Bloomberg News

SEC Is Said to Study Groupon’s Operating-Income Accounting

July 27, 2011

(Updates with accountant’s comment in fifth paragraph.)

July 27 (Bloomberg) -- Groupon Inc.’s operating-income accounting is being studied by the U.S. Securities and Exchange Commission, part of a routine review of the coupon site’s initial public offering, a person familiar with the matter said.

The SEC is looking at Groupon’s adjusted consolidated segment operating income, or adjusted CSOI, one of the main criteria the company uses to measure its business, according to the person, who asked not to be identified because the review hasn’t been made public. There is no sign that the scrutiny will delay the IPO, the person said.

Adjusted CSOI excludes non-cash expenses and online marketing expenses used to attract new subscribers, raising concern that it may mask Groupon’s costs. CNBC reported today that the SEC’s review of the company’s nonstandard accounting may delay the IPO until mid- or late September. The offering was already slated for after the Labor Day holiday on Sept. 5, so that wouldn’t represent a delay, the person with knowledge of the matter said.

The SEC may ask Groupon for more information about how it accounts for costs such as marketing, said Peter Bible, partner- in-charge of the public-companies practice at New York accounting firm EisnerAmper LLP.

Direct Marketing

“The one they could use more disclosure around is direct marketing,” Bible said. “They probably just need to add more disclosure explaining why they back it out and not consider it part of their core operations.”

Groupon, the top online-coupon provider, filed on June 2 to raise $750 million in an IPO, joining a resurgence of dot-com startups going public. The Chicago-based company pioneered the market of daily deals, which let users buy discounted offers at restaurants, nail salons, dentists and other businesses. Groupon then splits the revenue with the companies.

Groupon generated adjusted CSOI of $60.6 million in 2010, according to the company’s IPO filing. The number grew to $81.6 million in the first quarter of 2011 alone.

“We believe adjusted CSOI is an important measure for management to evaluate the performance of our business as it excludes certain non-cash expenses and discretionary online marketing expenses that are incurred primarily to acquire new subscribers,” Groupon said in the filing.

Brad Williams, a spokesman for Groupon, declined to comment on the SEC filing process.

John Nester, an SEC spokesman, also declined to comment specifically on Groupon, saying “as a general matter, staff currently review all IPO filings. The length between a filing and the registration’s effectiveness is three to six months.”

Separately, Groupon said in a filing on July 14 that it’s received inquiries from “the attorneys general of various states regarding the operation of our business under state laws.”

Groupon’s practice of selling group-discount coupons with expiration dates is being reviewed by the Connecticut attorney general for possible violations, according to a statement from the state’s office at the time.

--Editors: Nick Turner, Lisa Rapaport

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; To contact the editor responsible for this Lawrence Roberts at lroberts13@bloomberg.net


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