment and capitalized software
12

 
31

 
60

See Notes to Consolidated Financial Statements.



9


GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.     DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION     
Company Information
Groupon, Inc. and subsidiaries (the "Company"), which commenced operations in October 2008, operates online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services, generally at a discount. Customers access those marketplaces through the Company's websites, primarily localized groupon.com sites in many countries, and its mobile applications.
The Company's operations are organized into two segments: North America and International. See Note 18, Segment
Information .

In connection with a strategic initiative to optimize its global footprint, the Company sold its operations in 10 countries and ceased operations in another country between November 2016 and March 2017. The financial results of those operations have been presented as discontinued operations in the consolidated financial statements for the years ended December 31, 2016, 2015 and 2014. Additionally, the Company sold a controlling stake in Ticket Monster, Inc. ("Ticket Monster"), a business based in the Republic of Korea, in May 2015. The financial results of Ticket Monster have been presented as discontinued operations in the consolidated financial statements for the years ended December 31, 2015 and 2014. See Note 3,  Discontinued Operations and Other Dispositions , for additional information.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control and variable interest entities for which the Company has determined that it is the primary beneficiary. Outside stockholders' interests in subsidiaries are shown on the consolidated financial statements as "Noncontrolling interests." Equity investments in entities in which the Company does not have a controlling financial interest are accounted for under the equity method, the cost method, the fair value option or as available-for-sale securities, as appropriate.
Adoption of New Accounting Standards
The Company adopted the guidance in Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , as of December 31, 2016. This ASU requires management to assess a company's ability to continue as a going concern and to provide related disclosures in certain circumstances. Based on the results of the Company's analysis, no additional disclosures were required.
The Company adopted the guidance in ASU 2016-09,   Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting , on January 1, 2016. Under this ASU, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The Company has elected to recognize forfeitures as they occur and the impact of that change in accounting policy has been recorded as a  $3.1 million  cumulative effect adjustment to increase its accumulated deficit as of January 1, 2016. Additionally, ASU 2016-09 requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense (benefit), net. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported in earnings during the award's vesting period. The requirement to report those income tax effects in earnings has been applied on a prospective basis to settlements occurring on or after January 1, 2016 and the impact of applying that guidance was not material to the consolidated financial statements for the year ended December 31, 2016. ASU


10

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2016-09 also requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. The Company has elected to apply that change in cash flow classification on a retrospective basis, which has resulted in increases of  $7.6 million  and $16.0 million to net cash provided by operating activities and a corresponding increase to net cash used in financing activities in the accompanying consolidated statement of cash flows for the years ended December 31, 2015 and 2014, respectively, as compared to the amounts previously reported. The remaining provisions of ASU 2016-09 did not have a material impact on the accompanying consolidated financial statements.

The Company adopted the guidance in ASU 2015-02,  Consolidation (Topic 810) - Amendments to the Consolidation Analysis , on January 1, 2016. This ASU expands the variable interest entity ("VIE") criteria to specifically include limited partnerships in certain circumstances. The adoption of ASU 2015-02 did not have a material impact on the accompanying consolidated financial statements. The Company determined that Monster Holdings LP ("Monster LP") is not a VIE under ASU 2015-02, which is consistent with its conclusion prior to adoption of the ASU. That investment is evaluated as a corporation, rather than a limited partnership, for purposes of making consolidation determinations because its governance structure is akin to a corporation. Under the terms of Monster LP’s amended and restated agreement of limited partnership, all of the objectives and purposes of Monster LP are carried out by a board of directors, rather than a general partner.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements of prior periods and the accompanying notes to conform to the current period presentation.

Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are utilized for, but not limited to, stock-based compensation, income taxes, valuation of acquired goodwill and intangible assets, investments, customer refunds, contingent liabilities and the useful lives of property, equipment and software and intangible assets. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.
Accounts Receivable, Net
Accounts receivable primarily represents the net cash due from the Company's credit card and other payment processors for cleared transactions. The carrying amount of the Company's receivables is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not be collected. The allowance is based on historical loss experience and any specific risks identified in collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible.
Inventories
 Inventories, consisting of merchandise purchased for resale, are accounted for using the first-in, first-out ("FIFO") method of accounting and are valued at the lower of cost or market value. The Company writes down its inventory to the lower of cost or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory write-down represents a new cost basis.
Restricted Cash
Restricted cash primarily represents amounts that the Company is unable to access for operational purposes pursuant to


11

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contractual arrangements with certain financial institutions. The Company had $5.8 million and $6.2 million of restricted cash recorded within "Prepaid expenses and other current assets" and "Other non-currents assets," respectively, as of December 31, 2016 . The Company had $4.7 million and $6.2 million of restricted cash recorded within "Prepaid expenses and other current assets" and "Other non-currents assets," respectively, as of December 31, 2015 .
Property and Equipment
Property and equipment are stated at cost and assets under capital leases are stated at the present value of minimum lease payments. Depreciation and amortization of property and equipment is recorded on a straight-line basis over the estimated useful lives of the assets. Generally, the useful lives are three years for computer hardware and office equipment, five to ten years for furniture and fixtures and warehouse equipment and the shorter of the term of the lease or the asset’s useful life for leasehold improvements and assets under capital leases.
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 internally-developed software and website development are expensed as incurred. Costs incurred and accumulated during the application development stage are capitalized and included within "Property, equipment and software, net" on the consolidated balance sheets. Amortization of internal-use software is recorded on a straight-line basis over the estimated useful lives of the assets of two years.
Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and software and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset or asset group to be held and used be tested for possible impairment, the Company first compares the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Long-lived assets or disposal groups classified as held for sale are recorded at the lower of their carrying amount or fair value less estimated selling costs. Long-lived assets are not depreciated or amortized while classified as held for sale.
Goodwill

Goodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it no longer retains its identification with a particular acquisition and becomes identified with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole is available to support the recoverability of its goodwill.

The Company evaluates goodwill for impairment annually on October 1 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. The Company has the option to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is not required to be performed. If the Company determines that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or if the Company does not elect the option to perform an initial qualitative assessment, the Company performs the two-step goodwill impairment test. In the first step, the fair value of the reporting unit is compared to its book value including goodwill. If the fair value of the reporting unit is in excess of its book value, the related goodwill is not impaired and no further analysis is necessary. If the fair value of the reporting unit is less than its book value, there is an indication of potential impairment and a second step is performed. When required, the second step of testing involves calculating the implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of its net assets, including identifiable intangible assets, as if the reporting unit had been acquired. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For reporting units with a negative


12

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

book value (i.e., excess of liabilities over assets), the Company evaluates qualitative factors to determine whether it is necessary to perform the second step of the goodwill impairment test.

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 are classified within "Investments" on the consolidated balance sheets. Under the cost method of accounting, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments.
Investments in common stock or in-substance common stock for which the Company has the ability to exercise significant influence are accounted for under the equity method, except where the Company has made an irrevocable election to account for the investments at fair value. These investments are classified within "Investments" on the consolidated balance sheets. The Company's proportionate share of income or loss on equity method investments and changes in the fair values of investments for which the fair value option has been elected are presented within "Other income (expense), net" on the consolidated statements of operations.
Investments in convertible debt securities and convertible redeemable preferred shares are accounted for as available-for-sale securities, which are classified within "Investments" on the consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses, net of the related tax effects, are excluded from earnings and recorded as a separate component within "Accumulated other comprehensive income (loss)" on the consolidated balance sheets until realized. Interest income from available-for-sale securities is reported within "Other income (expense), net" on the consolidated statements of operations.
Other-than-Temporary Impairment of Investments
An unrealized loss exists when the current fair value of an investment is less than its cost basis. The Company conducts reviews of its investments with unrealized losses on a quarterly basis to evaluate whether those impairments are other-than-temporary. This evaluation, which is performed at the individual investment level, considers 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. Evidence considered in this evaluation includes the amount of the impairment, the length of time that the investment has been impaired, the factors contributing to the impairment, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company's strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery in value. Additionally, the Company considers whether it intends to sell the investment or whether it is more likely than not that it will be required to sell the investment before recovery of its amortized cost basis. Investments with unrealized losses that are determined to be other-than-temporary are written down to fair value with a charge to earnings. Unrealized losses that are determined to be temporary 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.
Income Taxes
The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. The Company regularly reviews deferred tax assets to assess whether it is more-likely-than-not that the deferred tax assets will be realized and, if necessary, establish a valuation allowance for portions of such assets to reduce the carrying value.

For purposes of assessing whether it is more-likely-than-not that deferred tax assets will be realized, the Company considers the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary differences, (b) projected future earnings, (c) taxable income in carryback years, to the extent that carrybacks are permitted under the tax laws of the applicable jurisdiction and (d) tax planning strategies, which represent prudent and feasible actions that a company ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused. To the extent that evidence about one or more of these sources of taxable income is sufficient to support a conclusion that a valuation allowance is


13

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

not necessary, other sources need not be considered. Otherwise, evidence about each of the sources of taxable income is considered in arriving at a conclusion about the need for and amount of a valuation allowance. See Note 14, Income Taxes , for further information about the Company's valuation allowance assessments.

The Company is subject to taxation in the United States, various states and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, the Company's effective tax rate could be adversely affected by earnings being lower than anticipated in countries where it has lower statutory rates and higher than anticipated in countries where it has higher statutory rates, by changes in foreign currency exchange rates, by changes in the valuation of deferred tax assets and liabilities, or by changes in the relevant laws, regulations, principles and interpretations. The Company accounts for uncertainty in income taxes by recognizing the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Lease and Asset Retirement Obligations

The Company classifies leases at their inception as either operating or capital leases and may receive renewal or expansion options, rent holidays, and leasehold improvement or other incentives on certain lease agreements. The Company recognizes operating lease costs on a straight-line basis, taking into account adjustments for free or escalating rental payments and deferred payment terms. Additionally, lease incentives are accounted for as a reduction of lease costs over the lease term. Rent expense associated with operating lease obligations is primarily classified within "Selling, general and administrative" on the consolidated statements of operations. Minimum lease payments made under capital leases are apportioned between interest expense, which is presented within "Other income (expense), net" on the consolidated statements of operations, and a reduction of the related capital lease obligations, which are classified within "Accrued expenses and other current liabilities" and "Non-current liabilities" on the consolidated balance sheets.
The Company establishes assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Such assets are amortized over the lease term, and the recorded liabilities are accreted to the future value of the estimated retirement costs. The related amortization and accretion expenses are presented within "Selling, general and administrative" on the consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collection is reasonably assured.
Third-party revenue
The Company generates third-party revenue from transactions in which it acts as a marketing agent, primarily by selling vouchers ("Groupons") through its online local commerce marketplaces that can be redeemed for goods or services with third-party merchants. The Company's marketplaces include three primary categories of offerings: Local, Goods and Travel.
Third-party revenue is reported on a net basis as the purchase price received from the customer for the voucher less the portion of the purchase price that is payable to the featured merchant. Revenue is presented on a net basis because the Company is acting as a marketing agent of the merchant in those transactions.

Third-party revenue is recognized when the customer purchases a voucher, the voucher has been electronically delivered to the purchaser and a listing of vouchers sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for which it is serving as a marketing agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to the merchant and continuing to make available on its website information about vouchers sold that was previously provided to the merchant, are inconsequential and perfunctory administrative activities. For a portion of the hotel offerings available through the Company's online local marketplaces, customers make room reservations directly through its websites. Such reservations are generally cancelable at any time prior to check-in and the Company defers the revenue on those transactions until the customer's stay commences.


14

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


For merchant payment arrangements that are structured under a redemption model, merchants are not paid until the customer redeems the voucher that has been purchased. If a customer does not redeem the voucher under this payment model, the Company retains all of the gross billings. The Company recognizes incremental revenue from unredeemed vouchers and derecognizes the related accrued merchant payable when its legal obligation to the merchant expires, which the Company believes is shortly after deal expiration in most jurisdictions that have payment arrangements structured under a redemption model.

Direct revenue
The Company generates direct revenue from selling merchandise inventory through its Goods category in transactions for which it is the merchant of record.
Direct revenue is reported on a gross basis as the purchase price received from the customer. The Company is the primary obligor in those transactions, is subject to general inventory risk and has latitude in establishing prices. For Goods transactions in which the Company acts as a marketing agent of a third-party merchant, revenue is recorded on a net basis and is presented within third-party revenue.
Direct revenue, including associated shipping revenue, is recognized when title passes to the customer upon delivery of the product.

Other revenue
Commission revenue is earned when customers make purchases with retailers using digital coupons accessed through the Company's websites and mobile applications. The Company recognizes that commission revenue in the period when the underlying transactions are completed. Advertising revenue is recognized when the advertiser's logo or website link has been included on the Company's websites or in specified email distributions for the requisite period of time as set forth in the agreement with the advertiser.
Refunds
Estimated refunds are recorded as a reduction of revenue, except for refunds on third-party revenue transactions for which the merchant’s share is not recoverable, which are presented as a cost of revenue. The liability for estimated refunds is included within "Accrued expenses and other current liabilities" on the consolidated balance sheets.
The Company estimates future refunds utilizing a statistical model that incorporates historical refund experience, including the relative risk of refunds based on transaction value and deal category. The portion of customer refunds for which the merchant's share is not recoverable on third-party revenue deals is estimated based on the refunds that are expected to be issued after expiration of the related vouchers, the refunds that are expected to be issued due to merchant bankruptcies 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.
The Company assesses the trends that could affect its estimates on an ongoing basis and makes adjustments to the refund reserve calculations if it appears that changes in circumstances, including changes to the Company's refund policies or general economic conditions, may cause future refunds to differ from its initial estimates. If actual results are not consistent with the estimates or assumptions stated above, the Company may need to change its future estimates, and the effects could be material to the consolidated financial statements.

Discounts
The Company provides discount offers to encourage purchases of goods and services through its marketplaces. The Company records discounts as a reduction of revenue.
Sales and related taxes
Sales, use, value-added and related taxes that are imposed on specific revenue-generating transactions are presented on a net basis and excluded from revenue.


15

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Cost of revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. For direct revenue transactions, cost of revenue includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are comprised of third-party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating the Company's fulfillment center. 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, compensation expense for technology support personnel who are responsible for maintaining the infrastructure of the Company's websites, amortization of internal-use software relating to customer-facing applications, web hosting and other processing fees, are attributed to cost of third-party revenue, direct revenue and other revenue in proportion to gross billings during the period.
Customer Credits
The Company issues credits to its customers that can be applied against future purchases through its online local marketplaces for certain qualifying acts, such as referring new customers, and also to satisfy refund requests. The Company has recorded its customer credit obligations within "Accrued expenses and other current liabilities" on the consolidated balance sheets (Note 8, Supplemental Consolidated Balance Sheet and Statements of Operations Information ). Customer credit obligations incurred for new customer referrals or other qualifying acts are expensed as incurred and are classified within "Marketing" on the consolidated statements of operations. Customer credits issued to satisfy refund requests are applied as a reduction to the refunds reserve.
Stock-Based Compensation
The Company measures stock-based compensation cost at fair value. Expense is generally recognized on a straight-line basis over the service period during which awards are expected to vest, except for awards with both performance conditions and a graded vesting schedule, which are recognized using the accelerated method. The Company presents stock-based compensation expense within the consolidated statements of operations based on the classification of the respective employees' cash compensation. See Note 12, Compensation Arrangements .
Foreign Currency
Balance sheet accounts of the Company's operations outside of the United States are translated from foreign currencies into U.S. dollars at exchange rates as of the consolidated balance sheet dates. Revenue and expenses are translated at average exchange rates during the period. Foreign currency translation adjustments and foreign currency gains and losses on intercompany balances that are of a long-term investment nature are included within "Accumulated other comprehensive income" on the consolidated balance sheets. Foreign currency gains and losses resulting from transactions which are denominated in currencies other than the entity's functional currency, including foreign currency gains and losses on intercompany balances that are not of a long-term investment nature, are included within "Other income (expense), net" on the consolidated statements of operations.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued 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 at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08,  Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Gross versus Net) , which is effective upon adoption of ASU 2014-09. This ASU clarifies the implementation guidance in ASU 2014-09 on principal versus agent considerations. These ASUs are effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. For merchant payment arrangements that are structured under a redemption model, the Company expects that it will be required to estimate the incremental revenue from vouchers that will not ultimately be redeemed and recognize that amount as revenue at the time of sale under ASU 2014-09, rather than when its legal obligation expires. The potential impact of that change could increase or decrease the Company's revenue in any given period as compared to its current policy depending on the relative amounts of the estimated incremental revenue from unredeemed vouchers on current transactions as compared to the actual incremental revenue from vouchers that expire unredeemed in that period. The Company is still evaluating these ASUs for other potential impacts on its consolidated financial statements.


16

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In July 2015, the FASB issued ASU 2015-11,  Inventory (Topic 330) - Simplifying the Measurement of Inventory . This ASU requires inventory to be measured at the lower of cost or net realizable value, rather than the lower of cost or market. The ASU is effective for annual reporting periods beginning after December 31, 2016 and interim periods within those annual periods. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.    
In January 2016, the FASB issued ASU 2016-01,  Financial Instruments (Topic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities . This ASU requires equity securities to be measured at fair value with changes in fair value recognized through net income and will eliminate the cost method for equity securities without readily determinable fair values. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The impact of the ASU on the Company's cost method investments will depend on changes in their fair values in periods after the adoption date. While the Company is still assessing the impact of ASU 2016-01, it does not expect that the adoption of this guidance will otherwise have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,  Leases (Topic 842) . The ASU will require lessees to recognize assets and liabilities arising from leases, including operating leases, to be recognized on the balance sheet. The ASU is effective for annual reporting periods beginning after December 31, 2018 and interim periods within those annual periods. The Company is still assessing the impact of ASU 2016-02. See Note 10, Commitments and Contingencies , for information about the Company's lease commitments.
In October 2016, the FASB issued ASU 2016-16,  Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) . This ASU requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods.

The Company currently expects to early adopt this guidance on January 1, 2017 and estimates that it would record a cumulative effect adjustment to increase its accumulated deficit by approximately
$3.0 million as of that date.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash . This ASU requires that companies include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows.  The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. While the Company is still assessing the impact of ASU 2016-18, it does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.  This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  While the Company is still assessing the impact of ASU 2017-04, it does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

There are no other accounting standards that have been issued but not yet adopted that the Company believes could have a material impact on its consolidated financial position or results of operations.
3. DISCONTINUED OPERATIONS AND OTHER DISPOSITIONS
A business disposition that represents a strategic shift and has (or will have) a major effect on an entity's operations and financial results is reported as a discontinued operation in the period in which the business is disposed of or meets the criteria for held-for-sale classification. The consolidated financial statements reflect discontinued operations presentation for two strategic actions, as described below.    
Discontinued Operations - Global Footprint Optimization
In October 2016, the Company completed a strategic review of its international markets in connection with its efforts to optimize its global footprint and focus on the markets that it believes have the greatest potential to benefit the Company's long-term financial performance. Based on that review, the Company decided to focus its business on 15 core countries and to pursue strategic alternatives for its operations in the remaining 11 countries, which were primarily based in Asia and Latin America. As described below, the dispositions of the Company's operations in those 11 countries were completed between November 2016 and March 2017.


17

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company determined that the decision reached by its management and Board of Directors to exit those 11 non-core countries, which comprised a substantial majority of its operations outside of North America and EMEA, represented a strategic shift in its business. Additionally, based on its review of quantitative and qualitative factors relevant to the dispositions, the Company determined that the disposition of its businesses in those 11 countries will have a major effect on its operations and financial results. As such, the financial position and results of operations and cash flows for its operations in those 11 countries are presented as discontinued operations in the accompanying consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014.

Dispositions Completed in 2016

On November 28, 2016, the Company sold its subsidiary in Malaysia ("Groupon Malaysia") in exchange for a minority investment in the acquirer. The Company recognized a pretax gain on the disposition of  $0.3 million , which represents the excess of  $2.3 million  in net consideration received, consisting of the  $2.5 million  fair value of the investment acquired, less  $0.2 million  in transaction costs, over the sum of (i) the  $0.8 million  net book value upon closing of the transaction and (ii) its  $1.2 million  cumulative translation loss, which was reclassified to earnings. The Company did not receive any cash proceeds in connection with the transaction. See Note 7, Investments , for additional information about this transaction.

The Company also ceased its operations in South Africa in November 2016. The results of the Company's operations in Malaysia and South Africa, including the gain on the disposition of its operations in Malaysia, are presented within discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2016, 2015 and 2014. Additionally, the assets and liabilities of those businesses are classified as current assets of discontinued operations, non-current assets of discontinued operations, current liabilities of discontinued operations and non-current liabilities of discontinued operations in the accompanying consolidated balance sheet as of December 31, 2015.

Dispositions Completed in 2017
    
In connection with the strategic initiative to exit 11 non-core countries as discussed above, the Company sold its subsidiaries in Israel, Singapore, Hong Kong, Brazil, Argentina, Peru, Chile, Colombia and Mexico in the first quarter of 2017. The results of the Company's operations in those countries are presented within discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2016, 2015 and 2014. Additionally, the assets and liabilities of those businesses are classified as current assets of discontinued operations, non-current assets of discontinued operations, current liabilities of discontinued operations and non-current liabilities of discontinued operations in the accompanying consolidated balance sheets as of December 31, 2016 and 2015.

Discontinued Operations - Ticket Monster        
On May 27, 2015, the Company sold a controlling stake in Ticket Monster to an investor group. The Company analyzed the quantitative and qualitative factors relevant to the Ticket Monster disposition transaction and determined the disposal of its controlling stake in Ticket Monster represented a strategic shift in its business and that had a major effect on its operations and financial results. As such, the financial results of Ticket Monster, the gain on disposition and the related income tax effects are presented within discontinued operations in the accompanying consolidated financial statements for the years ended December 31, 2015 and 2014.
For the year ended December 31, 2015, the Company recognized a pretax gain on the disposition of $202.2 million ( $154.1 million net of tax), which represents the excess of (a) the $398.8 million in net consideration received, consisting of (i) $285.0 million in cash proceeds and (ii) the $122.1 million fair value of its retained minority investment, less (iii) $8.3 million in transaction costs, over (b) the sum of (i) the $184.3 million net book value of Ticket Monster upon the closing of the transaction and (ii) Ticket Monster's $12.3 million cumulative translation loss, which was reclassified to earnings. See Note 7, Investments , for information about this transaction.
The provision for income taxes for the year ended December 31, 2015 includes (i) the $74.8 million current and deferred income tax effects of the Ticket Monster disposition, partially offset by (ii) a $26.8 million tax benefit that resulted from the recognition of a deferred tax asset related to the excess of the tax basis over the financial reporting basis of the Company's investment in Ticket Monster upon meeting the criteria for held-for-sale classification. No income tax benefits were recognized for the year ended December 31, 2014 because valuation allowances were provided against the related net deferred tax assets.
    
Results of Discontinued Operations

The following table summarizes the major classes of line items included in income (loss) from discontinued operations, net of tax, for the years ended December 31, 2016, 2015 and 2014 (in thousands):


18

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Global Footprint Optimization
 
Ticket Monster
 
Total
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
2016 (1)
 
2015
 
2014
 
2016
 
2015 (1)
 
2014
 
2016 (1)
 
2015  (1)
 
2014
Third-party and other revenue
$
97,105

 
$
122,384

 
$
147,063

 
$

 
$
28,145

 
$
126,528

 
$
97,105

 
$
150,529

 
$
273,591

Direct revenue
32,634

 
42,316

 
36,414

 

 
39,065

 
23,037

 
32,634

 
81,381

 
59,451

Third-party and other cost of revenue
(21,697
)
 
(30,837
)
 
(29,854
)
 

 
(13,958
)
 
(38,827
)
 
(21,697
)
 
(44,795
)
 
(68,681
)
Direct cost of revenue
(31,792
)
 
(36,608
)
 
(33,875
)
 

 
(38,031
)
 
(26,861
)
 
(31,792
)
 
(74,639
)
 
(60,736
)
Marketing expense
(10,776
)
 
(12,993
)
 
(14,099
)
 

 
(8,495
)
 
(27,089
)
 
(10,776
)
 
(21,488
)
 
(41,188
)
Selling, general and administrative expense
(72,141
)
 
(92,264
)
 
(111,186
)
 

 
(38,102
)
 
(102,331
)
 
(72,141
)
 
(130,366
)
 
(213,517
)
Restructuring charges
(3,170
)
 
(1,104
)
 

 

 

 

 
(3,170
)
 
(1,104
)
 

Other income (expense), net
(4,818
)
 
(2,953
)
 
(1,795
)
 

 
96

 
97

 
(4,818
)
 
(2,857
)
 
(1,698
)
Loss from discontinued operations before gains on dispositions and provision for income taxes
(14,655
)
 
(12,059
)
 
(7,332
)
 

 
(31,280
)
 
(45,446
)
 
(14,655
)
 
(43,339
)
 
(52,778
)
Gains on dispositions
312

 

 

 

 
202,158

 

 
312

 
202,158

 

Provision for income taxes
(2,771
)
 
(3,865
)
 
(416
)
 

 
(48,028
)
 

 
(2,771
)
 
(51,893
)
 
(416
)
Income (loss) from discontinued operations, net of tax
$
(17,114
)
 
$
(15,924
)
 
$
(7,748
)
 
$

 
$
122,850

 
$
(45,446
)
 
$
(17,114
)
 
$
106,926

 
$
(53,194
)

(1)
The income (loss) from discontinued operations before gains on dispositions and provision for income taxes for the years ended December 31, 2016 and 2015 includes the results of each business through its respective disposition date.
The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations in the consolidated balance sheets as of December 31, 2016 and 2015 (in thousands):
    
 
 
December 31, 2016
 
December 31, 2015
Cash
 
$
28,866

 
$
29,055

Accounts receivable, net
 
15,386

 
16,533

Prepaid expenses and other current assets
 
18,994

 
26,140

Property, equipment and software, net
 
1,554

 
3,040

Goodwill
 
9,411

 
9,177

Deferred income taxes and other non-current assets
 
1,041

 
1,119

Assets of discontinued operations
 
$
75,252

 
$
85,064

 
 
 
 
 
Accounts payable
 
$
722

 
$
2,781

Accrued merchant and supplier payables
 
29,705

 
38,708

Accrued expenses and other current liabilities
 
16,625

 
18,923

Deferred income taxes
 
2,501

 
2,775

Other non-current liabilities
 
426

 
494

Liabilities of discontinued operations
 
$
49,979

 
$
63,681


Other Dispositions
    
The gains from the transactions below are presented within "Gains on business dispositions" in the accompanying consolidated statements of operations. The financial results of those entities are presented within income from continuing operations in the accompanying consolidated financial statements through their respective disposition dates. Those financial results were not material for the years ended December 31, 2016, 2015 and 2014.

Groupon Russia


19

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


On April 12, 2016, the Company sold its subsidiary in Russia ("Groupon Russia"). The Company recognized a pretax gain on the disposition of  $8.9 million , consisting of Groupon Russia's  $1.6 million  negative net book value upon the closing of the transaction and its  $7.7 million  cumulative translation gain, which was reclassified to earnings, less  $0.4 million  in transaction costs. The Company did not receive any proceeds in connection with the transaction.

Breadcrumb

On May 9, 2016, the Company sold its point of sale business ("Breadcrumb") in exchange for a minority investment in the acquirer. See Note 7, Investments , for information about this transaction. The Company recognized a pretax gain on the disposition of  $0.4 million , which represents the excess of (a)  $8.2 million  in net consideration received, consisting of the  $8.3 million  fair value of the investment acquired, less  $0.1 million  in transaction costs, over (b) the  $7.8 million  net book value of Breadcrumb upon the closing of the transaction. The Company did not receive any cash proceeds in connection with the transaction.

Groupon Indonesia

On August 5, 2016, the Company sold its subsidiary in Indonesia ("Groupon Indonesia") in exchange for a minority investment in the acquirer. See Note 7, Investments , for information about this transaction. The Company recognized a pretax gain on the disposition of  $2.1 million , which represents the excess of $2.4 million  in net consideration received, consisting of the  $2.7 million  fair value of the investment acquired, less  $0.3 million  in transaction costs, over the sum of (i) the  $0.1 million  net book value of Groupon Indonesia upon closing of the transaction and (ii) its  $0.2 million  cumulative translation loss, which was reclassified to earnings. The Company did not receive any cash proceeds in connection with the transaction.

Groupon India

On August 6, 2015, the Company’s subsidiary in India ("Groupon India") completed an equity financing transaction with a third-party investor that obtained a majority voting interest in the entity. See Note 7, Investments , for information about this transaction. The Company recognized a pretax gain on the disposition of  $13.7 million , which represents the excess of (a) the sum of (i)  $14.2 million  in net consideration received, consisting of the  $16.4 million  fair value of its retained minority investment, less  $1.3 million  in transaction costs and a  $0.9 million  guarantee liability and (ii) Groupon India's  $0.9 million  cumulative translation gain, which was reclassified to earn