Groupon May Cause ‘Digestive Problems’ at SEC, Ex-Official Says

Groupon Inc.’s approach to accounting may be “causing digestive problems” with the U.S. Securities and Exchange Commission, possibly delaying the initial public offering by one month, said Richard Sauer, a former official at the government agency.

“It does sound like it’s getting some resistance and it sounds like it’s because of the pro forma number that the company is pushing so hard,” Sauer, who served as assistant director at the SEC from 1990 to 2003, said yesterday in a televised interview with “Bloomberg West.”

The daily-deal site, which filed on June 2 to raise $750 million in an initial public offering, cites so-called adjusted consolidated segment operating income, or adjusted CSOI, as one of the main criteria for measuring the business. The number is pro forma, meaning it excludes certain items. And it’s less common than other measures, such as Ebitda, or earnings before interest, taxes, depreciation and amortization.

Adjusted CSOI excludes non-cash expenses and online marketing expenses used to attract new subscribers, raising concern that it may mask Groupon’s costs. The SEC is closely examining Groupon’s CSOI as part of a review of the IPO, a person with knowledge of the matter said yesterday.

The agency is likely to make comments to the Chicago-based company regarding this accounting, forcing Groupon to update its filing and potentially delaying the IPO, Sauer said.

‘Something to Shoot at’

“That’s always a question when a company comes up with a pro forma number that’s outside the usual categories — not Ebitda, not free cash flow, not something that is easily verifiable and understood by the market,” he said. “It gives anybody that doesn’t like the company something to shoot at and it’s much more likely to cause questions to be raised at the SEC than if it were using conventional metrics.”

The IPO is slated for after the Labor Day holiday on Sept. 5, and there’s no sign it will be delayed, the person with knowledge of the matter said yesterday.

John Nester, an SEC spokesman, declined to comment.

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

“We are not aware of any delay, and we are well within the time we had originally established,” said Brad Williams, a spokesman for Groupon. “We are still very much on track” to go public three to six months after the June filing, he said.

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