Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

Commission file number: 1-35335

Groupon, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
27-0903295
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
600 West Chicago Avenue, Suite 400
Chicago, Illinois
 
60654
(Address of principal executive offices)
 
(Zip Code)
312-334-1579
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x         No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         
Yes  x         No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x                           Accelerated filer ☐         
Non-accelerated filer (Do not check if a smaller reporting company) ☐    Smaller reporting company ☐
Emerging growth company ☐
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 reused financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐            No  x 
As of October 30, 2017, there were 558,403,052 shares of the registrant's common stock outstanding.


1

TABLE OF CONTENTS
PART I. Financial Information
Page
Forward-Looking Statements
Item 1. Financial Statements and Supplementary Data
Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (unaudited)
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2017 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Item 4. Controls and Procedures
PART II. Other Information
 
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered sales of equity securities and use of proceeds
Item 5. Other Information
Item 6. Exhibits
Signatures

______________________________________________________




2

PART I
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, but are not limited to, volatility in our revenue and operating results; risks related to our business strategy, including our strategy to grow our local marketplaces, marketing strategy and spend and the productivity of those marketing investments; effectively dealing with challenges arising from our international operations, including fluctuations in currency exchange rates and any potential adverse impact from the United Kingdom's likely exit from the European Union; retaining existing customers and adding new customers; retaining and adding high quality merchants; cyber security breaches; incurring expenses as we expand our business; competing successfully in our industry; maintaining favorable payment terms with our business partners; providing a strong mobile experience for our customers; delivery and routing of our emails; product liability claims; managing inventory and order fulfillment risks; integrating our technology platforms; litigation; managing refund risks; retaining, attracting and integrating members of our executive team; difficulties, delays or our inability to successfully complete all or part of the announced restructuring actions or to realize the operating efficiencies and other benefits of such restructuring actions; higher than anticipated restructuring charges or changes in the timing of such restructuring charges; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; tax liabilities; tax legislation; compliance with domestic and foreign laws and regulations, including the CARD Act and regulation of the Internet and e-commerce; classification of our independent contractors; maintaining our information technology infrastructure; protecting our intellectual property; maintaining a strong brand; seasonality; customer and merchant fraud; payment-related risks; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; the impact of our ongoing strategic review and any potential strategic alternatives we may choose to pursue; our senior convertible notes; our ability to realize the anticipated benefits from the hedge and warrant transactions; and those risks and other factors discussed in Part I, "Item 1A: Risk Factors" of our 2016 Annual Report on Form 10-K for the year ended December 31, 2016, as well as in our condensed consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
As used herein, "Groupon," "we," "our," and similar terms include Groupon, Inc. and its subsidiaries, unless the context indicates otherwise.


3

ITEM 1. FINANCIAL STATEMENTS

GROUPON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
638,657

 
$
862,977

Accounts receivable, net
78,284

 
71,272

Prepaid expenses and other current assets
99,855

 
94,441

Current assets of discontinued operations
—

 
63,246

Total current assets
816,796

 
1,091,936

Property, equipment and software, net
150,023

 
169,452

Goodwill
285,436

 
274,551

Intangible assets, net
24,028

 
42,915

Investments (including $104,268 and $110,066 at September 30, 2017 and December 31, 2016, respectively, at fair value)
129,504

 
141,882

Deferred income taxes
5,007

 
5,151

Other non-current assets
17,302

 
23,484

Non-current assets of discontinued operations
—

 
12,006

Total Assets
$
1,428,096

 
$
1,761,377

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
25,954

 
$
28,551

Accrued merchant and supplier payables
598,251

 
770,992

Accrued expenses and other current liabilities
324,553

 
366,456

Current liabilities of discontinued operations
—

 
47,052

Total current liabilities
948,758

 
1,213,051

Convertible senior notes, net
186,959

 
178,995

Deferred income taxes
1,927

 
1,714

Other non-current liabilities
102,386

 
99,628

Non-current liabilities of discontinued operations
—

 
2,927

Total Liabilities
1,240,030

 
1,496,315

Commitments and contingencies (see Note 7)

 

Stockholders' Equity
 
 
 
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, 746,422,199 shares issued and 557,819,957 shares outstanding at September 30, 2017 and 736,531,771 shares issued and 564,835,863 shares outstanding at December 31, 2016
75

 
74

Additional paid-in capital
2,161,139

 
2,112,728

Treasury stock, at cost, 188,602,242 shares at September 30, 2017 and 171,695,908 shares at December 31, 2016
(867,450
)
 
(807,424
)
Accumulated deficit
(1,135,925
)
 
(1,099,010
)
Accumulated other comprehensive income (loss)
29,099

 
58,052

Total Groupon, Inc. Stockholders' Equity
186,938

 
264,420

Noncontrolling interests
1,128

 
642

Total Equity
188,066

 
265,062

Total Liabilities and Equity
$
1,428,096

 
$
1,761,377


See Notes to Condensed Consolidated Financial Statements.


4

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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
 
Third-party and other
 
$
302,458

 
$
283,809

 
$
919,884

 
$
888,014

Direct
 
332,008

 
402,746

 
1,050,827

 
1,220,736

Total revenue
 
634,466

 
686,555

 
1,970,711

 
2,108,750

Cost of revenue:
 
 
 
 
 
 
 
 
Third-party and other
 
41,858

 
34,837

 
123,209

 
114,006

Direct
 
283,183

 
358,450

 
900,559

 
1,065,997

Total cost of revenue
 
325,041

 
393,287

 
1,023,768

 
1,180,003

Gross profit
 
309,425

 
293,268

 
946,943

 
928,747

Operating expenses:
 
 
 
 
 
 
 
 
Marketing
 
101,456

 
84,748

 
288,456

 
261,223

Selling, general and administrative
 
214,828

 
234,266

 
677,061

 
755,981

Restructuring charges
 
11,503

 
1,163

 
18,818

 
28,378

Gain on sale of intangible assets
 
(17,149
)
 
—

 
(17,149
)
 
—

Gains on business dispositions
 
—

 
(2,060
)
 
—

 
(11,399
)
Acquisition-related expense (benefit), net
 
—

 
(9
)
 
48

 
4,305

  Total operating expenses
 
310,638

 
318,108

 
967,234

 
1,038,488

Income (loss) from operations
 
(1,213
)
 
(24,840
)
 
(20,291
)
 
(109,741
)
Other income (expense), net
 
7,546

 
(7,917
)
 
8,822

 
(16,552
)
Income (loss) from continuing operations before provision (benefit) for income taxes
 
6,333

 
(32,757
)
 
(11,469
)
 
(126,293
)
Provision (benefit) for income taxes
 
2,531

 
1,690

 
11,001

 
461

Income (loss) from continuing operations
 
3,802

 
(34,447
)
 
(22,470
)
 
(126,754
)
Income (loss) from discontinued operations, net of tax
 
(862
)
 
(1,345
)
 
(1,751
)
 
(6,365
)
Net income (loss)
 
2,940

 
(35,792
)
 
(24,221
)
 
(133,119
)
Net income attributable to noncontrolling interests
 
(2,881
)
 
(2,184
)
 
(9,460
)
 
(8,880
)
Net income (loss) attributable to Groupon, Inc.
 
$
59

 
$
(37,976
)
 
$
(33,681
)
 
$
(141,999
)
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share (1):
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.00

 
$
(0.06
)
 
$
(0.06
)
 
$
(0.23
)
Discontinued operations
 
(0.00
)
 
(0.01
)
 
(0.00
)
 
(0.02
)
Basic and diluted net income (loss) per share
 
$
0.00

 
$
(0.07
)
 
$
(0.06
)
 
$
(0.25
)
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding (1)
 
 
 
 
 
 
 
 
Basic
 
557,221,040

 
575,216,191

 
559,726,154

 
578,290,291

Diluted
 
566,669,049

 
575,216,191

 
559,726,154

 
578,290,291


(1)
The structure of the Company's common stock changed during the year ended December 31, 2016. Refer to Note 8, Stockholders' Equity and Compensation Arrangements, and Note 12, Income (Loss) per Share, for additional information.

See Notes to Condensed Consolidated Financial Statements.


5

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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Income (loss) from continuing operations
 
$
3,802

 
$
(34,447
)
 
$
(22,470
)
 
$
(126,754
)
Other comprehensive income (loss) from continuing operations:
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
(5,034
)
 
11,358

 
(10,561
)
 
7,290

Reclassification adjustments included in income (loss) from continuing operations
 
—

 
221

 
(187
)
 
(7,776
)
Net change in unrealized gain (loss)
 
(5,034
)
 
11,579

 
(10,748
)
 
(486
)
   Defined benefit pension plan adjustments:
 
 
 
 
 
 
 
 
Curtailment gain
 
—

 
—

 
583

 
—

Amortization of pension net actuarial gain (loss) to earnings
 
—

 
23

 
2

 
69

Net change in unrealized gain (loss) (net of tax effect of $0 and $4 for the three months ended September 30, 2017 and 2016, respectively, and $0 and $13 for the nine months ended September 30, 2017 and 2016, respectively)
 
—

 
23

 
585

 
69

   Available-for-sale securities:
 
 
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
(225
)
 
(16
)
 
(938
)
 
(184
)
Reclassification adjustment for realized gain on investment included in income (loss) from continuing operations
 
—

 
—

 
(1,341
)
 
—

Net change in unrealized gain (loss) on available-for-sale securities (net of tax effect of $0 and $10 for the three months ended September 30, 2017 and 2016, respectively, and $0 and $113 for the nine months ended September 30, 2017 and 2016, respectively)
 
(225
)
 
(16
)
 
(2,279
)
 
(184
)
Other comprehensive income (loss) from continuing operations
 
(5,259
)
 
11,586

 
(12,442
)
 
(601
)
Comprehensive income (loss) from continuing operations
 
(1,457
)
 
(22,861
)
 
(34,912
)
 
(127,355
)
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
(862
)
 
(1,345
)
 
(1,751
)
 
(6,365
)
Other comprehensive income (loss) from discontinued operations - Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
Net unrealized gain (loss) during the period
 
—

 
(10,746
)
 
(1,793
)
 
(10,473
)
Reclassification adjustment included in net income (loss) from discontinued operations
 
—

 
—

 
(14,718
)
 
—

Net change in unrealized gain (loss)
 
—

 
(10,746
)
 
(16,511
)
 
(10,473
)
Comprehensive income (loss) from discontinued operations
 
(862
)
 
(12,091
)
 
(18,262
)
 
(16,838
)
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
(2,319
)
 
(34,952
)
 
(53,174
)
 
(144,193
)
Comprehensive income (loss) attributable to noncontrolling interests
 
(2,881
)
 
(2,184
)
 
(9,460
)
 
(8,880
)
Comprehensive income (loss) attributable to Groupon, Inc.
 
$
(5,200
)
 
$
(37,136
)
 
$
(62,634
)
 
$
(153,073
)

See Notes to Condensed Consolidated Financial Statements.


6


GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(unaudited)
 
Groupon, Inc. Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Groupon, Inc. Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
 
Shares
 
Amount
Shares
 
Amount
 
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

Cumulative effect of change in accounting principle
—

 
—

 
—

 
—

 
—

 
(3,234
)
 
—

 
(3,234
)
 
—

 
(3,234
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
(33,681
)
 
—

 
(33,681
)
 
9,460

 
(24,221
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

 
(27,259
)
 
(27,259
)
 
—

 
(27,259
)
Pension liability adjustments, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
585

 
585

 
—

 
585

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

 
—

 
—

 
—

 
—

 
—

 
(2,279
)
 
(2,279
)
 
—

 
(2,279
)
Exercise of stock options
84,427

 
—

 
203

 
—

 
—

 
—

 
—

 
203

 
—

 
203

Vesting of restricted stock units and performance share units
13,293,810

 
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares issued under employee stock purchase plan
1,879,656

 
—

 
5,283

 
—

 
—

 
—

 
—

 
5,283

 
—

 
5,283

Tax withholdings related to net share settlements of stock-based compensation awards
(5,367,465
)
 
—

 
(20,770
)
 
—

 
—

 
—

 
—

 
(20,770
)
 
—

 
(20,770
)
Stock-based compensation on equity-classified awards
—

 
—

 
63,696

 
—

 
—

 
—

 
—

 
63,696

 
—

 
63,696

Purchases of treasury stock
—

 
—

 
—

 
(16,906,334
)
 
(60,026
)
 
—

 
—

 
(60,026
)
 
—

 
(60,026
)
Distributions to noncontrolling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,974
)
 
(8,974
)
Balance at September 30, 2017
746,422,199

 
$
75

 
$
2,161,139

 
(188,602,242
)
 
$
(867,450
)
 
$
(1,135,925
)
 
$
29,099

 
$
186,938

 
$
1,128

 
$
188,066




See Notes to Condensed Consolidated Financial Statements.


7

GROUPON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Operating activities
 
 
 
Net income (loss)
$
(24,221
)
 
$
(133,119
)
Less: Income (loss) from discontinued operations, net of tax
(1,751
)
 
(6,365
)
Income (loss) from continuing operations
(22,470
)
 
(126,754
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and software
86,355

 
87,585

Amortization of acquired intangible assets
17,622

 
13,643

Stock-based compensation
60,318

 
92,360

Restructuring-related long-lived asset impairments
—

 
45

Gains on business dispositions
—

 
(11,399
)
Gain on sale of intangible assets
(17,149
)
 
—

Gain on sale of investment
(7,624
)
 
—

Deferred income taxes
845

 
(6,468
)
(Gain) loss, net from changes in fair value of contingent consideration
48

 
4,130

(Gain) loss from changes in fair value of investments
5,100

 
7,301

Amortization of debt discount on convertible senior notes
7,964

 
4,854

Change in assets and liabilities, net of acquisitions and dispositions:
 
 
 
Restricted cash
2,637

 
(332
)
Accounts receivable
787

 
(2,460
)
Prepaid expenses and other current assets
(3,114
)
 
8,295

Accounts payable
(5,616
)
 
(2,610
)
Accrued merchant and supplier payables
(197,836
)
 
(168,944
)
Accrued expenses and other current liabilities
(39,396
)
 
(48,323
)
Other, net
(21,538
)
 
(16,588
)
Net cash provided by (used in) operating activities from continuing operations
(133,067
)
 
(165,665
)
Net cash provided by (used in) operating activities from discontinued operations
(2,195
)
 
(5,892
)
Net cash provided by (used in) operating activities
(135,262
)
 
(171,557
)
Investing activities
 
 
 
Purchases of property and equipment and capitalized software
(43,716
)
 
(49,033
)
Cash derecognized upon dispositions of subsidiaries
—

 
(1,128
)
Proceeds from sale of intangible assets
18,333

 
—

Proceeds from sales and maturities of investments
16,561

 
1,685

Acquisitions of businesses, net of acquired cash
—

 
(940
)
Acquisitions of intangible assets and other investing activities
(750
)
 
(2,121
)
Net cash provided by (used in) investing activities from continuing operations
(9,572
)
 
(51,537
)
Net cash provided by (used in) investing activities from discontinued operations
(9,548
)
 
(182
)
Net cash provided by (used in) investing activities
(19,120
)
 
(51,719
)
Financing activities
 
 
 
Proceeds from issuance of convertible senior notes
—

 
250,000

Issuance costs for convertible senior notes and revolving credit agreement
—

 
(8,097
)
Purchase of convertible note hedges
—

 
(59,163
)
Proceeds from issuance of warrants
—

 
35,495

Payments for purchases of treasury stock
(61,233
)
 
(115,619
)
Taxes paid related to net share settlements of stock-based compensation awards
(23,340
)
 
(23,327
)
Proceeds from stock option exercises and employee stock purchase plan
5,486

 
4,976

Distributions to noncontrolling interest holders
(8,974
)
 
(9,151
)
Payment of contingent consideration related to acquisitions
(7,790
)
 
(285
)
Payments of capital lease obligations
(25,298
)
 
(21,961
)
Other financing activities
(473
)
 
—

Net cash provided by (used in) financing activities
(121,622
)
 
52,868

Effect of exchange rate changes on cash and cash equivalents, including cash classified within current assets of discontinued operations
22,818

 
6,793

Net increase (decrease) in cash and cash equivalents, including cash classified within current assets of discontinued operations
(253,186
)
 
(163,615
)
Less: Net increase (decrease) in cash classified within current assets of discontinued operations
(28,866
)
 
(1,388
)
Net increase (decrease) in cash and cash equivalents
(224,320
)
 
(162,227
)
Cash and cash equivalents, beginning of period
862,977

 
824,307

Cash and cash equivalents, end of period
$
638,657

 
$
662,080



8

Non-cash investing and financing activities
 
 
 
Continuing operations:
 
 
 
Equipment acquired under capital lease obligations
$
17,892

 
$
17,556

Leasehold improvements funded by lessor
402

 
4,990

Liability for purchases of treasury stock
—

 
1,041

Increase (decrease) in liabilities related to purchases of property and equipment and capitalized software
396

 
2,250

Cost method and available-for-sale investments acquired in connection with business dispositions
2,022

 
11,050

See Notes to Condensed Consolidated Financial Statements.


9

GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. Consumers 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 13, Segment Information.
Prior period amounts in the condensed consolidated financial statements have been adjusted to reflect discontinued operations presentation. See Note 2, Discontinued Operations and Other Business Dispositions, for additional information.

Unaudited Interim Financial Information

The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. These condensed consolidated financial statements are unaudited and, in the Company's opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company's condensed consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders' equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2017. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2016, and its Current Report on Form 8-K, dated May 17, 2017.
Principles of Consolidation
The condensed 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 condensed 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 condensed 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 ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business, on July 1, 2017. This ASU provides clarification on the definition of a business and provides guidance on whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance in ASU 2017-01 was applied in determining that the sale of customer lists and other intangible assets in certain food delivery markets, as described in Note 3, Goodwill and Other Intangible Assets, did not meet the definition of a business. The adoption of ASU 2017-01 did not otherwise impact the accompanying condensed consolidated financial statements.


10
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The Company adopted the guidance in ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory, on January 1, 2017. 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 adoption of ASU 2015-11 did not have a material impact on the accompanying condensed consolidated financial statements.
The Company adopted the guidance in ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), on January 1, 2017. This ASU requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. The Company recorded a $3.2 million cumulative effect adjustment to increase its accumulated deficit as of January 1, 2017 to recognize the impact of that change in accounting policy.
Reclassifications
Certain reclassifications have been made to the condensed consolidated financial statements of prior periods and the accompanying notes to conform to the current period presentation.
Use of Estimates
The preparation of condensed 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 condensed consolidated financial statements and accompanying notes. Estimates are used 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.
2. DISCONTINUED OPERATIONS AND OTHER BUSINESS DISPOSITIONS
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.
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. 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 would 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, including the gains and losses on the dispositions and related income tax effects, are presented as discontinued operations in the accompanying condensed consolidated financial statements as of December 31, 2016 and for the three months and nine months ended September 30, 2017 and 2016.
Groupon Israel

On March 21, 2017, the Company sold an 83% controlling stake in its subsidiary in Israel. The Company recognized a pretax gain on the disposition of $1.8 million, which represents the excess of (a) the sum of (i) $2.3 million in net consideration received, consisting of the $0.4 million fair value of its retained minority investment and $2.0 million that the acquirer paid into an escrow account that will be settled within 12 months of closing, less $0.1 million in transaction costs, and (ii) a $0.2 million cumulative translation gain, which was reclassified to earnings, over (b) the $0.7 million net book value upon the closing of the transaction. The amount of cash proceeds to be received in connection with this transaction may change due to final working capital adjustments. See Note 4, Investments, for additional information about this transaction.



11
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Groupon Singapore

On March 10, 2017, the Company sold its subsidiary in Singapore in exchange for a convertible debt investment in the acquirer. The Company recognized a pretax loss on the disposition of $0.5 million, which represents the excess of (a) the sum of (i) the $0.5 million net book value upon closing of the transaction and (ii) a $1.1 million cumulative translation loss, which was reclassified to earnings, over (b) $1.1 million in net consideration received, consisting of the $1.6 million fair value of the investment acquired, less $0.5 million in transaction costs. The Company did not receive any cash proceeds in connection with the transaction. See Note 4, Investments, for additional information about this transaction.

Groupon Hong Kong

On March 3, 2017, the Company sold its subsidiary in Hong Kong. The Company recognized a pretax gain on the disposition of $0.3 million, consisting of the $0.2 million negative net book value upon closing of the transaction and $0.1 million in net consideration received, consisting of $0.2 million received in cash, less $0.1 million in transaction costs.
    
Groupon Latin America

On February 16, 2017 and March 9, 2017, the Company sold its subsidiaries in Argentina, Chile, Colombia, Peru, Mexico, and Brazil in two transactions with the same counterparty. The Company recognized a net pretax loss on the dispositions of $2.9 million, which represents the excess of (a) the sum of (i) a $2.1 million unfavorable contract liability for transition services, (ii) a $5.4 million indemnification liability and (iii) the $13.6 million net book value upon closing of the transactions, over (b) the sum of (i) a $15.7 million cumulative translation gain, which was reclassified to earnings, and (ii) $2.5 million in net consideration received, consisting of $3.2 million in net cash proceeds, less $0.7 million in transaction costs. The amount of net cash proceeds received in connection with these transactions may change due to final working capital adjustments.

November 2016 Dispositions within Discontinued Operations

In connection with the strategic initiative to exit 11 non-core countries as discussed above, the Company sold its subsidiary in Malaysia and ceased operations in South Africa in November 2016. The results of the Company's operations in Malaysia and South Africa are presented within discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2016.

Results of Discontinued Operations and Assets and Liabilities 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 three and nine months ended September 30, 2017 and 2016 (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017 (1) (2)
 
2016
 
2017 (1) (2)
 
2016
Third-party and other revenue
 
$
—

 
$
26,027

 
$
12,602

 
$
74,519

Direct revenue
 
—

 
7,886

 
2,962

 
25,200

Third-party and other cost of revenue
 
—

 
(5,582
)
 
(2,557
)
 
(16,994
)
Direct cost of revenue
 
—

 
(7,482
)
 
(3,098
)
 
(24,439
)
Marketing expense
 
—

 
(3,110
)
 
(1,239
)
 
(8,393
)
Selling, general and administrative expense
 
(500
)
 
(19,288
)
 
(11,784
)
 
(55,729
)
Restructuring
 
—

 
(296
)
 
(778
)
 
(1,610
)
Other income, net
 
—

 
889

 
3,852

 
2,249

Income (loss) from discontinued operations before loss on dispositions and provision for income taxes
 
(500
)
 
(956
)
 
(40
)
 
(5,197
)
Loss on dispositions
 
(362
)
 
—

 
(1,630
)
 
—

Provision for income taxes
 
—

 
(389
)
 
(81
)
 
(1,168
)
Income (loss) from discontinued operations, net of tax
 
$
(862
)
 
$
(1,345
)
 
$
(1,751
)
 
$
(6,365
)

(1)
The income (loss) from discontinued operations before loss on dispositions and provision for income taxes for the three and nine months ended September 30, 2017 includes the results of each business through its respective disposition date.


12
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

(2)
Selling, general and administrative expense from discontinued operations for the three and nine months ended September 30, 2017 includes increases to contingent liabilities under indemnification agreements. See Note 7, Commitments and Contingencies, for information about indemnification obligations related to discontinued operations.
The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations in the consolidated balance sheet as of December 31, 2016 (in thousands):

 
 
December 31, 2016
Cash
 
$
28,866

Accounts receivable, net
 
15,386

Prepaid expenses and other current assets
 
18,994

Property, equipment and software, net
 
1,554

Goodwill
 
9,411

Other non-current assets
 
1,041

Assets of discontinued operations
 
$
75,252

 
 
 
Accounts payable
 
$
722

Accrued merchant and supplier payables
 
29,705

Accrued expenses and other current liabilities
 
16,625

Deferred income taxes
 
2,501

Other non-current liabilities
 
426

Liabilities of discontinued operations
 
$
49,979

Other Business Dispositions
Groupon Russia

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. 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. 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.



13
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

3. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the Company's goodwill activity by segment for the nine months ended September 30, 2017 (in thousands):
 
 
North America
 
EMEA
 
Rest of World
 
International
 
Consolidated
Balance as of December 31, 2016
 
$
178,685

 
$
89,747

 
$
6,119

 
$
—

 
$
274,551

Foreign currency translation
 
—

 
—

 
—

 
10,885

 
10,885

Reallocation to new segment
 
—

 
(89,747
)
 
(6,119
)
 
95,866

 
—

Balance as of September 30, 2017
 
$
178,685

 
$
—

 
$
—

 
$
106,751

 
$
285,436

As discussed in Note 13, Segment Information, the Company updated its segments in the first quarter of 2017 to report two segments: North America and International. As a result of the change in segments, the Company combined its Northern EMEA, Southern EMEA and Central EMEA reporting units into a single EMEA reporting unit, which is one level below the International segment. As a result of the change in reporting units, the Company performed a qualitative assessment of potential goodwill impairment for the new EMEA reporting unit and performed separate qualitative assessments of potential goodwill impairment for the Northern EMEA, Southern EMEA and Central EMEA previous reporting units immediately prior to the change. The Company also performed a qualitative assessment of potential goodwill impairment for the remainder of its Asia Pacific reporting unit following the dispositions of businesses in that reporting unit during the first quarter of 2017. Based on those assessments, which considered current market conditions, recent business performance and the amounts by which fair values exceeded carrying values in quantitative impairment tests performed as of October 1, 2016, the Company determined that the likelihood of a goodwill impairment did not reach the more-likely-than not threshold specified in U.S. GAAP for any of the reporting units that were evaluated.  Accordingly, the Company concluded that goodwill related to those reporting units was not impaired and further quantitative testing was not required to be performed.  In addition, the Company sold all of the operations of its Latin America reporting unit in the first quarter of 2017 and the goodwill of that reporting unit was included in the net book value that was derecognized. See Note 2, Discontinued Operations and Other Dispositions, for information about the dispositions of operations in Asia and Latin America.

The following table summarizes the Company's intangible assets (in thousands):
 
 
September 30, 2017
 
December 31, 2016
Asset Category
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Customer relationships
 
$
56,276

 
$
44,528

 
$
11,748

 
$
59,340

 
$
40,002

 
$
19,338

Merchant relationships
 
11,511

 
9,474

 
2,037

 
12,015

 
8,475

 
3,540

Trade names
 
11,999

 
9,779

 
2,220

 
11,534

 
8,004

 
3,530

Developed technology
 
36,759

 
34,499

 
2,260

 
38,388

 
30,197

 
8,191

Patents
 
18,522

 
14,877

 
3,645

 
17,259

 
14,020

 
3,239

Other intangible assets
 
10,812

 
8,694

 
2,118

 
14,044

 
8,967

 
5,077

Total
 
$
145,879

 
$
121,851

 
$
24,028

 
$
152,580

 
$
109,665

 
$
42,915



14
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Amortization of intangible assets is computed using the straight-line method over their estimated useful lives, which range from 1 to 5 years. Amortization expense related to intangible assets from continuing operations was $6.0 million and $4.4 million for the three months ended September 30, 2017 and 2016, respectively, and $17.6 million and $13.6 million for the nine months ended September 30, 2017 and 2016, respectively. There was no amortization expense related to intangible assets from discontinued operations for the three and nine months ended September 30, 2017 and 2016. As of September 30, 2017, the Company's estimated future amortization expense related to intangible assets is as follows (in thousands):
Remaining amounts in 2017
 
$
5,338

2018
 
10,585

2019
 
6,555

2020
 
1,045

2021
 
406

Thereafter
 
99

Total
 
$
24,028

Sale of Intangible Assets

On September 15, 2017, the Company sold customer lists and other intangible assets in certain food delivery markets to a subsidiary of Grubhub Inc. ("Grubhub"). The Company recognized a pretax gain on the sale of assets of $17.1 million, which represents the excess of the $19.8 million in net proceeds received, consisting of $18.5 million received in cash and $1.5 million that the acquirer paid into an escrow account that will be settled within 12 months of closing, less $0.2 million in transaction costs, over the $2.7 million net book value of the assets upon closing of the transaction. See Note 9, Restructuring, for additional information.

4. INVESTMENTS
The following table summarizes the Company's investments (dollars in thousands):
 
September 30, 2017
 
Percent Ownership of Voting Stock
 
December 31, 2016
 
Percent Ownership of Voting Stock
Available-for-sale securities:
 
 
 
 
 
 
 
Convertible debt securities
$
11,232

 
 
 
$
10,038

 
 
Redeemable preferred shares
15,552

 
19%
to
25%
 
17,444

 
19%
to
25%
Total available-for-sale securities
26,784

 
 
 
27,482

 
 
Cost method investments
25,236

 
1%
to
19%
 
31,816

 
1%
to
19%
Fair value option investments
77,484

 
10%
to
24%
 
82,584

 
41%
 
 
Total investments
$
129,504

 
 
 
$
141,882

 
 


15
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table summarizes the amortized cost, gross unrealized gain, gross unrealized loss and fair value of the Company's available-for-sale securities as of September 30, 2017 and December 31, 2016, respectively (in thousands):
 
September 30, 2017
 
December 31, 2016
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss (1)
 
Fair Value
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss (1)
 
Fair Value
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible debt securities
$
10,009

 
$
1,333

 
$
(110
)
 
$
11,232

 
$
8,453

 
$
1,691

 
$
(106
)
 
$
10,038

Redeemable preferred shares
18,375

 
—

 
(2,823
)
 
15,552

 
18,375

 
—

 
(931
)
 
17,444

Total available-for-sale securities
$
28,384

 
$
1,333

 
$
(2,933
)
 
$
26,784

 
$
26,828

 
$
1,691

 
$
(1,037
)
 
$
27,482

(1)
As of September 30, 2017, one security in an unrealized loss position of $2.8 million has been in an unrealized loss position for greater than 12 months.
 
Fair Value Option Investments
In connection with the dispositions of controlling stakes in Ticket Monster, an entity based in the Republic of Korea, in May 2015 and Groupon India in August 2015, the Company obtained minority investments in Monster Holdings LP ("Monster LP") and in GroupMax Pte Ltd. ("GroupMax," d/b/a "Nearbuy"), respectively. The Company has made an irrevocable election to account for both of these investments at fair value with changes in fair value reported in earnings. The Company elected to apply fair value accounting to these investments because it believes that fair value is the most relevant measurement attribute for these investments, as well as to reduce operational and accounting complexity.
Monster LP

In February 2017, the Company participated in a recapitalization transaction with Monster LP whereby it exchanged all 61,484,539 of its Class B units for 16,609,195 newly issued Class A-1 units. The Class B units previously held by the Company were then distributed from Monster LP to its controlling investor group and certain other existing unit holders. Upon closing of the transaction, the Company owns 57% of the outstanding Class A-1 units, which represents 9% of the total outstanding partnership units.

Following the February 2017 recapitalization transaction, the Class A-1 units are entitled to a $150.0 million liquidation preference, including an $85.0 million liquidation preference attributable to the Class A-1 units held by the Company, which must be paid prior to any distributions to the holders of the Class A-2, Class B and Class C units. Class A-1 unit holders are also entitled to share in distributions between $950.0 million and $1,494.0 million in accordance with the terms of Monster LP's distribution waterfall and in distributions in excess of $1,494.0 million based on their pro rata ownership of total outstanding partnership units. As a result of the February 2017 recapitalization transaction, the Company currently holds an investment in the most senior equity units in Monster LP’s capital structure. However, while providing more downside protection, those Class A-1 units provide less opportunity for appreciation than the Class B units previously held by the Company.
To determine the fair value of the Company’s investment in Monster LP each period, the first step was to estimate the fair value of Monster LP in its entirety. The Company primarily used the discounted cash flow method, which is an income approach, to estimate the fair value of Monster LP. The key inputs to determining fair value under that approach are cash flow forecasts and discount rates. As of September 30, 2017 and December 31, 2016, the Company applied a discount rate of 22% in its discounted cash flow valuation of Monster LP. The Company also used a market approach valuation technique, which is based on market multiples of guideline companies, to determine the fair value of Monster LP as of September 30, 2017 and December 31, 2016. The discounted cash flow and market multiple valuations were then evaluated and weighted to determine the amount that is most representative of the fair value of the investee. Once the Company determined the fair value of Monster LP, it then determined the


16
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

fair value of its specific investment in that entity. Monster LP has a complex capital structure, so the Company applied an option-pricing model that considers the liquidation preferences of the investee’s respective classes of ownership interests to determine the fair value of the Company’s investment in the entity.

Based on the above procedures, the Company determined that the fair value of its investment in Monster LP was $77.2 million and $78.7 million, respectively, as of September 30, 2017 and December 31, 2016. The Company recognized a loss of $3.8 million and a gain of $2.3 million for the three months ended September 30, 2017 and 2016, respectively, and a loss of $1.5 million and a gain of $0.9 million for the nine months ended September 30, 2017 and 2016, respectively, from changes in the fair value of its investment.

GroupMax

To determine the fair value of the Company’s investment in GroupMax each period, the Company applies the same methodology as described above for Monster LP. The Company determined that the fair value of its investment in GroupMax was $0.3 million and $3.9 million, respectively, as of September 30, 2017 and December 31, 2016. The Company recognized losses of $0.2 million and $3.9 million for the three months ended September 30, 2017 and 2016, respectively, and losses of $3.6 million and $8.2 million for the nine months ended September 30, 2017 and 2016, respectively, from changes in the fair value of its investment.

Other Investments
In July 2017, the Company sold a cost method investment for total consideration of $16.0 million, consisting of $14.7 million received in cash and $1.3 million that the acquirer paid into an escrow account that will be settled within 18 months of closing. The Company recognized a pretax gain on the disposition of $7.6 million, which is classified within "Other income (expense), net" on the consolidated statement of operations.

In March 2017, the Company acquired a convertible debt instrument of a company that connects consumers with fitness, beauty and wellness businesses in Asia, as consideration for the sale of Groupon Singapore. The convertible debt instrument was recorded at its $1.6 million acquisition date fair value and is accounted for as an available-for-sale security.

In March 2017, in connection with the disposition of Groupon Israel, the Company retained a minority investment in the entity. The investment was recorded at its $0.4 million fair value at initial recognition and is accounted for as a cost method investment.

5. SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes the Company's other income (expense), net for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income
 
$
894

 
$
549

 
$
2,155

 
$
1,258

Interest expense
 
(5,156
)
 
(5,882
)
 
(15,423
)
 
(11,956
)
Gains (losses), net on changes in fair value of investments
 
(3,955
)
 
(1,594
)
 
(5,100
)
 
(7,301
)
Gain on sale of investment
 
7,624

 
—

 
7,624

 
—

Foreign currency gains (losses), net (1)
 
8,186

 
(504
)
 
19,063

 
3,503

Other
 
(47
)
 
(486
)
 
503

 
(2,056
)
Other income (expense), net
 
$
7,546

 
$
(7,917
)
 
$
8,822

 
$
(16,552
)


17

(1)
Foreign currency gains (losses), net includes a $0.2 million cumulative translation gain for the nine months ended September 30, 2016 that was reclassified to earnings as a result of the Company's exit from certain countries as part of its restructuring plan. Refer to Note 9, Restructuring, for additional information.
The following table summarizes the Company's prepaid expenses and other current assets as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Finished goods inventories
$
25,205

 
$
31,042

Prepaid expenses
44,936

 
34,132

Income taxes receivable
12,933

 
11,495

Value-added tax receivable
8,037

 
5,965

Other
8,744

 
11,807

Total prepaid expenses and other current assets
$
99,855

 
$
94,441

The following table summarizes the Company's accrued merchant and supplier payables as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Accrued merchant payables
$
421,334

 
$
428,187

Accrued supplier payables (1)
176,917

 
342,805

Total accrued merchant and supplier payables
$
598,251

 
$
770,992

(1)
Amounts include payables to suppliers of inventories and providers of shipping and fulfillment services.
The following table summarizes the Company's accrued expenses and other current liabilities as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Refunds reserve
$
25,469

 
$
33,104

Compensation and benefits
58,803

 
55,590

Customer credits
39,540

 
42,003

Restructuring-related liabilities
9,844

 
16,395

Income taxes payable
13,050

 
10,847

Deferred revenue
30,685

 
35,890

Current portion of capital lease obligations
25,294

 
28,889

Other
121,868

 
143,738

Total accrued expenses and other current liabilities
$
324,553

 
$
366,456



18

The following table summarizes the Company's other non-current liabilities as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Long-term tax liabilities
$
47,995

 
$
41,611

Capital lease obligations
17,062

 
19,719

Other
37,329

 
38,298

Total other non-current liabilities
$
102,386

 
$
99,628

The following table summarizes the components of accumulated other comprehensive income (loss) as of September 30, 2017 and December 31, 2016 (in thousands):
 
Foreign currency translation adjustments
 
Unrealized gain (loss) on available-for-sale securities
 
Pension adjustments
 
Total
Balance as of December 31, 2016
$
58,249

 
$
388

 
$
(585
)
 
$
58,052

Other comprehensive income (loss) before reclassification adjustments
(12,354
)
 
(938
)
 
—

 
(13,292
)
Reclassification adjustments included in net income (loss)
(14,905
)
 
(1,341
)
 
585

 
(15,661
)
Other comprehensive income (loss)
(27,259
)
 
(2,279
)
 
585

 
(28,953
)
Balance as of September 30, 2017
$
30,990

 
$
(1,891
)
 
$
—

 
$
29,099

6. FINANCING ARRANGEMENTS
Convertible Senior Notes
On April 4, 2016, the Company issued $250.0 million in aggregate principal amount of convertible senior notes (the "Notes") in a private placement to A-G Holdings, L.P. ("Atairos"). The net proceeds from this offering were $243.2 million after deducting issuance costs. The Notes bear interest at a rate of 3.25% per annum, payable annually in arrears on April 1 of each year, which began on April 1, 2017. The Notes will mature on April 1, 2022, subject to earlier conversion or redemption.
Each $1,000 of principal amount of the Notes initially is convertible into 185.1852 shares of common stock, which is equivalent to an initial conversion price of $5.40 per share, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company can elect to settle the conversion value in cash, shares of its common stock, or any combination of cash and shares of its common stock. Holders of the Notes may convert their Notes at their option at any time until the close of business on the scheduled trading day immediately preceding the maturity date. In addition, if specified corporate events occur prior to the maturity date, the Company may be required to increase the conversion rate for holders who elect to convert based on the effective date of such event and the applicable stock price attributable to the event, as set forth in a table contained in the indenture governing the Notes (the "Indenture").
With certain exceptions, upon a fundamental change (as defined in the Indenture), the holders of the Notes may require the Company to repurchase all or a portion of their Notes for cash at a purchase price equal to the principal amount plus accrued and unpaid interest. In addition, the Company may redeem the Notes, at its option, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after April 1, 2020, if the closing sale price of the common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right.
The Notes are senior unsecured obligations of the Company that rank equal in right of payment to all senior unsecured indebtedness of the Company and rank senior in right of payment to any indebtedness that is contractually subordinated to the Notes.


19
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The Indenture includes customary events of default. If an event of default, as defined in the Indenture, occurs and is continuing, the principal amount of the Notes and any accrued and unpaid interest may be declared immediately due and payable. In the case of bankruptcy or insolvency, the principal amount of the Notes and any accrued and unpaid interest would automatically become immediately due and payable.
The Company has separated the Notes into their liability and equity components in the accompanying condensed consolidated balance sheet. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Notes. The difference between the principal amount of the Notes and the liability component (the "debt discount") is amortized to interest expense at an effective interest rate of 9.75% over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred transaction costs of approximately $6.8 million related to the issuance of the Notes. Those transaction costs have been allocated to the liability and equity components in the same manner as the allocation of the proceeds from the Notes. Transaction costs attributable to the liability component of $4.8 million were recorded as a debt discount in the condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes. Transaction costs attributable to the equity component of $2.0 million were recorded in stockholders' equity as a reduction of the equity component.
The carrying amount of the Notes consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Liability component:
 
 
 
Principal amount
$
250,000

 
$
250,000

Less: debt discount
(63,041
)
 
(71,005
)
Net carrying amount of liability component
$
186,959

 
$
178,995

 
 
 
 
Net carrying amount of equity component
$
67,014

 
$
67,014

The estimated fair value of the Notes was $289.1 million and $237.4 million as of September 30, 2017 and December 31, 2016, respectively, and was determined using a lattice model. The Company classified the fair value of the Notes as a Level 3 measurement due to the lack of observable market data over fair value inputs such as its stock price volatility over the term of the Notes and its cost of debt.
As of September 30, 2017, the remaining term of the Notes is approximately 4 years, 6 months. During the three and nine months ended September 30, 2017 and 2016, the Company recognized interest cost on the Notes as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Contractual interest cost based on 3.25% of the principal amount per annum
$
2,032

 
$
2,032

 
$
6,096

 
$
4,063

Amortization of debt discount
2,722

 
2,458

 
7,964

 
4,854

Total interest cost
$
4,754

 
$
4,490

 
$
14,060

 
$
8,917



20
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Note Hedges and Warrants
In May 2016, the Company purchased convertible note hedges with respect to its common stock for a cost of $59.1 million from certain bank counterparties. The convertible note hedges provide the Company with the right to purchase up to 46.3 million shares of the Company's common stock at an initial strike price of $5.40 per share, which corresponds to the initial conversion price of the Notes, and are exercisable by the Company upon conversion of the Notes. The convertible note hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The convertible note hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes do not have any rights with respect to the convertible note hedges.
In May 2016, the Company also sold warrants for total cash proceeds of $35.5 million to certain bank counterparties. The warrants provide the counterparties with the right to purchase up to 46.3 million shares of the Company's common stock at a strike price of $8.50 per share. The warrants expire on various dates between July 1, 2022 and August 26, 2022 and are exercisable on their expiration dates. The warrants are separate transactions and are not part of the terms of the Notes or convertible note hedges. Holders of the Notes and convertible note hedges do not have any rights with respect to the warrants.
The amounts paid and received for the convertible note hedges and warrants have been recorded in additional paid-in capital in the condensed consolidated balance sheet as of September 30, 2017. The convertible note hedges and warrants are not remeasured as long as they continue to meet the conditions for equity classification. The amounts paid for the convertible note hedges are tax deductible over the term of the Notes, while the proceeds received from the warrants are not taxable. 
Under the if-converted method, the shares of common stock underlying the conversion option in the Notes are included in the diluted earnings per share denominator and the interest expense on the Notes, net of tax, is added to the numerator. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the convertible note hedges eliminates any dilution from the Notes that would have otherwise occurred when the price of the Company’s common stock exceeds the conversion price. Taken together, the purchase of the convertible note hedges and sale of warrants are intended to offset any actual dilution from the conversion of these Notes and to effectively increase the overall conversion price from $5.40 to $8.50 per share. Based on the closing price of the Company's common stock of $5.20 on September 30, 2017, the if-converted value of the Notes was less than the principal amount.
Revolving Credit Agreement
The Company's amended and restated senior secured revolving credit agreement (the "Amended and Restated Credit Agreement") provides for aggregate principal borrowings of up to $250.0 million and matures in June 2019. Borrowings under the Amended and Restated Credit Agreement bear interest, at the Company's option, at a rate per annum equal to the Alternate Base Rate or Adjusted LIBO Rate (each as defined in the Amended and Restated Credit Agreement) plus an additional margin ranging between 0.50% and 2.25%. The Company is required to pay quarterly commitment fees ranging from 0.25% to 0.40% per annum of the average daily amount of unused commitments available under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement also provides for the issuance of up to $45.0 million in letters of credit, provided that the sum of outstanding borrowings and letters of credit does not exceed the maximum funding commitment of $250.0 million.
The Amended and Restated Credit Agreement is secured by substantially all of the Company's and its subsidiaries' tangible and intangible assets, including a pledge of 100% of the outstanding capital stock of substantially all of its direct and indirect domestic subsidiaries and 65% of the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of the Company's domestic subsidiaries are guarantors under the Amended and Restated Credit Agreement.
The Amended and Restated Credit Agreement contains various customary restrictive covenants that limit the Company's ability to, among other things: incur additional indebtedness; make dividend and other restricted payments, including share repurchases; enter into sale or leaseback transactions; make investments, loans or advances; grant or incur liens on assets; sell assets; engage in mergers, consolidations, liquidations or dissolutions; and engage in transactions with affiliates. The Amended and Restated Credit Agreement requires the Company to maintain compliance with specified financial covenants, comprised of a minimum fixed charge coverage ratio, a maximum leverage ratio, a maximum senior secured indebtedness ratio and a minimum liquidity ratio, each as set forth in the Amended and Restated Credit Agreement. The Company is also required to maintain, as of the last day of each fiscal quarter, unrestricted cash of at least $400.0 million, including $200.0 million in accounts held with lenders under the Amended and Restated Credit Agreement or their affiliates. Non-compliance with these covenants may result in termination of the commitments under the Amended and Restated Credit Agreement and any then outstanding borrowings may be declared due and payable immediately. The Company has the right to terminate the Amended and Restated Credit Agreement or reduce the available commitments at any time.


21
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

As of September 30, 2017 and December 31, 2016, the Company had no borrowings under the Amended and Restated Credit Agreement. As of September 30, 2017 and December 31, 2016, the Company had outstanding letters of credit of $16.5 million and $11.1 million, respectively, under the Amended and Restated Credit Agreement.
7. COMMITMENTS AND CONTINGENCIES
The Company's commitments as of September 30, 2017 did not materially change from the amounts set forth in the Company's 2016 Annual Report on Form 10-K.
Legal Matters and Other Contingencies
From time to time, the Company is party to various legal proceedings incident to the operation of its business. For example, the Company currently is involved in proceedings brought by former employees and merchants, intellectual property infringement suits, customer lawsuits, and consumer class actions and suits alleging, among other things, violations of state consumer protection or privacy laws. The following is a brief description of significant legal proceedings.
On March 2, 2016, International Business Machines Corporation ("IBM") filed a complaint in the United States District Court for the District of Delaware against the Company.  In the complaint, IBM alleges that the Company has infringed and continues to willfully infringe certain IBM patents that IBM claims relate to the presentation of applications and advertising in an interactive service, preserving state information in online transactions and single sign-on processes in a computing environment and seeks unspecified damages (including a request that the amount of compensatory damages be trebled), injunctive relief and costs and reasonable attorneys’ fees. On December 13, 2016, the Company filed a motion to invalidate two of IBM’s patents relating to the presentation of applications and advertising on the grounds that such patents are patent-ineligible. The court held a hearing on the motion on June 5, 2017, but has not yet ruled on the motion. The court issued an order construing disputed terms in the patent claims on August 3, 2017. On March 24, 2017, the Company filed a petition for inter partes review with the United States Patent and Trademark Office seeking to invalidate IBM’s asserted patent related to single sign-on processes. IBM filed its preliminary response on July 6, 2017. The Patent Trial and Appeal Board denied the Company’s petition for review on October 2, 2017. On May 9, 2016, the Company filed a complaint in the United States District Court for the Northern District of Illinois against IBM.  The Company alleges that IBM has infringed and continues to willfully infringe one of the Company’s patents relating to location-based services. On December 20, 2016, IBM filed a motion to dismiss this case, and the court denied that motion. The Company intends to seek damages and injunctive relief for IBM’s infringement of this patent. The court held a Markman hearing on April 3, 2017, but has not yet construed the claims. On May 18, 2017, IBM filed two petitions for inter partes review with the United States Patent and Trademark Office seeking to invalidate the Company’s patent relating to location-based services. The Company filed its preliminary response on September 6, 2017. The Company plans to vigorously defend against the claims filed by IBM and the challenges to the Company’s patent.

In addition, other third parties have from time to time claimed, and others may claim in the future, that the Company has infringed their intellectual property rights. The Company is subject to intellectual property disputes, including patent infringement claims, and expects that it will increasingly be subject to intellectual property infringement claims as its services expand in scope and complexity. The Company has in the past litigated such claims, and the Company is presently involved in several patent infringement and other intellectual property-related claims, including pending litigation or trademark disputes relating to, for example, the Company's Goods category, some of which could involve potentially substantial claims for damages or injunctive relief. The Company may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are interpreted by the courts, and as the Company becomes subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries are either unclear or less favorable. The Company believes that additional lawsuits alleging that it has violated patent, copyright or trademark laws will be filed against it. Intellectual property claims, whether meritorious or not, are time consuming and often costly to resolve, could require expensive changes in the Company's methods of doing business or the goods it sells, or could require it to enter into costly royalty or licensing agreements.

The Company also is subject to consumer claims or lawsuits relating to alleged violations of consumer protection or privacy rights and statutes, some of which could involve potentially substantial claims for damages, including statutory or punitive damages. Consumer and privacy related claims or lawsuits, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, or require the Company to change its business practices, sometimes in expensive ways.



22
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The Company also is subject to, or in the future may become subject to, a variety of regulatory inquiries, audits, and investigations across the jurisdictions where the Company conducts its business, including, for example, inquiries related to consumer protection, employment matters and/or hiring practices, marketing practices, tax, unclaimed property and privacy rules and regulations. Any regulatory actions against the Company, whether meritorious or not, could be time consuming, result in costly litigation, damage awards, fines and penalties, injunctive relief or increased costs of doing business through adverse judgment or settlement, require the Company to change its business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm the Company's business.

The Company establishes an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and estimable. These accruals represent management's best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. For certain of the matters described above, there are inherent and significant uncertainties based on, among other factors, the stage of the proceedings, developments in the applicable facts of law, or the lack of a specific damage claim. However, the Company believes that the amount of reasonably possible losses in excess of the amounts accrued for these matters would not have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. The Company's accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation and other regulatory matters can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
    
Indemnifications
         In connection with the dispositions of the Company's operations in Latin America (see Note 2, Discontinued Operations and Other Business Dispositions), the Company agreed to indemnify the buyer for certain tax and other matters. The indemnification liabilities were recorded at their fair value, estimated to be $5.4 million using a probability-weighted expected cash flow approach, upon closing of the transactions as an adjustment to the net loss on the dispositions within discontinued operations. The Company estimates that the total amount of obligations that are reasonably possible of arising under the indemnifications is $25.0 million.

In the normal course of business to facilitate transactions related to its operations, the Company indemnifies certain parties, including employees, lessors, service providers, merchants, and counterparties to investment agreements and asset and stock purchase agreements with respect to various matters. The Company has agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or other claims made against those parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. The Company is also subject to increased exposure to various claims as a result of its divestitures and acquisitions, particularly in cases where the Company is entering into new businesses in connection with such acquisitions. The Company may also become more vulnerable to claims as it expands the range and scope of its services and is subject to laws in jurisdictions where the underlying laws with respect to potential liability are either unclear or less favorable. In addition, the Company has entered into indemnification agreements with its officers, directors and underwriters, and the Company's bylaws contain similar indemnification obligations that cover officers, directors, employees and other agents.
 
Except as noted above, it is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, any payments that the Company has made under these agreements have not had a material impact on the operating results, financial position or cash flows of the Company.

8. STOCKHOLDERS' EQUITY AND COMPENSATION ARRANGEMENTS
The Company's Board of Directors (the "Board") has the authority, without approval by the stockholders, to issue up to a total of 50,000,000 shares of preferred stock in one or more series. The Board may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. The Board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of its common stock. As of September 30, 2017 and December 31, 2016, there were no shares of preferred stock outstanding.


23
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Common Stock
Prior to October 31, 2016, the Company's certificate of incorporation, as amended and restated, authorized three classes of common stock: Class A common stock, Class B common stock and common stock. On October 31, 2016, each share of the Company's Class A common stock and Class B common stock automatically converted into a single class of common stock pursuant to the terms of the Company's sixth amended and restated certificate of incorporation. Upon conversion, all shares of Class A common stock and Class B common stock were retired.
Pursuant to the Company's restated certificate of incorporation, the Board has the authority to issue up to a total of 2,010,000,000 shares of common stock. Each holder of common stock shall be entitled to one vote for each such share on any matter that is submitted to a vote of stockholders. In addition, holders of the common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders.

Prior to October 31, 2016, holders of Class A common stock and Class B common stock had identical rights, except that holders of Class A common stock were entitled to one vote per share and holders of Class B common stock were entitled to 150 votes per share.

Share Repurchase Program

The Board has authorized the Company to repurchase up to $700.0 million of its common stock through April 2018 under its current share repurchase program. During the three and nine months ended September 30, 2017, the Company purchased 2,384,200 and 16,906,334 shares, respectively, for an aggregate purchase price of $9.2 million and $60.0 million (including fees and commissions) under that repurchase program. As of September 30, 2017, up to $135.2 million of common stock remained available for purchase under that program. The timing and amount of share repurchases, if any, are determined based on market conditions, limitations under the Amended and Restated Credit Agreement, share price and other factors, and the program may be terminated at any time.

Groupon, Inc. Stock Plans
The Groupon, Inc. Stock Plans (the "Plans") are administered by the Compensation Committee of the Board, which determines the number of awards to be issued, the corresponding vesting schedule and the exercise price for options. As of September 30, 2017, 70,056,534 shares of common stock were available for future issuance under the Plans.
The Company recognized stock-based compensation expense from continuing operations of $19.2 million and $25.8 million for the three months ended September 30, 2017 and 2016, respectively, and $60.3 million and $92.4 million for the nine months ended September 30, 2017 and 2016, respectively, related to stock awards issued under the Plans and acquisition-related awards. The Company recognized stock-based compensation expense from discontinued operations of $0.7 million for the three months ended September 30, 2016 and $0.2 million and $2.4 million for the nine months ended September 30, 2017 and 2016, respectively. The Company also capitalized $1.4 million and $2.3 million of stock-based compensation for the three months ended September 30, 2017 and 2016, respectively, and $4.7 million and $7.3 million of stock-based compensation for the nine months ended September 30, 2017 and 2016, respectively, in connection with internally-developed software.
As of September 30, 2017, a total of $90.8 million of unrecognized compensation costs related to unvested employee stock awards and unvested acquisition-related awards are expected to be recognized over a remaining weighted-average period of 1.01 years.    
Employee Stock Purchase Plan
The Company is authorized to grant up to 10,000,000 shares of common stock under its employee stock purchase plan ("ESPP"). For the nine months ended September 30, 2017 and 2016, 1,879,656 and 1,669,782 shares of common stock were issued under the ESPP, respectively.
Restricted Stock Units
The restricted stock units granted under the Plans generally have vesting periods between one and four years. Restricted stock units are amortized on a straight-line basis over the requisite service period.


24
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The table below summarizes activity regarding unvested restricted stock units granted under the Plans for the nine months ended September 30, 2017:

 
 
Restricted Stock Units
 
Weighted- Average Grant Date Fair Value (per share)
Unvested at December 31, 2016
 
25,407,846

 
$
5.18

    Granted
 
19,259,454

 
$
3.75

    Vested
 
(12,790,075
)
 
$
5.19

    Forfeited
 
(6,243,880
)
 
$
4.75

Unvested at September 30, 2017
 
25,633,345

 
$
4.21

Performance Share Units
During the nine months ended September 30, 2017, 503,735 shares of the Company's common stock were issued upon vesting of performance share units granted in the previous year upon the Board's certification of the Company's financial and operational metrics for the year ended December 31, 2016. The weighted average grant date fair value of those shares was $3.78 per share.
During the nine months ended September 30, 2017, the Company granted additional performance share units to certain key employees. The vesting of those awards into shares of the Company's common stock is contingent upon the achievement of specified financial and operational targets for the year ending December 31, 2017 and is subject to both continued employment through the performance period and certification by the Board that the specified financial and operational targets have been achieved. The maximum number of common shares issuable upon vesting of those performance share units is 2,267,562 shares, the grant date fair value was $3.78 per share and the total grant date fair value of the shares for which the performance conditions are expected to be met was $2.4 million.
Performance Bonus Awards
If bonus amounts earned under the Company's primary employee bonus plans exceed targeted bonus amounts because specified financial metrics of the Company exceed the performance conditions set forth in those plans, such excess is required to be settled in the Company's common stock. The Company's obligation to issue shares for employee bonus amounts exceeding the specified bonus targets is accounted for separately as a liability-classified stock-based compensation arrangement with performance conditions.
Stock Options
The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally vested over a three or four-year period, with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter.
The table below summarizes the stock option activity for the nine months ended September 30, 2017:
 
 
Options
 
Weighted- Average Exercise Price
 
Weighted- Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
(in thousands) (1)
Outstanding and exercisable at December 31, 2016
 
991,172

 
$
0.77

 
2.83
 
$
2,527

    Exercised
 
(84,427
)
 
2.40

 
 
 
 
    Forfeited
 
(2,789
)
 
1.99

 
 
 
 
Outstanding and exercisable at September 30, 2017
 
903,956

 
$
0.63

 
2.02
 
$
4,131



25
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

(1)
The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of September 30, 2017 and December 31, 2016, respectively.
9. RESTRUCTURING    
In September 2015, the Company commenced a restructuring plan relating primarily to workforce reductions in its international operations. The Company has also undertaken workforce reductions in its North America segment. In addition to workforce reductions in its ongoing markets, the Company ceased operations in 17 countries within its International segment as part of the restructuring plan between September 2015 and March 2016. Those country exits, which generally comprised the Company's smallest international markets, resulted from a series of separate decisions made at different times during that period that were not part of an overall strategic shift. Costs related to the restructuring plan are classified as "Restructuring charges" on the condensed consolidated statements of operations.

During the third quarter of 2017, the Company reached a decision to cease most of its food delivery operations and it entered into a long-term commercial agreement with a subsidiary of Grubhub that will allow the Company to provide customers with the ability to order food delivery through the Company’s websites and mobile applications in the United States from Grubhub’s network of restaurant merchants. Additionally, the Company entered into an agreement to sell customer lists and other intangible assets in certain food delivery markets to Grubhub. See Note 3, Goodwill and Other Intangible Assets, for additional information. For the quarter ended September 30, 2017, the Company’s restructuring costs associated with ceasing those food delivery operations were $2.6 million, primarily relating to employee severance.

From the inception of its restructuring plan in September 2015 through September 30, 2017, the Company has incurred cumulative costs for employee severance and benefits and other exit costs of $80.2 million under the plan. In addition to those costs, the Company has incurred cumulative long-lived asset impairment charges of $7.5 million resulting from its restructuring activities. The actions under the Company's restructuring plan are substantially complete as of September 30, 2017.

The following table summarizes the costs incurred by segment related to the Company’s restructuring plan for the three months ended September 30, 2017 (in thousands):
 
 
Three Months Ended September 30, 2017
 
 
Employee Severance and Benefit Costs (1)
 
Asset Impairments
 
Other Exit Costs
 
Total Restructuring Charges
North America
 
$
3,662

 
$
—

 
$
3,309

 
$
6,971

International
 
4,296

 
—

 
236

 
4,532

Consolidated
 
$
7,958

 
$
—

 
$
3,545

 
$
11,503

(1)
The employee severance and benefit costs for the three months ended September 30, 2017 relates to the termination of approximately 400 employees. Substantially all of the remaining cash payments for those costs are expected to be disbursed through April 30, 2018.
The following table summarizes the costs incurred by segment related to the Company’s restructuring plan for the nine months ended September 30, 2017 (in thousands):
 
 
Nine Months Ended September 30, 2017
 
 
Employee Severance and Benefit Costs (1)
 
Asset Impairments
 
Other Exit Costs
 
Total Restructuring Charges
North America
 
$
8,127

 
$
—

 
$
3,774

 
$
11,901

International
 
4,905

 
—

 
2,012

 
6,917

Consolidated
 
$
13,032

 
$
—

 
$
5,786

 
$
18,818

(1)
The employee severance and benefit costs for the nine months ended September 30, 2017 relates to the termination of approximately 750 employees. Substantially all of the remaining cash payments for those costs are expected to be disbursed through April 30, 2018.


26
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following table summarizes the costs incurred by segment related to the Company’s restructuring plan for the three months ended September 30, 2016 (in thousands):
 
 
Three Months Ended September 30, 2016
 
 
Employee Severance and Benefit Costs (1)
 
Asset Impairments
 
Other Exit Costs
 
Total Restructuring Charges
North America
 
$
274

 
$
—

 
$
695

 
$
969

International
 
(96
)
 
—

 
290

 
194

Consolidated
 
$
178

 
$
—

 
$
985

 
$
1,163


(1)
The employee severance and benefit costs for the three months ended September 30, 2016 related to the termination of approximately 150 employees.
The following table summarizes the costs incurred by segment related to the Company’s restructuring plan for the nine months ended September 30, 2016 (in thousands):
 
 
Nine Months Ended September 30, 2016
 
 
Employee Severance and Benefit Costs (1)
 
Asset Impairments
 
Other Exit Costs
 
Total Restructuring Charges
North America
 
$
6,487

 
$
45

 
$
2,862

 
$
9,394

International
 
18,069

 
—

 
915

 
18,984

Consolidated
 
$
24,556

 
$
45

 
$
3,777

 
$
28,378


(1)
The employee severance and benefit costs for the nine months ended September 30, 2016 related to the termination of approximately 700 employees.
The following table summarizes the restructuring liability activity for each period (in thousands):


Employee Severance and Benefit Costs
 
Other Exit Costs
 
Total
Balance as of June 30, 2015
 
$
—

 
$
—

 
$
—

Charges payable in cash
 
18,310

 
2,940

 
21,250

Cash payments
 
(8,862
)
 
(746
)
 
(9,608
)
Foreign currency translation
 
(576
)
 
3

 
(573
)
Balance as of December 31, 2015
 
$
8,872

 
$
2,197

 
$
11,069

Charges payable in cash (1)
 
29,416

 
6,063

 
35,479

Cash payments
 
(23,729
)
 
(5,988
)
 
(29,717
)
Foreign currency translation
 
(424
)
 
(12
)
 
(436
)
Balance as of December 31, 2016

$
14,135

 
$
2,260

 
$
16,395

Charges payable in cash (1)

12,241

 
5,786

 
18,027

Cash payments

(20,463
)
 
(4,759
)
 
(25,222
)
Foreign currency translation

616

 
28

 
644

Balance as of September 30, 2017

$
6,529

 
$
3,315

 
$
9,844


(1)
Excludes stock-based compensation of $0.8 million for the nine months ended September 30, 2017 and $4.6 million for the year ended December 31, 2016 related to accelerated vesting of stock-based compensation awards for certain employees terminated as a result of the Company's restructuring activities.
10. INCOME TAXES
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items.


27
GROUPON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

For the three months ended September 30, 2017, the Company recorded income tax expense from continuing operations of $2.5 million on pretax income from continuing operations of $6.3 million. For the three months ended September 30, 2016, the Company recorded income tax expense from continuing operations of $1.7 million on a pretax loss from continuing operations of $32.8 million. For the nine months ended September 30, 2017, the Company recorded income tax expense from continuing operations of $11.0 million on a pretax loss from continuing operations of $11.5 million. For the nine months ended September 30, 2016, the Company recorded income tax expense from continuing operations of $0.5 million on a pretax loss from continuing operations of $126.3 million.
The Company's U.S. statutory rate is 35%. The primary factor impacting the effective tax rate for the three and nine months ended