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Groupon restates financial results

March 31, 2012|By Wailin Wong
  • In a statement, Groupon acknowledged “a material weakness in its internal controls.”
In a statement, Groupon acknowledged “a material weakness in its… ( )

CHICAGO — Groupon Inc. revised its financial results for the fourth quarter and fiscal year, reporting a $14.3-million decrease in fourth-quarter revenue.

The Chicago-based daily deals company said it had not set aside enough money for customer refunds. When this refund allowance was adjusted, Groupon posted a decrease in revenue.

In a statement, the company acknowledged "a material weakness in its internal controls." Groupon elaborated on these shortcomings in a filing with the U.S. Securities and Exchange Commission, saying that its financial procedures were insufficient for supporting "accurate and timely" reporting of its results.

The company also faulted controls for not providing "reasonable assurance" as to the accuracy of accounts.

A Groupon spokeswoman said the company was unable to comment beyond its statement and filings with the SEC.

The company's shares, which had ended higher for the day, sank more than 7% in after-hours trading to $17.04.

The revised numbers show that Groupon's net loss for the fourth quarter was $65.4 million, compared with a previously reported figure of $42.7 million. Revenues were revised to $492.2 million from $506.5 million. Earnings per share were revised to a loss of 12 cents a share versus a loss of 8 cents.

Groupon said its operating cash flow remained the same at $169.1 million for the fourth quarter. It also reaffirmed its guidance for the first quarter of 2012, which calls for revenues of $510 million to $550 million.

"We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants," Chief Financial Officer Jason Child said in a statement.

The restated financial results, however, point to potential shortcomings in Groupon's refund policy, known as the Groupon Promise.

The company started with a fairly generous refund policy that allowed customers to return their unredeemed vouchers without much scrutiny. Groupon lately began tightening this policy, but it appears that the company is still struggling with how to structure its refund procedures as its deal mix evolves.

The restatement renews concerns about accounting that dogged Groupon during the run-up to its initial public offering last year. The company, working with global accounting firm Ernst & Young, filed a series of revisions to its IPO filing documents. One of those updates contained a major restatement of its revenues.

The company said it has updated its financial model. It is also shoring up its internal controls by hiring more staff and working with another accounting firm.

"However, we can provide no assurance at this time that management will be able to report that our internal control over financial reporting is effective as of December 31, 2012," Groupon said in its filing.

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