Washington, D.C. 20549
No. 6 South Capital Stadium Road
No. 6 South Capital Stadium Road
(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered
pursuant to Section 12(b) of the Act:
(1) Not for trading, but only in
connection with the listing on New York Stock Exchange of the American depositary shares.
Securities registered or to be registered
pursuant to Section 12(g) of the Act:
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of
each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 71,350,322.5
ordinary shares issued and outstanding, excluding treasury shares and ordinary shares issued to the depositary bank for bulk issuance
of ADSs reserved for future issuances upon the exercise or vesting of awards granted under the share incentive plans, par value
US$0.00004 per share, as of December 31, 2017.
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
x
No
¨
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Yes
¨
No
x
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, or an emerging growth company. See definition of “accelerated
filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a)
of the Exchange Act.
¨
† The term “new or revised financial
accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in
response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17
¨
Item 18
¨
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant
has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court. Yes
¨
No
¨
Unless otherwise indicated and except where
the context otherwise requires, references in this annual report on Form 20-F to:
Our financial statements are expressed in Renminbi,
which is our presentation currency. Certain of our financial data in this annual report are translated into U.S. dollars solely
for your convenience. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this annual report were made at
a rate of RMB6.5063 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December
29, 2017. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S.
dollars or Renminbi, as the case may be, at any particular rate, at the rate stated above, or at all. For more information, see
“Exchange Rate Information” on page 4 of this annual report.
This annual report contains forward-looking
statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements.
These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation
Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements
by words or phrases such as “may,” “will,” “expect,” “is expected to,” “anticipate,”
“aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely
to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations,
business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
You should read thoroughly this annual report
and the documents that we refer to herein with the understanding that our actual future results may be materially different from
and/or worse than what we expect. Other sections of this annual report, including the Risk Factors and Operating and Financial
Review and Prospects, discuss factors which could adversely impact our business and financial performance. Moreover, we operate
in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all
risk factors, 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 qualify all of
our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements
as predictions of future events. The forward-looking statements made in this annual report relate only to events or information
as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
PART
I
|
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
|
Not applicable.
|
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
|
A.
|
Selected Financial Data
|
Our selected consolidated statements of comprehensive
income data presented below for the years ended December 31, 2014, 2015, 2016 and 2017 and our selected consolidated balance sheets
data as of December 31, 2015, 2016 and 2017 have been derived from our audited consolidated financial statements. The selected
consolidated statements of comprehensive income data and the selected consolidated balance sheets data should be read in conjunction
with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and
“Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our audited consolidated
financial statements are prepared in accordance with U.S. GAAP. Beginning from the first quarter of 2016, we changed our basis
of accounting from IFRS to U.S. GAAP. Selected financial data for the year ended December 31, 2013 and as of December 31, 2013
and 2014 are omitted, as we have not prepared such data in accordance with U.S. GAAP and such data cannot be prepared and provided
without unreasonable effort and expense. Selected financial data for the year ended December 31, 2013 and as of December 31, 2013
and 2014 prepared under IFRS were disclosed in our Annual Report on Form 20-F for the year ended December 31, 2015. Our consolidated
financial statements for the years ended December 31, 2015, 2016 and 2017 and as of December 31, 2016 and 2017 are included elsewhere
in this annual report. Our historical results do not necessarily indicate results expected for any future periods.
Consolidated Statements of Comprehensive Income Data
|
|
For
the Year Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In
thousands, except share and per share data)
|
|
Revenue
|
|
|
2,617,839
|
|
|
|
4,254,195
|
|
|
|
5,772,948
|
|
|
|
8,751,259
|
|
|
|
1,345,044
|
|
Cost of revenue
(1)
|
|
|
(671,960
|
)
|
|
|
(1,450,744
|
)
|
|
|
(2,077,979
|
)
|
|
|
(3,234,680
|
)
|
|
|
(497,161
|
)
|
Gross profit
|
|
|
1,945,879
|
|
|
|
2,803,451
|
|
|
|
3,694,969
|
|
|
|
5,516,579
|
|
|
|
847,883
|
|
Selling and administrative
expenses
(2)
|
|
|
(1,259,638
|
)
|
|
|
(3,013,997
|
)
|
|
|
(3,417,811
|
)
|
|
|
(6,059,046
|
)
|
|
|
(931,258
|
)
|
Product development
expenses
(3)
|
|
|
(148,078
|
)
|
|
|
(312,100
|
)
|
|
|
(457,367
|
)
|
|
|
(565,702
|
)
|
|
|
(86,947
|
)
|
Other
(losses)/gains, net
|
|
|
(10,904
|
)
|
|
|
60,508
|
|
|
|
70,981
|
|
|
|
31,576
|
|
|
|
4,853
|
|
Income/(Loss) from
operations
|
|
|
527,259
|
|
|
|
(462,138
|
)
|
|
|
(109,228
|
)
|
|
|
(1,076,593
|
)
|
|
|
(165,469
|
)
|
Interest income
|
|
|
13,607
|
|
|
|
24,980
|
|
|
|
41,651
|
|
|
|
93,025
|
|
|
|
14,298
|
|
Interest expense
|
|
|
(6,340
|
)
|
|
|
(8,140
|
)
|
|
|
(52,155
|
)
|
|
|
(92,633
|
)
|
|
|
(14,237
|
)
|
Share of results of equity investees
|
|
|
(893
|
)
|
|
|
(16,663
|
)
|
|
|
(25,640
|
)
|
|
|
(71,866
|
)
|
|
|
(11,046
|
)
|
Investment
income/(loss)
|
|
|
53,581
|
|
|
|
141,195
|
|
|
|
(45,012
|
)
|
|
|
(75,097
|
)
|
|
|
(11,542
|
)
|
Profit/(Loss) before
tax
(4)
|
|
|
587,214
|
|
|
|
(320,766
|
)
|
|
|
(190,384
|
)
|
|
|
(1,223,164
|
)
|
|
|
(187,996
|
)
|
Income
tax expense
(5)
|
|
|
(97,643
|
)
|
|
|
(64,518
|
)
|
|
|
(147,569
|
)
|
|
|
(203,824
|
)
|
|
|
(31,327
|
)
|
Net
income/(loss)
|
|
|
489,571
|
|
|
|
(385,284
|
)
|
|
|
(337,953
|
)
|
|
|
(1,426,988
|
)
|
|
|
(219,323
|
)
|
Total
comprehensive income/(loss), net of tax
(6)
|
|
|
492,735
|
|
|
|
(40,536
|
)
|
|
|
121,477
|
|
|
|
(1,780,735
|
)
|
|
|
(273,694
|
)
|
Net income/(loss) attributable
to Bitauto Holdings Limited
|
|
|
485,639
|
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,611,114
|
)
|
|
|
(247,624
|
)
|
Total comprehensive
income/(loss) attributable to Bitauto Holdings Limited
|
|
|
488,
803
|
|
|
|
(162,244
|
)
|
|
|
(82,118
|
)
|
|
|
(1,885,159
|
)
|
|
|
(289,744
|
)
|
Net income/(loss) per
share/ADS attributable to ordinary shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11.63
|
|
|
|
(8.72
|
)
|
|
|
(8.31
|
)
|
|
|
(23.01
|
)
|
|
|
(3.54
|
)
|
Diluted
|
|
|
10.89
|
|
|
|
(8.72
|
)
|
|
|
(8.31
|
)
|
|
|
(23.16
|
)
|
|
|
(3.56
|
)
|
Weighted average number of shares/ADSs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,762,778
|
|
|
|
58,142,432
|
|
|
|
65,160,205
|
|
|
|
70,154,910
|
|
|
|
|
|
Diluted
|
|
|
44,576,182
|
|
|
|
58,142,432
|
|
|
|
65,160,205
|
|
|
|
70,154,910
|
|
|
|
|
|
|
(1)
|
Including amortization of intangible assets resulting from asset and business acquisitions of RMB8.5 million, RMB19.5 million,
RMB1.1 million and RMB3.7 million (US$0.6 million) in 2014, 2015, 2016 and 2017 respectively.
|
|
(2)
|
Including share-based compensation expense of RMB57.1 million, RMB120.0 million, RMB77.0 million and RMB1.17 billion (US$179.5
million) in 2014, 2015, 2016 and 2017, respectively, and amortization of intangible assets resulting from asset and business acquisitions
and write-down of assets of RMB6.7 million, RMB750.3 million, RMB623.1 million and RMB673.6 million (US$103.5 million) in 2014,
2015, 2016 and 2017 respectively. Also including professional expenses incurred for the issuance of preferred shares and the initial
public offering of Yixin Group Limited, or Yixin, of RMB90.4 million (US$13.9 million) in 2017.
|
|
(3)
|
Including share-based compensation expense of RMB18.2 million (US$2.8 million) in 2017.
|
|
(4)
|
Including fair value adjustment of contingent considerations of
RMB2.7 million, RMB3.6 million, nil and RMB8.3 million (US$1.3 million) in 2014, 2015,
2016 and 2017, respectively, share of amortization of equity investments’ intangible
assets not on their books of RMB0.4 million, RMB0.3 million, RMB2.5 million and RMB0.7
million (US$0.1 million) in 2014, 2015, 2016 and 2017, respectively, investment income
associated with non-cash investment matters of RMB53.6 million and RMB141.2 million in
2014 and 2015, investment loss associated with non-cash investment matters of RMB40.4
million and RMB110.0 million (US$16.9 million) in 2016 and 2017, respectively, amortization
of the beneficial conversion feature (BCF) discount on the convertible notes of RMB13.2
million and RMB57.2 million (US$8.8 million) in 2016 and 2017, respectively, and impairment
on equity investees of RMB21.2 million (US$3.3 million) in 2017.
|
|
(5)
|
Including tax impact related to professional expenses incurred
for the initial public offering of Yixin of RMB5.7 million (US$0.9 million) in 2017.
|
|
(6)
|
Including net income/(loss) and foreign currency exchange gains/(losses)
net of tax of nil.
|
The following table sets forth our selected
consolidated balance sheets as of December 31, 2015, 2016 and 2017.
Consolidated Balance Sheets Data
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
7,885,047
|
|
|
|
16,474,959
|
|
|
|
28,117,369
|
|
|
|
4,321,560
|
|
Non-current assets
|
|
|
5,185,965
|
|
|
|
13,459,797
|
|
|
|
23,398,363
|
|
|
|
3,596,263
|
|
Total assets
|
|
|
13,071,012
|
|
|
|
29,934,756
|
|
|
|
51,515,732
|
|
|
|
7,917,823
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,660,501
|
|
|
|
11,953,916
|
|
|
|
22,699,239
|
|
|
|
3,488,809
|
|
Non-current liabilities
|
|
|
88,223
|
|
|
|
4,219,129
|
|
|
|
8,578,822
|
|
|
|
1,318,541
|
|
Total liabilities
|
|
|
2,748,724
|
|
|
|
16,173,045
|
|
|
|
31,278,061
|
|
|
|
4,807,350
|
|
Redeemable noncontrolling interests
|
|
|
1,697,718
|
|
|
|
3,939,646
|
|
|
|
301,953
|
|
|
|
46,409
|
|
Total shareholders’ equity
|
|
|
8,624,570
|
|
|
|
9,822,065
|
|
|
|
19,935,718
|
|
|
|
3,064,064
|
|
Total liabilities, redeemable noncontrolling interests and shareholders’ equity
|
|
|
13,071,012
|
|
|
|
29,934,756
|
|
|
|
51,515,732
|
|
|
|
7,917,823
|
|
Exchange Rate Information
We conduct our operations in China. Our sales,
costs and expenses are denominated in Renminbi. We make no representation that any Renminbi or U.S. dollar amounts could have been,
or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, at the rates stated below, or
at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion
of Renminbi into foreign exchange and through restrictions on foreign trade. On April 20, 2018, the exchange rate was
RMB6.2945 to US$1.00.
The following table sets forth information concerning
exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports
or any other information to be provided to you. For January 1, 2009 and all later dates and periods, the exchange rate refers to
the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise noted, all translations
from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.5063 to US$1.00,
the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 29, 2017.
|
|
Exchange Rate
|
|
Period
|
|
Period End
|
|
|
Average
(l)
|
|
|
Low
|
|
|
High
|
|
|
|
(RMB per US$1.00)
|
|
2013
|
|
|
6.0537
|
|
|
|
6.1412
|
|
|
|
6.2438
|
|
|
|
6.0537
|
|
2014
|
|
|
6.2046
|
|
|
|
6.1704
|
|
|
|
6.2591
|
|
|
|
6.0402
|
|
2015
|
|
|
6.4778
|
|
|
|
6.2869
|
|
|
|
6.4896
|
|
|
|
6.1870
|
|
2016
|
|
|
6.9430
|
|
|
|
6.6549
|
|
|
|
6.9580
|
|
|
|
6.4480
|
|
2017
|
|
|
6.5063
|
|
|
|
6.7350
|
|
|
|
6.9575
|
|
|
|
6.4773
|
|
October
|
|
|
6.6328
|
|
|
|
6.6254
|
|
|
|
6.6533
|
|
|
|
6.5712
|
|
November
|
|
|
6.6090
|
|
|
|
6.6200
|
|
|
|
6.6385
|
|
|
|
6.5967
|
|
December
|
|
|
6.5063
|
|
|
|
6.5932
|
|
|
|
6.6210
|
|
|
|
6.5063
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.2841
|
|
|
|
6.4233
|
|
|
|
6.5263
|
|
|
|
6.2841
|
|
February
|
|
|
6.3280
|
|
|
|
6.3183
|
|
|
|
6.3471
|
|
|
|
6.2649
|
|
March
|
|
|
6.2726
|
|
|
|
6.3174
|
|
|
|
6.3565
|
|
|
|
6.2685
|
|
April (through April 20, 2018)
|
|
|
6.2945
|
|
|
|
6.2859
|
|
|
|
6.3045
|
|
|
|
6.2655
|
|
|
(1)
|
Annual averages are calculated using the average of month-end rates of the relevant year. Monthly averages are calculated using
the average of the daily rates during the relevant period.
|
|
B.
|
Capitalization and Indebtedness
|
Not applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Risks Related to Our Business and Industry
Our future growth depends on the
increased acceptance of the internet as an effective marketing platform by the automotive industry and the increased internet penetration
among the general population in China.
We generate a significant portion of our revenues
from providing internet marketing services to automakers and automobile dealers. However, internet marketing has not yet been widely
accepted as an effective marketing platform by China’s automotive industry. Many of our current or potential customers have
not traditionally devoted a significant portion of their advertising or marketing budgets to web-based media. They may have limited
experience with the internet as an advertising and marketing medium and therefore may not find the internet to be effective for
promoting their automobiles and related services. Some automakers and automobile dealers may still prefer television, outdoor billboards,
traditional print and broadcast and may not be willing to spend a significant portion of their marketing budgets on online advertising.
In addition, development of web software that blocks internet advertisements before they appear on a user’s screen may hinder
the growth of internet marketing. Our customers may choose not to use internet marketing services if their advertisements cannot
reach the intended population due to the block function of this kind of software. Any negative perceptions as to the effectiveness
of internet marketing services may limit the growth of our business and adversely affect our results of operations. If the internet
does not become more widely accepted as a media platform for advertising and marketing, our business, financial position and results
of operations could be materially and negatively affected.
Internet usage in China is limited among the
general population. China has a relatively low penetration rate compared to most developed countries. The relatively high cost
of internet access may limit the increase in internet penetration rate in China. The relatively underdeveloped telecommunications
infrastructure and capacity constraints may further impede the development of the internet to the extent that users experience
delays, transmission errors and other difficulties. As a result, our internet marketing business is subject to many uncertainties,
which could materially and adversely affect our business prospects, financial condition and results of operations.
Our dealer service delivery model has
been widely welcomed by our automobile dealer customers, but if we cannot continue to attract and expand our automobile dealer
subscribers, we may not be able to sustain our revenue growth and operating profit.
We have attracted the majority of automobile
dealers across China to our subscription services. Our SaaS platform, designed mostly for automobile dealers, is based on a service
distribution model through which we deliver a package of software applications over the internet to the automobile dealer subscribers.
Such internet-based products enable our automobile dealer customers to create their own websites, publish automobile pricing and
other promotional information and communicate with interested buyers. Furthermore, our SaaS platform enables automobile dealer
customers to publish their automobile pricing and promotional information simultaneously on our websites and our partners’
websites. We may pay a fixed fee to our partners for space on their websites in order to extend the customer reach of our automotive
database and content and to attract automobile dealers to subscribe our SaaS platform. Our service delivery model has been greatly
accepted by our automobile dealer customers. However, we cannot assure you that our service delivery model would continue to attract,
maintain or expand our automobile dealer subscriber base by offering new products and services to automobile dealer customers.
Our revenue growth and operating profits depend on the expansion of the automobile dealer customer base and the increase in subscription
fees. If we cannot continue to attract and expand our automobile dealer customers or if our automobile dealer customers would not
accept our subscription fee increase, we may not be able to sustain our revenue growth and operating profit.
Failure to enhance our brand recognition
could have a material adverse effect on our results of operations and growth prospects.
We believe the importance of brand recognition
will increase as the number of internet users in China grows. It is critical to achieving widespread acceptance of our business
model, gaining trust for our services and attracting new business partners and consumers to our platform. For example, if we fail
to effectively enhance our brand recognition, we may not be able to attract new advertising business to our own websites. Furthermore,
for our websites to be successful, we need to attract visitors to our websites on a regular basis by providing automobile and other
relevant information. We may need to offer news, reports, reviews and specifications on substantially all automobile models available
in China even though the manufacturers of some automobiles do not use any of our internet marketing services. If such free offerings
fail to attract enough visitors to our websites or automakers and automobile dealers to use our services, we may not be able to
generate sufficient revenues to pay for these offerings, which could materially and adversely affect our financial position and
results of operations.
We also need to continue to enhance our brand
awareness among automobile dealers in order to build on our position as a leading automobile service provider While we have a large
network of automobile dealer customers and can reach a broad consumer base by placing pricing and promotional information of our
automobile dealer customers on our partners’ websites in addition to our own websites, our partners that distribute automobile
dealers’ such information may not always quote our names on their websites, and as a result, we may not achieve the expected
visibility among internet users. This could increase our reliance on our partners. If we fail to enhance and maintain our brand
recognition, we may lose market share and our business, results of operations and financial condition may be materially adversely
affected.
We have taken steps to enhance our brand recognition
and gradually establish our identity independent of our partners by expending significant time and resources, including participating
in auto shows and other branding events. We use priority listing and traffic referral services provided by major internet search
engines in China to increase our customers and users’ awareness of our products and services. For example, we provide auto-related
content via Baidu Aladdin and Qihoo 360 to market and promote our services. In addition, we work with major news feed platforms
to increase our brand exposure, such as Baidu, Toutiao and Tencent Social Ads. We also subscribe for marketing services by mobile
app distribution platforms, such as Baidu and Tencent’s app platforms, or app stores of major mobile phone manufacturers.
While we plan to continue to enhance our brand
recognition, we may not always be able to achieve our expected results or do so in a short period of time. If we are unable to
maintain and further enhance our brand recognition and promote awareness of our platform, we may not be able to grow or maintain
our customer base. If this happens, our business prospects, financial condition and results of operations may be materially adversely
affected.
A limited number of automakers have
contributed to a significant portion of our revenues, and if we are unable to maintain these key relationships or establish new
relationships with additional automakers, our results of operations would be materially and adversely affected.
In the past, a limited number of automakers
have contributed a significant portion of our revenues, primarily in the form of service fees for our digital marketing solutions
and advertising fees for advertisement placements on our bitauto.com website and corresponding mobile apps, as well as online platform
of Yixin Group Limited, or Yixin’s online platform. Revenue concentration is primarily a factor for our digital marketing
solutions business due to the relatively small number of automaker customers for this business and the large amounts of their contracts
with us. In 2015, 2016 and 2017, revenues from the top three automaker customers in each period accounted for approximately 12.0%,
6.5% and 7.4% respectively, of our total revenues. In addition, we generate revenue indirectly from these top customers in the
form of performance-based rebates. When we place advertisements on behalf of our automaker customers, we typically receive performance-based
rebates from third-party media vendors calculated as a percentage of the purchase price for qualifying advertising space purchased
and utilized by our automaker customers. See “—Risks Related to Our Business and Industry—We may not be able
to continue to collect performance-based rebates for the advertisements we place on third-party websites, which is an important
source of revenues for us.”
There is no assurance that our relationships
with any of our existing automaker customers will continue in the future, or we could receive any minimum level of revenues from
them. If we lose one or more of our important automaker customers, or if they materially reduce their purchase of our services,
our results of operations would be materially and adversely affected.
We may not be able to continue to
collect performance-based rebates for the advertisements we place on third-party websites, which is an important source of revenues
for us.
An important part of our digital marketing solutions
business is to place advertisements on third-party websites on behalf of our automaker customers. Such media vendor websites often
offer incentives in the form of performance-based rebates equal to a percentage of the purchase price for qualifying advertising
space purchased and utilized by our customers. Performance-based rebates are an important source of our revenues. In 2015, 2016
and 2017, income from performance-based rebates accounted for 6.8%, 7.8% and 5.6%, respectively, of our total revenues. Nonetheless,
our ability to collect rebates from a media vendor website is contingent upon the total value of advertisements we place on such
websites during a set time period and whether such value reaches the pre-determined thresholds. If we fail to reach the set threshold,
we may not be able to continue to collect performance-based rebates at our expected levels, if at all. Under some media contracts
for some customers, if we fail to reach the set minimum, we would lose not only part or all of the rebates, but also our performance
security deposit. Some websites, in particular those with a large visitor base, may set the thresholds high or raise them from
time to time and we may not be able to negotiate the rebate percentages or the threshold levels. Furthermore, media vendor websites
may reduce the percentage of rebates or may not offer them at all. Our income from performance-based rebates may decrease or disappear,
which could affect our financial condition and results of operations.
Our growth prospects may be materially
and adversely affected if we are unable to successfully execute our mobile strategy.
There is an increasing trend of accessing the
internet through devices other than a personal computer, such as smart phones, tablets and other mobile devices. We have developed
a few mobile apps and plan to devote more resources to develop more applications for various mobile devices. Our mobile apps had
over 200 million downloads and activations as of December 31, 2017 and we believe the majority of sales leads were generated from
our mobile apps. However, we have limited experience in developing and optimizing versions of applications for users on mobile
devices and platforms. We have devoted significant resources to developing mobile apps and face significant competition from established
companies that have far greater experience than we do. We expect existing competitors to allocate more resources to develop and
market competing applications and new mobile-applications competitors to enter the market. Our limited experience makes it difficult
to predict whether we will succeed in developing mobile apps that appeal to automakers and automobile dealers. Our experience in
developing browser-based applications may not be relevant to developing mobile apps, and we have limited experience working with
wireless carriers, mobile platform providers and other partners. These and other uncertainties make it difficult to predict whether
we will succeed in developing commercially viable mobile apps.
Furthermore, the generally lower processing
speed, power, functionality and memory associated with mobile devices make using applications through such devices more difficult;
and the versions of our applications developed for these devices may not be appealing to users. In addition, each device manufacturer
or platform provider may impose unique or restrictive terms and conditions for developers relying on such devices or platforms,
and our applications may not work well or be used on these devices as a result. As new devices, new mobile platforms and updates
to platforms are continually being released, we may encounter problems in developing our applications for use on these devices
and platforms and we may need to devote significant resources to creating, supporting and maintaining our applications on such
devices and platforms. If we are unable to successfully expand into mobile platforms and devices, or if the versions of our applications
that we create for such platforms and devices are not appealing to our users, our business and growth prospects, financial condition
and results of operation may be materially and adversely affected.
We provide transaction services
primarily through Yixin, our controlled subsidiary. These services may expose us to certain credit risks.
We provide transaction services primarily through
Yixin, our controlled subsidiary. By leveraging the online platform, Yixin provides transaction platform business and self-operated
financing business. In 2016, with the development of the transaction services, we changed our reporting segment and the transaction
services business was reported as a separate business segment. Although our transaction services have grown rapidly in the past
few years, they are still evolving and may face new risks and challenges. In addition, due to our limited operation history in
transaction services, most of our financing lease contracts are not fully seasoned. The quality of our finance receivables may
deteriorate as these finance receivables fully season or as our transaction services volume expands. The asset quality may also
deteriorate as our product mix evolves.
Credit risk is inherent in
our self-operated financing business and in our loan facilitation services, to the extent that we are required to
provide guarantee to the consumers financed by our auto finance partners. Credit risks are exacerbated in consumer financing
because there is relatively limited information available about the credit histories of the individual car buyers. There can
be no assurances that our monitoring of credit risk issues and our efforts to mitigate credit risks through our credit
assessment and risk management policies are or will be sufficient to result in lower delinquencies.
Additionally, our data-driven credit risk
management system also may not be able to exhaustively mitigate our exposure to credit risk. Currently, our data analytics
capabilities are primarily applied in our anti-fraud system and credit scoring system to assist the credit assessment
procedures. Our credit risk management methods depend on the evaluation of information regarding customers, automobiles and
other relevant matters, which may be inaccurate, incomplete, obsolete or improperly evaluated. In addition, for most of our
auto finance products, we generally require less documentation from applicants than that would otherwise be required by
traditional banks for credit assessment and approval, which further limits the credit information of certain applicants
available to us and may result in increasing risks. Certain steps of our risk management procedures are carried out manually,
and are susceptible to human error and misjudgment. As such, our assessment of credit risks associated with a particular
customer may not always be accurate. We cannot assure you that our assessment and monitoring of credit risk will always be
sufficient and our efforts to mitigate credit risk through our credit assessment procedures and risk management system are or
will always be sufficient to manage our past due ratio. Any insufficiency in our credit risk management system and any
significant deterioration in the portfolio quality of our self-operated financing business and loan facilitation services and
significant increase in associated credit risk may have a material adverse effect on our business, results of operations
and financial condition.
Furthermore, deterioration in the overall
quality of loan portfolio and increased exposure to credit risks may occur due to a variety of reasons, including factors
beyond our control, such as a slowdown in the growth of the PRC or global economies or a liquidity or credit crisis in the
PRC or global financial sectors, which may adversely affect the liquidity of the borrowers or their ability to repay or roll
over their debt. Significant decrease in residual value of our automobile collateral may also lower the recoverability of our
finance receivables. Any significant deterioration in the asset quality of our financial services business and significant
increase in associated credit risks may have a material adverse effect on our business, results of operations and financial
condition.
Our provisions for impairment losses
on finance receivables may not be adequate to cover potential credit losses, and we may need to increase our provision charges
of the respective period for impaired receivables to cover future potential credit losses.
We make provisions for impairment losses
on finance receivables in accordance with U.S. GAAP. Our provision for credit losses amounted to RMB134.2 million (US$20.6
million), representing 0.45% of our net finance receivables as of December 31, 2017. This reflected our approach to
provisions in view of our business operations. The amount of such provisions for impairment losses is determined on the basis
of our internal provisioning procedures and guidelines with consideration of factors, such as the historical loss probability
and days past due. As our provisions under U.S. GAAP require significant judgment and estimation, our provision for credit
losses may not always be adequate to cover credit losses in our business operations. In particular, since we have limited
experience in the self-operated financing business, we might in the future adjust our provisioning judgment or policies as we
gain more experience in this business, which could in turn lead to additional provisions for our receivables. We expect our
provision charge to increase in the future as we continue to grow our business. Our provision for credit losses may prove to
be inadequate if adverse changes occur in the Chinese economy or if other events adversely affect specific customers or
markets. Under such circumstances, we may need to make additional provisions for our receivables, which could significantly
reduce our profit and may materially and adversely affect our business, financial condition and results of operations.
Our efforts to grow Yixin’s
used automobile business may not succeed.
Yixin operates used automobile business which
extends the reach of our platform. In the past few years, automobile purchases by general consumers have experienced growth in
China. Automobiles are becoming more affordable to a broader group of consumers at different income levels. Many people in China
have purchased or plan to purchase cars for the first time. We believe a market for used automobiles will gradually develop as
the number of consumer-owned automobiles increases. However, the development of used automobile market in China is subject to a
high level of uncertainty and we cannot predict how the market will develop, if at all, in the future. Even if used automobile
market does develop, we cannot predict whether there will be a similar market on the internet and whether we will be poised to
capture any of the growth. Yixin’s used automobile business may not prove profitable if the market for used automobile fails
to develop or develops at a slower rate than expected, which could materially and adversely affect our financial condition and
results of operations.
Our expansion into the financial
sector may subject us to regulatory, and reputational risks, each of which may have a material adverse effect on our business,
results of operations and financial condition.
We provide loan facilitation services that we facilitate auto
loans to consumers offered by our auto finance partners. We provide self-operated financing services that we primarily provide
consumers with auto finance solutions through financing lease and operating leases. We also provide guarantee services.
PRC laws and regulations concerning the
internet finance industry, particularly those governing credit lending, are evolving. Although we have taken careful measures
to comply with the laws and regulations that are applicable to the financial related services that we offer, the PRC
government authority may promulgate new laws and regulations regulating the internet finance industry in the future. If the
operation of our financing related services were deemed to violate any PRC laws or regulations, our business, financial
conditions and results of operations would be materially and adversely affected. We cannot assure you that our practices
would not be deemed to violate any PRC laws or regulations. Moreover, developments in the internet finance industry may lead
to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and
policies that may limit or restrict online consumer financing or related services like those we offer, which could materially
and adversely affect our business and operations. Furthermore, we cannot rule out the possibility that the PRC government
will institute a new licensing regime covering services we provide at some point in the future. If such a licensing regime
were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at
all, which could materially and adversely affect our business and impede our ability to continue our operations.
Furthermore, negative publicity about us or
our financial partners, such as negative publicity about debt collection practices and any failure by us or those partners to adequately
protect the information of borrowers, to comply with applicable laws and regulations or to otherwise meet required quality and
service standards could harm our reputation. Furthermore, any negative development in the internet finance industry, such as bankruptcies
or failures of companies providing similar services, or negative perception of the industry as a whole, could compromise our image,
undermine the trust and credibility we have established and impose a negative impact on our business and results of operations.
The development of our self-operated
financing business is capital intensive. Restrictions in our capital raising arrangements and inability to obtain additional financing
in the future may materially and adversely affect our business, results of operations and financial condition.
The development of finance business is capital
intensive. To address the capital requirements, Yixin has entered into asset-backed securitization arrangements, under which Yixin
has transferred the economic benefits in certain financial assets in exchange for cash proceeds. However, there is no guarantee
that Yixin may enter into additional securitization transactions on commercially reasonable terms, and we may be subject to potential
losses associated with the existing securitization transactions. We cannot assure you that additional securitization transactions
will be available on terms acceptable to us, or at all. Transaction terms may deteriorate, in the form of reduced liquidity, reduced
demand for asset-backed securities and higher financing costs, significantly in the event of global or domestic economic turmoil.
Our ability to enter into securitization transactions in a timely manner is affected by a number of factors beyond our control,
any of which could cause substantial delays, including market conditions, the approval by transaction counterparties of the terms
of the securitization, as well as our ability to accumulate sufficient number of financing lease contracts for securitization.
We may require additional cash resources due to further developments or changing business conditions. We may seek to obtain a credit
facility or sell additional equity or debt securities. The incurrence of indebtedness would result in increased debt service obligations
and any operating and financial covenants that could restrict our operations.
We are facing increased competition,
and if we cannot compete effectively, our financial condition and results of operations may be harmed.
Our advertising and subscription business faces
competition from many market participants. With respect to our automobile advertising services operated through bitauto.com, and
corresponding mobile apps we face competition from China’s automotive vertical websites, such as autohome.com.cn and pcauto.com.cn,
automotive channels of major internet portals, internet video websites, social media and networking websites, and emerging new
media on mobile end, such as news reader applications, social media applications and ride-sharing applications, as well as traditional
forms of media. Although we believe the rapid increase in China’s online population will draw more attention away from traditional
forms of media, such as television, newspapers, magazines and radio, we still compete with them for clients and advertising revenues.
Competition with automotive vertical websites and portals is primarily centered on website traffic and brand recognition among
general internet users, spending by automakers and automobile dealers, and customer retention and acquisition. In addition, because
the entry barrier for the internet advertising business is relatively low, new competitors, such as social media and networking
websites, internet video websites and new media on mobile end may be able to launch competitive services at relatively low costs
and may acquire market share in a relatively short period of time. This is especially true for portal websites. With respect to
our subscription business, we mainly face competition from automotive vertical websites, such as autohome.com.cn and pcauto.com.cn,
in terms of automobile inventory, timeliness and accuracy of automobile pricing and promotional information and website traffic.
Moreover, with respect to our transaction services
primarily operated by Yixin, we face intense competition in the online automobile retail transaction market from both traditional
channels and other online platforms. Through Yixin’s self-operated financing business, we also face competition from traditional
auto finance companies and other financing lease companies. Our competitors may have significantly more financial, technical, marketing
and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their
platforms and services. They may also have more extensive consumer bases, greater brand recognition and broader relationship with
the constituents of the ecosystem including automakers, automobile dealers and auto finance partners than we have. As such, they
may be better able to develop new services, to respond more quickly to new technologies and to undertake more extensive marketing
campaigns, which may render our platform less attractive to consumers and our business partners. In addition, our business partners
may terminate their cooperation with us and engage in similar business as we do. Failure to compete with current and potential
competitors and achieve more widespread market acceptance of our platforms and services could harm our business and results of
operations.
For our digital marketing solutions business,
we compete with other internet marketing service providers in China. We face competition from the digital marketing business of
well-established international advertising agencies as well as local agencies that specialize in providing online marketing services.
Most of these competitors do not focus only on the automotive industry, but also provide online marketing services to clients in
other industries and may have greater resources and established reputation. As a result, these companies may be able to respond
more quickly to changes in customer demands or to devote greater resources to the development, promotion and sale of their products
and services than we can. In the automotive industry, we not only compete for customers, but also compete in terms of advertisement
design, relationships with third-party media vendors, the quality, breadth, prices and effectiveness of services. Competition could
affect our market share, pricing, and cost structure. We cannot assure you that we will continue to compete effectively with our
existing competitors, maintain our current fee arrangements, or compete effectively with new competitors in the future.
We may not be able to maintain good
cooperative relationships with our partners on reasonable terms, which could materially harm our business and results of operations.
To broaden the consumer reach of our automotive
database and content, we place pricing and promotional information by our automobile dealer customers not only on our automotive
vertical website and corresponding mobile apps, but also on our partner websites. Depending on the arrangement, we may pay a fixed
fee to some partners for their advertising resources. Our partners may change the terms of cooperation, including raising prices,
which would increase our operating expenses and eventually force us to end our relationships with them if the terms become commercially
unreasonable. In addition, some of our partners may choose to partner with our competitors or decide to develop an automobile promotional
and automobile dealer information database by themselves. If we are unable to partner with all or most of major partners on reasonable
terms, we may experience a reduction in the number of automobile dealers using our services, which could materially and adversely
affect our results of operations. Although we do not rely on any one partner website for our dealer service business, material
adverse changes to our relationships, and our contract terms, with many of them may have a material adverse impact on our dealer
service business model.
We rely on China’s automotive
and financial services industries for substantially all our revenues and future growth, but the automotive industry is still at
an early stage of development and subject to many uncertainties.
We rely on China’s automotive and financial
services industries for substantially all our revenues, which we generate from providing internet content, marketing services and
transaction services to our customers. We have greatly benefited from the rapid growth of China’s automotive and financial
services industries and the rise of China’s online automobile financial services market during the past few years. However,
China’s automotive industry and online automobile financing market are still at an early stage of development and remain
subject to many uncertainties. We cannot predict how these industries or market will develop in the future. Further, the growth
of China’s automotive and financial services industries could be affected by many factors, including:
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general economic conditions in China and around the world;
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the growth of disposable household income and the availability and cost of credit available to finance automobile purchases;
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taxes and other incentives or disincentives related to automobile purchases and ownership;
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environmental concerns and measures taken to address these concerns;
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the development in the automotive industry and financial services industry;
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the cost of energy, including gasoline prices, and the cost of automobile licensing and registration fees;
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the improvement of the highway system and availability of parking facilities; and
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other government policies relating to the automotive industry in China, including the phasing out of government subsidies to
promote automobile sales, policies limiting automobile purchases in some cities.
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Any adverse change to these factors could reduce
demand for automobiles, which, in return, would likely reduce demand for our products and services from automakers, automobile
dealers, car buyers, auto finance partners, and other aftermarket service providers. Demand for our products and services is particularly
sensitive to changes in general economic conditions. Automakers and automobile dealers typically cut their marketing expenditures
and car buyers may delay their purchases during periods of economic downturn. In addition, purchases of new automobiles are often
discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy. Historically, unit
sale of automobiles, particularly new automobiles, has been cyclical, fluctuating with general economic cycles. If China’s
automotive and financial services industries fail to expand or China’s economy stagnates or contracts, our business, financial
condition and results of operations would be materially and adversely affected.
Government policies on automobile
purchases and ownership may materially affect our results of operations.
Government policies on automobile purchases
and ownership may have a material effect on our business due to their influence on consumer behaviors. Since 2009, the PRC government
has repeatedly changed the purchase tax on passenger automobiles with 1.6 liter or smaller engines. For example, purchase tax for
passenger automobiles with 1.6 liter or smaller engines was raised back to 10% from previous 7.5% in January 2018. In addition,
in August 2014, several PRC governmental authorities jointly announced that from September 2014 to December 2017, purchases of
new energy automobiles that are within certain designated catalogues will be exempted from the purchase tax. This exemption period
was later extended further to December 2020 according to an announcement jointly issued by several PRC governmental authorities
in December 2017. In April 2015, several PRC governmental authorities also jointly announced that from 2016 to 2020, purchasers
of new energy automobiles that are within certain designated catalogues will enjoy subsidies. In December 2016 and February 2018,
relevant PRC governmental authorities further adjusted the subsidy policy for new energy automobiles in succession. We cannot predict
whether government subsidies will remain in the future or whether similar incentives will be introduced, and if they are, their
impact on automobile sales in China. It is possible that automobile sales may decline significantly upon expiration of the existing
government subsidies if consumers have become used to such incentives and delay purchase decisions in the absence of new incentives.
If automobile sales indeed decline, our revenues may fluctuate and our results of operations may be materially and adversely affected.
Some local governmental authorities also issued
regulations and relevant implementation rules in order to control traffic and reduce the number of automobiles. For example, local
Beijing governmental authorities adopted interim regulations and relevant implementing rules in December 2010 to limit the total
number of license plates issued to new automobile purchases in Beijing each year. The interim regulations were amended in December
2017 and the implementing rules were amended in December 2011 and November 2013. Local Guangzhou governmental authorities also
announced similar regulations, which came into effect in July 2013. There are similar policies that restrict the issuance of new
passenger car license plates in other cities, such as Shanghai, Tianjin, Hangzhou, Guiyang and Shenzhen. In September 2013, the
State Council released a plan for the prevention and remediation of air pollution, which requires large cities, such as Beijing,
Shanghai and Guangzhou, to further restrict the number of motor vehicles. In October 2013, the Beijing government issued an additional
regulation to limit the total number of vehicles in Beijing to no more than six million by the end of 2017. Such regulatory developments,
as well as other uncertainties, may adversely affect the growth prospects of China’s automotive industry, which in turn
may have a material adverse impact on our business due to our reliance on the performance of automakers and automobile dealers.
Our substantial indebtedness could
adversely affect our business, financial condition and results of operations.
We have entered into revolving facility credit
agreements and collateral borrowing agreements with several commercial banks and licensed financial institutions in China since
2015. As of December 31, 2017, the amount of RMB16.32 billion (US$2.51 billion) was outstanding under those agreements. The development
of self-operated financing business, primarily operated by Yixin, is capital intensive. We have relied on securitization transaction
to finance the expansion of the self-operated financing business. As of December 31, 2017, the carrying amount of our asset-backed
securities debts was RMB8.78 billion (US$1.35 billion).
In November, 2017, Yixin completed the global
offering of its shares and listed on the Hong Kong Stock Exchange. The net proceeds from the global offering, after deducting certain
underwriting commission and expenses were approximately HK$6,507.6 million (US$849.2 million). Despite such fund raising activities,
Yixin may require additional cash resources due to further expansion plans, developments or changing business conditions. Yixin
may seek to obtain a credit facility or sell additional equity or debt securities. The sale of additional equity securities could
result in further dilution of our equity stake in Yixin, and the investors and other shareholders may have a strategy or objective
different from ours with respect to Yixin or impose conditions that could restrict the operations of Yixin.
Our indebtedness could have significant consequences
on our operations, including:
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reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate
purposes as a result of our debt service obligations;
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limiting our ability to obtain additional financing;
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limiting our flexibility in planning for, or reacting to, market changes;
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increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy;
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potentially increasing the cost of any additional financing; and
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requiring over-collateralization and credit enhancement.
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Any of these factors and other consequences
that may result from our substantial indebtedness could have an adverse effect on our business, financial condition and results
of operations as well as our ability to meet our payment obligations under our debt. Our ability to meet our payment obligations
under our outstanding debt depends on our ability to generate significant cash flow in the future. This, to some extent, is subject
to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control.
Furthermore, if we are unable to comply with the restrictions contained in our credit agreements, an event of default could occur
under the terms of such agreements, which could cause repayment of such debt to be accelerated and affect our liquidity. We may
also require additional cash resources due to further developments or changing business conditions. We may seek to obtain a credit
facility or sell additional equity or debt securities. The incurrence of indebtedness would result in increased debt service obligations
and any operating and financial covenants that could restrict our operations.
We may not be able to refinance
our indebtedness on favorable terms, if at all. Our inability to refinance our indebtedness could materially and adversely affect
our liquidity and our ongoing results of operation.
We may choose to refinance certain of our borrowings
with new loans as they become due. Our ability to refinance our indebtedness will depend in part on our operating and financial
performance, which, in turn, is subject to prevailing economic conditions and financial, business, legislative, regulatory and
other factors beyond our control. In addition, the increase in prevailing interest rates or other factors at the time of refinancing
could result in an increase in our interest expense or other refinancing costs. Refinancing our indebtedness could also require
us to comply with more onerous covenants and further restrict our business operations. If we are not able to refinance our indebtedness
on favorable terms, or at all, when they become due, we will be required to repay our indebtedness as they become due. If our
cash flows and capital resources are insufficient to service our indebtedness, we may be forced to seek alternatives, such as
to reduce or delay investments, to sell assets, or seek additional capital, all of which could materially and adversely affect
our business, prospects, results of operations, financial condition, cash flows and make us vulnerable to adverse industry and
general economic conditions.
We are susceptible to risks related
to cash flow management.
We have experienced, and may continue to experience,
short-term cash flow management problems from time to time. For example, some of our advertising services are not paid until after
our services are fully performed. Some automakers may designate their advertising agencies to place their advertisements on our
websites and subsequently pay us. Such advertising agencies may delay making payments to us, leading to longer aging cycles of
our accounts receivable. With the rapid growth of financial leasing services, our cash flow may be adversely affected with our
increased indebtedness and exposure to the credit risks. Our cash flow from operations might not be sufficient to cover our accounts
payable and we may incur penalty payments if we cannot pay third-party vendors on time. We may need to expend more resources in
payment collections. This could negatively affect our results of operations in certain quarters and make it impossible to predict
our future operating results.
We may be liable to pay third-party
media vendors in connection with the advertisements we placed with them on behalf of our automaker customers if we fail to collect
some or all the payments from these automaker customers.
As part of our digital marketing solutions business,
we place advertisements on the websites of third-party media vendors on behalf of our automaker customers. We enter into advertising
agreements with media vendors only after our customers have confirmed the proposed advertisements in their agency agreements with
us. The media vendors are obligated to place the advertisements based on our customers’ specific requirements. We receive
net service fees for such advertising services and record a receivable from our customers and a corresponding payable due to the
media vendors based on the total amount of advertisements placed. However, we need to pay our media vendors for their advertising
resources when payments are due regardless of whether our automaker customers have made payments to us. Our contracts with media
vendors generally also allow the media vendors to claim past-due payments of advertising fees directly from our automaker customers.
As of December 31, 2017, our accounts receivable
and our accounts payable were RMB2.85 billion (US$438.7 million) and RMB2.18 billion (US$334.5 million), respectively. Of these
receivables and payables, RMB746.9 million (US$114.8 million) was related to the receivables from our automaker customers and the
corresponding payables due to media vendors in connection with the advertisements we placed with the media vendors on behalf of
our automaker customers. Historically, we have not experienced significant collection issues that required us to provide allowance
for doubtful accounts in connection with our receivables from our automaker customers except for one with long aging receivables
until December 31, 2017. Under our contracts with media vendors, terms of our accounts payable due to media vendors generally correspond
to, or are longer than, the terms of our receivables due from our automaker customers. However, we cannot assure you that our automaker
customers will continue to make timely and full payments to us for the advertisements we placed on their behalves. If we fail to
collect all or part of such payments from our automaker customers, we may continue to be held liable to pay the media vendors the
full amount of our payables when they become due. In addition, we may incur penalty for late payments. As a result, our business,
financial condition and results of operations would be materially and adversely affected.
Our customers may not renew their
contracts for our services and we may not be able to sell additional or enhanced services to our existing customers.
Our customers may not renew our services after
the expiration of their contract terms. They may also renew for shorter contract terms or for lower-cost editions of our services.
For example, although the renewal rates for our automobile dealer subscription services were approximately 84% in 2017, our renewal
rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our services, customers’
ability to maintain their operations and spending levels, and deteriorating general economic conditions. If our customers do not
renew their contracts for our services or switch to lower-cost editions at the time of renewal, our revenues could decline and
our business may suffer. Our future success also depends in part on our ability to sell additional services or enhanced editions
of our services to our current customers. This may also require increasingly sophisticated and costly sales efforts. Similarly,
the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions.
If our efforts to sell new or enhanced services to our customers are not successful, our business, financial condition and results
of operation may suffer.
Problems with China’s internet
infrastructure or with our third-party data center hosting facilities could impair the delivery of our services and harm our business.
Our internet businesses heavily depend on the
performance and reliability of China’s internet infrastructure, the continual accessibility of bandwidth and servers to
our service providers’ networks, and the continuing performance, reliability and availability of our technology platform.
Our advertising services on our bitauto.com website and corresponding mobile apps, as well as Yixin’s online platform enables
us to place advertisement for our automotive customers, auto finance customers and insurance companies on the internet and our
SaaS platform enables us to deliver services to our automobile dealer customers, who access our software applications on the internet.
Distribution of automobile dealers’ pricing and promotional information is also accomplished through the internet. While
our transaction services provided by Yixin enables us to interact online with our car buyers, automaker, automobile dealers, auto
finance partners, and aftermarket service providers to promote our products and solutions. Because we do not license our software
to our customers, our customers depend on the internet to access our services. In addition, we depend on the internet to effectively
publish our customers’ advertisements on our websites, which must be properly running and accessible to all visitors at
all times. We rely on major Chinese telecommunication companies to provide us with bandwidth for our services, and we may not
have any access to comparable alternative networks or services in the event of disruptions, failures or other problems. Our content
distribution networks, located in several regions throughout China, may also be shut down or otherwise experience interruptions
in a particular region. Internet access may not be available in certain areas due to natural disasters, such as earthquakes or
local government decisions. If we experience technical problems in delivering our services over the internet either at national
or regional level, we could experience reduced demand for our services, lower revenues and increased costs.
Our main servers are located in the internet
data centers of third parties in Beijing and Shanghai. We do not control the operation of these third-party data center hosting
facilities, which are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures
and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite
precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities
without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our services.
We regularly back up our data on servers in different locations or on tapes stored in our offices. Even with disaster recovery
arrangements, our services could still be interrupted. We have not experienced any system failures in 2017. Such interruptions
would reduce our revenues, require us to provide the services again, make refunds or pay penalties, shrink our customer base and
adversely affect our ability to attract new customers. Our business could also be materially and adversely affected if our current
and potential customers believe our services are unreliable.
Failure to ensure and protect the confidentiality
of the personal data of consumers could subject us to penalties, negatively impact our reputation and deter consumers from using
our platforms.
In providing our services, a challenge we face
is the secure collection, storage and transmission of confidential information. We hold certain private information about consumers,
such as their names, addresses and contact information, as well as financial and credit information. We also need to collect private
information from and provide private information to our partners, third-party service providers and other parties for the purpose
of conducting the automobile transactions. We are required to collect and use the private information in accordance with PRC laws
and not to disclose or use such information without consent from our consumers. Consumers also demand complete security for such
confidential information, which is essential to maintaining their confidence and trust in us. We rely on a network of process and
software controls to protect the confidentiality of data provided to us or stored on our systems. We also rely on contracts with
our partners and third-party service providers to ensure their protection of the private information we provide to them and to
ensure they have the right to provide us the private information. If we, our business partners or third-party service providers
do not maintain adequate controls or fail to implement new or improved controls, such data could be misappropriated or confidentiality
could otherwise be breached. If we, our business partners or third-party service providers inappropriately disclose any personal
information, we could be subject to claims for identity theft or similar fraud claims or claims for other misuses of personal information,
such as unauthorized marketing or unauthorized access to personal information. Confidential information in our systems may also
be compromised as a result of intentional or unintentional security breach. While we strive to protect our customers’ privacy,
any failure or perceived failure to do so may result in proceedings or actions against us by consumers, government entities or
others, and could damage our reputation and subject us to fines and damages. In addition, such events would lead to negative publicity
and cause consumers to lose their trust and confidence in us, which may result in material and adverse effects on our reputation,
business, financial condition and results of operations.
Any breaches to our security measures,
including unauthorized access, computer viruses and “hacking,” may adversely affect our database and reduce use of
our services and damage our reputation and brand names.
Breaches to our security measures, including
computer viruses and hacking, may result in significant damage to our hardware and software systems and database, disruptions to
our business activities, inadvertent disclosure of confidential or sensitive information, interruptions in access to our websites,
and other material adverse effects on our operations.
In particular, security breaches to our database
could have a material and adverse effect on our business. Our SaaS platform allows our customers to edit and publish pricing and
promotional information, while our transaction services facilitates automobile retail transactions and auto-related transactions
via Yixin’s online platform. These websites and mobile apps store and transmit such information and keep track of data on
historical marketing activities. This information is proprietary and confidential. Security breaches could expose us to risks of
loss of this information and possible liability. We require user names and passwords to access this data and the accounts of our
customers. These security measures may be breached as a result of third-party action, employee error, malfeasance or otherwise,
during transfer of data or at any time, and result in persons obtaining unauthorized access to our customers’ data. Additionally,
third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names,
passwords or other information in order to gain access to our or our customers’ data. Our customers may not have effective
security measures and may share their user names and passwords with a group larger than necessary. If our security measures are
breached and unauthorized access to ours or our customer’s data is obtained, our services may be perceived as not being secure
and customers may curtail or stop using our services altogether and we may incur significant legal and financial exposure and liabilities.
We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by,
computer viruses and “hacking.” Moreover, if a computer virus or “hacking” affects our systems and is highly
publicized, our reputation and brand names could be materially damaged and use of our services may decrease.
We may not be able to successfully
expand our service network into other geographical markets in China.
As of December 31, 2017, we had sales and service
representatives network located in over 200 cities across China and plan to continuously expand our network to more cities. Geographical
expansion is particularly important for us to acquire more automobile dealer customers, whose operations are typically localized
and spread out in every region. Our consumer-facing websites need localized content that are relevant to our website visitors in
a specific region. Nonetheless, expanding into new geographical markets imposes additional burdens on our sales, marketing and
general managerial resources. As China is a large and diverse market, business practices and demands may vary significantly by
region and our experience in the markets in which we currently operate may not be applicable in other parts of China. As a result,
we may not be able to leverage our experience to expand into other parts of China. If we are unable to manage our expansion efforts
effectively, if our expansion efforts take longer than planned or if our costs for these efforts exceed our expectations, our results
of operations may be materially and adversely affected.
Our competitive position and ability
to generate revenues could be further harmed if we fail to develop and introduce new products and services and, even if we continue
to introduce and grow our new business initiatives, we may not be able to successfully identify and timely and cost-effectively
develop and introduce new products and services at all.
Continued increases in our advertising revenues
from our automobile website and mobile apps depend on our ability to attract consumers to our media properties and monetize that
traffic at profitable margins with advertisers. If our website and mobile apps do not provide a compelling, differentiated user
experience, we may lose visitors to competing sites. Further, if traffic to our websites and mobile apps declines, we may lose
some of our advertising customers who may reduce or cease their advertising purchases through us. In addition, both our dealer
services and digital marketing solutions businesses rely on continued product and service innovations to retain existing, and attract
new customers. Our automobile dealer customers may not continue to subscribe to our SaaS platform, if we do not timely enhance
their user experience and broaden our product and service offerings. Similarly, our digital marketing solutions business may gradually
lose its competitive advantage if we are slower in technological innovations or in announcing either new or enhanced products and
services. In addition, the sustainable growth of revenues from our transaction services depends on our ability to provide efficient
and quality services to facilitate automobile retail transactions and auto-related transactions. Our competitors may introduce
new alternative products that are more sophisticated and cost-effective than ours.
To increase our brand recognition and stay competitive,
we need to continue to develop new products and services for visitors to our websites and our automaker and automobile dealer customers,
as well as auto finance partners and other aftermarket service providers. The planned timing or introduction of new products and
services is subject to risks and uncertainties. There can be no assurance that any of our new products and services will achieve
widespread market acceptance and generate incremental revenues. Moreover, actual timing may differ materially from original plans.
Unexpected technical, distribution or other problems could delay or prevent the introduction of one or more of its new products
or services. If our new products and services are not well received, we may not only lose money, but also harm our reputation,
and our results of operations could be materially and adversely affected.
Even if we introduce new business initiatives,
we also cannot assure you that we will be able to develop new business initiatives to grow our revenues. Our unfamiliarity with
the new market sectors may make it difficult for us to anticipate the demands and preferences in the market and provide products
and services that meet the requirements and preference of our users. Therefore, our financial results may be adversely affected
in the short term if our new business initiatives are unable to continue to grow as we have expected. In addition, we may not be
able to successfully identify, and timely and cost-effectively develop and introduce new products and services to our users and
customers at all.
Our business is subject to seasonal
fluctuations and unexpected interruptions, which make it difficult to accurately predict our future operating results.
We have experienced, and expect to continue
to experience, seasonal fluctuations in our revenues and results of operations. Historically, our revenues tend to be lower in
the first half and higher in the second half of each year. Advertising and promotional activities often increase in the second
half of each year. New automobile models tend to be introduced in the last quarter, which usually leads to increases in advertising
spending by automakers. Furthermore, some of our customers whose fiscal year ends with the calendar year often choose to take advantage
of the last opportunities to increase their annual revenues before the year ends. In comparison, activity levels tend to decrease
after the fourth quarter’s spending. Our customers may not yet have a set plan for the new fiscal year. Further, the holiday
period following the Chinese New Year is usually in the first quarter, which may contribute to the lower activity levels in the
first half of each year. Our revenue trends relating to our transaction services operated by our Yixin platform are also a reflection
of consumers’ automobile purchase patterns. Consumers tend to purchase a higher volume of automobiles in the second half
of each year, in part due to the introduction of new models from automakers. Therefore, the seasonality of the automobile retail
business and the resulting spending pattern of automakers and automobile dealers may result in greater emphasis on the importance
of our fourth quarter results.
Nonetheless, if conditions arise in the second
half of a year that depress or affect automobile sales and marketing spending by our customers, such as depressed economic conditions
or similar situations, our revenues for the year may be disproportionately and adversely affected. As a result of these factors,
our revenues may vary from quarter to quarter and our quarterly results may not be comparable to the corresponding periods of prior
years. Our actual results may differ significantly from our targets or estimated quarterly results. Therefore, you may not be able
to predict our annual operating results based on a quarter-to-quarter comparison of our operating results. We expect quarterly
fluctuations in our revenues and results of operations to continue. These fluctuations could result in volatility and cause the
price of our ADSs to fall. As our revenues grow, these seasonal fluctuations may become more pronounced.
Certain, directors and executive
officers own a large percentage of our shares, allowing them to exercise significant influence over matters subject to shareholder
approval, which may reduce the price of our ADSs and deprive shareholders of an opportunity to receive a premium for the ADSs.
As of March 31, 2018, our directors and executive
officers beneficially owned approximately 11.4% of our outstanding ordinary shares. Accordingly, these directors and executive
officers have substantial influence over the outcome of corporate actions requiring shareholders’ approval, including the
election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate
transaction, and their interests may not align with the interests of our ADSs holders. These shareholders may also delay or prevent
a change of control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change
of control would benefit you and our other shareholders. These shareholders may cause corporate actions to be taken even if they
are opposed by you and our other shareholders. This could deprive you and our other shareholders of an opportunity to receive a
premium for their shares as part of a sale of our company. In addition, the significant concentration of share ownership may adversely
affect the trading price of our ADSs due to investors’ perception that conflicts of interest may exist or arise.
Our business may be harmed by the
potential conflicts of interest caused by our dual roles as both a supplier and a purchaser of advertisement resources.
As an internet content provider, we supply advertisement
space; as an advertising agent, we purchase advertisement space on behalf of our customers. Conflict of interests may arise between
our roles as a purchaser and as a supplier of advertisement resources. As a supplier, we have incentives to place more advertisements
on our own websites. Such conflicts could harm our reputation as an independent purchasing agent for our customers and our reputation
as a supplier of advertisement resources. There are no rebate arrangements to our digital marketing solutions business when we
place advertisements on our own websites in prior years. For the year ended December 31, 2017, rebate comparable to third-party
advertising agents was paid to our digital marketing solutions business. While we have and will continue to follow our customers’
instruction and maximize their interests, we do not know how the market will respond to our multi-functional roles in the future.
Our customers have directed, and will continue directing, us to place their advertisements on websites of their choice, including
websites in direct competition with ours, or our customers may choose not to advertise on our websites at all. As a result, our
business, financial condition and results of operations could be materially and adversely affected.
Product recalls in the automobile
industry could harm our business and cause our revenues to decrease.
Automakers periodically recall defective products.
These product recalls interrupt the normal business operation of automakers, their joint ventures and their automobile dealers
in China. From time to time, our customers recall products, the scale of which varies from customer to customer. It is difficult
to determine the impact product recalls might have on our business and revenues, but we expect that our revenues may decrease if
Chinese consumers stop or reduce purchasing automobiles made by the recalling automakers or automakers and their automobile dealers
suspend or decrease using our services. If any of our customers recall their products in the future, our business, financial condition
and results of operations could be adversely affected.
We may be subject to liability for
placing advertisements with content that is deemed inappropriate or misleading.
PRC laws and regulations prohibit advertising
companies from producing, distributing or publishing any advertisement with content that violates PRC laws and regulations, impairs
the national dignity of the PRC, involves designs of the PRC national flag, national emblem or national anthem or the music of
the national anthem, is considered reactionary, obscene, superstitious or absurd, is fraudulent, or disparages similar products.
As an online advertisement distributor, we are required to verify the identity information of our customers who choose to place
their advertisements on our websites. We must also review supporting documents provided by advertisers and verify the content of
the advertisements and are prohibited from publishing any advertisement inconsistent with or with the lack of the supporting documents.
While we do have a review procedure prior to publishing, we cannot guarantee that we can entirely eliminate advertisements with
content that would be deemed inappropriate or misleading. If we are deemed to be in violation of PRC law or regulations, we may
be subject to penalties, including suspension of publishing, confiscation of the revenues related to these advertisements, levying
of fines and suspension or termination of our advertising business, any of which may materially and adversely affect our business.
Furthermore, we may be subject to claims by
consumers misled by information on our websites or other portals powered by our database. We may not to be able to recover our
losses from advertisers by enforcing the indemnification provisions in the contracts. As a result, our business, financial condition
and results of operations could be materially and adversely affected.
We may not be able to ensure the accuracy
of automobile dealer pricing and promotional information.
We rely on our automobile dealer customers to
timely and accurately update their automobile information, prices, sales and promotions. The popularity of our automobile listings
posted by automobile dealers, in particular pricing information of automobiles, is premised on the accuracy, comprehensiveness
and reliability of the data. If the information listed by our automobile dealer customers is frequently misleading or exaggerated,
we may gradually lose our appeal for our visitors. Our reputation could be harmed and we could experience reduced traffic to our
websites, which could adversely affect our business and financial performance.
Failure to protect our brand, trademarks,
software copyrights, trade secrets and other intellectual property rights could have a negative impact on our business.
We believe our brand, trademarks, software copyrights,
trade secrets and other intellectual property rights are critical to our success. Any unauthorized use of our brand, trademarks,
software copyrights, trade secrets and other intellectual property rights could harm our competitive advantages and business. Our
efforts in protecting our brand and intellectual property rights may not always be effective. We regularly file applications to
register our trademarks in China, but may not be able to register such marks, or register them within the category we seek. Similar
trademarks could cause confusion among consumers or divert business opportunities from us, which could materially and adversely
affect our business and results of operations.
Historically, China has not protected intellectual
property rights to the same extent as the United States, and infringement of intellectual property rights continues to pose a serious
risk in doing business in China. Monitoring and preventing unauthorized use is difficult. The measures we take to protect our intellectual
property rights may not be adequate. Further, the application of laws governing intellectual property rights in China is uncertain
and evolving, and could involve substantial risks to us. As the right to use internet domain names’ is not rigorously regulated
in China, other companies may have incorporated in their domain names elements similar in writing or pronunciation to our trademarks
and domain names. Our business could be materially and adversely affected if we could not adequately protect our brand, trademarks,
copyrights, trade secrets and other intellectual property.
Regulation and censorship of information
disseminated over the internet in China may adversely affect our business, and we may be liable for information displayed on, retrieved
from or linked to our websites.
China has enacted laws and regulations governing
internet access and the distribution of information through the internet. The PRC government prohibits information that, among
other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, contains terrorism
or extremism content, or is reactionary, obscene, superstitious, fraudulent or defamatory, from being distributed through the internet.
PRC laws also prohibit the use of the internet in ways which, among other things, result in a leakage of state secrets or the distribution
of socially destabilizing content. Failure to comply with these laws and regulations may result in the revocation of licenses to
provide internet content and other licenses, the closure of the concerned websites and reputational harm. A website operator may
also be held liable for censored information displayed on or linked to its website. We may be subject to potential liability for
certain unlawful actions of our customers and subscribers or for content we distribute that is deemed inappropriate. We may be
required to delete content that violates PRC laws and report content that we suspect may violate PRC laws, which may reduce our
customer base or the purchases of our services. It may be difficult to determine the type of content that may result in liability
for us, and if we are found to be liable, we may be prevented from operating our business or offering other services in China.
Most of Yixin’s financing
lease contracts have been outstanding for a relatively short period and are not fully seasoned. The asset quality of our self-operated
financing business may further deteriorate as the finance receivables season or as our product mix evolves.
Most of Yixin’s financing lease contracts
are outstanding for a relatively short period and are not fully seasoned. Our historical past due ratio and other asset quality
information may not be indicative of our future past due ratio and other asset quality information. The quality of our finance
receivables may deteriorate as the finance receivables fully season or as our business volume expands. Moreover, the level of risk
we are exposed to is different among different financing lease products. For example, the risk we are exposed to in used automobile
purchase financing for consumers is different from that for new automobiles. In addition, the risk we are exposed to in collateralized
financing for consumers is different from that of automobile purchase financing for consumers. If the quality of our receivables
changes significantly as our finance receivables season or as our business mix evolves, our business, financial condition and results
of operations may be materially and adversely affected.
Copyright infringement and other
intellectual property claims against us may adversely affect our business.
We have collected and compiled on our websites,
automobile-related news and reports, automobile pictures and specifications, maps, consumer reviews, and other documents and information
prepared by third parties. Because some content on our websites is collected from various sources, we may be subject to claims
for breach of contract, defamation, tort liability, unfair competition, copyright or trademark infringement, or claims based on
other theories. We could also be subject to claims based upon the content that is displayed on our websites or accessible from
our websites through links to other websites or information on our websites supplied by third parties. Any lawsuits or threatened
lawsuits, in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and money
and distract management’s attention from operating our business. Any judgments against us in such suits, or related settlements,
could harm our reputation and have a material adverse effect on our results of operations. If a lawsuit against us is successful,
we may be required to pay damages or enter into royalty or license agreements that may not be based upon commercially reasonable
terms, or we may be unable to enter into such agreements at all. As a result, the scope of our database we offer to the consumers
could be reduced, which may adversely affect our ability to attract and retain customers.
We rely heavily on our senior management
team and key personnel and the loss of any of their services could severely disrupt our business.
Our future success is highly dependent on the
ongoing efforts of our senior management and key personnel. We rely on our management team for their extensive knowledge of and
experience in China’s automotive and internet industries as well as their deep understanding of the Chinese automobile market,
business environment and regulatory regime. We do not carry, and do not intend to procure, key person insurance on any of our senior
management team. The loss of the services of one or more of our senior executives or key personnel, Mr. Andy Xuan Zhang in particular,
may have a material adverse effect on our business, financial condition and results of operations. Competition for senior management
and key personnel is intense, and the pool of suitable candidates is very limited, and we may not be able to retain the services
of our senior executives or key personnel, or attract and retain senior executives or key personnel in the future. If we fail to
retain our senior management, our business and results of operations could be materially and adversely affected. In addition, if
any members of our senior management or any of our key personnel join a competitor or form a competing company, we may not be able
to replace them easily and we may lose customers, business partners and key staff members. Each of our senior executives and key
personnel has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. In the
event of a dispute between any of our senior executives or key personnel and us, we cannot assure you as to the extent, if any,
that these provisions may be enforceable in the PRC due to uncertainties involving the PRC legal system.
We may not be able to attract and
retain highly skilled employees, provide necessary training or maintain good relationships with our employees.
Our business is supported and enhanced by a
team of highly skilled employees who are critical to maintaining the quality and consistency of our services and our brand and
reputation. It is important for us to attract qualified employees, including but not limited to sales executives and engineers
with high levels of experience in creative design, software development and internet-related services. Competition for these employees
is intense. There may be a limited supply of qualified individuals in some of the cities in China where we have operations and
other cities into which we intend to expand. In order to attract prospective, and retain current, employees, we may have to increase
our employee compensation by a larger scale and at a faster pace than we expect, which would increase our operating expenses. In
addition, we must hire and train qualified employees in a timely manner to keep pace with our rapid growth while maintaining consistent
quality of services across our operations in various geographic locations. We must also provide continuous training to our employees
so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality
services. If we fail to do so, the quality of our services may deteriorate in one or more of the markets where we operate, which
may cause a negative perception of our brand and adversely affect our business. Finally, we may run into disputes with our employees
from time to time and if we are not able to properly handle our relationship with our employees, our business and results of operations
may be adversely affected.
Our business may suffer if we do
not successfully manage our current and future growth.
We have experienced rapid growth in the past
few years. Our revenues have increased from RMB4.25 billion in 2015 to RMB8.75 billion (US$1.35 billion) in 2017. Our sales and
service representatives network has covered over 200 cities as of December 31, 2017. We intend to continue to expand our operations.
However, we may not be able to sustain a similar growth rate in revenues or geographic coverage in future periods due to a number
of factors, including the greater difficulty of growing at sustained rates from a larger revenue base. In addition, our expansion
has placed, and will continue to place, substantial demands on our managerial, operational, technological and other resources.
In order to manage and support our growth, we must continue to improve our existing operational, administrative and technological
systems and our financial and management controls, and recruit, train and retain additional qualified personnel, particularly as
we expand into new markets. As our operations expand into more cities throughout China, we will face increasing challenges in managing
a large and geographically dispersed group of employees. We may not be able to effectively and efficiently manage the growth of
our operations, recruit and retain qualified personnel and integrate new operations into our current business plan. As a result,
our reputation, business and operations may suffer. Accordingly, you should not rely on our historical growth rate as an indication
of our future performance.
Our operating history may not serve
as an adequate basis to judge our future prospects and results of operations.
Our operating history may not provide a meaningful
basis on which to evaluate our business. In recent years, we have started new initiatives, among others including our transaction
services primarily provided by Yixin, who were launched in December 2013 as our auto finance department and our controlled subsidiary,
Yixin, was officially established in November 2014.
We expect that our operating expenses will increase
as we expand. Any significant failure to realize anticipated revenue growth could result in significant operating losses. We expect
to continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including
our potential failure to:
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implement our business model and strategy and adapt and modify them as needed;
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increase awareness of our brands, protect our reputation and develop customer loyalty;
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manage our expanding operations and service offerings, including the integration of any future acquisitions; and
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anticipate and adapt to changing conditions in the China’s automotive, internet marketing and financing services industries
as well as the impact of any changes in government regulations, mergers and acquisitions involving our competitors, technological
developments and other significant competitive and market dynamics.
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If we are not successful in addressing any or
all of these risks, our business may be materially and adversely affected.
Meanwhile, due to the limited operating history
and the historical adjustment of business of Yixin make it difficult for investors to evaluate our business and prospects.
Our third-party vendors may raise
prices and as a result increase our operating expenses.
We rely on third parties for certain essential
services, such as internet services and server custody, and we may not have any control over the costs of the services they provide.
Any third-party service provider may raise their prices, which might not be commercially reasonable to us. If we are forced to
seek other providers, there is no assurance that we will be able to find alternative providers willing or able to provide comparable
high-quality services and there is no assurance that such providers will not charge us higher prices for their services. If the
prices that we are required to pay third-party vendors for services rise significantly, our results of operations could be adversely
affected.
Acquisitions, strategic alliances
and investments could prove difficult to integrate, disrupt our business and lower our operating results and the value of your
investment.
As part of our business strategy, we regularly
evaluate investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies, and we expect
that periodically we will continue to make such investments and acquisitions in the future. For example, in January 2015, we entered
into agreements to form strategic partnership with JD.com, Inc., or JD.com, the leading online direct sales company in China listed
on the Nasdaq Global Select Market, and Tencent Holdings Limited, or Tencent, a leading provider of comprehensive Internet services
and listed on the Hong Kong Stock Exchange. In February 2015, JD.com and Tencent made investments in us with a combination of US$550
million in cash and certain resources, and investments totaling US$250 million in cash in Yixin. In June 2016, each of Tencent,
JD.com, and Baidu, Inc., or Baidu, invested US$50 million in us and PAG subscribed for our convertible bonds in an aggregate principal
amount of up to US$150 million. Between August 2016 and May 2017, Tencent, JD.com, Baidu, together with certain other investors,
invested in an aggregate amount of US$464 million in cash, in Yixin. In recent years, we continued to make certain investments
in some private companies, a majority of which are in auto and auto-related industries.
Acquisitions, alliances and investments involve
numerous risks, including:
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the potential failure to achieve the expected benefits of the combination or acquisition;
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difficulties in, and the cost of, integrating operations, technologies, services and personnel;
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potential write-offs of acquired assets or investments; and
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downward effect on our operating results.
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In addition, if we finance acquisitions by issuing
equity or convertible debt securities, our existing shareholders may be diluted, which could affect the market price of our ADSs.
Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed
and the value of your investment may decline.
Furthermore, we may fail to identify or secure
suitable acquisition and business partnership opportunities or our competitors may capitalize on such opportunities before we do,
which could impair our ability to compete with our competitors and adversely affect our growth prospects and results of operations.
Any financial or economic crisis,
or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect
our business, financial condition and results of operations.
Any actual or perceived threat of a financial
crisis in China, in particular a credit and banking crisis, could have an indirect, but material and adverse impact on our business
and results of operations. It is unclear whether the Chinese economy will continue to experience the high growth rate in the past.
There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted
by the central banks and financial authorities of some of the world’s leading economies, including the United States. The
global financial markets are facing new challenges, including the escalation of the European sovereign debt crisis since 2011,
the end of quantitative easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone in 2014, the hostilities in the
Ukraine and the Middle East and the unrest in North Korea. Economic conditions in China are sensitive to global economic conditions,
as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China.
It is impossible to predict how the Chinese economy would develop in the future.
There have been recently signs that the rate
of China’s economic growth is declining. Any prolonged slowdown in China’s economic development might lead to tighter
credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business
and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel
purchases of automobiles, which to some extent are considered as luxury items by many people in China, and our customers may also
defer, reduce or cancel purchasing our services. To the extent any fluctuations in the Chinese economy significantly affect automakers’
and automobile dealers’ demand for our services or change their spending habits, our results of operations may be materially
and adversely affected.
In addition, an economic downturn may reduce
the number of automakers and automobile dealers in China and decrease the demand for our services. We depend on automakers and
automobile dealers for business. Continued economic growth in China expanded the network of automakers and automobile dealers,
which is the primary source of our customers. Since the early 1990s, many non-automotive enterprises joined China’s automotive
industry and started offering new lines of automobiles. An increasing number of foreign brands gradually entered the PRC market
primarily by forming joint ventures with Chinese brands. Growing automobile production capacity and production volume have significantly
increased the number of automobile dealers. By contrast, negative economic trends could lead to consolidations among automakers
and automobile dealers, and in effect shrink our customer base. Production lines might be contracted or shut down. A reduction
in the number of automakers and automobile dealers would reduce the number of opportunities we have to sell our products and services.
To the extent that the automakers and automobile dealers have used our products or services, consolidations may result in purchase
cancellation of those product or service offerings. Any decrease in demand for our products and services could materially and adversely
affect our ability to generate revenues, which in turn could adversely affect our financial condition and results of operations.
Lastly, with respect to our online automotive financial platform services, a significant general economic downturn may increase
our or our financial partners’ credit risk exposure if the financial position of the car buyers are severely and adversely
affected. Although most of the financial leases via our platform are secured by the automobiles, foreclosures may be costly and
time consuming and if those automobiles lose values dramatically, we may not be able to recover the full loan amount by foreclosures.
Any catastrophe, including outbreaks
of health pandemics and other extraordinary events, could severely disrupt our business operations.
Our operations are vulnerable to interruption
and damage from natural and other types of catastrophes, including earthquakes, fire, floods, hail, windstorms, severe winter weather
(including snow, freezing water, ice storms and blizzards), environmental accidents, power loss, communications failures, explosions,
man-made events such as terrorist attacks, and similar events. Due to their nature, we cannot predict the incidence, timing and
severity of catastrophes. In addition, changing climate conditions, primarily rising global temperatures, may be increasing, or
may in the future increase, the frequency and severity of natural catastrophes. If any such catastrophe or extraordinary event
were to occur in the future, our ability to operate our business could be seriously impaired. Such events could make it difficult
or impossible for us to deliver our services to our customers and could decrease demand for our services. Although we are headquartered
in Beijing, as of December 31, 2017, our sales and service representatives network covered over 200 cities throughout China, exposing
us to potential catastrophes of all types in a broad geographic area in China. Because our property insurance only covers property
damages caused by a limited number of numerated natural disasters and accidents and significant time could be required to resume
our operations, our financial position and operating results could be materially and adversely affected in the event of any major
catastrophic event.
In addition, our business could be materially
and adversely affected by the outbreak of influenza A (H1N1), commonly referred to as “swine flu,” avian influenza,
severe acute respiratory syndrome, SARS, H7N9 or other pandemics. It is unclear how this virus will spread, which makes it difficult
to predict its potential impact. Any occurrence of these pandemic diseases or other adverse public health developments in China
could severely disrupt our staffing and otherwise reduce the activity levels of our work force, causing a material and adverse
effect on our business operations.
We do not have any business liability,
disruption or litigation insurance, and any business disruption or litigation we experience might result in our incurring substantial
costs and diversion of resources.
The insurance industry in China is still at
an early stage of development. Insurance companies in China offer limited business insurance products and are, to our knowledge,
not well-developed in the field of business liability insurance. While business disruption insurance is available to a limited
extent in China, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring
such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, except for property
insurance and automobile insurance, we do not have any business liability, disruption or litigation insurance coverage for our
operations in China. Any business disruption or litigation may result in our incurring substantial costs and diversion of resources.
Proceedings instituted by the SEC
against certain PRC-based accounting firms, including our independent registered public accounting firm, could result in financial
statements being determined to not be in compliance with the requirements of the Exchange Act.
In December 2012, the SEC brought administrative
proceedings against five accounting firms in China, including our independent registered public accounting firm, alleging that
they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation
by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending
four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective
unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the
SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine
to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement requires the
firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the China
Securities Regulatory Commission, or the CSRC. If the firms do not follow these procedures, the SEC could impose penalties such
as suspensions, or it could restart the administrative proceedings.
In the event that the SEC restarts the administrative
proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult
or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined
to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about
the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies
and the market price of our ADSs may be adversely affected.
If our independent registered public accounting
firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered
public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined
not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delay or abandonment
of this offering, delisting of our ordinary shares from the New York Stock Exchange or deregistration from the SEC, or both, which
would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Our auditor, like other independent
registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting
Oversight Board, and consequently, investors may be deprived of the benefits of such inspection.
The independent registered public accounting
firm that issues the audit reports included in this annual report, as an auditor of companies that are traded publicly in the United
States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws
of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and
with applicable professional standards. Because our auditor is located in China, a jurisdiction where the PCAOB is currently unable
to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting
firms operating in China, is currently not inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum
of Understanding on Enforcement Cooperation with the CSRC and the Ministry of Finance, which establishes a cooperative framework
between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the China
Securities Regulatory Commission, or the CSRC, or the Ministry of Finance in the United States and the PRC, respectively. PCAOB
continues to be in discussions with the CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms
that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.
Inspections of other firms that the PCAOB has
conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures,
and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the
PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate
the effectiveness of our auditor’s audit procedures or quality control procedures, and to the extent that such inspections
might have facilitated improvements in our auditor’s audit procedures and quality control procedures, investors may be deprived
of such benefits.
Risks Related to Our Corporate Structure
If the PRC government finds that
the agreements that establish the structure for operating our businesses in China do not comply with applicable PRC governmental
restrictions on foreign investment in internet content and marketing services, or if these regulations or the interpretation of
existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in
those operations.
PRC law currently limits foreign ownership of
companies that provide internet content services in China up to 50%. Foreign and wholly foreign-owned enterprises are currently
restricted from providing other internet information services, such as internet advertising and financing. Our wholly foreign-owned
PRC subsidiaries are currently not eligible to apply for the required licenses for providing internet content services in China.
As such, we conduct part of our material business
through our variable interest entities in China, including Beijing Bitauto Information Technology Company Limited, or BBIT, and
Beijing Yixin Information Technology Company Limited, or Beijing Yixin. Our variable interest entities are currently owned by shareholders
who are PRC citizens or PRC entities and the relevant variable interest entities hold the requisite licenses or permits to provide
internet content or advertising services in China. Shareholders of our variable interest entities are set forth in “Item
4. Information on the Company—C. Organizational Structure.” Our variable interest entities entered into a series of
contractual arrangements with our subsidiaries but directly operate our businesses in China. We have been and are expected to continue
to depend on variable interest entities to operate our businesses. We do not have any equity ownership interest in any of the variable
interest entities but control their operations and receive the economic benefits through a series of contractual arrangements.
For more information regarding these contractual arrangements, see “Item 7. Major Shareholders and Related Party Transactions—B.
Related Party Transactions—Contractual Arrangements with our PRC Variable Interest Entities and Their Shareholders.”
Furthermore, on July 26, 2006, the Ministry
of Industry and Information Technology, or the MIIT, released the Circular on Strengthening the Administration of Foreign Investment
in Operating Value-added Telecommunications Business, or the MIIT Notice, which reiterates certain provisions under China’s
Administrative Rules on Foreign-Invested Telecommunications Enterprises. Among other things, the MIIT Notice prohibits domestic
telecommunications license holders from (i) renting, transferring or selling telecommunications licenses to any foreign investors
in any form and (ii) from providing any assistance, including providing resources, sites or facilities, to foreign investors that
conduct value-added telecommunications business illegally in China. Under the MIIT Notice, holders of valued-added telecommunications
business operating licenses, or their shareholders, must directly own the domain names and registered trademarks used by such license
holders in their daily operations. BBIT’s internet information services are considered value-added telecommunication services
set forth in the MIIT Notice and BBIT owns an ICP license, for its provision of internet information service and all the trademarks
used for its internet information services on its websites. Since there is currently no official interpretation or implementation
practice under the MIIT Notice, it remains uncertain how the MIIT Notice will be enforced and whether or to what extent the MIIT
Notice may affect the legality of the corporate structures and contractual arrangements adopted by foreign-invested internet companies
that operate in China.
There are uncertainties regarding the interpretation
and application of current and future PRC laws, rules and regulations, including but not limited to the laws, rules and regulations
governing the validity and enforcement of our contractual arrangements with variable interest entities. We have been advised by
our PRC counsel that each of such contractual agreements for operating our business in China (including our corporate structure
and contractual arrangements with the variable interest entities), except as otherwise disclosed in this report, does not violate,
breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations. However, we cannot assure you that
the PRC regulatory authorities will not adopt any new regulation to restrict or prohibit foreign investment in advertising business
and value-added telecommunications business through contractual arrangement in the future, or will not determine that our corporate
structure and contractual arrangements violate PRC laws, rules or regulations.
If we, any of the variable interest entities
or any of their current or future subsidiaries are found to be in violation of any existing or future PRC laws or regulations,
or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the
State Administration for Industry and Commerce, which regulates advertising companies, and the Ministry of Industry and Information
Technology, which regulates internet information services companies, and the CSRC, which regulates listed companies, would have
broad discretion in dealing with such violations, including:
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revoking the business and operating licenses of such entities;
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discontinuing or restricting our PRC subsidiaries’ and variable interest entities’ operations;
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imposing fines, confiscating the income of the variable interest entities or our income, or imposing other requirements with
which we or our PRC subsidiaries and variable interest entities may not be able to comply;
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imposing conditions or requirements with which we or our PRC subsidiaries and variable interest entities may not be able to
comply;
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requiring us or our PRC subsidiaries and variable interest entities to restructure our ownership structure or operations;
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restricting or prohibiting our use of the proceeds of our public offering to finance our business and operations in China;
or
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taking other regulatory or enforcement actions that could be harmful to our business.
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The imposition of any of these penalties would
result in a material and adverse effect on our ability to conduct our business, and adversely affect our financial condition and
results of operations.
We rely on contractual arrangements
with our variable interest entities in China, and their shareholders, for our business operations, which may not be as effective
in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interest.
We rely on and expect to continue to rely on
contractual arrangements with our variable interest entities in China and their respective shareholders to operate our internet
content and advertising services business. Our variable interest entities contributed RMB4.15 billion, RMB4.39 billion and RMB4.42
billion (US$679.3 million), representing 97.6%, 76.0% and 50.5%, respectively, of our total revenues in 2015, 2016 and 2017. Our
wholly foreign-owned subsidiaries such as Beijing Bitauto Internet Information Company Limited, or BBII, and Beijing KKC Technology
Company Limited, or Beijing KKC, follow the commonly used methodology, which is to charge service fees based on each variable
interest entity’s revenues reduced by its turnover taxes, such as value-added taxes and other surcharges,
cost of revenues, operating expenses and an appropriate amount of retained profit that is determined pursuant to tax planning
strategies and relevant tax laws.
Although we have been advised by our PRC counsel
that, each of the contractual arrangements with our variable interest entities are valid under current PRC laws, these contractual
arrangements may not be as effective in providing us with control over the variable interest entities as ownership of controlling
equity interests would be in providing us with control over, or enabling us to derive economic benefits from the operations of,
the variable interest entities. If we had direct ownership of the variable interest entities, we would be able to exercise our
rights as a shareholder to (i) effect changes in the board of directors of those entities, which in turn could effect changes,
subject to any applicable fiduciary obligations, at the management level, and (ii) derive economic benefits from the operations
of the variable interest entities by causing them to declare and pay dividends. However, under the current contractual arrangements,
as a legal matter, if any of the variable interest entities or any of their shareholders fails to perform its, his or her respective
obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements,
and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming
damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity were to refuse
to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase
option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual
obligations.
If (i) the applicable PRC authorities invalidate
these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders
terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform their obligations
under these contractual arrangements, our business operations in China would be materially and adversely affected, and the value
of your ADSs would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration, we
would not be able to continue our business operations unless the then-current PRC law allows us to directly operate internet content
and advertising businesses in China.
In addition, if any variable interest entity
or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all
of our business activities, which could materially and adversely affect our business, financial position and results of operations.
If any of the variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated
third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which
could materially and adversely affect our business, our ability to generate revenues and the market price of your ADSs.
All of these contractual arrangements are governed
by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as
developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit
our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we
may not be able to exert effective control over our operating entities and we may be precluded from operating our business, which
may have a material adverse effect on our financial condition and results of operations.
Based on the advice of Han Kun Law Offices,
our PRC counsel, the corporate structure of our variable interest entities and our subsidiaries in the PRC are in compliance with
all existing PRC laws and regulations. However, as advised by our PRC counsel, there are substantial uncertainties regarding the
interpretation and application of current and future PRC laws and regulations, and the PRC government may in the future take a
view that is contrary to the above opinion of our PRC counsel. PRC laws and regulations governing the validity of these contractual
arrangements which established our corporate structure for operating our business in China are uncertain and the relevant government
authorities have broad discretion in interpreting these laws and regulations.
Our ability to enforce the share pledge
agreements between us and the variable interest entities’ shareholders may be subject to limitations based on PRC laws and
regulations.
Pursuant to the share pledge agreements, the
shareholders of variable interest entities agreed to pledge all of their equity interests in variable interest entities to the
relevant PRC subsidiaries to secure variable interest entities’ performance of their obligations under the relevant contractual
arrangements. The share pledge as contemplated under the share pledge agreements by and among our PRC subsidiaries, variable interest
entities and each of their respective shareholders have been registered with the relevant local branch of the State Administration
for Industry and Commerce, or the SAIC.
The share pledge agreements provide that the
pledged equity interest shall constitute security for all of the payment obligations of the variable interest entities under the
exclusive business cooperation agreement. However, it is possible that a PRC court may take the position that the amount indicated
on the equity pledge registration forms filed with the local branch of SAIC represents the full debt amount that the pledge secures.
If this is the case, the obligations that are supposed to be secured in these pledge agreements in excess of the amount listed
on the equity pledge registration forms could be determined by the PRC court as unsecured debt.
The shareholders of our variable interest
entities may have potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
Conflicts of interest may arise between the
dual roles of those individuals who are both minority shareholders, directors and executive officers of our company and shareholders
of our variable interest entities. For example, Mr. Bin Li, our chairman of the board of directors, is also the shareholder of
some of our variable interest entities. For these directors and executive officers, their fiduciary duties toward our company under
Cayman Islands law—to act honestly, in good faith and with a view to our best interests—may conflict with their roles
in our variable interest entities, as what is in the best interest of our variable interest entities may not be in the best interests
of our company. The fiduciary duty implied from their roles as our directors and executive officers is not fully aligned with their
interests as shareholders of our variable interest entities. These individuals may breach or cause the variable interest entities
that they beneficially own to breach or refuse to renew the existing contractual arrangements, which will have a material adverse
effect on our ability to effectively control the variable interest entities and receive economic benefits from them. We do not
have existing arrangements to address potential conflicts of interest these individuals may encounter in his capacity as a shareholder
of the variable interest entities, on the one hand, and as a beneficial owner and a director and an officer of our company, on
the other hand. We could, at all times, exercise our option under the exclusive option agreement with variable interest entities’
shareholders to cause them to transfer all of their equity ownership in variable interest entities to a PRC entity or individual
designated by us, and this new shareholder of variable interest entities could then appoint new directors of variable interest
entities to replace the current directors. In addition, if such conflicts of interest arise, BBII, our wholly foreign-owned PRC
subsidiary, could also, in the capacity of the attorney-in-fact of variable interest entities’ shareholders as provided under
the irrevocable power of attorney, directly appoint new directors of variable interest entities to replace the current directors.
We rely on variable interest entities’ shareholders to comply with the laws of China, which protect contracts and provide
that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and
not to take advantage of their positions for personal gains. Although our independent directors or disinterested officers may take
measures to prevent the parties with dual roles from making decisions that may favor themselves as shareholders of the variable
interest entities, we cannot assure you that these measures would be effective in all instances and when conflicts arise, these
individuals will act in the best interests of our company or that conflicts will be resolved in our favor. The legal frameworks
of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate
governance regime. If we cannot resolve any conflicts of interest or disputes between us and those individuals, we would have to
rely on legal proceedings, which may materially disrupt our business. There is also substantial uncertainty as to the outcome of
any such legal proceedings.
Contractual arrangements with the
variable interest entities may be subject to scrutiny by the PRC tax authorities and may result in a finding that we and the variable
interest entities owe additional taxes or are ineligible for tax exemption, or both, which could substantially increase our taxes
owed and thereby reduce our net income.
As a result of our corporate structure and the
contractual arrangements between us and our PRC variable interest entities, we are effectively subject to 6% or 17% value-added
tax, as well as enterprise income tax at the rate of 25% on revenues derived from our contractual arrangements with our PRC variable
interest entities. Under applicable PRC laws, rules and regulations, arrangements and transactions among related parties may be
subject to audits or challenges by the PRC tax authorities. We are not able to determine whether any of our transactions with our
variable interest entities and their respective shareholders will be regarded by the PRC tax authorities as arm’s-length
transactions. The relevant tax authorities may perform investigations to determine whether our contractual relationships with our
variable interest entities and their respective shareholders were entered into on an arm’s-length basis. If any of the transactions
we have entered into among our wholly-owned subsidiaries in China and any of the variable interest entities and their respective
shareholders are determined by the PRC tax authorities not to be on an arm’s-length basis, or are found to result in an impermissible
reduction in taxes under applicable PRC laws, rules and regulations, the PRC tax authorities may conduct transfer pricing adjustments
and adjust the profits and losses of such variable interest entities and assess more taxes on it. In addition, the PRC tax authorities
may impose late payment interest and other penalties on such variable interest entities for underpayment taxes. Our results of
operations may be adversely and materially affected if the tax liabilities of any of the variable interest entities increase or
if it is found to be subject to late payment interests or other penalties.
We may have exposure to greater than
anticipated tax liabilities.
We are subject to enterprise income tax, value-added
tax, and other taxes in each province and city in China where we have operations. Our tax structure is subject to review by various
local tax authorities. The determination of our provision for income tax and other tax liabilities requires significant judgment.
In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.
Although we believe our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts
recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination
is made.
We may rely on dividends and other
distributions on equity paid by our wholly owned subsidiaries to fund any cash and financing requirements we may have, and any
limitation on the ability of our subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct
our business.
We are a holding company, and we may rely on
dividends and other distributions on equity paid by our subsidiaries in China, for our cash requirements, including the funds necessary
to service any debt we may incur. If our subsidiaries incur debt in the future, the instruments governing the debt may restrict
their abilities to pay dividends or make other distributions to us. In addition, the PRC tax authorities may adjust our taxable
income under the contractual arrangements our subsidiaries currently have in place with the variable interest entities in a manner
that would materially and adversely affect the ability of our subsidiaries to pay dividends and other distributions to us. Further,
relevant PRC laws, rules and regulations permit payments of dividends by our subsidiaries only out of their retained earnings,
if any, determined in accordance with accounting standards and regulations of China. Under PRC laws, rules and regulations, our
subsidiaries are also required to set aside a portion of their net income each year to fund specific reserve funds. In addition,
the statutory general reserve fund requires annual appropriations of 10% of after-tax income to be set aside prior to payment of
dividends until the cumulative fund reaches 50% of our subsidiaries’ registered capital. Therefore, our subsidiaries’
ability is limited in terms of transferring a portion of their net assets to us whether in the form of dividends, loans or advances.
Any limitation on the ability of our subsidiaries to pay dividends to us could materially and adversely limit our ability to grow,
make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
If our PRC subsidiaries or variable
interest entities become the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy substantially
all of our assets, which could reduce the size of our operations and materially and adversely affect our business, ability to generate
revenues and the market price of our ADSs.
As part of the contractual arrangements with
the variable interest entities, their shareholders and our subsidiaries, the variable interest entities and their subsidiaries
hold operating permits and licenses and substantially all of the assets that are important to the operation of our business. We
expect to continue to be dependent on our variable interest entities and their subsidiaries to operate our business in China. If
our variable interest entities go bankrupt and all or part of their assets become subject to liens or rights of third-party creditors,
we may be unable to continue some or all of our business activities, which would materially and adversely affect our business,
financial condition and results of operations. If our variable interest entities undergo a voluntary or involuntary liquidation
proceeding, their equity holders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering
our ability to operate our business, which would materially and adversely affect our business, our ability to generate revenues
and the market price of our ADSs.
Substantial uncertainties exist
with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law and how it may
impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce, or MOC, published
a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing
laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative
Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. The draft Foreign Investment Law embodies an expected
PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and
the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. While the MOC solicited
public comments on this draft in January and February this year, substantial uncertainties exist with respect to its enactment
timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the
viability of our current corporate structure, corporate governance and business operations in many aspects.
Among other things, the draft Foreign Investment
Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether
the investment in China is made by a foreign investor or a PRC domestic investor. The draft Foreign Investment Law specifically
provides that an entity established in China but “controlled” by foreign investors will be treated as a foreign investor,
whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the MOC or its local branches,
treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this
connection, “control” is broadly defined in the draft law to cover, among others, having the power to exert decisive
influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects
of business operations. If the foreign investment falls within a “negative list,” to be separately issued by the State
Council in the future, market entry clearance by the MOC or its local branches would be required. Otherwise, all foreign investors
may make investments on the same terms as Chinese investors without being subject to additional approval from the government authorities
as mandated by the existing foreign investment legal regime.
The “variable interest entity” structure,
or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries
that are currently subject to foreign investment restrictions in China. See “—Risks Related to Our Corporate Structure—If
the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with
applicable PRC governmental restrictions on foreign investment in internet content and marketing services, or if these regulations
or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish
our interests in those operations.” and “Item 4. Information on the Company—C. Organizational Structure.”
Under the draft Foreign Investment Law, if a variable interest entity is ultimate controlled by a foreign investor via contractual
arrangement, it would be deemed as a foreign investment. Accordingly, for any company with a VIE structure in an industry category
that is on the “negative list,” the VIE structure may be deemed legitimate only if the ultimate controlling person(s)
is/are of PRC nationality (either PRC individual, or PRC government and its branches or agencies). Conversely, if the actual controlling
person(s) is/are of foreign nationalities, then the variable interest entities will be treated as foreign invested enterprises
and any operation in the industry category on the “negative list” without market entry clearance may be considered
as illegal.
It is uncertain whether we would be considered
as ultimately controlled by Chinese parties or not The draft Foreign Investment Law has not taken a position on what actions will
be taken with respect to the existing companies with a VIE structure, whether or not these companies are controlled by Chinese
parties. Moreover, it is uncertain whether the value-added telecommunication services and advertising services, which our variable
interest entities provide, will be subject to the foreign investment restrictions or prohibitions set forth in the “negative
list” to be issued. If the enacted version of the Foreign Investment Law and the final “negative list” mandate
further actions, such as MOC market entry clearance or certain restructuring of our corporate structure and operations, to be completed
by companies with existing VIE structure like us, we face substantial uncertainties as to whether these actions can be timely completed,
or at all, and our business and financial condition may be materially and adversely affected.
The draft Foreign Investment Law, if enacted
as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the
draft Foreign Investment Law proposed to imposes stringent ad hoc and periodic information reporting requirements on foreign investors
and the applicable foreign invested entities. Aside from investment implementation report and investment amendment report that
are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors
meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with the information
reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly
responsible may be subject to criminal liabilities.
Risks Related to Doing Business in China
Adverse changes in political and
economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could
reduce the demand for our services and materially and adversely affect our competitive position.
Since our business operations are conducted
in China, our business, financial position, results of operations and prospects are affected significantly by economic, political
and legal developments in China. Because our business is closely related to the automotive and financial services industries and
the internet marketing industry, both of which are highly sensitive to business and personal discretionary spending levels, our
business tends to decline during general economic downturns.
The Chinese economy differs from the economies
of most developed countries in many respects, including the degree of government involvement, the level of development, the growth
rate, the control of foreign exchange, access to financing and the allocation of resources. While the Chinese economy has grown
significantly in the past three decades, the growth has been uneven, both geographically and among various sectors of the economy,
and the rate of growth has been slowing. Further, the Chinese economy has been transitioning from a planned economy to a more market-oriented
economy and a substantial portion of the productive assets in China is still owned by the PRC government. The PRC government exercises
significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to particular industries or companies. In addition, other
economic measures, as well as future actions and policies of the PRC government, could also materially affect our liquidity and
access to capital and our ability to operate our business.
The PRC government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy,
but may also have a negative effect on our operations. For example, our results of operations and financial position may be materially
and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
Also see “—Risks Related to Our Business and Industry—Government policies on automobile purchases and ownership
may materially affect our results of operations.”
We may be required to obtain an
internet news releasing service license and be subject to fines and/or suspension of business operations if any of the internet
news posted on our websites is deemed to be political in nature, relate to macro-economics, or otherwise would require an internet
news releasing service license.
In May 2017, the State Internet Information
Office, or the SIIO, issued the Provisions for the Administration of Internet News Information Services, or Internet News Provision,
and its implementing rules, which became effective on June 1, 2017. Internet news information services refers to editing, publishing
and reprinting and the dissemination platform service of internet news through internet websites, mobile apps, forums, blogs, micro-blogs,
official accounts, instant message tools, live-streaming and other similar means. Under the Internet News Provision and its implementing
rules, if an entity intends to provide internet news information services, it is required to obtain an internet news information
service license, and no internet news service providers may take the form of a foreign-invested enterprise, whether a joint venture
or a wholly foreign-owned enterprise, and no cooperation between internet news service providers and foreign-invested enterprises
is allowed prior to the security evaluation by the SIIO. The SIIO shall be in charge of the supervision and administration of the
internet news information services throughout China. The counterparts of the SIIO at the province level shall take charge of the
supervision and administration of the internet news information services within their own jurisdiction.
As an internet content provider, we release
information related to the automotive industry to internet users. In the event that such activities are deemed to be internet news
information services, we will be required to obtain an internet news information service license. However, we and our PRC counsel
have consulted the relevant government authorities and have been informed that according to their understanding, we would not be
required to obtain the internet news information license because we only post industry-related information, such as introduction
or evaluation of automobile products. However, if any of the internet information posted on our websites is deemed by the government
require such license, we would need to apply for such license. If we are deemed to be in breach of the Internet News Provision
or other relevant internet news information regulations, the PRC regulatory authorities may suspend relevant activities and impose
a fine exceeding RMB10,000 but not more than RMB30,000.
Uncertainties with respect to the
PRC legal system could limit the protection available to you and us.
We conduct our business primarily through our
significant subsidiaries and variable interest entities in China. Our operations in China are governed by PRC laws and regulations.
The PRC legal system is a civil law system based on written statutes. Unlike in the common law system, prior court decisions may
be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced
the protections afforded to various forms of foreign investments in China. We conduct all of our business through our subsidiaries
and variable interest entities established in China. However, since the PRC legal system continues to rapidly evolve, the interpretations
of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties,
which may limit legal protections available to us. For example, we may have to resort to administrative and court proceedings to
enforce the legal protection that we enjoy either by law or contract. Furthermore, the PRC legal system is based in part on government
policies and internal rules, some of which are not published on a timely basis or at all, which may have a retroactive effect.
Any litigation in China may be protracted and
result in substantial costs and diversion of our resources and management attention. It may be more difficult to evaluate the outcome
of Chinese administrative and court proceedings and the level of legal protection we enjoy in China than in more developed legal
systems because PRC administrative and court authorities have significant discretion in interpreting and implementing statutory
and contractual terms. Such uncertainties may impede our ability to enforce the contracts we have entered into with our business
partners, customers and suppliers. Furthermore, intellectual property rights and confidentiality protections in China may not be
as effective as in the United States or other countries. We cannot predict the effect of future developments in the PRC legal system,
including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption
of local regulations by national laws. These uncertainties could limit the legal protections available to us.
PRC regulations relating to offshore
investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment
activity. If our shareholders fail to make any required applications and filings under such regulations, we may be unable to distribute
profits and may become subject to liability under PRC laws.
The State Administration for Foreign Exchange,
or SAFE, has promulgated several regulations that require PRC residents, including PRC individuals and PRC corporate entities,
to register with and obtain approval from local branches of SAFE in connection with their direct establishment or indirect control
of an offshore entity for the purpose of overseas investment and financing, or offshore special purpose vehicle, with such PRC
residents’ legally owned assets or equity interests in domestic companies or offshore assets or interests. These regulations
apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.
Under the currently applicable foreign exchange
regulations, PRC resident shareholders must amend and update their foreign exchange registrations with the local branches of SAFE
when their offshore special purpose vehicles undergo material events or changes with respect to the basic information, such as
changes to the name, the operation term or the identity of PRC resident shareholders, or increases or decreases in the investment
amount, share transfers or exchanges, or mergers or divisions. In July 2014, SAFE promulgated Circular 37, pursuant to which, a
PRC resident shareholder is only required to register the offshore special purpose vehicle that such shareholder directly owns
the equity interests in, or the First Level SPVs. However, it is uncertain whether the PRC resident shareholders are required to
amend the registrations if their offshore special purpose vehicles controlled by the First Level SPV undergo material events or
changes. It is also uncertain whether Circular 37 would be retrospectively applicable to the transactions where the RPC resident
shareholders should amend the relevant registrations in accordance with other foreign exchange regulations. If any PRC resident
shareholder fails to make the required registration or update the previously filed registration, the PRC subsidiary of that offshore
special purpose vehicle may be prohibited from distributing its profits and the proceeds from any reduction in capital, share transfer
or liquidation to its offshore parent company, and the offshore parent company may also be prohibited from injecting additional
capital into its PRC subsidiary. Moreover, failure to comply with the various foreign exchange registration requirements described
above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
We have requested PRC resident shareholders
who we know hold direct or indirect interest in our company to make the necessary applications, filings and amendments as required
under Circular 37 and other related rules. However, we may not be informed of the identities of all the PRC residents holding direct
or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request
to make or obtain any applicable registrations or comply with other requirements under Circular 37 or other related rules. The
failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations
may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned
subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to
us, and we may also be prohibited from injecting additional capital into these subsidiaries. Moreover, failure to comply with the
various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable
foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially
and adversely affected. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations
on Foreign Exchange Registration of Overseas Investment by PRC Residents.”
Furthermore, as the interpretation and implementation
of these foreign exchange regulations has been constantly evolving and may be uncertain under certain circumstances, it is unclear
how these regulations, and any future regulation concerning offshore transactions, will be interpreted, amended and implemented
by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect
to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely
affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot
assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete
the necessary filings and registrations.
Governmental control of currency conversion
may affect the value of your investment.
Under the PRC law, Renminbi is freely convertible
to foreign currencies with respect to “current account” transactions, but not with respect to “capital account”
transactions. We receive all our revenues in Renminbi. Under our current corporate structure, our income is primarily derived from
dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our
PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign
currency-denominated obligations. Approval or registration from SAFE or its local branch is required where Renminbi is to be converted
into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
Dividend payments are current account transactions, which can be made in foreign currencies by complying with certain procedural
requirements but do not require prior approval from SAFE. The PRC government may also exercise its discretion to restrict access
in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders,
including holders of our ADSs.
Fluctuations in exchange rates of
the Renminbi could materially affect our reported results of operations.
The value
of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions
and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy
of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following
three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar
remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably,
and in recent years the RMB has depreciated significantly against the U.S. dollar. Since October 1, 2016, the RMB has joined the
International Monetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S.
dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly
in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB
appreciated approximately 7% against the U.S. dollar during this one-year period. With the development of the foreign exchange
market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future
announce further changes to the exchange rate system and there is no guarantee that the RMB will not appreciate or depreciate
significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government
policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
Significant revaluation of the RMB
may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars
into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount
we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making
payments for dividends on our ordinary shares or ADSs, repaying our U.S. dollar denominated notes or other payment
obligations or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on
the U.S. dollar amount available to us. In addition, appreciation or depreciation in the value of the RMB relative to U.S.
dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business
or results of operations.
Very limited hedging options are
available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to
adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert RMB into foreign currency.
PRC rules on mergers and acquisitions
may make it more difficult for us to pursue growth through acquisitions.
On August 8, 2006, six PRC regulatory agencies,
including the CSRC, promulgated the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the
M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. Among other things, the M&A Rules
and recently issued regulations and rules concerning mergers and acquisitions established additional procedures and requirements
that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A
Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor
takes control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the
Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued by the State Council on August 3, 2008,
are triggered. According to the Implementing Rules Concerning Security Review on the Mergers and Acquisitions by Foreign Investors
of Domestic Enterprises issued by the Ministry of Commerce in August 2011, mergers and acquisitions by foreign investors involved
in an industry related to national security are subject to strict review by the Ministry of Commerce. These rules also prohibit
any transactions attempting to bypass such security review, including by controlling entities through contractual arrangements.
We believe that our business is not in an industry related to national security. However, we cannot preclude the possibility that
the Ministry of Commerce or other government agencies may publish interpretations contrary to our understanding or broaden the
scope of such security review in the future. Although we have no current plans to make any acquisitions, we may elect to grow our
business in the future in part by directly acquiring complementary businesses in China. Complying with the requirements of these
regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval
from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions.
PRC regulations on loans and direct
investments by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions
to our PRC entities.
As an offshore holding company of our PRC subsidiaries,
we may make loans to our PRC subsidiaries and variable interest entities, or we may make additional capital contributions to our
PRC subsidiaries. Such loans to our subsidiaries or variable interest entities in China and capital contributions are subject to
PRC regulations and approvals. For example, loans by us to our subsidiaries or variable interest entities in China cannot exceed
a statutory upper limit and must be filed with SAFE, or its local branch through the online filing system of SAFE after the loan
agreement is signed and at least three business days prior to the borrower withdraws any amount from the foreign loan. Capital
contributions to our PRC subsidiaries must be approved by or filed with the PRC Ministry of Commerce or its local counterpart.
In addition, the PRC government also restricts the convertibility of foreign currencies into Renminbi and use of the proceeds.
On March 30, 2015, the SAFE promulgated the Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital
Settlement of Foreign-invested Enterprises, or Circular 19, which took effect and from June 1, 2015. Although Circular 19 allows
for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions
will continue to apply as to foreign-invested enterprises’ use of the converted RMB for purposes beyond the business scope,
for entrusted loans or for inter-company RMB loans. Violations of the applicable circulars and rules may result in severe penalties,
including substantial fines as set forth in the Foreign Exchange Administration Regulations. If our variable interest entities
require financial support from us or our wholly owned subsidiaries in the future and we find it necessary to use foreign currency-denominated
capital to provide such financial support, our ability to fund our variable interest entities’ operations will be subject
to statutory limits and restrictions, including those described above.
The applicable foreign exchange circulars and
rules may significantly limit our ability to convert, transfer and use the net proceeds from any offering of additional equity
securities in China, which may adversely affect our business, financial condition and results of operations. We cannot assure you
that we will be able to complete the necessary government registrations or filings on a timely basis, if at all, with respect to
future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries. If we
fail to complete such registrations or filings, our ability to contribute additional capital to fund our PRC operations may be
negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
Increases in labor costs and enforcement
of stricter labor laws and regulations in the PRC may adversely affect our business and our profitability.
China’s overall economy and the average
wage in China have increased in recent years and are expected to continue to grow. The average wage level for our employees has
also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase.
Unless we are able to pass on these increased labor costs to the product providers or corporate borrowers who pay for our services,
our profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter
regulatory requirements in terms of entering labor contracts with our employees and paying various statutory employee benefits,
including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance
to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract
law, that became effective in January 1, 2008, as amended on December 28, 2012 and effective as of July 1, 2013, and its implementation
rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts,
minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts.
In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor
Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner,
which could adversely affect our business and results of operations.
On October 28, 2010, the Standing Committee
of the National People’s Congress promulgated the PRC Social Insurance Law, or the Social Insurance Law, which became effective
on July 1, 2011. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance,
medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately,
pay the social insurance premiums for such employees.
As the interpretation and implementation of
labor-related laws and regulations are still evolving, we cannot assure you that our employment practice do not and will not violate
labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed
to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees
and our business, financial condition and results will be adversely affected.
Dividends we receive from our subsidiaries
located in the PRC may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends,
if any, we may pay our shareholders or ADS holders.
The PRC Enterprise Income Tax Law, or the EIT
Law, classifies enterprises as resident enterprises and non-resident enterprises. The EIT Law provides that an income tax rate
of 20% may be applicable to dividends payable to non-resident investors, which (i) do not have an establishment or place of business
in the PRC or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively connected with
the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The State Council
of the PRC reduced such rate to 10% through the implementation regulations of the EIT Law. Further, pursuant to the Double Tax
Avoidance Arrangement between Hong Kong and Mainland China and the Notice on Certain Issues with Respect to the Enforcement of
Dividend Provisions in Tax Treaties issued on February 20, 2009 by the State Administration of Taxation, or the SAT, if a Hong
Kong resident enterprise owns more than 25% of the equity interest in a company in China at all times during the 12-month period
immediately prior to obtaining a dividend from such company, the 10% withholding tax on dividends is reduced to 5% provided certain
other conditions and requirements under the Double Tax Avoidance Arrangement between Hong Kong and Mainland China and other applicable
PRC laws are satisfied at the discretion of relevant PRC tax authority. We are a Cayman Islands holding company and we have subsidiaries
in Hong Kong which in turn hold controlling equity interest of our PRC subsidiaries. Substantially all of our income may be derived
from dividends we receive from BBII and our other PRC subsidiaries. If we and our Hong Kong subsidiary are considered as non-resident
enterprises and our Hong Kong subsidiary is considered as a Hong Kong resident enterprise under the Double Tax Avoidance Arrangement
and is determined by the competent PRC tax authority to have satisfied relevant conditions and requirements, then the dividends
paid to our Hong Kong subsidiaries by BBII and our other PRC subsidiaries may be subject to the reduced income tax rate of 5% under
the Double Tax Avoidance Arrangement. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend
Provisions in Tax Treaties, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such
reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the
preferential tax treatment; and based on the Notice on Issues concerning Beneficial Owner in Tax Treaties, or Circular 9, issued
on February 3, 2018 by the SAT, which became effective from April 1, 2018 and superseded the Notice on the Comprehension and Recognition
of Beneficial Owner in Tax Treaties issued on October 27, 2009 by the SAT, when determining the applicant’s status of the
“beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties,
several factors, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in
twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business
activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on
relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual
circumstances of the specific cases. If we are required under the EIT Law to pay income tax for any dividends we receive from our
subsidiaries in China, or if our Hong Kong subsidiaries are determined by PRC government authority as receiving benefits from reduced
income tax rate due to a structure or arrangement that is primarily tax-driven, it would materially and adversely affect the amount
of dividends, if any, we may pay to our shareholders and ADS holders.
Under the EIT Law, we may be classified
as a “resident enterprise” of China; such classification could result in unfavorable tax consequences to us and our
non-PRC shareholders and materially and adversely affect our results of operations and financial condition.
Under the EIT Law, an enterprise established
outside of China with “de facto management body” within China is considered a “resident enterprise,” meaning
that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of
the EIT Law define “de facto management body” as “substantial and overall management and control over the production
and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, or the SAT, issued a circular,
or SAT Circular 82, and as amended on January 29, 2014, which provides certain specific criteria for determining whether the “de
facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. In addition, a bulletin
issued by the SAT issued on July 27, 2011, which became effective September 1, 2011 and as amended on April 17, 2015, provided
more guidance on the implementation of Circular 82. This bulletin clarifies matters including resident status determination, post-determination
administration and competent tax authorities. Although the SAT Circular 82 and the bulletin only apply to offshore enterprises
controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining
criteria set forth in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body”
text should be applied in determining the tax resident status of all offshore enterprises, regardless of whether they are controlled
by PRC enterprises or individuals.
Although we do not believe that our legal entities
organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different
conclusion. If the PRC tax authorities determine that our Cayman Islands company is a “resident enterprise” for PRC
enterprise income tax purposes, a number of PRC tax consequences could follow. First, we may be subject to the enterprise income
tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations; in our case, this
would mean that income such as interest on our public offering proceeds and other income sourced from outside the PRC would be
subject to PRC enterprise income tax at a rate of 25%. Second, the EIT Law provides that dividends paid between “qualified
resident enterprises” are exempt from enterprise income tax. It is unclear whether the dividends we receive from BBII will
constitute dividends between “qualified resident enterprises” and would therefore qualify for tax exemption, because
the definition of qualified resident enterprises is unclear and the relevant PRC government authorities have not yet issued guidance
with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise
income tax purposes. Third, dividends payable by us to our non-PRC resident enterprise investors and gains on the sale of shares
by such non-PRC resident enterprise investors may be subject to PRC enterprise income tax at a rate of 10% and such dividends and
gains earned by non-PRC resident individual investors may be subject to PRC individual income tax at a rate of 20%. It is unclear
whether, if we were considered a PRC resident enterprise, our non-resident investors would be able to claim the benefit of income
tax treaties or agreements entered into between China and other countries or regions.
In addition to the uncertainty as to the application
of the “resident enterprise” classification, there can be no assurance that the PRC Government will not amend or revise
the taxation laws, rules and regulations to impose stricter tax requirements, higher tax rates or retroactively apply the EIT Law,
or any subsequent changes in PRC tax laws, rules or regulations. If such changes occur and/or if such changes are applied retroactively,
such changes could materially and adversely affect our results of operations and financial condition.
Discontinuation of any of the preferential
tax treatments currently available to us in the PRC or imposition of any additional PRC taxes on us could adversely affect our
financial position and results of operations.
BBII enjoyed a five-year tax holiday from 2007
to 2011 and was eligible to enjoy a two-year exemption from enterprise income tax followed by a three-year half reduction of enterprise
income tax. In addition, BBII was also designated as “High and New Technology Enterprise” under the EIT Law in December
2008. Therefore, the income tax rate applicable for BBII was 7.5% for the years ended 2009, 2010 and 2011. Historically, BBII
successfully renewed its “High and New Technology Enterprise” status every three years and enjoyed a preferential
income tax rate of 15% for the year ended December 31, 2017. Pursuant to the latest renewal in December 2017, BBII will enjoy
a preferential income tax rate of 15% for another three years ended December 31, 2020.
In December 2011, Beijing Bit EP Information
Technology Company Limited, or Bit EP, was qualified as a “software enterprise” and will enjoy a two-year exemption
from enterprise income tax followed by a three-year half reduction of enterprise income tax from the first fiscal year when Bit
EP becomes profitable since December 2011. In December 2016, Bit EP was designated as “High and New Technology Enterprise”
under the EIT law and would enjoy a preferential income tax rate of 15% from 2017 to 2019.
In December 2013, Target Net (Beijing) Technology
Company Limited, or Target Net, was qualified as a “High and New Technology Enterprise” under the EIT law and successfully
renewed this status for another three years in December 2016. Pursuant to the renew, Target Net would enjoy a preferential income
tax rate of 15% for the years ended December 31, 2016, 2017 and 2018.
In December 2014, Bitauto (Xi’an) Information
Technology Co., Ltd. or Bitauto Xi’an, was qualified as a “software enterprise” under the New Software Enterprise
Measures and now enjoys a two-year exemption from enterprise income tax followed by a three-year half reduction of enterprise income
tax from the first fiscal year when Bitauto Xi’an becomes profitable since December 2014.
In May 2017, Shanghai Lanshu Information Technology
Co., Ltd. (“Shanghai Lanshu”) was accredited as a “software enterprise” and will enjoy a two-year exemption
from enterprise income tax followed by a three-year half reduction of enterprise income tax, commencing from the first year of
profitable operation after offsetting tax losses generating from prior years.
In accordance with relevant PRC laws and regulations,
Xinjiang Yin’an Information Technology Co., Ltd. (“Xinjiang Yin’an”) is exempt from EIT for four years,
commencing from January 1, 2017 to December 31, 2020.
If BBII, Bit EP, Target Net, Bitauto Xi’an,
Shanghai Lanshu or Xinjiang Yin’an fails to maintain its qualification, their applicable EIT rates may increase to up to
25%, which could have a material adverse effect on our results of operations.
We face uncertainty with respect to
indirect transfers of equity interests in PRC resident enterprises by their non-PRC shareholders.
The PRC tax authorities have enhanced their
scrutiny over the non-resident enterprise’s direct or indirect transfer of equity interests in a PRC resident enterprise
by promulgating and implementing the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax
Resident Enterprises, or Public Notice 7, issued by the SAT, on February 3, 2015, which partially replaced and supplemented previous
rules under the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises,
or Circular 698, issued by the SAT, on December 10, 2009.
Public Notice 7 extends its tax jurisdiction
to capture not only Indirect Transfer as set forth under Circular 698 but also transactions involving the transfer of real property
in China and assets of an establishment or a place in the PRC by a foreign company through the offshore transfer of a foreign intermediate
holding company. Public Notice 7 also interprets the term “transfer of the equity interest in a foreign intermediate holding
company” broadly. In addition, Public Notice 7 further clarifies certain criteria on how to assess reasonable commercial
purposes and introduces safe harbor scenarios applicable to internal group restructurings. However, it also imposes burdens on
both the foreign transferor and the transferee of the indirect transfer as they are required to make a self-assessment on whether
the transaction should be subject to PRC tax and whether to file or withhold the PRC tax accordingly. Where a non-resident enterprise
conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests
of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly
owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form”
principle, the PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity interests in the
PRC tax resident enterprise and other properties in China. As a result, gains derived from such indirect transfer may be subject
to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold
the applicable taxes, currently at a rate of up to 10% for the transfer of equity interests in a PRC resident enterprise.
Public Notice 7 and its interpretation by relevant
PRC authorities clarify that an exemption provided by Circular 698 for transfers of shares in a publicly-traded entity that is
listed overseas is available if the purchase of the shares and the sale of the shares both take place in open-market transactions.
However, if a shareholder of an entity that is listed overseas purchases shares in the open market and sells them in a private
transaction, or vice versa, PRC tax authorities might deem such a transfer to be subject to Circular 698 and Public Notice 7, which
could subject such shareholder to additional reporting obligations or tax burdens. Accordingly, if a holder of our ADSs or ordinary
shares purchases our ADSs or ordinary shares in the open market and sells them in a private transaction, or vice-versa, and fails
to comply with Circular 698 or Public Notice 7, the PRC tax authorities may take actions, including requesting us to provide assistance
for their investigation or impose a penalty on us, which could have a negative impact on our business operations. In addition,
since we may pursue acquisitions as one of our growth strategies, and may conduct acquisitions involving complex corporate structures,
PRC tax authorities might impose taxes on capital gains or request that we submit additional documentation for their review in
connection with any potential acquisitions, which may cause us to incur additional acquisition costs or delay our acquisition timetable.
On October 17, 2017, the SAT issued the Announcement
of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or
SAT Bulletin 37, which came into effect on December 1, 2017 and concurrently abolished Circular 698. The SAT Bulletin 37 further
clarifies the practice and procedure of the withholding of non-resident enterprise income tax. Pursuant to Public Notice 7 and
SAT Bulletin 37, both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails
to withhold the taxes and the transferor fails to pay the taxes.
The PRC tax authorities have discretion under
Public Notice 7 and SAT Bulletin 37 to make adjustments to the taxable capital gains based on the difference between the fair value
of the equity interests transferred and the cost of investment. We may pursue acquisitions in the future that involve complex corporate
structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities
make adjustments to the taxable income of these transactions under Public Notice 7 and SAT Bulletin 37, our income tax expenses
associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and
results of operations.
Certain of our leased property interests
may be defective and we may be forced to relocate operations affected by such defects, which could cause significant disruption
to our business and have a negative impact on our operation and financial results.
With respect to some of our leased
properties, the lessors failed to provide property title certificates proving the title ownership of these lessors. According
to PRC laws, rules and regulations, in situations where a landlord lacks evidence of the title or the right to lease, the
relevant lease agreement may not be valid or enforceable under PRC laws, rules and regulations, and may also be subject to
challenge by third parties. However, we cannot assure you that such defects will be cured in a timely manner or at all. Our
business may be interrupted and additional relocation costs may be incurred if we are required to relocate operations
affected by such defects. Moreover, if our lease agreements are challenged by third parties, it could result in diversion of
management attention and cause us to incur costs associated with defending such actions, even if such challenges are
ultimately determined in our favor. In addition, our lease agreements have not been registered with competent governmental
authority. According to PRC laws, rules and regulations, the failure to register the lease agreement will not affect its
effectiveness between the tenant and the landlord, however, the landlord and the tenant may be subject to administrative
fines of up to RMB10,000 each for such failure to register the lease. As of the date hereof, we are not aware of any action,
claim or investigation being conducted or threatened by the competent government authorities with respect to the defects in
our leased properties. However, if we are fined or penalized by government authorities due to our lessors’ failure to
register our lease agreements, our business and financial condition may be negatively impacted.
We may be required to register our
offices outside of our corporate residence address as branch offices under PRC law and any failure to do so may subject our centers
to shut-down or penalties.
A company that uses an office in a location
outside its corporate residence address to conduct business operation must register such office as a branch company with the competent
local authority. In addition, as we expand our operations, we may need to register additional branch companies from time to time.
As of the date of this report, we have not registered approximately half of the locations outside of the corporate residence addresses
as branch companies. However, whether an operating place will be deemed as having business nature or otherwise qualified for branch
company registration is subject to the sole discretion of the government authorities. We cannot assure you that the governmental
authorities will take the same view with us on whether an operating place is required or qualified to be registered as a branch
company. We plan to apply for the registration of the relevant offices and we cannot assure you whether the registration can be
completed in a timely manner. Although we have not been subject to any query or investigation by any PRC government authority regarding
the absence of such registration, if the PRC regulatory authorities determine that we are in violation of the relevant laws and
regulations, we may be subject to penalties, including fines, confiscation of income and suspension of operation. If we become
subject to these penalties, our business, results of operations, financial condition and prospects could be materially and adversely
affected.
Failure to comply with PRC regulations
regarding the registration requirements for employee stock option plans may subject our PRC plan participants or us to fines and
other legal or administrative sanctions.
Under relevant PRC rules and regulations, PRC
citizens who are granted stock options by an overseas publicly listed company are required, through a qualified PRC domestic agent
or PRC subsidiaries of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. In addition,
the registration must be amended within three months after the occurrence of any material changes to the underlying plan. As of
the date of this annual report, we have adopted four employee share incentive plans, and, except for our 2016 share incentive plans,
amended and restated in March 2018, these grantees, through BBII, have registered and updated the registration with SAFE. We have
completed registrations of our 2016 share incentive plan with the SAFE and will register the restated and amended 2016 share incentive
plan in the near future. Nevertheless, if in the future, we or our PRC grantees fail to comply with these regulations, we or such
employees may be subject to fines and other legal or administrative sanctions.
Risks Related to Our ADSs
The market price for our ADSs may
continue to be volatile.
The trading prices of our ADSs have been, and
are likely to continue to be, volatile and could fluctuate widely due to factors beyond our control. The trading prices of our
ADSs ranged from US$18.04 to US$54.42 in 2017. This was partly because of broad
market and industry factors, such as the performance and fluctuation in the market prices or the underperformance or declining
financial results of other companies based in China that have listed their securities in the United States in recent years. The
securities of some of these companies have experienced significant volatility since their initial public offerings, including,
in some cases, substantial price declines in the trading prices of their securities. The trading performances of other PRC companies’
securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States, which
consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. The recent ongoing
administrative proceedings brought by SEC against five accounting firms in China, alleging that they refused to hand over documents
to the SEC for ongoing investigations into certain China-based companies, occurs at a time when accounting scandals have eroded
investor appetite for China-based companies. In addition, any negative news or perceptions about inadequate corporate governance
practices or fraudulent accounting, corporate structure or matters of other PRC companies may also negatively affect the attitudes
of investors towards PRC companies in general, including us, regardless of whether we have conducted any inappropriate activities.
In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related
to our operating performance, which may have a material and adverse effect on the market price of our ADSs. Moreover, since our
controlled subsidiary, Yixin is listed on the Hong Kong Stock exchange, the volatility of the stock prices on the Hong Kong Stock
exchange may further increase the volatility of our ADSs. Furthermore, the market price for our ADSs is likely to continue to be
highly volatile and subject to wide fluctuations in response to factors including the following:
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actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;
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announcements of new services by us or our competitors;
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changes in financial estimates or recommendations by securities analysts;
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conditions in the automobile or advertising industries in China;
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changes in the economic performance or market valuations of other companies that provide internet content and marketing services
to automakers and automobile dealers or auto finance services to car buyers;
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fluctuations of exchange rates between the Renminbi and the U.S. dollar or other currencies;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of senior management;
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release or expiration of transfer restrictions on our outstanding ordinary shares or ADSs;
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sales or perceived potential sales of additional ordinary shares or ADSs;
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adoption of any new accounting policy;
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pending or potential litigation or administrative investigations; and
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general economic or political conditions in China.
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We may need additional capital, and the sale
of additional ADSs or other equity securities could result in additional dilution to our shareholders.
We believe that our current cash and cash equivalents
and anticipated cash flow from operations and proceeds from public offerings will be sufficient to meet our anticipated cash needs
for ordinary operation, for at least 12 months. We may, however, require additional cash resources due to changed business conditions
or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient
to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale
of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result
in increased debt service obligations and could result in operating and financing covenants that would restrict our operations.
It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
Because we do not expect to pay dividends
in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment.
We intend to retain most, if not all, of our
available funds and earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash
dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend
income.
Our board of directors has significant discretion
as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount
and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital
requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial position, contractual
restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs
will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate
in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs
and you may even lose your entire investment in our ADSs.
Substantial future sales or perceived
potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs or ordinary shares in the
public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Such sales
also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we
deem appropriate. Any future sales of a substantial number of our ADSs in the public market could cause the price of our ADSs to
decline.
You may not have the same voting rights
as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.
Except as described in this annual report and
in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by
our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise
the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the
depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties,
will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will distribute to you a shareholder
meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given,
including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy
to a person designated by us if no instructions are received by the depositary from you on or before the response date established
by the depositary and voting takes place at the shareholder meeting by poll. However, no voting instruction shall be deemed given
and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not
wish such proxy given, (ii) substantial opposition exists, or (iii) such matter may materially and adversely affect the rights
of shareholders. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your
voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to
you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct
the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out
any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not
be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your
capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
You may not be able to participate
in rights offerings and may experience dilution of your holdings as a result.
We may from time to time distribute rights to
our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States
unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from
the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless
both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or
exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to
any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be
able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate
in our rights offerings and may experience dilution in your holdings.
You may not receive dividends or other
distributions if it is unlawful or impracticable to make them available to you.
The depositary of our ADSs has agreed to pay
to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities
after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your
ADSs represent. However, the depositary may, determine that it is unlawful or impractical to make a distribution available to any
holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the
mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may
determine not to distribute such property to you.
You may be subject to limitations
on transfer of your ADSs.
Your ADSs are transferable on the books of the
depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection
with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally
when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because
of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any
other reason.
You may face difficulties in protecting
your interests, and your ability to protect your rights through the United States federal courts may be limited because we are
incorporated under Cayman Islands law, we conduct substantially all of our operations in China and the majority of our directors
and officers reside outside the United States.
We are incorporated in the Cayman Islands and
conduct substantially all of our operations in China through our PRC subsidiaries. A majority of our directors and officers reside
outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may
be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China
in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against
our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained
in the United States, although the courts of the Cayman Islands will recognize as a valid judgment, a final and conclusive judgment
in personam obtained in a federal or state court of the United States under which a sum of money is payable (other than a sum of
money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty)
and would give a judgment based thereon; provided that (a) such courts had proper jurisdiction over the parties subject to such
judgment; (b) such courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained
by fraud; (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible
evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f)
there is due compliance with the correct procedures under the laws of the Cayman Islands.
Our corporate affairs are governed by our memorandum
and articles of association, as amended and restated from time to time, and by the Companies Law and common law of the Cayman Islands.
The rights of shareholders to take legal action against us and our directors, actions by minority shareholders and the fiduciary
responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. The common law of the
Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common
law, which provides persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and
the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under
statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities
laws than the United States and provides significantly less protection. In addition, Cayman Islands companies may not have standing
to initiate a shareholder derivative action in United States federal courts.
As a result, our public shareholders may have
more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders
than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Our memorandum and articles of association
contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.
Our memorandum and articles of association contains
certain provisions that could limit the ability of others to acquire control of our company, including a provision that grants
authority to our board of directors to establish from time to time one or more series of preference shares without action by our
shareholders and to determine, with respect to any series of preference shares, the terms and rights of that series. The provisions
could have the effect of depriving our shareholders of the opportunity to sell their shares, including shares represented by ADSs,
at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a
tender offer or similar transactions.
We are exempt from certain corporate
governance requirements of the NYSE and we have elected to rely on certain exemptions.
Certain corporate governance practices in the
Cayman Islands, which is our home country, are considerably different than the standards applied to U.S. domestic issuers. We are
exempt from certain corporate governance requirements of the NYSE by virtue of being a foreign private issuer. For example, we
are not required to:
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have a majority of the board be independent (other than due to the requirements for the audit committee under the Exchange
Act);
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have regularly scheduled executive sessions with only non-management directors;
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have a fully independent nominating and corporate governance committee;
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have at least one executive session of solely independent directors each year; or
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seek shareholder approval for (i) the implementation and material revisions of the terms of share incentive plans, (ii) the
issuance of more than 1% of our outstanding ordinary shares or 1% of the voting power outstanding to a related party, (iii) the
issuance of more than 20% of our outstanding ordinary shares, and (iv) an issuance that would result in a change of control.
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We have elected to follow home country practice
with respect to the above. Other than these practices, there have been no significant differences between our corporate governance
practices and those followed by U.S. domestic companies under the requirements of NYSE rules, except that during the period from
February 16, 2015 to March 4, 2015, our audit committee was comprised of only two members, both of whom were independent directors.
Our shareholders may be afforded less protection
than they otherwise would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.
There is a significant risk that we will be classified
as a passive foreign investment company, or PFIC, for United States federal income tax purposes, which could result in adverse
United States federal income tax consequences to U.S. investors in the ADSs or ordinary shares.
For U.S. federal income tax purposes, non-United
States corporation, such as our company, will be treated as a passive foreign investment company, or PFIC, for any taxable year
if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income, or (ii)
50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets
that produce passive income or are held for the production of passive income (the “asset test”). Although the law in
this regard is unclear, we treat our PRC variable interest entities as being owned by us for U.S. federal income tax purposes,
not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially
all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements.
Assuming we are the owner of our PRC variable
interest entities for U.S. federal income tax purposes, and based on our income, assets, and the market price of our ADSs, we
believe that we were a PFIC for the taxable year ending December 31, 2017. In addition, we will very likely be classified as a
PFIC for our current taxable year ending December 31, 2018, and for future taxable years.
If we were to be classified as a PFIC, a U.S.
Holder (as defined in “Item 10. Additional Information—E. Taxation—Certain United States Federal Income Tax Considerations—General”)
may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the ADSs or ordinary
shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such distribution is treated as an “excess
distribution” under U.S. federal income tax rules. Further, if we are classified as a PFIC for any year during which a U.S.
Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which
such U.S. Holder holds our ADSs or ordinary shares. We urge you to consult your tax advisor concerning the U.S. federal income
tax consequences of holding and disposing of ADSs or ordinary shares if we are classified as a PFIC. For more information, see
“Item 10. Additional Information—E. Taxation—Certain United States Federal Income Tax Considerations—Passive
Foreign Investment Company Rules.”
Compliance with rules and regulations
applicable to companies publicly listed in the United States is costly and complex and any failure by us to comply with these requirements
on an ongoing basis could negatively affect investor confidence in us and cause the market price of our ADSs to decrease.
In addition to Section 404, the Sarbanes-Oxley
Act also mandates, among other things, that companies adopt corporate governance measures, imposes comprehensive reporting and
disclosure requirements, sets strict independence and financial expertise standards for audit committee members, and imposes civil
and criminal penalties for companies, their chief executive officers, chief financial officers and directors for securities law
violations. For example, in response to the Sarbanes-Oxley Act, the NYSE has adopted additional comprehensive rules and regulations
relating to corporate governance. These laws, rules and regulations have increased the scope, complexity and cost of our corporate
governance and reporting and disclosure practices. Our current and future compliance efforts will continue to require significant
management attention. In addition, our board members, chief executive officer and chief financial officer could face an increased
risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and
retaining qualified board members and executive officers to fill critical positions within our company. Any failure by us to comply
with these requirements on an ongoing basis could negatively affect investor confidence in us, cause the market price of our ADSs
to decrease or even result in the delisting of our ADSs from the NYSE.
In the past, shareholders of a public company
often brought securities class action suits against the company following periods of instability in the market price of that company’s
securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention
and other resources from our business and operations, which could harm our results of operations and require us to incur significant
expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our
ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant
damages, which could have a material adverse effect on our financial condition and results of operations.
If we fail to maintain an effective
system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent
fraud.
As a public company in the United States, we
are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control
over financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal
control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the
effectiveness of our internal control over financial reporting. We have been subject to these requirements since the fiscal year
ended December 31, 2011.
Our management has concluded that our internal
control over financial reporting is effective as of December 31, 2017. Our independent registered public accounting firm has issued
an attestation report, which has concluded that our internal control over financial reporting was effective as of December 31,
2017. See “Item 15. Controls and Procedures.” However, if we fail to maintain effective internal control over financial
reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that
we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in loss
of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore,
we have incurred and anticipate that we will continue to incur considerable costs, management time and other resources in an effort
to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
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ITEM 4.
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INFORMATION ON THE COMPANY
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A.
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History and Development of the Company
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Our holding company, Bitauto Holdings Limited,
was incorporated in the Cayman Islands on October 21, 2005. We conduct most of our business through our operating subsidiaries
and variable interest entities in China.
Our significant subsidiaries include BBII, Shanghai
Yixin Financing Lease Company Limited, or Shanghai Yixin, and Xinche Investment (Shanghai) Co., Ltd., or Xinche. BBII was established
in 2006, and we own 100% of the equity of BBII through our wholly-owned subsidiary, Bitauto Hong Kong Limited, which was incorporated
in Hong Kong in April 2010. Shanghai Yixin and Xinche were established in 2014 and 2015, respectively, and all of these companies
are wholly owned subsidiaries of Yixin Group Limited, or Yixin, in which we have a controlling interest, formerly known as Yixin
Capital Limited. See “—C. Organizational Structure.”
Our significant subsidiaries and variable interest
entities that conduct our business operations in China include the following:
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Beijing C&I Advertising Company Limited, or CIG, which was incorporated in 2002 and provides digital marketing solutions
to automakers.
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BBIT, which was incorporated in 2005 and conducts our bitauto.com business that focuses on new automobiles.
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Bit EP, a subsidiary of BBIT, which was incorporated in 2011 and provides our subscription services.
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Beijing Yixin, which was incorporated in 2015 and operates websites such as daikuan.com and taoche.com, including their corresponding
mobile apps.
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In November 2010, our ADSs began trading on
the NYSE with the ticker symbol “BITA”.
In November 2012, AutoTrader Group purchased
an aggregate of 9,000,000 ordinary shares from certain of our pre-IPO shareholders and became a shareholder of our company.
In December 2013, we completed a follow-on public
offering of 1,264,855 ADSs, each representing one ordinary share, at the public offering price of US$30.00 per ADS. A selling shareholder
also offered and sold 1,484,345 ordinary shares in the form of ADSs.
In February 2015, JD.com invested a combination
of US$400 million in cash and certain resources, including exclusive access to the new and used car channels on JD.com’s
e-commerce sites and mobile apps together with additional support from its key platforms, as consideration for our newly issued
ordinary shares. Tencent invested US$150 million in exchange for our newly issued ordinary shares. In addition, JD.com and Tencent
invested US$100 million and US$150 million, respectively, in newly issued series A preferred shares of Yixin. At the closing of
the transactions, we held approximately 50.1% of Yixin on a fully diluted basis and investors including JD.com and Tencent held
46.1% on a fully diluted basis.
In June 2016, each of Tencent, JD.com and Baidu
invested US$50 million in us in exchange for our newly issued ordinary shares. In August 2016, we issued convertible bonds to PA
Grand Opportunity Limited and its affiliates, or PAG, in an aggregate principal amount of up to US$150 million. The convertible
bonds are due in five years from the date of issuance and have an interest rate of 2.00% per annum. The initial conversion price
is US$23.67 per ADS. After the closing of both transactions, Tencent, Baidu, JD.com and PAG held 7.1%, 3.2%, 23.5% and 8.2%, respectively,
of our outstanding shares on a fully diluted basis taking into effect the new issuance and the conversion of the convertible bonds
at the initial conversion price. As of December 31, 2017, PA Grand Opportunity Limited transferred to a third party such number
of the convertible bonds as would be convertible into 1,013,941 ordinary shares of the Company.
Between August 2016 and October 2016, Tencent,
JD.com, Baidu, together with certain other investors and us, invested in an aggregate amount of US$550 million in cash in Yixin
in exchange for newly issued series B preferred shares of Yixin. At the closing of the transactions, we held approximately 46.9%
of Yixin on a fully diluted basis and investors including JD.com, Tencent and Baidu held 47.1% on a fully diluted basis. The financial
results of Yixin remained consolidated with our company after the transactions.
In March 2017, Gain Loyal Limited
invested in U.S. dollars in the principal amount equivalent to RMB3.03 million in Beijing C&I Advertising Company
Limited, or CIG in exchange for newly increased registered capital of CIG. At the closing of the transactions, CIG changed to
a Sino-foreign joint venture from a PRC domestic company. In June 2017, BBIT, Bin Li and Weihai Qu entered into a termination
agreement with CIG and BBII to terminate all of contractual arrangements among them and transferred all equity interests in
CIG held by it to BBII, respectively. In November 2017, BBII together with other eight investors invested in an aggregate
amount of RMB600 million in cash in CIG in exchange for newly increased registered capital of CIG. At the closing of the
transactions, we held approximately 74.12% of equity interests of CIG through BBII, other four limited partnerships held 10% of
equity interests of CIG, and third-party investors held the remaining 15.88% of equity interests of CIG.
On November 16, 2017, Yixin completed initial
public offering and listed on the Hong Kong Stock Exchange. Yixin initially offered 878,680,000 of its shares, which represent
approximately 14% of Yixin’s shares in issue. Pursuant to a voting proxy agreement we entered into with Tencent and JD.com
on October 31, 2017, we continue to have control over Yixin, and the financial results of Yixin remain consolidated with our company
after Yixin’s initial public offering.
Due to certain restrictions under PRC law on
foreign ownerships of entities engaged in internet and advertising businesses, we conduct a certain part of our material operations
in China through contractual arrangements among our PRC subsidiaries, our variable interest entities in China and the shareholders
of these variable interest entities. As a result of these contractual arrangements, we control our variable interest entities
and have consolidated the financial information of these variable interest entities and their subsidiaries in our consolidated
financial statements in accordance with U.S. GAAP. Earnings of these variable interest entities are or will be transferred to
our subsidiaries under the currently applicable contractual arrangements. The arrangements include exclusive business cooperation
agreements and exclusive option agreements with the variable interest entities, which entitle our PRC subsidiaries to receive
a majority of variable interest entities’ residual returns. Under the arrangement, the earnings are transferred from our
subsidiaries to us through dividends or other forms of distribution. In China, payment of dividends is also subject to certain
limitations. PRC regulations currently permit payment of dividends only out of retained earnings as determined in accordance with
PRC accounting standards and regulations. Under current PRC laws, regulations and accounting standards, each of our PRC subsidiaries,
is required to allocate at least 10% of its after-tax profit based on PRC accounting standards to its statutory reserves each
year until the accumulative amount of those reserves reaches 50% of its registered capital. Although the statutory reserves can
be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the
respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. At its discretion,
each of our subsidiaries, as a foreign-invested enterprise, may allocate a portion of its after-tax profits based on PRC accounting
standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash
dividends.
Our principal executive offices are located
at New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, 100044, the People’s Republic of China.
Our telephone number at this address is (86-10) 6849-2345. Our registered office in the Cayman Islands is located at Vistra (Cayman)
Limited, P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 – 1205 Cayman Islands. Our agent
for service of process in the United States is Law Debenture Corporate Services Inc., 400 Madison Avenue, 4th Floor, New York,
New York 10017.
See “Item 5. Operating and Financial Review
and Prospects—B. Liquidity and Capital Resources” for details regarding our capital expenditure.
Overview
We are a leading provider of internet content
& marketing services and transaction services for China’s fast-growing automotive industry. Our bitauto.com website and
its corresponding mobile apps provide consumers with comprehensive up-to-date information on automobile pricing and promotional
information, specifications, reviews and consumer feedback. Our bitauto.com website was the most visited automotive vertical website
in China for new automobile pricing and promotional information in the fourth quarter of 2017, according to iResearch. We also
distribute our automobile dealer customers’ automobile pricing and promotional information through over 580 internet service
provider partners as of December 31, 2017. As a result, our automotive database and content had broad consumer reach to China’s
internet users.
We managed our businesses in three segments,
namely, advertising and subscription business, transaction services business and digital marketing solutions business. Our advertising
and subscription business provides a variety of advertising services to automakers through bitauto.com website as well as corresponding
mobile apps. The website and mobile apps provide consumers with up-to-date automobile pricing and promotional information, specifications,
reviews and consumer feedback. We also provide transaction-focused online advertisements and promotional activities services to
our business partners, via Yixin’s online platform, for automakers, automobile dealers, auto finance partners and insurance
companies. We offer subscription services via the SaaS platform, which provides web-based and mobile-based integrated digital marketing
solutions to automobile dealers in China. The platform enables automobile dealer subscribers to create their own online showrooms,
list pricing and promotional information, provide automobile dealer contact information, place advertisements and manage customer
relationships to help them reach a broad set of purchase-minded customers and effectively market their automobiles to consumers
online. Our transaction services business is primarily conducted by Yixin, our controlled subsidiary, a leading online automobile
retail transaction platform in China, which provides transaction platform services as well as self-operated financing services.
Our digital marketing solutions business provides automakers with one-stop digital marketing solutions, including website creation
and maintenance, online public relations, online marketing campaigns, advertising agent services, big data application and digital
image creation.
We have established a nationwide customer base
of automobile dealers in China. Our paying subscribers for new cars were approximately 27,000 in 2017, compared to approximately
23,700 in 2016. In addition, we have a diverse base of automaker customers, to whom we provide advertising services and digital
marketing solutions. Of the approximately 81 major automakers in China, consisting of international and Chinese automobile manufacturers
and their joint ventures, 73 placed advertisements on our
bitauto.com
website and corresponding mobile apps in 2017. Our
customer base with the combination of individual customers, automakers, automobile dealers, auto finance partners and other aftermarket
service providers allows us to cross sell our services, which increases customer loyalty. We believe our customers value our ability
to offer a wide range of high-value services and efficient solutions to assist them in reaching a broad group of automobile consumers
and influencing their purchase decisions.
Since 2015, we have formed strategic partnership
with JD.com, the leading online direct sales company in China and listed on the Nasdaq Global Select Market, Tencent, a leading
provider of comprehensive internet services and listed on the Hong Kong Stock Exchange and with Baidu, the leading Chinese language
internet search provider. They made investments both in us and in Yixin, formerly known as Yixin Capital Limited, our controlled
subsidiary primarily operating our transaction services business. On November 16, 2017, Yixin completed initial public offering
and listed on the Hong Kong Stock Exchange. Yixin initially offered 878,680,000 of its shares, which represent approximately
14% of Yixin’s shares in issue. See “Item 4. Information on the Company—A. History and Development
of the Company” for details regarding investments from JD.com, Tencent and Baidu.
Our revenues were RMB4.25 billion, RMB5.77 billion
and RMB8.75 billion (US$1.35 billion) in 2015, 2016 and 2017, respectively.
Our Services
Our Advertising and Subscription Business
We provide advertising services to automakers
and subscription services to automobile dealers through our bitauto.com website and its corresponding mobile apps, as well as offer
transaction-focused advertising and subscriptions services, through Yixin, our controlled subsidiary, to automakers, automobile
dealers, auto finance partners, and insurance companies.
We display advertisements on our bitauto.com
website and its corresponding mobile apps, and allow extensive possibilities of user interactions through rich media advertisements.
Because visitors to our websites and applications usually seek specific information relating to automobiles and therefore are more
likely to be interested in making automobile purchases, our websites and applications have become an ideal destination for brand
advertisements and promotional activities of automakers. We are able to achieve cost-effective and targeted advertising results
for our customers through our proprietary technologies and placement algorithms that target specific consumer segments. For example,
we can display advertisements to consumers located in specific geographic areas based on internet protocol addresses. We can also
display advertisements for particular automobile models or their competing models to consumers based on the content of the web
pages they are viewing.
We also provide transaction-focused online advertisements
and promotional activities services to our business partners, via Yixin’s online platform, for automakers, automobile dealers,
auto finance partners and insurance companies. Visitors to Yixin or platform usually seek specific transaction information relating
to automobiles and are more likely interested in automobile transactions. As a result, Yixin platform is tailored for transaction-focused
online advertisements and promotional activities of our business partner advertisers.
Our subscription business provides web-based
and mobile-based integrated digital marketing solutions, via SaaS platform, to automobile dealer customers in China. Such SaaS
platform enables automobile dealer subscribers to create their own online showrooms, list pricing and promotional information,
provide automobile dealer contact information, place advertisements and manage customer relationships, which help them effectively
market their automobiles to consumers.
The standard service modules for new automobile
dealer subscribers include the following:
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Dealer Listing Service is provided to our subscribers to help them reach a broad base of purchase-minded consumers. We publish
our subscribers’ new automobile pricing and promotional information on, and link their online showrooms developed using our
Autosite services to, our bitauto.com website and corresponding mobile apps. To further broaden our subscribers’ consumer
reach, we have entered into arrangements with over 580 partners to become their provider of automobile pricing and promotional
information. We automatically feed such information to our partners from our proprietary new automobile database, which is regularly
updated and maintained by our automobile dealer customers. We may pay a fixed fee to our major partners for their advertising space.
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Autosite enables our subscribers to quickly set up their own online showrooms by choosing their preferred website templates
that we have pre-designed and uploading their own content, such as pricing, promotional and contact information as well as inventory
information. The online showrooms developed using our service also has interactive features that allow consumers to make online
reservations for test drives, indicate purchase interest and ask questions and get answers online from our automobile dealer customers.
We also register and maintain independent internet domain names for Autosite users.
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Virtual Call Center provides a toll-free number to each automobile dealer for consumer inquiries. Each toll-free number has
a virtual voicemail in the SaaS platform. Over 26 million call minutes were logged in 2017.
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Auto Mini Store is an efficient marketing tool, which, with the support of the smart technology, directly connects the sales
persons or consultants at automobile dealer stores with potential car buyers.
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Our Transaction Services Business
Our transaction services business is primarily
conducted by Yixin, our controlled subsidiary, a leading online automobile retail transaction platform in China, which provides
transaction platform services as well as self-operated financing services.
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Transaction platform business
. Our transaction platform business is comprised of facilitation and value-added services
which include (a) transaction facilitation services, whereby we primarily earn service fees from consumers or automobile dealers
that have completed transactions through our platform, (b) loan facilitation services, whereby we primarily earn service fees from
consumer borrowers or banks that have extended auto loans to consumers, and (c) value-added services, where we primarily generate
revenues from automobile dealers for sales of vehicle telematics systems.
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Self-operated financing business
. Our self-operated financing business is comprised of (i) financing lease services,
whereby we primarily generate interest revenues from consumers, (ii) operating lease services, whereby we primarily generate rental
revenues from consumers, and (iii) others, whereby we primarily generate revenues from sales of automobiles to automobile dealers.
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Digital Marketing Solutions Business
Our digital marketing solutions business, operated
through CIG, provides one-stop solutions to meet the digital advertising needs of international and domestic automakers in China.
We distinguish ourselves from many of the general advertising agencies with our in-depth knowledge of China’s automotive
industry and our ability to offer the following integrated advertising solutions to automakers.
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Online advertising
. We cover all aspects of online advertising. Our in-house creative team works closely with automakers
to make strategic plans and produce digital advertisements. We procure media space and display periods from portals and automotive
vertical websites, including bitauto.com. We place advertisements on behalf of our customers on these portals and websites to achieve
cost-effective advertising results. We monitor performance indicators such as the number of hits and clicks on online advertisements
that we have placed using automatic monitoring tools. We analyze this data to optimize advertisement placing strategies for our
automaker customers.
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Website creation and maintenance
. We provide website creation and maintenance services to our automaker customers. Our
in-house creation team uses interactive and multimedia technologies to develop official websites for our automaker customers. Our
typical automaker customer may have many official websites developed for each of their automobile models, local automobile dealers
or special promotional events.
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Online public relations
. We have extensive experience in handling our automaker customers’ daily online media
interactions, monitoring online media coverage and developing and implementing strategies in response to crisis.
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Online marketing campaigns
. We conduct cost-effective online marketing campaigns for our customers through performing
in-depth market research of the target audience group, identifying the most effective online media, creating and publishing campaign
materials on multiple online mediums to help our automaker customers achieve their goals.
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We believe our in-depth knowledge of China’s
automotive industry and our ability to offer integrated advertising solutions give us a competitive advantage over other advertising
services companies and have allowed us to establish a nationwide customer base. In many cases, we have expanded the scope of our
business relationships with our advertising clients over time such that we not only create, produce and place advertisements for
our clients, but also participate in the formation of their branding and advertising strategies.
We derive our revenues from the service fees
paid by our customers for the digital marketing solutions we provide as well as performance-based rebates from third-party media
vendors, which are usually a percentage of the purchase price for qualifying advertising space purchased by our customers. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may not be able
to continue to collect performance-based rebates for the advertisements we place on third-party websites, which is an important
source of revenues for us.”
Our Database
Our database is the source of information for
our websites and applications and the automobile pricing, promotional and automobile dealer business information on our partners’
websites. We believe our automotive content and database are one of the most comprehensive among China’s online automotive
marketing companies. Our database not only covers major metropolitan areas but also a broad geographic area across China, which
provides the foundation for the success of our services as well as for future expansions. Given the significant amount of time,
resources and nationwide network of automobile dealer customers required to develop, maintain and regularly update such a comprehensive
database, we believe our database represents a significant advantage over our competitors. Our database features (i) content designed
for automobile consumers; (ii) automobile dealers’ business and contact information; (iii) automobile pricings and promotional
information and (iv) financial products and solutions for the car buyers and our financial partners. As of December 31, 2017, our
database contained:
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Business and contact information of over 27,500 new automobile dealers;
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Approximately 32 million listings of new automobile pricing and promotional information and 68 million automobile news pieces;
and
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Automobile model database featuring a wide collection of global car models.
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We collect data from multiple sources. Detailed
automobile dealer business information is collected and maintained by our sales and service representatives network located in
over 200 cities across China, as of December 31, 2017, or by our automobile dealer customers directly. Automobile pricing and promotional
information is maintained and regularly updated by automobile dealers through subscription on our bitauto.com website and its corresponding
mobile apps, and generally reflects the automobile dealers’ latest price. Specifications and features of each automobile
model are collected by our editing team from automakers and automobile dealers. Most automobile pictures are taken by our own editing
team. Industry news is licensed from third-party content providers.
We have developed standardized data collection
and quality control procedures to ensure the accuracy, consistency and timeliness of the data entered into our database. All business
information of automobile dealers must be verified and approved by authorized personnel. Automobile pricing data is verified against
the automakers’ suggested retail prices and market prices at relevant locations; irregular or misleading prices are deleted
promptly. We have developed internal cross-checking procedures supplemented by user feedback to further strengthen our quality
control over our database. We also license copyrighted materials from trusted third parties.
We have multi-level protection mechanisms to
ensure the safety and integrity of our database. We maintain comprehensive information technology manuals that provide for detailed
policies and procedures for the protection of our information technology system, including data backup procedures, anti-virus and
anti-hacking procedures, procedures for dealing with emergencies and catastrophes, and network and hardware maintenance policies.
Our computer servers perform automatic data backup on a regular basis, and continually monitor our database in an effort to detect
and prevent unauthorized access while ensuring fast and reliable access by consumers and our automobile dealer customers.
Product Development
Our internet services are supported and enhanced
by a team of more than 1,500 experienced and dedicated product development employees, including many industry experts with in-depth
knowledge of automotive and information technologies and online marketing. We develop and improve our products and services to
meet the evolving needs of our customers and users. In recent years, we strengthened various functions of our transaction services
with the support by our technological developments. For example, at the end of 2017, we officially launched a brand new upgraded
“Easy Partner” to make better direct connection between dealers’ sales representatives and car buyers, help automobile
dealers to conduct more effective marketing and distribution by taking advantage of mobile internet, social networking, big data,
and AI technologies, as well as to improve car buyers’ experience by delivering quality services to them and further improve
conversion rates. We utilize our big data and customer profiles to provide our advertising customers with accurate advertising
products for each consumer. We also launched Bitauto Index 2.0, which provides marketing and sales analysis based on big data.
Additionally, we also launched intelligent shopping guide, Elita. Leveraging on the most comprehensive knowledge base
in
the auto field and integrating our existing resources, Elita is designed to help car buyers select and purchase cars and provide
intelligent services for the complete life cycle of our users.
Yixin continued to design and develop more innovative products
and services enriching consumers’ choices. Its personal contract purchase service line named Kaizouba, launched in February
2017, primarily targeting young consumers who have good job prospects and earning potential with an opportunity to own and drive
cars home earlier. We spent approximately RMB312.1 million, RMB457.4 million and RMB565.7 million (US$86.9 million) on product
development in 2015, 2016 and 2017, respectively. These expenditures represented 7.3%, 7.9% and 6.5% of our total revenues in 2015,
2016 and 2017.
Sales, Marketing and Customer Support
We employ an experienced sales force in each
city to increase market penetration. We provide in-house education and training for our sales force to ensure they provide our
current and prospective clients comprehensive information about our services and convey the advantages of using our bitauto.com
website and its corresponding mobile apps as marketing channels. To help our customers explore the potential synergies between
their sales and marketing initiatives, we coordinated their respective selling and branding activities, which in turn improve the
efficiency of our internet marketing solutions and increase our customers’ satisfaction and their loyalty toward our services.
Our sales and customer support team provide dedicated offline assistance to potential car buyers in terms of transaction services,
primarily consisting of transaction platform and self-operated financing services, which helps to facilitate the completion of
transactions. Meanwhile, through Yixin’s platform, we also partnership with automobile dealership stores to reach out to
customers, including the experience stores, which are independently owned and operated by third parties. We have been deploying
training and other quality control resources to ensure its automobile dealer cooperative network maintains a satisfactory level
of consumer experience.
We believe our brand names are well recognized
throughout China’s automotive industry and our relationships with our partners are well established within the industry.
We use a variety of marketing programs to reach
our current and prospective customers and consumers, including the following:
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We sponsored the Formula Student China events first in 2010 along with the Society of Automotive Engineers of China. In 2015,
we agreed to further sponsor this event for another five years with a total commitment of RMB15 million
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In 2017, we sponsored four colleges to participate and complete the competitions;
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We organized the China Automotive Industry Forum and developed it into a significant annual event in China’s automotive
industry. The forum featured speakers, such as senior management of automakers and automobile dealer groups, academics and high-level
government officials, and was well attended by many industry participants;
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We organized automobile dealer forums in order to strengthen our relationship with automobile dealer customers;
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We organized regional marketing forums in order to learn and access successful marketing strategy from different fields that
linked with automotive industry;
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We have been publishing Bitauto newsletters since 2005, which are distributed to automobile dealers throughout China free of
charge and can also be made available upon request. These newsletters feature topics that interest automobile dealers, such as
relevant automobile market information and government policies, as well as reports on success stories of automobile dealers and
their executives;
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We regularly participate in automobile exhibitions held in major metropolitan cities, such as Beijing, Shanghai, Guangzhou
and Chengdu, and have been one of the most popular and most active participants among China’s automotive vertical websites
at many exhibitions.
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Since 2011, we have been hosting the Annual Celebration of Automobiles, which selects and recognizes most popular cars and
models and has become one of the most influential events of similar kind in China’s automotive industry;
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We organize and host the annual Night of Auto People event, which is one of the most prominent events in China’s automobile
industry, since 2012.
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We contributed to a charity fund in cooperation with Soong Ching Ling Foundation in 2013 and agreed to contribute an aggregate
of RMB5.0 million from 2013 to 2018. The fund is devoted to care for people working in the automobile industry and support talent
development.
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We won the “2017 China Internet Charity Award” and “outstanding case Award of CSR” issued by Internet
Society of China;
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We organized and hosted the International Classic Car Show China and Bitauto music carnival at Wukesong Hi-park, aiming at
creating a young, fashion and creative brand image, and making Bitauto a highly recognized name.
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We also provide customer services and training
to our automobile dealer customers in order to help them fully utilize the potential of our SaaS platform and foster customer loyalty.
Customers
Our customers consist primarily of automakers,
automobile dealers, consumers, auto finance partners and insurance companies.
We have more automobile dealer customers than
automaker customers because dealerships tend to be more geographically dispersed and smaller in size as compared to automakers.
No single automobile dealer accounts for a material portion of our revenues, while revenues from automaker customers are generally
more concentrated due to the relatively small number of automaker customers and the large amounts of their contracts with us. In
2015, 2016 and 2017, revenues from the top three automaker customers in each period accounted for approximately 12.0%, 6.5% and
7.4% respectively, of our total revenues.
The following summary illustrates the customers
of our three business segments.
Advertising and subscription business customers
.
We have a broad base of advertising customers and subscribers. The combination of a large purchase-minded visitor base and comprehensive
automotive content has attracted most of China’s major automakers to place advertisements on our websites and mobile apps.
Of the approximately 81 automakers in China, consisting of international and Chinese automobile manufacturers and their joint ventures,
73 placed advertisements on our bitauto.com website and corresponding mobile apps in 2017. We consider each joint venture between
Chinese and international automotive manufacturers as a unique automaker because each joint venture operates in China independently
from their overseas investors and because those joint ventures typically have their own separate advertising budgets. We therefore
treat such joint venture as a different advertising business customer than their investors. We have established a large customer
base for our subscription business. We had approximately 27,000 paying new car dealer subscribers in 2017. We enter into a service
agreement with each subscriber, the terms of which generally range from several months to one year. The agreement has no renewal
provision or provision for subscribers to terminate the agreement without cause. Under these service agreements, we have the right
to require customers to revise their information to be published through our SaaS platform if the information violates applicable
laws. Each customer is obligated to ensure the legitimacy, timeliness and accuracy of its listing and promotional information,
and is liable to any consumers who incur losses resulting from the subscriber’s failure to provide such updated and accurate
information. With regard to advertising and subscription services provided by Yixin, we provide advertising services to automakers,
automobile dealers, auto finance partners, and insurance companies on our platform, promotional services to automobile dealers,
and subscription services to the subscribers of our membership services.
Transaction services business customers
.
Yixin, our controlled subsidiary, operates our transaction platform business which is comprised of (i) facilitation and value-added
services which include (a) transaction facilitation services which we serve both consumers and automobile dealers on our platform,
(b) loan facilitation services, under which both consumer borrowers and banks extending auto loans may be our customers, and (c)
value-added services, where we primarily sell vehicle telematics systems to automobile dealers, and (ii) self-operated financing
services, where we primarily provide individual customers with auto finance solutions through financing lease and operating leases.
Digital marketing solutions business customers
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Our digital marketing solutions customers include many well-known automakers in China. We enter into internet marketing service
agreements with these automakers, the terms of which are generally one year though some automakers have been our customers for
many years, even in the absence of a multi-year agreement. In 2016, our digital marketing solutions business had 60 automaker
customers, and 58 of those are our remained customers in 2017. As of December 31, 2017, the number of our automaker customers
increased to 78. On behalf of these automaker customers, we placed RMB2.64 billion (US$406.0 million) of online automotive advertisements
in 2017, including those placed on our own websites.
Competition
We face competition in each line of our services:
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Our advertising
and subscription business faces competition from many market participants. With respect
to our new automobile advertising services, we face competition from China’s automotive
vertical websites, such as autohome.com.cn and pcauto.com.cn, the automotive channels
of major internet portals, internet video sites, social media and networking websites
and emerging new media on mobile end such as news reader applications, social media applications
and rider-sharing applications, as well as traditional forms of media. Competition with
other websites is primarily centered on website traffic and brand recognition among general
internet users, spending by automakers and automobile dealers, and customer retention
and acquisition. Our subscription services face competitions from China’s automotive
vertical websites, such as autohome.com.cn and pcauto.com.cn in terms of automobile listing,
timeliness and accuracy of automobile pricing and promotional information and website
traffic. We also compete with online auto information platforms that provide automobile
and auto-related content, and offer advertising and subscription services. Moreover,
we also face competition from traditional auto finance companies.
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Our online automobile transaction retail services face competition from online automobile transaction platforms that connect
consumers with various players across the industry value chain, to facilitate automobile and auto-related transactions and provide
financing services.
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Our digital marketing solutions business faces competition from other internet marketing service providers in China. We face
competition from the digital marketing business of well-established international advertising agencies such as Dentsu Aegis Network
and WPP as well as local agencies that specialize in providing online marketing services, including AllYes Online Media, Hylink
Advertising, Tensyn and iForce. In the automotive industry, we not only compete for customers, but also compete in terms of advertisement
design, relationships with media vendors, and the quality, breadth, pricing and effectiveness of services.
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Regulation
The following is a summary of the significant
regulations or requirements that affect our business activities in China or our shareholders’ rights to receive dividends
and other distributions from us.
Regulations on Value-added Telecommunications
Business
Our internet content services are regarded as
telecommunications services, which are primarily regulated by the Ministry of Industry and Information Technology. Under the Telecommunications
Regulations of the PRC, telecommunications businesses are divided into two categories, namely (i) the “basic telecommunications
business,” which refers to the business of providing public network infrastructure, public data transmission and basic voice
communications services, and (ii) “value-added telecommunications business,” which refers to the telecommunications
and information services provided through the public network infrastructure. Internet information service business is listed under
the second category of the value-added telecommunications business.
Regulations on Internet Information
Services
BBIT operates www.bitauto.com and other websites,
and Beijing Yixin operates www.daikuan.com and www.taoche.com to provide internet information services for China’s automotive
industry. Internet information services in China are primarily regulated by the Ministry of Industry and Information Technology.
Pursuant to the applicable PRC regulations, to engage in commercial internet information services, the service providers shall
obtain an ICP license. BBIT holds an ICP license issued by Beijing Telecommunications Administration Department, effective until
February 25, 2021, which permits BBIT to carry out commercial internet information services using the above-mentioned domain names.
Beijing Yixin has obtained an ICP license for the provision of information services through the internet, which remains valid until
September 2020.
The PRC government regulates and restricts internet
content in China to protect state security and ensure the legality of the internet content. Internet content providers and internet
publishers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and
regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure
to comply with these requirements may result in the revocation of licenses to provide internet content services and the closure
of the concerned websites. In addition, the Ministry of Industry and Information Technology has published regulations that subject
website operators to potential liability for content displayed on their websites and the actions of users and others using their
systems, including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially
destabilizing. The Ministry of Public Security has the authority to order any local internet service provider to block any internet
website at its sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the internet
of information which it believes to be socially destabilizing. The Ministry of Public Security has supervision and inspection rights
in this regard. The National People’s Congress has enacted legislation that may subject to criminal punishment in China any
person who: (i) gains improper entry into a computer or system of strategic importance; (ii) disseminates politically disruptive
information; (iii) leaks state secrets; (iv) spreads false commercial information; or (v) infringes intellectual property rights.
Furthermore, the MIIT promulgated Certain Provisions
on Regulating the Market Order of the Internet Information Service, or Circular 20, on December 29, 2011, which took effect on
March 15, 2012. Any internet content services and any internet content related services within the territory of the PRC shall be
conducted in accordance with Circular 20. According to Circular 20, internet information service providers shall neither collect
user-related information or information which can identify users independently or in combination with other information, nor provide
the aforesaid information to others, without users’ approval or unless otherwise specified in the laws and regulations. In
addition, internet information service providers shall not collect any information other than those necessary for them to provide
services and shall not use users’ personal information for purposes other than services provided. Where advertisements or
other information windows unrelated to functions of terminal software pop out at user terminals, internet information service providers
shall, in remarkable ways, provide users with functional signs to close or exit such windows. Any violation of the aforesaid requirements,
internet information service providers may be subject to warnings, announcement to public and fines in the amount of RMB10,000
to RMB30,000 imposed by the competent telecommunications authorities.
On August 1, 2016, the SIIO promulgated the
Administrative Provisions on Mobile Internet Application Information Services, or the Mobile Application Administrative Provisions
to further strengthen the regulation of the mobile application information services. Pursuant to the Mobile Application Administrative
Provisions, an internet application program provider must verify a user’s mobile phone number and other identity information
under the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office
end. An internet application provider must not enable functions that can collect a user’s geographical location information,
access user’s contact list, activate the camera or recorder of the user’s mobile smart device or other functions irrelevant
to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has clearly indicated
to the user and obtained the user’s consent on such functions and application programs. Furthermore, in December 2016, the
MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart
Terminals, which require, among others, that mobile phone manufacturers and internet information service providers must ensure
that a mobile application, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user
on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal functioning
of hardware and operating system of a mobile smart device.
On November 7, 2016, the Standing Committee
of the National People’s Congress promulgated the Cyber Security Law, which became effective on June 1, 2017. In accordance
with the Cyber Security Law, network operators are obligated to safeguard security of the network in conducting business and providing
services. Network service providers must use technology or take other necessary measures as required by laws, regulations and mandatory
requirements to safeguard the operation of networks, respond to network security effectively, prevent illegal and criminal activities,
and maintain the integrity, confidentiality and usability of network data. In accordance with the Cyber Security Law, network operators
must not collect personal information irrelevant to their services. In the event of any unauthorized disclosure, damage or loss
of collected personal information, network operators must take immediate remedial measures, notify the affected users and report
the incidents to the relevant authorities in a timely manner. If any user knows that a network operator illegally collects and
uses his or her personal information in violation of laws, regulations or any agreement with the user, or the collected and stored
personal information is inaccurate or wrong, the user has the right to request the network operator to delete or correct the relevant
collected personal information.
In addition, the Standing Committee of the National
People’s Congress promulgated Anti-Terrorism Law of China on December 27, 2015, which took effect on January 1, 2016. According
to the Anti-Terrorism Law, telecommunication service operators or internet service providers shall (i) carry out pertinent anti-terrorism
publicity and education to society; (ii) provide technical interfaces, decryption and other technical support and assistance for
the competent departments to prevent and investigate terrorist activities; (iii) implement network security, information monitoring
systems as well as safety and technical prevention measures to avoid the dissemination of terrorism information, delete the terrorism
information, immediately halt its dissemination, keep relevant records and report to the competent departments once the terrorism
information is discovered; and (iv) examine customer identities before providing services. Any violation of the Anti-Terrorism
Law may result in severe penalties, including substantial fines.
BBIT, Beijing Yixin and some other entities
in our group are ICP operators, and are therefore subject to the regulations relating to information security. They have taken
measures to comply with these regulations. They are registered with the relevant government authority in accordance with the mandatory
registration requirement.
Laws and regulations that apply to communications
and commerce conducted over the internet are becoming more prevalent in China, and may impose additional burdens on companies conducting
business online or providing internet-related services including us. Increased regulation could negatively affect our business
directly, as well as the businesses of our customers, which could reduce their demand for our services.
Regulations on Online Cultural Services
On February 17, 2011, the Ministry of Culture
promulgated the Internet Culture Administration Tentative Measures, or the Internet Culture Measures, which became effective on
April 1, 2011 and was amended in an amendment in December 2017. The Internet Culture Measures require ICP operators engaged in
“internet culture activities” to obtain an internet cultural operating license from the provincial administration of
culture. “Internet culture activities” includes, among other things, online dissemination of internet cultural products
(such as audio-video products, gaming products, performances of plays or programs, works of art and cartoons) and the production,
reproduction, importation, publication and broadcasting of internet cultural products. “Internet cultural activities”
are defined as an act of provision of internet cultural products and related services, which includes: (i) production, duplication,
importation, publishing, and broadcasting of the internet cultural products; (ii) online dissemination whereby cultural products
are posted on the internet or transmitted via internet to client ends and internet-surfing service business premises, such as internet
bars, such as computers, fixed line telephones, mobiles, television sets, games machines, for online users’ browsing, reading,
appreciation, use or downloading; and (iii) exhibition and competition of the internet cultural products. All entities engaging
in commercial internet cultural activities must be approved by the Ministry of Culture.
BBIT holds an internet culture operating license
issued by the Ministry of Culture to provide internet cultural services, which will expire on April 21, 2019. Although we do not
foresee difficulty in successfully completing such renewal, in the event we fail to renew this license, our ability to provide
internet cultural services may be affected. In addition, we will continue to operate our business pending the completion of the
renewal process and if we are deemed to have violated relevant laws and regulations for this gap period operation, we may face
fines and other governmental actions as a result.
Regulations on Internet Publishing
On February 4, 2016, the State Administration
of Press, Publication, Radio, Film and Television, or the SAPPRFT, and the Ministry of Industry and Information Technology jointly
issued the Administrative Provisions on Internet Publishing Services, or the Internet Publishing Regulations, which took effect
on March 10, 2016 and replaced the Interim Provisions for the Administration of Internet Publishing promulgated in 2002. The Internet
Publishing Regulations authorize the SAPPRFT, to administer, and grant approval to, all entities that engage in internet publishing,
and Ministry of Industry and Information Technology, as authority in charge of internet industry, to implement corresponding supervision
and administration for internet publishing business. Pursuant to the Internet Publishing Regulations, the term “internet
publishing service” means the provision of online publications to the public via information network; the term “online
publications” means the digital works with editing, production, processing and other publishing features, provided to the
public via information network, which mainly includes: (i) informative, thoughtful text, pictures, maps, games, animation, audio
and video digitizing books and other original digital works within literature, art, science and other fields; (ii) the digital
works consistent with the content of published books, newspapers, periodicals, audio-visual products and electronic publications;
(iii) the network documentation database or other digital works formed through aforementioned works by selecting, organizing, collecting
and other means; and (iv) other types of digital works identified by SAPPRFT.
The Internet Publishing Regulations regulate
internet publishing business and content of the internet publications in China. Entities engaged in internet publishing business
must be subject to annual inspection and only carry out such business within the approved scope. Entities engaged in internet publishing
business are not allowed to lend, lease, sell or transfer its internet publishing permit, including allowing other internet information
service providers to provide internet publishing services using its name. Further, foreign invested entities cannot engage in internet
publishing business. As an internet content provider, BBIT releases articles to the internet users on its websites. According to
the Internet Publishing Regulations, such acts may be deemed internet publishing. BBIT has obtained an internet publishing permit
from SAPPRFT (formerly known as the General Administration of Press and Publication), which will remain effective until December
31, 2021. If we are deemed to be in breach of relevant internet publishing regulations, the PRC regulatory authorities may impose
penalties, including warning, fines, confiscation of illegal income, ordering rectification, suspending permit, suspending business,
deleting illegal contents, and seizing the related equipment and servers used primarily for such activities.
Regulations on Internet News Information
Service
In May 2017, the SIIO issued the Internet News
Provision and its implementing rules, all of which became effective on June 1, 2017. Internet news information services refers
to editing, publishing and reprinting and the dissemination platform service of internet news through internet websites, mobile
apps, forums, blogs, micro-blogs, official accounts, instant message tools, live-streaming and other similar means. Under the Internet
News Provision and its implementing rules, if an entity intends to provide internet news information service, it is required to
obtain an internet news information service license, and no internet news service providers may take the form of a foreign-invested
enterprise, whether a joint venture or a wholly foreign-owned enterprise, and no cooperation between internet news service providers
and foreign-invested enterprises is allowed prior to the security evaluation by the SIIO., The SIIO shall be in charge of the supervision
and administration of the internet news information services throughout China. The counterparts of the SIIO at the provincial level
shall take charge of the supervision and administration of the internet news information services within their own jurisdiction.
As an internet content provider, we release
information related the automotive industry to internet users. In the event that such activities are deemed to be internet news
information services, we will be required to obtain an internet news information service license. However, we and our PRC counsel
have consulted the relevant government authorities and have been informed that according to our service scale, we would not be
required to obtain the internet news information license because we only post industry-related news produced by others and we do
ourselves not edit or compose such news. On our websites, we clearly indicate our news sources. However, if any of the internet
news posted on our website is deemed by the government to be political in nature, relate to macroeconomics, or otherwise require
such license based on the sole discretion of the government authority, we would need to apply for such license. If we are deemed
to be in breach of the Internet News Provision or other relevant internet news information regulations, the PRC regulatory authorities
may suspend the illegal activities and impose a fine exceeding RMB10,000 but not more than RMB30,000.
Regulations on Internet Audio-Video
Programs and Radio and Television Program Production
The State Administration of Radio, Film and
Television (currently known as SAPPRFT), and the Ministry of Industry and Information Technology jointly issued the Administrative
Measures Regarding Internet Audio-Video Program Services, or the Internet Audio-Video Program Measures, which became effective
on January 31, 2008 and was amended on August 28, 2015. The Internet Audio-Video Program Measures stipulate, among other things,
that any entity that engages in the production, editing, integration, and provision to the public through the internet, of audio-video
programs, and the provision of audio-video program uploading and transmission services, shall apply for an internet audio-video
program operating license. To apply for the internet audio-video program operating license, the applicant shall be an entity wholly
owned or controlled by state-owned enterprises, have sound technical measures for security protection, and meet other conditions
set forth in the Internet Audio-Video Program Measures. However, according to the application procedures announced by the State
Administration of Radio, Film and Television, non-State controlled websites which were established before promulgation of the Internet
Audio-Video Program Measures and which are in compliance of the relevant PRC law may be granted with the license. BBIT has obtained
an internet audio-video program operating license, which will remain effective until February 2021.
In addition to the internet audio-video program
operating license, the internet audio-video program measures require that entities providing self-shot network play (film) services,
online audio-video programs on hosting shows, interview shows and news reports shall also obtain an operating license for the production
of radio and television program. Further, the State Administration of Radio, Film and Television issued the Administrative Regulations
on the Production and Operation of Radio and Television Programs, effective as of August 20, 2004, and was amended on August 28,
2015, which regulates, among other things, the production of special topic programs, special column programs, variety shows, automations,
radio programs and television programs. An operating license for the production of radio and television program is required for
an entity that engages in the production and operation of the above mentioned programs. Foreign investments in film and television
program production companies are prohibited. Foreign investments in film and television program production projects are restricted
and may only take the form of Sino-foreign cooperation. During our business operation, we also edit video clips and broadcast them
online. Such activities may be deemed to be “internet movie producing.” BBIT holds an operating license for the production
of radio and television program, effective until May 31, 2018.
The PRC government has also promulgated a series
of special regulatory measures governing live-streaming services. In November 2016, the SIIO promulgated the Administrative Provisions
on Internet Live-streaming Service, which took effect on December 1, 2016. Pursuant to the Administrative Provisions, internet
live-streaming service refers to continuous publishing of real-time information to the public on internet by means of video, audio,
graphics, text or other forms, and an internet live-streaming service provider refers to an operator of the platform providing
internet live-streaming service. In accordance with the administrative provisions, an internet live-streaming service provider
must verify and register the identity information of publishers of live-streaming programs and users on its platform, and file
the identity information of the publishers with the local governmental authority for record. Any internet live-streaming service
provider engaging in news service must obtain internet news information service qualification and operate within the permitted
scope of such qualification. In September 2016, the SAPPRFT issued a Circular on Strengthening Administration of Live-streaming
Service of Network Audio/Video Programs. Pursuant to the circular, any entity that intends to engage in live audio/video broadcasting
of major political, military, economic, social, cultural or sport events or activities, or live audio/video broadcasting of general
social or cultural group activities, general sporting events or other organizational events, must obtain the internet audio-video
program operating license with a permitted operation scope covering the above business activities. Any entity or individual without
qualification is prohibited from broadcasting live audio-radio programs involving news, variety shows, sports, interviews, commentary
or other forms of programs through any online live-streaming platform or online live broadcasting booth, nor are they permitted
to start a live broadcasting channel for any audio or radio programs. In addition, no entity or individual other than licensed
radio stations or television stations are allowed to use “radio station, “ “television station, “ “broadcasting
station,” “TV” or other descriptive terms exclusive to television and radio broadcasting organizations to engage
in any business on the internet without approval.
Regulations on Internet Mapping Services
According to the Administrative Rules of Surveying
Qualification Certificate, as amended by the National Administration of Surveying, Mapping and Geo-information (formerly known
as the State Bureau of Surveying and Mapping) in August 2014, the provision of internet map services by any non-surveying and mapping
enterprise is subject to the approval of the National Administration of Surveying, Mapping and Geo-information and requires a Surveying
and Mapping Qualification Certificate. Internet maps refer to maps called or transmitted through the internet. Pursuant to the
Notice on Further Strengthening the Administration of Internet Map Services Qualification issued by the National Administration
of Surveying, Mapping and Geo-information in December 2011, any entity without a Surveying and Mapping Qualification Certificate
for internet map services is prohibited from providing any internet map services. The PRC regulations also provide for certain
conditions and requirements for issuing the Surveying and Mapping Qualification Certificate, such as the minimum amount of registered
capital, the number of technical personnel and map security verification personnel, security facilities, and ISO9000 certification
or approval from relevant provincial or municipal government. According to the Provisions on the Administration of Examination
of Maps effective on January 1, 2018, the operator of an approved internet map is required to file the updated contents of the
map with the relevant regulatory authority semi-annually, and re-apply for a new approval of the map when the two-year term of
the existing approval expires. BBIT currently provides online traffic information inquiry services as well as internet map marking
and inquiry services that allow users to locate automobile dealers. BBIT plans to expand its business in the future to include
electronic mapping services that allow users to search driving routes and tourist spots. BBIT obtained a Surveying and Mapping
Qualification Certificate for internet mapping on November 11, 2015, effective until December 31, 2019.
Regulations on Foreign Investment
in Telecommunications Enterprises
The PRC government imposes limitations on foreign
ownership of PRC companies that engage in telecommunications-related business. Under the Administrative Rules for Foreign Investments
in Telecommunications Enterprises, a foreign investor is currently prohibited from owning more than 50% of the equity interest
in a PRC subsidiary that engages in value-added telecommunications business. However, the MIIT released an announcement in June
2015 to remove the restriction on foreign equity for “online data processing and transaction processing businesses”
as provided in the Catalog of Telecommunication Businesses promulgated by the MIIT. The Guidance Catalog of Industries for Foreign
Investment, as amended in 2017, allows a foreign investor to own more than 50% of the total equity interest in an e-commerce business.
The Circular on Strengthening the Administration
of Foreign Investment in and Operation of Value-added Telecommunications Business, among others, requires a foreign investor to
set up a foreign-invested enterprise and obtain an operating permit in order to carry out any value-added telecommunications business
in China. Under this circular, a domestic value-added telecommunications service operator that holds a value-added telecommunications
license is prohibited from leasing, transferring or selling such license to foreign investors, and from providing any assistance
in the form of resources, sites or facilities to foreign investors that conduct value-added telecommunications business illegally
in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business of
domestic operators must be owned by such domestic operators or their shareholders. The circular further requires each holder of
value-added telecommunications license to have the necessary facilities for its approved business operations and to maintain such
facilities in the regions covered by its value-added telecommunications license. In addition, all value-added telecommunications
service operators are required to maintain network and information security in accordance with the standards set forth under relevant
PRC regulations. Due to a lack of interpretations from the regulator, it remains unclear what impact this circular would have on
us.
We conduct a certain part of our material businesses
in China through our variable interest entities in China, which among others, include BBIT and Beijing Yixin. BBII has contractual
arrangements with BBIT and its shareholders. Beijing KKC, has contractual arrangements with Beijing Yixin and its shareholders.
BBIT holds a regional ICP license, which is one kind of value-added telecommunications licenses, to conduct internet information
services in Beijing and currently owns, or otherwise has the legal right to use, all the domain names in connection with our business
covered by its ICP license. BBIT has submitted registration applications for the trademarks used for its internet information services
on its websites, but has not received approval for all its applications. Some of BBIT’s registration applications are still
under review. Beijing Yixin holds an ICP license issued by Beijing Communications Administration Bureau, which is a type of value-added
telecommunications licenses, to conduct internet information services and currently owns, or otherwise has the legal right to use,
all the domain names and trademarks used for its internet information services on its websites. There are substantial uncertainties
regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance
that the PRC regulatory authorities may not take a view that the contractual arrangements by and among our variable interest entities
and their respective shareholders are in violation of the PRC laws and regulations. If the PRC government finds that the contractual
arrangements that establish the structure for operating our business do not comply with PRC law and regulations restricting foreign
investment in the telecommunications business, we could be subject to severe penalties.
Regulations of Advertising Content
The PRC government regulates the content of
advertisements through Advertisement Law, as promulgated and recently amended on April 24, 2015 and other similar laws and regulations
in China. PRC laws and regulations prohibit, among other things, false or misleading content, superlative wording, socially destabilizing
content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements
for anesthetic, psychotropic, toxic or radioactive drugs, pharmaceutical precursor chemicals, as well as drug addiction treatment
medicines, medical devices and treatment methods are not permitted. Advertisements for tobacco may not be broadcast on television.
Restrictions also exist regarding the advertisement of patented products and processes, pharmaceuticals, medical instruments, agrochemicals,
foodstuff, alcohol and cosmetics. All advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary
pharmaceuticals, along with any other advertisements which are subject to censorship by administrative authorities according to
relevant laws and administrative regulations, must be submitted to the relevant administrative authorities for content approval
prior to dissemination.
Advertisers, advertising agencies and advertising
distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare
or distribute is true and accurate and in full compliance with applicable laws and regulations. In providing advertising services,
advertising operators and advertising distributors must review the specified supporting documents provided by advertisers for advertisements
and verify that the content of the advertisements complies with applicable PRC laws, rules and regulations. Prior to distributing
advertisements for items that are subject to government censorship and approval, advertising distributors must confirm that such
censorship has been performed and approval has been obtained. The use of internet to distribute advertisements cannot affect the
normal use of the internet by users. Particularly, advertisements distributed on internet pages such as pop-up advertisements must
be indicated with conspicuous mark for close to ensure the close of such advertisements by one click. Where internet information
service providers know or should know that illegal advertisements are distributed using their services, they must prevent such
advertisements from being distributed.
In addition to the above regulations, the Internet
Advertising Measures for Internet Advertisements promulgated the SAIC in July 2016 also sets forth certain compliance requirements
for online advertising businesses. For example, advertising operators and distributors of internet advertisement must examine,
verify and record identity information, such as name, address and contact information, of advertisers, and maintain an updated
verification record on a regular basis. Moreover, advertising operators and distributors must examine supporting documents provided
by advertisers and verify the contents of the advertisements before publishing. If the contents of advertisements are inconsistent
with the supporting documents, or the supporting documents are incomplete, advertising operators and distributors must refrain
from providing design, production, agency or publishing services. The Internet Advertising Measures also prohibits the following
activities: (i) providing or using applications and hardware to block, filter, skip over, tamper with, or cover up lawful advertisements;
(ii) using network access, network equipment and applications to disrupt the normal transmission of lawful advertisements or adding
or uploading advertisements without authorization; and (iii) harming the interests of a third party by using fake statistics or
traffic data.
Violation of these regulations may result in
penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders
to publish an advertisement correcting the misleading information. In the case of serious violations, the State Administration
for Industry and Commerce, or the SAIC, or its local branches may force the violator to terminate its advertising operation or
even revoke its business licenses. Furthermore, advertisers, advertising agencies or advertising distributors may be subject to
civil liability if they infringe on the legal rights and interests of third parties.
Regulations on Financial Leasing
The PRC government regulates the financial leasing
enterprises through Administrative Measures of Supervision on Financial Leasing Enterprises, or Circular 337, promulgated on September
18, 2013 and other similar laws and regulations in China. Circular 337 permits financial leasing enterprises to carry out financial
leasing business in such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease and joint lease
in accordance with the provisions of relevant laws, regulations and rules. However, Circular 337 prohibits financial leasing enterprises
from engaging in such financial business as attracting deposits, issuing loans and granting loans on entrustment. Without the approval
from relevant authorities, financial leasing enterprises shall not engage in inter-bank borrowing and other business. In addition,
financial leasing enterprises are prohibited from carrying out illegal fund-raising activities in the name of financial leasing.
Circular 337 requires financial leasing enterprises to establish and improve their financial and internal risk control systems,
and each financial leasing enterprise’s risk assets shall not exceed ten times of their total net assets. Risk assets generally
refers to the adjusted total assets of a financial leasing enterprise excluding cash, bank deposits, sovereign bonds and entrusted
leased assets. Our business operations are in compliance with these regulations.
Regulations on Internet Insurance
In July 2015, the China Insurance Regulatory
Commission, or CIRC, issued Interim Measures for the Regulation of Internet Insurance Business (the “Internet Insurance Interim
Measures”), pursuant to which no institutions or individuals other than insurance institutions, which refer to insurance
companies, insurance agency companies, insurance brokerage companies and other qualified insurance intermediaries, may engage in
the internet insurance business. Under the Internet Insurance Interim Measures, insurance institutions are allowed to conduct internet
insurance business through both self-operated online platforms and third-party online platforms. Self-operated online platforms
refer to online platforms set up by insurance institutions. Third-party online platforms refer to online platforms providing network
supporting services for internet insurance business activities of insurance consumers and insurance institutions, but excluding
self-operated online platforms. Third-party online platforms which are not insurance institutions are only allowed to provide network
supporting services, and shall not provide any internet insurance business such as sales, underwriting, settlement of claims, cancelation
of insurance, complaints handling and customer services. The third-party online platforms are required to meet certain conditions,
including obtaining relevant value-added telecommunication licenses or completing internet content provider filings, as applicable,
and having network access within the territory of the PRC. Insurance institutions are prohibited from cooperating with third-party
online platforms that do not meet those conditions. In addition, the premiums paid by insurance customers are required to be directly
transferred to the special account for premium income of the insurance institutions, and the third-party online platform is not
allowed to collect premiums on behalf of the insurance institutions. The online platforms shall accurately disclose the information
of insurance products required by laws and regulations, and shall not make any false representations, exaggerate previous achievements,
illegally promise earnings or undertake to bear losses, or provide other misleading descriptions.
Regulations on Anti-Money Laundering
The PRC Anti-Money Laundering Law, which became
effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions as
well as nonfinancial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory
measures, establishment of various systems for client identification, retention of clients’ identification information and
transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-Money Laundering
Law, financial institutions subject to the PRC Anti-Money Laundering Law include banks, credit unions, trust investment companies,
stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published
by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published
by the State Council. The People’s Bank of China, or the PBOC, and other governmental authorities issued a series of administrative
rules and regulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions.
However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations.
The Guidelines to Promote the Health Growth
of the Internet Finance, or the Internet Finance Guidelines, jointly released by ten PRC regulatory agencies in July 2015, purport,
among other things, to require internet finance service providers, including online automobile finance platforms to comply with
certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and
reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance
to the public security department and judicial authority in investigations and proceedings in relation to anti-money laundering
matters. The PBOC will formulate implementing rules to further specify the anti-money laundering obligations of internet finance
service providers.
Regulations on Car Rental Business
As the car rental industry is at an early stage
of development in China, regulations governing it continue to evolve. The Ministry of Transport, or the MOT, promulgated the Circular
on Promoting the Health Development of Car Rental Industry in April 2011, which sets forth guidelines for the car rental industry
and requires local government authorities to promulgate local rules and regulations to improve and develop the regulatory environment
of the car rental industry.
Currently the car rental industry is primarily
regulated by government authorities at local levels, where regulatory requirements vary from one province or city to another:
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Some provinces and cities do not have any specific local rules regulating car rental services.
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Some local authorities have promulgated rules to require car rental service providers to file with the local transportation
authority (for example, in Hubei) or to obtain car rental operation permits (for example, in Shanxi, Fujian and Shijiazhuang) before
they are engaged in car rental business.
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With respect to cars used for rental services, some provinces and cities do not have specific local rules, while others impose
additional licensing and filing requirements. In many provinces and cities, the “nature of use” stated in the vehicle
license must be registered as rental or commercial. Some provinces and cities require special additional licenses or vehicle license
plates for rental vehicles. For instance, in some areas, such as Fujian, Hubei, Sichuan, Suzhou, Dalian and Kunming, a road transportation
license or a rental vehicle operation license is required for each rental car; in some areas, such as Shenyang, special vehicle
license plates must be obtained for rental cars, and in some areas, such as Chongqing, each rental car shall be filed with relevant
local authority.
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Some local authorities, such as those in Nanchang, have promulgated local rules requiring that, if a rental vehicle does not
carry a local license plate, it may not be used for rental services where the pick-up place and drop-off place are both within
that city.
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Local practices differ and the implementation
of the local rules and regulations are still under development by local government agencies. Some of the above requirements are
not strictly enforced or may be modified or suspended by the local administration authorities from time to time. For example, local
government authorities of certain cities do not issue permits or process registration for car rental business or rental vehicles
in practice although there exist local regulations requiring such permits or registration.
Regulation on Used Automobile Brokerage
Business
On August 29, 2005, SAIC, the SAT, MOFCOM and
the Ministry of Public Security promulgated Administrative Measures for Trade of Used Vehicles, which was amended on September
14, 2017, pursuant to which enterprises engaged in used vehicles brokerage business shall include used vehicles brokerage business
within their business scope.
Regulations on Foreign Exchange Registration
of Overseas Investment by PRC Residents
SAFE Circular on Relevant Issues Relating to
Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Circular 37, issued
by SAFE and effective in July 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs,
by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under Circular
37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the
purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests,
and “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely,
establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 requires that,
before making contribution into an SPV, PRC residents or entities should complete foreign exchange registration with the SAFE or
its local branch. Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise
the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local
branch. Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents
Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or Circular 75.
PRC residents or entities who have contributed
legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation
of Circular 37 must register their ownership interests or control in such SPVs with the SAFE or its local branch. An amendment
to the registration is required if there is a material change involving the registered SPV, such as any change of basic information
(including change of such PRC residents, change of name and operation term of the SPV), increases or decreases in investment amount,
transfers or exchanges of shares or mergers or divisions. Failure to comply with the registration procedures set forth in Circular
37, misrepresent on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment,
may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of
dividends and other distributions to its offshore parent company or affiliates and the capital inflow from the offshore parent
company, and may also subject the relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.
On February 28, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on
Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. In accordance with SAFE Notice 13, entities and individuals
are required to apply for foreign exchange registration of foreign direct investment and overseas direct investment, including
those required under Circular 37, with qualified banks, instead of SAFE. The qualified banks, under the supervision of SAFE, directly
examine the applications and conduct the registration.
We conduct a certain part of our material businesses
in China through our variable interest entities in China and their respective shareholders. Prior to our initial public offering
in 2010, all ultimate shareholders of our company who we know are PRC residents filed or updated their foreign exchange registrations
with the Beijing Office of the State Administration of Foreign Exchange with respect to their direct or indirect holding of shares
in our company. After our initial public offering, in December 2010, these shareholders have amended the foreign exchange registration
in accordance with Circular 75 to reflect the change of their shareholding in the company. In connection with the strategic investment
by AutoTrader Group, Inc., or AutoTrader Group, in November 2012, certain members of our management purchased shares from a pre-IPO
shareholder. In December 2013, we completed a follow-on public offering of 1,264,855 ADSs, each representing one ordinary share,
at the public offering price of US$30.00 per ADS. A selling shareholder also offered and sold 1,484,345 ordinary shares. The aforesaid
management members who are PRC residents and our ultimate shareholders have not amended their existing foreign exchange registration
to reflect the change of their shareholding as a result of the aforesaid transactions in accordance with the then-effective foreign
exchange registration regulations. As a result of the promulgation of Circular 37, it is uncertain whether our PRC resident shareholders
would be required to amend the relevant existing foreign exchange registrations for the aforesaid transactions, which were consummated
prior to the promulgation of Circular 37 and did not affect their shareholdings in the First Level SPVs.
We have requested PRC resident
shareholders who to our knowledge hold direct or indirect interest in our company to make the necessary applications, filings
and amendments as required under Circular 37 and other related rules. However, we may not be informed of the identities of
all the PRC residents holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC
residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under
Circular 37 or other related rules. See “Item 3. Key Information – D. Risks Factors – Risk Related to Doing
Business in China – PRC Regulations relating to offshore investment activities by PRC residents may increase our
administrative burden and restrict our overseas and cross-border investment activity. If our shareholders fail to make any
required applications and filings under such regulations, we may be unable to distribute profits and may become subject to
liability under PRC laws.”
Regulations on Employee Stock Options
Granted by Listed Companies
On February 15, 2012, SAFE promulgated the
Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies,
or Circular 7, to replace a previous circular. Circular 7 regulates the foreign exchange matters associated with employee stock
incentive plans or similar plans permitted under applicable laws and regulations granted to PRC residents by companies whose shares
are listed on offshore stock exchanges. Pursuant to Circular 7, all PRC residents participating in share incentive plans of offshore
listed companies shall, through their employers, jointly retain qualified PRC agents to register with SAFE. PRC residents for
this purpose include PRC nationals or foreign citizens who have been residing in the PRC consecutively for not less than one year,
acting as directors, or employees of PRC entities affiliated with such offshore listed companies. The foreign exchange proceeds
received by PRC residents from sale of shares under share incentive plans granted by offshore listed companies must be remitted
back to bank accounts located in China opened by their employers or PRC agents.
In 2006, 2010, 2012 and 2016, our board of
directors adopted the 2006 Plan, the 2010 Plan, the 2012 Plan and the 2016 Plan, respectively, pursuant to which, we may issue
employee stock options to our qualified employees and directors on a regular basis. In March 2018, we amended and restated the
2016 Plan to increase the award pool under the 2016 Plan. We have granted employee stock options and incentive shares within the
scope noted in the application documents which were filed with the Beijing Office of the State Administration of Foreign Exchange
at the time of our initial public offering in 2010. We have advised our employees and directors participating in the Stock Incentive
Plan to handle foreign exchange matters in accordance with Circular 7. However, we cannot assure you that our PRC individual beneficiary
owners and the stock options holders who are PRC residents can successfully register with the State Administration of Foreign
Exchange in full compliance with Circular 7. The failure of our PRC individual beneficiary owners and the stock options holders
to complete their registration pursuant to Circular 7 and other foreign exchange requirements may subject these PRC residents
to fines and legal sanctions, and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit
our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially adversely affect our business.
Further, a notice concerning the individual
income tax on earnings from employee stock options, jointly issued by the Ministry of Finance and the SAT, and its implementing
rules provide that domestic companies that implement employee share option programs shall (i) file the employee share option plans
and other relevant documents to the local tax authorities having jurisdiction over them before implementing such employee share
option plans; (ii) file share option exercise notices and other relevant documents to the local tax authorities having jurisdiction
over them before exercise by the employees of the share options, and clarify whether the shares issuable under the employee share
options mentioned in the notice are the shares of publicly listed companies, and (iii) withhold taxes from the PRC employees in
connection with the PRC individual income tax.
Employment Laws
We are subject to laws and regulations governing
our relationship with our employees, including wage and hour requirements, working and safety conditions, and social insurance,
housing funds and other welfare. The compliance with these laws and regulations may require substantial resources.
China’s National Labor Law, which became
effective on January 1, 1995, and China’s National Labor Contract Law, which became effective on January 1, 2008 and was
amended on December 28, 2012, permit workers in both state-owned and private enterprises in China to bargain collectively. The
National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between
the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions,
wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual contracts,
which are to be drawn up in accordance with the collective contract. The National Labor Contract Law has enhanced rights for the
nation’s workers, including permitting open-ended labor contracts and severance payments. The legislation requires employers
to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off
employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term
contract is renewed twice or the employee has worked for the employer for a consecutive ten-year period.
Regulations on Foreign Currency Exchange
Pursuant to applicable PRC regulations on foreign
currency exchange, Renminbi is freely convertible only to the extent of current account items, such as trade-related receipts and
payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment,
require the prior approval from the SAFE or its local branch for conversion of Renminbi into a foreign currency, such as U.S. dollars.
Payments for transactions that take place within the PRC must be made in Renminbi. Domestic companies or individuals can repatriate
foreign currency payments received from abroad, or deposit these payments abroad subject to the requirement that such payments
by repatriated within a certain period of time. Foreign-invested enterprises may retain foreign exchange in accounts with designated
foreign exchange banks. Foreign currencies received for current account items can be either retained or sold to financial institutions
that have foreign exchange settlement or sales business without prior approval from the SAFE or its local branch, subject to certain
regulations. Foreign exchange income under capital account can be retained or sold to financial institutions that have foreign
exchange settlement and sales business, with prior approval from the SAFE or its local branch, unless otherwise provided.
On March 30, 2015, the SAFE promulgated Circular
19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises
nationwide. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using the Renminbi
fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying
loans between non-financial enterprises. Any violation of Circular 19 may result in severe penalties, including substantial fines.
If our variable interest entities require financial support from us or our wholly owned subsidiary in the future and we find it
necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our variable interest
entities’ operations will be subject to statutory limits and restrictions, including those described above.
Regulations on Dividend Distribution
Under applicable PRC laws and regulations, foreign-invested
enterprises in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting
standards and regulations. In addition, foreign-invested enterprises in China are required to allocate at least 10% of their respective
retained earnings each year, if any, to fund statutory reserve funds unless these reserves have reached 50% of the registered capital
of the respective enterprises. Foreign-invested enterprises are also required to set aside funds for the employee bonus and welfare
fund from their after-tax profits each year at percentages determined at their sole discretion. These reserves are not distributable
as cash dividends.
PRC Enterprise Income Tax Law
On March 16, 2007, China passed a new Enterprise
Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. The EIT was amended
on February 24, 2017. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident
enterprises typically pay an enterprise income tax at the rate of 25% and enterprises identified as key high-and-new-technology
enterprises supported by the state enjoy a preferential enterprise income tax rate of 15%. An enterprise established outside of
China with its “de facto management bodies” located within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing
rules of the EIT Law define de facto management body as a managing body that in practice exercises “substantial and overall
management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
The SAT issued the Notice Regarding the Determination
of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies,
or Circular 82, on April 22, 2009, and as amended on January 29, 2014. Circular 82 provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China, which
include all of the following conditions: (a) the location where senior management members responsible for an enterprise’s
daily operations discharge their duties; (b) the location where financial and human resource decisions are made or approved by
organizations or persons; (c) the location where the major assets and corporate documents are kept; and (d) the location where
more than half (inclusive) of all directors with voting rights or senior management have their habitual residence. In addition,
the SAT issued a bulletin on July 27, 2011, effective September 1, 2011, and as amended on April 17, 2015, providing more guidance
on the implementation of Circular 82. This bulletin clarifies matters including resident status determination, post-determination
administration and competent tax authorities. Although both Circular 82 and the bulletin only apply to offshore enterprises controlled
by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria
set forth in Circular 82 and the bulletin may reflect the SAT’s general position on how the “de facto management body”
test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled
by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.
Due to the short history of the EIT law and
lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment
of a foreign company such as us. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise
income tax purposes, a number of PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a
rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations; second, the EIT Law provides
that dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. However, it is
unclear whether the dividends our holding companies receive from BBII will constitute dividends between “qualified resident
enterprises” and would therefore qualify for tax exemption, because the definition of qualified resident enterprises is unclear
and the relevant PRC government authorities have not yet issued guidance with respect to the processing of outbound remittances
to entities that are treated as resident enterprises for PRC enterprise income tax purposes; third, if the competent PRC tax authorities
consider dividends we pay with respect to our ADSs or ordinary shares and the gains realized from the transfer of our ADSs or ordinary
shares income derived from sources within the PRC, such dividends and gains earned by our non-PRC resident enterprise investors
may be subject to PRC enterprise income tax at a rate of 10% and such dividends and gains earned by non-PRC resident individuals
may be subject to PRC individual income tax at a rate of 20%. In addition, it is unclear whether, if we were considered a PRC resident
enterprise, our non-resident investors would be able to claim the benefit of income tax treaties or agreements entered into between
China and other countries or regions.
The EIT Law and the implementation rules provide
that an income tax rate of 10% will normally be applicable to dividends payable to investors that are “non-resident enterprises,”
or non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment
or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business
to the extent such dividends are derived from sources within the PRC. The State Council of the PRC or a tax treaty between China
and the jurisdictions in which the non-PRC investors reside may reduce such income tax. Pursuant to the Double Tax Avoidance Arrangement
between Hong Kong and Mainland China and the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in
Tax Treaties issued on February 20, 2009 by the SAT, if the Hong Kong resident enterprise owns more than 25% of the equity interest
in a company in China within 12 months immediately prior to obtaining dividends from such company and is determined by the competent
PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement between Hong Kong
and Mainland China and other applicable PRC laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise received
from such company in China is reduced to 5%. In August 2015, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers
to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective on November 1, 2015. Circular 60 provides that non-resident
enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax
rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed
criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and
supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities.
Accordingly, our Hong Kong subsidiary may be able to enjoy the 5% withholding tax rate for the dividends they receive from our
PRC subsidiaries, if it satisfies the conditions prescribed under Double the Tax Avoidance Arrangement and other relevant tax rules
and regulations. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties,
if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due
to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment;
and based on a SAT Circular 9 issued by the SAT in February 2018, which became effective from April 1, 2018 and superseded the
Notice on the Comprehension and Recognition of Beneficial Owner in Tax Treaties issued on October 27, 2009 by the SAT, when determining
the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests
or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more
than 50% of his or her income in twelve months to residents in third country or region, whether the business operated by the applicant
constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any
tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be
analyzed according to the actual circumstances of the specific cases. The Circular 9 further provides that applicants who intend
to prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau
according to the Circular 60.
The PRC tax authorities have enhanced their
scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise by
promulgating and implementing the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax
Resident Enterprises, or Public Notice 7, issued by the SAT, on February 3, 2015, which partially replaced and supplemented previous
rules under the Circular 698. Public Notice 7 extends its tax jurisdiction to capture not only indirect transfer as set forth under
Circular 698 but also transactions involving the transfer of real property in China and assets of an establishment or a place in
the PRC by a foreign company through the offshore transfer of a foreign intermediate holding company. Public Notice 7 interprets
the term “transfer of the equity interest in a foreign intermediate holding company” broadly. In addition, Public Notice
7 further clarifies certain criteria on how to assess reasonable commercial purposes and introduces safe harbor scenarios applicable
to internal group restructurings. However, it also imposes burdens on both the foreign transferor and the transferee of the Indirect
Transfer as they are required to make a self-assessment on whether the transaction should be subject to PRC tax and whether to
file or withhold the PRC tax accordingly. Where a non-resident enterprise conducts an “indirect transfer” by transferring
the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise
being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax
authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may re-characterize
such indirect transfer as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties in
China. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or
other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of up
to 10% for the transfer of equity interests in a PRC resident enterprise. On October 17, 2017, the SAT issued the SAT Bulletin
37, which came into effect on December 1, 2017 and concurrently abolished Circular 698. The SAT Bulletin 37 further clarifies the
practice and procedure of the withholding of non-resident enterprise income tax. SAT Bulletin 37 and Public Notice 7 may be determined
by the tax authorities to be applicable to our future disposition of equity interests in certain non-resident holding companies
that hold an equity interest in any of our PRC subsidiaries, if any of such transactions were determined by the tax authorities
to lack reasonable commercial purpose. As a result, we may become at risk of being taxed under SAT Bulletin 37 and Public Notice
7 and may be required to expend valuable resources to comply with SAT Bulletin 37 and Public Notice 7 or to establish that we should
not be taxed under SAT Bulletin 37 or Public Notice 7, which may have a material adverse effect on our financial condition and
results of operations.
BBII enjoyed a five-year tax holiday from 2007
to 2011 and was eligible to enjoy a two-year exemption from enterprise income tax followed by a three-year half reduction of enterprise
income tax. In addition, BBII was also designated as “High and New Technology Enterprise” under the EIT Law in December
2008. Therefore, the income tax rate applicable for BBII was 7.5% for the years ended 2009, 2010 and 2011. Historically, BBII
successfully renewed its “High and New Technology Enterprise” status every three years and enjoyed a preferential
income tax rate of 15% for the year ended December 31, 2017. Pursuant to the latest renewal in December 2017, BBII will enjoy
a preferential income tax rate of 15% for another three years ended December 31, 2020.
In December 2011, Beijing Bit EP Information
Technology Company Limited, or Bit EP, was qualified as a “software enterprise” and will enjoy a two-year exemption
from enterprise income tax followed by a three-year half reduction of enterprise income tax from the first fiscal year when Bit
EP becomes profitable since December 2011. In December 2016, Bit EP was designated as “High and New Technology Enterprise”
under the EIT law and would enjoy a preferential income tax rate of 15% from 2017 to 2019.
In December 2013, Target Net was qualified
as a “High and New Technology Enterprise” under the EIT law and successfully renewed this status for another three
years in December 2016. Pursuant to the renew, Target Net would enjoy a preferential income tax rate of 15% for the years ended
December 31, 2016, 2017 and 2018.
In December 2014, Bitauto Xi’an was qualified
as a “software enterprise” under the New Software Enterprise Measures and now enjoys a two-year exemption from enterprise
income tax followed by a three-year half reduction of enterprise income tax from the first fiscal year when Bitauto Xi’an
becomes profitable since December 2014.
In May 2017, Shanghai Lanshu was accredited
as a “software enterprise” and will enjoy a two-year exemption from enterprise income tax followed by a three-year
half reduction of enterprise income tax, commencing from the first year of profitable operation after offsetting tax losses generating
from prior years.
In accordance with relevant PRC laws and regulations,
Xinjiang Yin’an is exempt from EIT for four years, commencing from January 1, 2017 to December 31, 2020.
If BBII, Bit EP, Target Net, Bitauto Xi’an,
Shanghai Lanshu or Xinjiang Yin’an fails to maintain its qualification, their applicable EIT rates may increase to up to
25%, which could have a material adverse effect on our results of operations.
Regulations on Concentration in
Merger and Acquisition Transactions
The M&A Rule established additional procedures
and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. These
rules require, among other things, that the Ministry of Commerce be notified in advance of any change-of-control transaction,
in which a foreign investor will take control of a PRC domestic enterprise or a foreign company with substantial PRC operations,
if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings issued by the
State Council on August 3, 2008 are triggered. According to the Implementing Rules Concerning Security Review on the Mergers and
Acquisitions by Foreign Investors of Domestic Enterprises issued by the Ministry of Commerce in August 2011, mergers and acquisitions
by foreign investors involved in an industry related to national security are subject to strict review by the Ministry of Commerce.
These rules also prohibit any transactions attempting to bypass such security review, including by controlling entities through
contractual arrangements. We believe that our business is not in an industry related to national security. However, we cannot
preclude the possibility that the Ministry of Commerce or other government agencies may publish interpretations contrary to our
understanding or broaden the scope of such security reviews in the future. Although we have no current plans to make any acquisitions,
we may elect to grow our business in the future in part by directly acquiring complementary businesses in China. Complying with
these requirements could affect our ability to expand our business or maintain our market share. See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—PRC rules on mergers and acquisitions may make it more difficult
for us to pursue growth through acquisitions.”
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C.
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Organizational
Structure
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The following diagram illustrates our corporate
structure of principal operating entities as of the date of this annual report:
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1)
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Mr. Jinsong Zhu, the co-president of CIG, holds 100% equity
interests in Beijing Xinbao.
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2)
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BBII holds 74.12% equity interests in CIG. Other four limited
partnerships and third-party investors hold the remaining equity interests of 25.88%.
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3)
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Bin Li and Weihai Qu hold 80% and 20% equity interests in
BBIT, respectively.
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4)
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Bin Li and Weihai Qu hold 80% and 20% equity interests in
BEAM, respectively.
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5)
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We hold 44.4% of the equity interests in Yixin. Each of Tencent, JD.com and Baidu holds 20.90%, 10.90%
and 3.02% equity interests in Yixin, respectively. Other third-party investors hold the remaining equity interests.
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6)
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Bo Han, Shenzhen Tencent Industry Investment Fund Co., Ltd., and Beijing Jiasheng Investment Management Co., Ltd. hold
55.7%, 26.6% and 17.7% equity interests in Beijing Yixin, respectively.
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D.
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Property, Plants and Equipment
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Our headquarters are located in Beijing,
China, where we lease office spaces in two office buildings with a combined area of 15,380.58 square meters as of December
31, 2017. We enter separate leases for individual floors, group of rooms or individual rooms in these buildings. Our leases
generally have terms from one to five years and may be renewed upon expiration of the lease terms. We generally make monthly
rental payments. In addition, we lease office spaces across China for our subsidiaries and branch offices.
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ITEM 4A.
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UNRESOLVED STAFF COMMENTS
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Not applicable.
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ITEM 5.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and
the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere
in this annual report.
Overview
We are a leading provider of internet content & marketing services, and transaction services for China’s fast-growing automotive industry. Since 2016, our businesses
were managed in three segments, namely, advertising and subscription business, transaction services business and digital marketing
solutions business. We provide a variety of advertising services mainly to automakers through our bitauto.com website and corresponding
mobile apps, which provide consumers with up-to-date automobile pricing and promotional information, specifications, reviews and
consumer feedback. We also provide transaction-focused online advertisements and promotional activities services to our business
partners, via Yixin’s online platform, for automakers, automobile dealers, auto finance partners and insurance companies.
Our subscription services offer our SaaS platform which provides web-based and mobile-based integrated digital marketing solutions
to automobile dealer customers in China. Based on our SaaS platform, automobile dealer subscribers may create their own online
showrooms, list pricing and promotional information, provide automobile dealer contact information, place advertisements and manage
customer relationships to help them reach a broad set of purchase-minded customers and effectively market their automobiles to
consumers online. Since 2014, we started transaction services, currently primarily operated by Yixin, our controlled subsidiary,
a leading online automobile retail transaction platform in China, which provides transaction platform services as well as self-operated
financing services. Our digital marketing solutions business provides automakers with one-stop digital marketing solutions, including
website creation and maintenance, online public relations, online marketing campaigns, advertising agent services, big data application
and digital image creation.
The majority of our revenues are from the following
sources:
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advertising fees from our bitauto.com website and corresponding mobile apps, together with Yixin’s online platform through
selling advertisements to our customers;
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subscription fees from new automobile dealer through bitauto.com website and corresponding mobile apps;
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·
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service fees and interest income from our transaction services;
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·
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service fees paid for our integrated one-stop digital marketing solutions, which include website creation and maintenance,
online advertising agent services, public relations and marketing campaigns; and
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·
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performance-based rebates from our media vendors.
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Our business has experienced rapid growth in
the past few years. As a result, we need to adjust our business segmentation to better present our results of operations. Starting
from the first quarter of 2016, we combined the advertising business with our subscription business to form our advertising and
subscription business and transaction services business was reported separately under a new business segment. Our businesses are
currently managed in three segments, namely, advertising and subscription business, transaction services business and digital
marketing solutions business. Revenues were RMB4.25 billion, RMB5.77 billion and RMB8.75 billion (US$1.35 billion) in 2015, 2016
and 2017, respectively. In 2017, revenues from our advertising and subscription business, transaction services business and digital
marketing solutions business accounted for 44.9%, 44.2% and 10.9% of our total revenues, respectively.
Factors Affecting Our Results of Operations
We believe the following factors have had, and
will continue to have, a significant effect on our results of operations.
Development of China’s automotive industry
.
We rely on China’s automotive industry for substantially all of our revenues, which we generate from providing internet content,
marketing services and transaction services. We have greatly benefited from the rapid growth of China’s automotive industry
during the past few years. China’s automotive industry is still at an early stage of development and remains subject to many
uncertainties, including the general economic conditions in China and around the world, the growth of disposable household income
and the availability and cost of credit available to finance automobile purchases, taxes and other incentives or disincentives
related to automobile purchases and ownership, environmental concerns and measures taken to address these concerns, and cost of
energy including gasoline price. We believe that the auto industry in China will face challenges, as government subsidies to promote
auto sales are phased out and major cities such as Beijing introduce traffic control policies that restrict new auto purchases.
Adverse changes to the development of China’s automotive industry would likely reduce the demand for our services.
Growth in online advertising and marketing
spending by China’s automobile automakers and automobile dealers
. With the continuing growth of internet usage in China,
the internet has become an increasingly important advertising and marketing channel to China’s automotive industry. We believe
we will continue to benefit from the growth in online advertising and marketing spending by automakers and automobile dealers in
China.
Market penetration of our advertising and
subscription business
. Revenues from our advertising business are directly affected by the amount of advertisements placed
by our customers on our websites and corresponding mobile apps. The content offerings and the attractiveness of our consumer-facing
websites may significantly impact the traffic of automotive consumers to our websites, which in turn would affect automotive advertisers’
spending on our websites. Revenues from our subscription services are directly affected by the number of subscribers and the lengths
of subscriptions. Our business and results of operations will depend significantly on our ability to grow our customer base and
the increase in subscription fees, including expanding our services into new geographic areas and providing additional services
to our existing customers. Finally, we believe our automotive content’s broad consumer reach achieved through our own automotive
vertical websites and corresponding apps and our partners’ is also a factor considered by our automotive customers when choosing
our advertising and subscription services.
Development of our transaction services
business
. Revenues from our transaction services business are primarily affected by the number of transactions we facilitate
and service fees and interest income we may charge. Since the businesses are relatively new in China and we are still exploring
the best approaches to grow these businesses, we may need to invest additional resources to develop and market our new services.
Our ability to expand our customer base, to manage our growth and risk as we expand our business lines to offer more services
and products, and to price competitively will have an impact on the outcome of our transaction services business development.
Additionally, we make provisions for impairment losses on finance receivables in accordance with U.S. GAAP and the impairment require
significant judgment and estimation. Since we have limited experience in the self-operated financing business, we might in the
future adjust our provisioning judgment or policies as we gain more experience in this business, which could in turn lead to additional
provisions for our receivables and affect our business, financial condition and results of operations.
Expansion of customer base for our digital
marketing solutions business
. We have a limited number of automaker customers for our digital marketing solutions business.
We anticipate that a small number of automakers will continue to represent a significant percentage of revenues for our digital
marketing solutions business in the near future. The amount of advertising spending by these automaker customers, the addition
of new automaker customers and/or the loss of any existing automaker customers will each have a direct impact on the revenues of
our digital marketing solutions business and our total revenues.
Key Components of Results of Operations
Revenues
In 2017, we generated total revenues of RMB8.75
billion (US$1.35 billion). The following table sets forth our revenues derived from each of our business segments, both in an absolute
amount and as a percentage of total revenues for the periods presented.
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For the Year Ended December 31,
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2015
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2016
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|
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2017
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|
|
|
RMB
|
|
|
%
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|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(In thousands, except percentages)
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Advertising and subscription business*
|
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3,106,025
|
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|
|
73.0
|
|
|
|
3,432,986
|
|
|
|
59.4
|
|
|
|
3,922,158
|
|
|
|
602,825
|
|
|
|
44.9
|
|
Transaction services business*
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|
664,225
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|
|
|
15.6
|
|
|
|
1,551,676
|
|
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|
26.9
|
|
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3,872,244
|
|
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595,153
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44.2
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Digital marketing solutions business
|
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|
483,945
|
|
|
|
11.4
|
|
|
|
788,286
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|
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|
13.7
|
|
|
|
956,857
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|
|
|
147,066
|
|
|
|
10.9
|
|
Total revenues
|
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4,254,195
|
|
|
|
100.0
|
|
|
|
5,772,948
|
|
|
|
100.0
|
|
|
|
8,751,259
|
|
|
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1,345,044
|
|
|
|
100.0
|
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Notes:
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*
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For the year ended December
31, 2015, we managed our business in three segments, namely advertising business, EP
platform business and digital marketing solutions business. From 2016, we combined the
advertising business with our subscription business to form our advertising and subscription
business segment and transaction services business was reported separately under a new
business segment. As a result of the above changes in segment structure, the comparative
figures of segment information for the year ended December 31, 2015 were revised accordingly.
|
Our advertising and subscription business
Revenues from our advertising and subscription
business accounted for 73.0%, 59.4% and 44.9% of our total revenues in 2015, 2016 and 2017, respectively. We generate revenues
through our websites and mobile apps by providing advertising services to automakers and subscription services to our automobile
dealer customers. We generate most of our advertising revenues through selling advertisements to automakers. We provide text-based,
banner, video and rich media advertisements on our bitauto.com website and corresponding mobile apps. Of the approximately 81 automakers
in China and their joint ventures (consisting of international and Chinese automobile manufacturers with annual sales volume of
24 million passenger automobiles), 73 placed advertisements on our bitauto.com website and corresponding mobile apps in 2017. Meanwhile,
we also provide transaction-focused online advertisements and promotional activities services to our business partners, via Yixin’s
online platform, for automakers, automobile dealers, auto finance partners, and insurance companies. We generate revenues from
subscription fees paid by our automobile deal customers for the subscription of our SaaS platform, which provide web-based and
mobile-based integrated digital marketing solutions to automobile dealer customers in China.
Our transaction services business
Revenues from our transaction services business
which is primarily operated by Yixin, accounted for 15.6%, 26.9% and 44.2% of our total revenues in 2015, 2016 and 2017, respectively.
We derive our revenues from several types of services, including (i) transaction platform business which includes (a) transaction
facilitation services, whereby we primarily earn service fees from consumers or automobile dealers that have completed transactions
through our platform, (b) loan facilitation services, whereby we primarily earn service fees from consumer borrowers or banks
that have extended auto loans to consumers, and (c) value-added services, where we primarily generate revenues from automobile
dealers for sales of vehicle telematics systems; and (ii) self-operated financing business, where we primarily provide consumers
with auto finance solutions through financing leases and operating leases.
Our digital marketing solutions business
Revenues from our digital marketing solutions
business accounted for 11.4%, 13.7% and 10.9% of our total revenues in 2015, 2016 and 2017, respectively. We derive our revenues
from the service fees paid by our customers, principally automakers, for the digital marketing solutions we provide, which include
website creation and maintenance, online public relations, online marketing campaigns, advertising agent services, big data application
and digital image creation. In addition, we receive performance-based rebates from media vendors for our online advertising agent
services, which are usually a percentage of the purchase price for qualifying advertising space purchased by our customers.
Cost of Revenues
Cost of revenues for our advertising and subscription
business mainly includes fees paid to our business partners to distribute our automobile dealer customers’ pricing and promotional
information, direct service cost and turnover taxes and related surcharges. Cost of revenues for our transaction services business
mainly includes funding cost, cost of automobiles sold and vehicle telematics devices sold, turnover taxes and related surcharges.
Cost of revenues for our digital marketing solutions business mainly includes direct service cost and turnover taxes and related
surcharges.
The following table sets forth our cost of revenues
in each of our business segments, both as an absolute amount and as a percentage of total revenues, for the periods indicated.
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For the Year Ended December 31,
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2015
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|
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2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
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|
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%
|
|
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|
(In thousands, except percentages)
|
|
Total revenues
|
|
|
4,254,195
|
|
|
|
100.0
|
|
|
|
5,772,948
|
|
|
|
100.0
|
|
|
|
8,751,259
|
|
|
|
1,345,044
|
|
|
|
100.0
|
|
Cost of revenues:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Advertising and subscription business
|
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|
761,153
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|
|
|
17.9
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|
|
|
890,452
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|
|
|
15.4
|
|
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845,826
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|
|
|
130,000
|
|
|
|
9.7
|
|
Transaction services business
|
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|
426,640
|
|
|
|
10.0
|
|
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|
883,438
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|
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|
15.3
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|
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1,969,630
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|
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|
302,727
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|
|
|
22.5
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Digital marketing solutions business
|
|
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262,951
|
|
|
|
6.2
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|
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|
304,089
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|
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|
5.3
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|
|
419,224
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|
|
|
64,434
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|
|
|
4.8
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Total cost of revenues
|
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|
1,450,744
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|
34.1
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|
|
|
2,077,979
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|
36.0
|
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3,234,680
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|
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|
497,161
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|
37.0
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Selling and Administrative Expenses
Our selling and administrative expenses primarily
consist of the following:
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salaries and benefits for the sales and marketing personnel and administrative personnel;
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·
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sales and marketing expenses we incurred to promote our brand image through marketing activities consisting of (1) mobile-end
promotions, such as promoting our mobile apps at different app stores, as well as cooperating with search engines and navigation
sites on mobile sites; (2) offline events, such as automotive exhibitions and industry forums and to a less extent (3) PC-end marketing,
such as cooperating with search engines and navigation sites;
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·
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office expenses for our daily operations, traveling and communication expenses and professional service fees;
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·
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operating lease expenses for our office space in various cities;
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·
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share-based compensation expenses mainly arising from our share incentive plans;
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·
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allowance for doubtful accounts for accounts receivable, and credit losses for finance receivables;
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·
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depreciation and amortization;
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·
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leasing related expenses for financing lease and operating lease services including collection agency fees and credit enquiry
fees; and
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·
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others that include training fees and delivery costs.
|
The following table sets forth our selling and
administrative expenses, both as an absolute amount and as a percentage of total revenues for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
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2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
Total revenues
|
|
|
4,254,195
|
|
|
|
100.0
|
|
|
|
5,772,948
|
|
|
|
100.0
|
|
|
|
8,751,259
|
|
|
|
1,345,044
|
|
|
|
100.0
|
|
Selling and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
590,576
|
|
|
|
13.9
|
|
|
|
972,124
|
|
|
|
16.8
|
|
|
|
1,374,737
|
|
|
|
211,293
|
|
|
|
15.7
|
|
Sales and marketing expenses
|
|
|
1,341,347
|
|
|
|
31.5
|
|
|
|
1,296,765
|
|
|
|
22.5
|
|
|
|
1,966,422
|
|
|
|
302,234
|
|
|
|
22.5
|
|
Office expenses
|
|
|
64,074
|
|
|
|
1.5
|
|
|
|
96,714
|
|
|
|
1.7
|
|
|
|
236,721
|
|
|
|
36,383
|
|
|
|
2.7
|
|
Operating lease expenses
|
|
|
75,176
|
|
|
|
1.8
|
|
|
|
94,751
|
|
|
|
1.6
|
|
|
|
107,519
|
|
|
|
16,525
|
|
|
|
1.2
|
|
Share-based compensation expenses
|
|
|
120,045
|
|
|
|
2.8
|
|
|
|
76,981
|
|
|
|
1.3
|
|
|
|
1,167,655
|
|
|
|
179,465
|
|
|
|
13.3
|
|
Allowance for doubtful accounts for accounts receivable, and credit losses for finance receivables
|
|
|
8,931
|
|
|
|
0.2
|
|
|
|
102,651
|
|
|
|
1.8
|
|
|
|
349,185
|
|
|
|
53,669
|
|
|
|
4.0
|
|
Depreciation and amortization
|
|
|
493,424
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|
|
|
11.6
|
|
|
|
662,498
|
|
|
|
11.5
|
|
|
|
716,919
|
|
|
|
110,188
|
|
|
|
8.2
|
|
Write-down of assets
|
|
|
280,591
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|
|
|
6.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Leasing related expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
60,378
|
|
|
|
1.0
|
|
|
|
103,948
|
|
|
|
15,977
|
|
|
|
1.2
|
|
Others
|
|
|
39,833
|
|
|
|
0.9
|
|
|
|
54,949
|
|
|
|
1.0
|
|
|
|
35,940
|
|
|
|
5,524
|
|
|
|
0.4
|
|
Total selling and administrative expenses
|
|
|
3,013,997
|
|
|
|
70.8
|
|
|
|
3,417,811
|
|
|
|
59.2
|
|
|
|
6,059,046
|
|
|
|
931,258
|
|
|
|
69.2
|
|
Product Development Expenses
Our product development expenses mainly include
the salaries and benefits for our product development employees. Our product development expenses were RMB312.1 million, RMB457.4
million, and RMB565.7 million (US$86.9 million) in 2015, 2016 and 2017, respectively, representing 7.3%, 7.9% and 6.5% of our total
revenues in the respective periods.
Taxation
The Cayman Islands
We are incorporated in the Cayman Islands. Under
the current laws of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not
subject to withholding tax in the Cayman Islands.
Hong Kong
Our subsidiaries in Hong Kong are subject to
the Hong Kong profits tax rate at 16.5% and there is no withholding tax in Hong Kong on remittance of dividends.
PRC
Under the Enterprise Income Tax Law, or EIT
Law, and its implementation rules, enterprises established under the laws of jurisdictions outside China with their “de facto
management bodies” located within China may be considered to be PRC tax resident enterprises for tax purposes. We are a holding
company incorporated in the Cayman Islands, which indirectly holds, through our Hong Kong subsidiaries, controlling equity interests
in our subsidiaries in the PRC. Our business operations are principally conducted through our PRC subsidiaries and its variable
interest entities and most of our directors and management staff are PRC nationals. If we are considered a PRC tax resident enterprise
under the above definition, then our global income will be subject to PRC enterprise income tax at the rate of 25%. Further, the
EIT Law and the implementation rules provide that an income tax rate of 10% may be applicable to China-sourced income of foreign
enterprises, such as dividends paid by a PRC subsidiary to its overseas parent company that is not a PRC resident enterprise, which
(i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC
but the relevant income is not effectively connected with the establishment or place of business, unless there are applicable treaties
that reduce such rate. Under a special arrangement between China and Hong Kong, such dividend withholding tax rate is reduced to
5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company distributing the dividends and
is determined by the competent PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance
Arrangement between Hong Kong and Mainland China and other applicable PRC laws. As our Hong Kong subsidiaries own controlling interests
of our PRC subsidiaries, under the aforesaid arrangement, any dividends that our PRC subsidiaries pay our Hong Kong subsidiaries
may be subject to a withholding tax at the rate of 5% if our Hong Kong subsidiaries are not considered to be PRC tax resident enterprises
as described below and are determined by the competent PRC tax authority to have satisfied relevant conditions and requirements.
However, if our Hong Kong subsidiaries are not considered to be the beneficial owners of such dividends under the Circular 9 issued
by the SAT in February 2018 or are determined by the competent PRC tax authority not to have satisfied any other relevant condition
or requirement, such dividends would be subject to the withholding tax rate of 10%. In addition, part of our PRC companies, including
BBII, Bit EP, Target Net, Bitauto Xi’an, Shanghai Lanshu and Xinjiang Yin’an, enjoy certain preferential tax treatments
in accordance with relevant PRC laws and regulations. If such PRC companies fail to maintain its respective qualification under
the relevant PRC laws and regulations, their applicable EIT rates may increase to up to 25%, which could have a material adverse
effect on our results of operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China—Discontinuation of any of the preferential tax treatments currently available to us in the PRC or imposition of
any additional PRC taxes on us could adversely affect our financial position and results of operations.”
The implementation rules of the EIT Law provide
that (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realized from transferring
equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced income.
It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction
where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for tax purposes, any
dividends we pay to our overseas shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from
the transfer of our shares or ADSs may be regarded as China-sourced income and as a result become subject to PRC withholding tax
at a rate of up to 10% if such shareholders are non-PRC resident enterprises or up to 20% if such shareholders are non-PRC resident
individuals, and it is not clear whether the tax treaty benefit would be applicable in such cases.
See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—Dividends we receive from our subsidiaries located in the PRC
may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay
our shareholders or ADS holders.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China— Under the EIT Law, we may be classified as a “resident enterprise” of China; such classification could
result in unfavorable tax consequences to us and our non-PRC shareholders and materially and adversely affect our results of operations
and financial condition.”
In November 2011, the PRC Ministry of Finance
and the SAT jointly issued two circulars setting out the details of the VAT Pilot Program, which change business tax to value-added
tax for certain industries, including, among others, transportation services, research and development and technical services,
information technology services, and cultural and creative services. The VAT Pilot Program initially applied only to these industries
in Shanghai, and has been expanded to eight additional provinces, including Beijing, Tianjin, Zhejiang Province (including Ningbo),
Anhui Province, Guangdong Province (including Shenzhen), Fujian Province (including Xiamen), Hubei Province and Jiangsu province
in 2012. The VAT Pilot Program has been rolled out to the whole country since August 1, 2013. In May 2016, the VAT Pilot Program
was extended to cover additional industry sectors, such as construction, real estate, finance and consumer services.
For the period immediately prior to the implementation
of the VAT Pilot Program, revenues from our services are subject to a 5% PRC business tax. Our entities have been subject to a
6% or 17% value-added tax since the respective effective time of the VAT Pilot Program for our services that are deemed by the
relevant tax authorities to be within the relevant industries.
For more information on PRC tax regulations,
see “Item 4. Information on the Company—B. Business Overview—Regulation—PRC Enterprise Income Tax Law”
and “Item 10. Additional Information—E. Taxation.”
Foreign Currency Exchange Difference
Our presentation currency is Renminbi. The functional
currencies of our holding company, Bitauto Holdings Limited, and our subsidiaries outside of China are the U.S. dollar and the
Hong Kong dollar, while the functional currency of our PRC subsidiaries and variable interest entities is the Renminbi. We recognize
exchange differences arising on the currency translation in other comprehensive income when we consolidate our oversea subsidiaries,
PRC subsidiaries and variable interest entities and translate our consolidated financial statements into Renminbi.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance
with U.S. GAAP, which requires us to make significant judgments, estimates and assumptions that effect (i) the reported amounts
of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the end of each reporting period, and (iii)
the reported amounts of revenues and expenses during each reporting period. We continually evaluate these estimates and assumptions
based on the most recently available information, our own historical experience and various other assumptions that we believe to
be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process,
actual results could differ from those estimates.
Some of our accounting policies require higher
degrees of judgment than others in their application. When reviewing our consolidated financial statements, you should consider
(i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such
policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed
below to be critical to an understanding of our consolidated financial statements as their application place significant demands
on the judgment of our management. The following descriptions of our critical accounting policies, judgments and estimates should
be read in conjunction with our consolidated financial statements, the risks and uncertainties described under “Risk Factors”
and other disclosures included in this annual report. Beginning from the first quarter of 2016, we changed our basis of accounting
from IFRS to U.S. GAAP.
Principles of consolidation
We consolidate our subsidiaries, the variable
interest entities and subsidiaries of variable interest entities of which we are the ultimate primary beneficiary.
A subsidiary is an entity in which (i) we directly
or indirectly control more than 50% of the voting power; or (ii) we have the power to appoint or remove the majority of the members
of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern the financial and
operating policies.
A variable interest entity is an entity in which
our company, or our subsidiaries, through contractual agreements, bears the risks of, and enjoys the rewards normally associated
with, ownership of the entity, and therefore our company or our subsidiaries are the primary beneficiary of the entity.
All transactions and balances among our company,
our subsidiaries, the variable interest entities and subsidiaries of variable interest entities have been eliminated upon consolidation.
The results of subsidiaries, the variable interest entities and subsidiaries of variable interest entities acquired or disposed
of during the year are recorded in the consolidated statements of comprehensive income from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Business combinations and noncontrolling
interests
We account for our business combinations using
the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 “Business
Combinations”. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date
of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and
all contractual contingencies as of the acquisition date. Transaction costs directly attributable to the acquisition are expensed
as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition
date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value
of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii)
the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets of the acquiree, the difference is recognized directly in the consolidated statements of comprehensive
income. During the measurement period, which can be up to one year from the acquisition date, we may record adjustments to the
assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period
or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments
are recorded to the consolidated statements of comprehensive income.
In a business combination considered as a step
acquisition, we remeasure the previously held equity interest in the acquiree immediately before obtaining control at the acquisition-date
fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive income.
For our majority-owned subsidiaries, variable
interest entities and subsidiaries of variable interest entities, a noncontrolling interest is recognized to reflect the portion
of their equity which is not attributable, directly or indirectly, to our company. Noncontrolling interests are classified as a
separate line item in the equity section of our consolidated balance sheets and have been separately disclosed in our consolidated
statements of comprehensive income to distinguish the interests from that of our company.
Revenue recognition
Revenue principally represents advertising and
subscription services revenue, transaction services revenue and agent services revenue. Consistent with the criteria of ASC 605
“Revenue Recognition”, we recognize revenue when the following four revenue recognition criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed
or determinable, and (iv) collectability is reasonably assured. Revenue is measured at the fair value of the consideration received
or receivable. We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal
or agent. Value-added tax (“VAT”) is included in revenue.
Revenue arrangements with multiple deliverables
are divided into separate units of accounting. The arrangement consideration is allocated at the inception of the arrangement to
each element based on their relative fair values for revenue recognition purposes. The consideration is allocated to each element
using vendor-specific objective evidence or third-party evidence of the standalone selling price for each deliverable, or if neither
type of evidence is available, using management’s best estimate of selling price.
Advertising and subscription services
Advertising services
. Revenue from advertising
services is recognized when the advertisements are published over the stated display period, and when the collectability is reasonably
assured. We also organize promotional events to help customers to promote their products. We recognize revenue from organizing
promotional events when the services have been rendered, and the collectability is reasonably assured. Revenues from advertising
services are reported at a gross amount.
Subscription services
. We provide web-based
and mobile-based integrated digital marketing solutions, via SaaS platform, to automobile dealer customers in China. Such SaaS
platform enables automobile dealer subscribers to create their own online showrooms, list pricing and promotional information,
provide automobile dealer contact information, place advertisements and manage customer relationships, which help them effectively
market the automobiles to consumers. The revenue is recognized on a straight-line basis over the subscription or listing period.
Revenues from dealer subscription and listing services are reported at a gross amount.
We invoice our customers based on the payment
terms stipulated in the executed subscription agreements, which generally ranges from several months to one year. We record amounts
received prior to revenue recognition in advances from customers, which is included in the other payables and accruals line item
in our consolidated balance sheets.
Transaction services
Automobile financing lease and operating
lease services
. We provide automobile financing lease services to individual customers and automobile dealers through two models:
direct financing lease and sales-and-leaseback. In a direct financing lease arrangement, revenue is recognized over the lease period
on a systematic and rational basis so as to produce a constant periodic rate of return on the net investment in the financing leases.
In a sales-and-leaseback arrangement, the transaction is in substance a collateral financing and revenue is recognized over the
lease period using the effective interest rate method. We also provide automobile operating lease services to individual and corporate
customers. Revenue from these services is recognized on a straight-line basis over the lease period.
Other transaction services.
We recognize
revenue from direct automobile sales to automobile dealers and institutional customers. The revenue is recorded on a gross basis
as we act as the principal, are primarily responsible for the sales arrangements and are subject to inventory risk. Revenue from
direct automobile sales is recognized when a sales contract has been executed and the automobiles have been delivered.
We recognize revenue from facilitation and other
services when assisting the customers to complete a used automobile purchase transaction or an automobile financing transaction.
We recognize sales revenue of vehicle telematics devices upon transfer of the title and associated risks and rewards of the devices
to our business partners. We also recognize commission-based fees for the provision of automobile e-commerce services.
Agent services
We receive commissions for assisting customers
in placing advertisements on media vendor websites (“advertising agent services”). The net commission revenue from
advertising agent services is recognized when the advertisements are published over the stated display period, and when the collectability
is reasonably assured. We also receive performance-based rebates from the media vendors, equal to a percentage of the purchase
price for qualifying advertising space purchased and utilized by the customers we represent. Revenue is recognized when the amounts
of these performance-based rebates are probable and reasonably estimable. We also provide project-based services such as public
relations and marketing campaign. Revenue is recognized when the services have been rendered, and the collectability is reasonably
assured.
Foreign currencies
Our company, our subsidiaries, variable interest
entities and subsidiaries of variable interest entities individually determine our functional currency based on the criteria of
ASC 830 “Foreign Currency Matters”. The functional currencies of our company and our subsidiaries outside China are
the U.S. dollar (“US$”) and the Hong Kong dollar (“HKD”), and the functional currency of PRC subsidiaries,
variable interest entities and subsidiaries of variable interest entities is the RMB. Since our operations are primarily denominated
in the RMB, we have chosen the RMB as the reporting currency for the consolidated financial statements.
Transactions denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated
in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date. Exchange
gains or losses arising from foreign currency transactions are recorded in the consolidated statements of comprehensive income.
The financial statements of the entities with
non-RMB functional currencies are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities,
average exchange rate for the year for income and expense items, and historical exchange rate for equity items. Translation gains
or losses arising from the translation are recognized in accumulated other comprehensive income as a component of shareholders’
equity.
Accounts receivable, net
Accounts receivable are amounts due from customers
for services performed or merchandise sold in the ordinary course of business. If collection of accounts receivable is expected
in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not,
they are presented as non-current assets.
Accounts receivable are recorded net of allowance
for doubtful accounts. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an assessment
of specific evidence indicating troubled collection, such as the accounts aging, financial conditions of the customer and industry
trend.
Investment in equity investees
Investment in equity investees represents our
investments in privately-held companies. We apply the equity method to account for an equity investment, in common stock or in-substance
common stock, according to ASC 323 “Investment - Equity Method and Joint Ventures,” over which we have significant
influence but do not own a majority equity interest or otherwise control.
An investment in in-substance common stock is
an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common
stock. We consider subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment
in an entity is substantially similar to an investment in that entity’s common stock.
For other equity investments that are not considered
as debt securities or equity securities that have readily determinable fair values and over which we neither have significant influence
nor control through investment in common stock or in-substance common stock, the cost method is used.
Under the equity method, our share of the post-acquisition
profits or losses of the equity investee is recognized in the consolidated statements of comprehensive income and our share of
post-acquisition movements in accumulated other comprehensive income is recognized in shareholders’ equity. The excess of
the carrying amount of the investment over the underlying equity in net assets of the equity investee represents goodwill and intangible
assets acquired. When our share of losses in the equity investee equals or exceeds our interest in the equity investee, we do not
recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of the equity investee.
Under the cost method, we carry the investment
at cost and recognize income to the extent of dividends received from the distribution of the equity investee’s post-acquisition
profits.
From time to time, the rights on certain investments
in which we have significant influence were modified with new rounds of financing. These modifications may be additions or removals
of certain rights. As a result of such modification, these equity investments, which were accounted for using equity method, were
reclassified as investments accounted for using cost method, or vice versa. The carrying amount of the investments was remeasured
upon the reclassification and a deemed disposal gain or loss was recognized in the investment
income/(loss) in the consolidated statements of comprehensive income.
We continually review our investments in
equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The primary
factors we consider in our determination are the length of time that the fair value of the investment is below the carrying
value; the financial condition, operating performance and the prospects of the equity investee; and other company specific
information such as recent financing rounds. If the decline in fair value is deemed to be other than temporary, the carrying
value of the equity investee is written down to fair value, which is reflected in share of results of equity
investees and investment income/(loss) in the consolidated statements of comprehensive income.
Goodwill
Goodwill represents the excess of the purchase
consideration over the fair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized
but is tested for impairment on an annual basis as of December 31, or more frequently if events or changes in circumstances indicate
that it might be impaired. We have the option to first assess qualitative factors to determine whether it is necessary to perform
the two-step quantitative goodwill impairment test. In the qualitative assessment, we consider primary factors such as industry
and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations.
We will perform the quantitative impairment test if we bypass the qualitative assessment, or based on the qualitative assessment,
if it is more likely than not that the fair value of each reporting unit is less than the carrying amount.
In performing the two-step quantitative impairment
test, the first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.
If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill
to the carrying amount of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar
to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets
and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating
goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill
impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities
and goodwill to reporting units, and determining the fair value of each reporting unit.
Intangible assets, net
Intangible assets are stated at cost less accumulated
amortization and impairment if any. Intangible assets acquired in a business combination are recognized initially at fair value
at the date of acquisition. Intangible assets with an indefinite useful life are not amortized and are tested for impairment annually
or more frequently if events or changes in circumstances indicate that they might be impaired in accordance with ASC subtopic 350-30
(“ASC 350-30”), Intangibles-Goodwill and Other: General Intangibles Other than Goodwill. Separately identifiable intangible
assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method.
Impairment of long-lived assets
We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
There were no indicators of impairment associated
with the long-lived assets as of December 31, 2016 and 2017, respectively. At the year end of 2015, we recorded a write-down of
assets for the business cooperation relating to resources to be provided through the channel of Paipai.com, as the Paipai.com business
was terminated by JD.com.
Fair value
Accounting guidance defines fair value as the
price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurement for assets and liabilities required or permitted to be recorded
at fair value, we consider the principal or most advantageous market in which we would transact and we considers assumptions that
market participants would use when pricing the asset or liability.
We measure certain financial assets, including
the investments under the cost method and equity method on other-than-temporary basis, intangible assets, goodwill and property,
plant and equipment are marked to fair value when an impairment charge is recognized.
Accounting guidance establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure
fair value:
Level 1 - Observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs that are directly
or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported
by little or no market activity.
Accounting guidance also describes three main
approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach.
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable
assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount.
The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is
based on the amount that would currently be required to replace an asset.
Share-based compensation
Our share-based awards mainly comprise share
options and restricted share units, or RSUs. In accordance with ASC 718 “Compensation – Stock Compensation”,
share-based awards granted to employees are measured at fair value on grant date and share-based compensation expense is recognized
(i) immediately at the grant date if no vesting conditions are required, or (ii) using the graded vesting method, net of estimated
forfeitures, over the requisite service period.
All transactions in which goods or services
are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.
If a share-based award is modified after the
grant date, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the modified
equity instrument over the fair value of the original equity instrument immediately before modification. The additional compensation
expenses are recognized immediately on the date of the modification or over the remaining requisite service period, depending on
the vesting status of the award.
We determined the fair value of share options
with the assistance of independent third-party valuation firms. The binomial option pricing model was applied in determining the
fair value of share options. The fair value of RSUs granted subsequent to the initial public offering will be the price of publicly
traded shares on the date of grant.
We also determined the fair value of share
options granted by Yixin with the assistance of independent third-party valuation firms. In determining the fair value of ordinary
shares granted by Yixin as share-based awards in 2017 before Yixin’s IPO, the discounted cash flow method with a discount
for lack of marketability was applied, given that the shares underlying the awards were not publicly traded at the time of grant.
Based on fair value of the underlying ordinary shares, the binomial option pricing model was applied in determining the fair value
of share options on the date of grant. The following table lists the inputs to the model used on the date of grant and weighted-average
fair value per option granted:
|
|
July 3, 2017
|
|
|
October 1, 2017
|
|
|
|
|
|
|
|
|
Fair value per share
|
|
US$
|
0.53
|
|
|
US$
|
0.70
|
|
Exercise price
|
|
US$
|
0.0014
|
|
|
US$
|
0.0014
|
|
Risk-free interest rate
|
|
|
2.50
|
%
|
|
|
2.46
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Weighted-average fair value per option granted
|
|
US$
|
0.53
|
|
|
US$
|
0.70
|
|
Expected volatility
|
|
|
51
|
%
|
|
|
56
|
%
|
Expected terms
|
|
|
10 years
|
|
|
|
10 years
|
|
Income taxes
We account for income taxes using the asset
and liability method, under which deferred income taxes are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized as income
or expense in the period that includes the enactment date. Valuation allowance is provided on deferred tax assets to the extent
that it is more likely than not that the asset will not be realizable in the foreseeable future.
We adopt ASC 740-10-25 “Income Taxes”
which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. It also provides guidance on derecognition of income tax assets and liabilities, classification
of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions,
accounting for income taxes in interim periods and income tax disclosures. We did not have significant unrecognized uncertain tax
positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit for the years ended December
31 2015, 2016 and 2017.
Leases
Each lease is classified at the inception date
as either a capital lease or an operating lease.
For the lessee, a lease is a capital lease if
any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain
purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life or d) the present
value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property
to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence
of an obligation at the inception of the lease. All other leases are accounted for as operating leases. Payments made under operating
lease are charged to the consolidated statements of comprehensive income on a straight-line basis over the terms of underlying
lease.
For direct financing leases where we are the
lessor and for the sales and leaseback transactions where we are the buyer-lessor, the transaction is accounted for as a capital
lease if the transaction satisfies one of the four capital lease conditions as discussed above. The leased automobiles we purchased
would be derecognized upon the inception of the lease and the net investment of the lease will be recorded as finance receivables.
The net investment in a lease consists of the minimum lease payments, net of executory costs plus the unguaranteed residual value,
less the unearned interest income plus the unamortized initial direct costs related to the lease. The accrued interests are also
included in the finance receivables balance. Over the period of a lease, each lease payment received is allocated between the repayment
of the net investment in the lease and lease income based on the effective interest method so as to produce a constant rate of
return on the net investment in the lease. The lease income is recorded as the our revenue in the consolidated statements of comprehensive
income. Initial direct costs of the capital leases are amortized over the lease term by adjusting against the related lease income.
The net investment in the leases, net of allowance for credit losses, is presented as finance receivables and classified as current
or non-current assets in the balance sheets based on the duration of the remaining lease terms. Our finance receivables are typically
secured with automobiles in the lease arrangements. The allowance for credit losses is based on a systematic, ongoing review and
valuation performed as part of the credit-risk evaluation process.
We review credit quality of its finance receivables
based on customer payment activities, including past due information. The entire balance of a finance receivable is considered
contractually past due if the minimum required repayment is not received by the contractual repayment day. If any delinquency arises,
we will consider initiating collection process, which includes (a) making phone calls and sending collection notice to the customers;
(b) outsourcing to collection specialists to conduct collection of the automobiles; (c) re-possessing the automobiles directly
followed by bidding of the automobiles. As of December 31, 2016 and 2017, the carrying amount of the repossessed automobiles is
minimal. We have not established a practice of modifying the contractual payment terms, or entering into any troubled debt restructurings
of the finance receivables with its customers.
Accrued lease income on finance receivables
is calculated based on the effective interest rate of the net investment. Finance receivables are placed on non-accrual status
upon reaching past due status for more than 90 days. When a finance receivable is placed on non-accrual status, we stop accruing
interest and reverse all accrued but unpaid interest when such finance receivable is past due for 180 days. For the years ended
December 31, 2016 and 2017, such reversals were immaterial. The finance receivable in non-accrual status was RMB57.2 million and
RMB245.7 million (US$37.8 million) as of December 31, 2016 and 2017, respectively. Lease income is subsequently recognized only
upon the receipt of cash payments. We determine it is probable that, certain finance receivables that are past due for 180 days
after the above mentioned collection process has been administered, will become uncollectable, and writes off such finance receivables.
If a lease transaction does not meet the criteria
for classification as a capital lease as specified above, it is classified by the lessor as an operating lease. The payments received
by the lessor are recorded as lease income in the period in which the payment is received or becomes receivable. We record the
leased property as property, plant and equipment, net on the consolidated balance sheets and depreciated in the same manner as
the other equipment.
Provision for credit losses
We assess the quality of our finance receivables
at each balance sheet date through past due ratio based on the nature of our business and industry practice. In accordance with
U.S. GAAP, we currently apply an “incurred loss” model and assess the provision for the finance receivables that have
become past due, based on estimates of the respective loss probability derived from our historical experience. Changes in the
estimates could have a material impact on the balance of provision for credit losses of finance receivables. As we are still in
the process of finishing the lifecycle of our lease contracts since the inception of our transaction services business, we will
further accumulate experience and employ more information as they become available, to estimate the loss probabilities, which
may in turn impact the level of our provision for credit losses.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for
financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts. Topic 326 introduces “expected credit loss” model, which is different from the "incurred loss" model we currently applied. It will incorporate both available forward looking
information and historical pattern to estimate the lifetime expected credit losses for all finance receivables, including
those that have not become past due. This guidance
is effective for us for the year ending December 31, 2020, and it is permitted to early adopt for the year ending December 31, 2019.
While we are currently evaluating the impact that the standard will have on our consolidated financial statements and related
disclosures, it is generally expected that the adoption will likely increase the level of provision for credit losses of our finance
receivables reported under U.S. GAAP.
Results of Operations
The following tables set forth a summary of
our consolidated results of operations for the periods indicated. This information should be read together with our consolidated
financial statements and related notes included elsewhere in this annual report.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In thousands)
|
|
Revenue
|
|
|
4,254,195
|
|
|
|
5,772,948
|
|
|
|
8,751,259
|
|
|
|
1,345,044
|
|
Cost of revenue
(1)
|
|
|
(1,450,744
|
)
|
|
|
(2,077,979
|
)
|
|
|
(3,234,680
|
)
|
|
|
(497,161
|
)
|
Gross profit
|
|
|
2,803,451
|
|
|
|
3,694,969
|
|
|
|
5,516,579
|
|
|
|
847,883
|
|
Selling and administrative expenses
(2)
|
|
|
(3,013,997
|
)
|
|
|
(3,417,811
|
)
|
|
|
(6,059,046
|
)
|
|
|
(931,258
|
)
|
Product development expenses
(3)
|
|
|
(312,100
|
)
|
|
|
(457,367
|
)
|
|
|
(565,702
|
)
|
|
|
(86,947
|
)
|
Other gains, net
|
|
|
60,508
|
|
|
|
70,981
|
|
|
|
31,576
|
|
|
|
4,853
|
|
Loss from operations
|
|
|
(462,138
|
)
|
|
|
(109,228
|
)
|
|
|
(1,076,593
|
)
|
|
|
(165,469
|
)
|
Interest income
|
|
|
24,980
|
|
|
|
41,651
|
|
|
|
93,025
|
|
|
|
14,298
|
|
Interest expense
|
|
|
(8,140
|
)
|
|
|
(52,155
|
)
|
|
|
(92,633
|
)
|
|
|
(14,237
|
)
|
Share of results of equity investees
|
|
|
(16,663
|
)
|
|
|
(25,640
|
)
|
|
|
(71,866
|
)
|
|
|
(11,046
|
)
|
Investment income/(loss)
|
|
|
141,195
|
|
|
|
(45,012
|
)
|
|
|
(75,097
|
)
|
|
|
(11,542
|
)
|
Loss before tax
(4)
|
|
|
(320,766
|
)
|
|
|
(190,384
|
)
|
|
|
(1,223,164
|
)
|
|
|
(187,996
|
)
|
Income tax expense
(5)
|
|
|
(64,518
|
)
|
|
|
(147,569
|
)
|
|
|
(203,824
|
)
|
|
|
(31,327
|
)
|
Net loss
|
|
|
(385,284
|
)
|
|
|
(337,953
|
)
|
|
|
(1,426,988
|
)
|
|
|
(219,323
|
)
|
|
1)
|
Including amortization of intangible assets resulting from asset and business acquisitions of RMB19.5 million, RMB1.1 million
and RMB3.7 million (US$0.6 million) in 2015, 2016 and 2017, respectively.
|
|
2)
|
Including share-based compensation expense of RMB120.0 million, RMB77.0 million and RMB1.17 billion (US$179.5 million) in 2015,
2016 and 2017, respectively, and amortization of intangible assets resulting from asset and business acquisitions and write-down
of assets of RMB750.3 million, RMB623.1 million and RMB673.6 million (US$103.5 million) in 2015, 2016 and 2017, respectively. Also
including professional expenses incurred for the issuance of preferred shares and the initial public offering of Yixin of RMB90.4
million (US$13.9 million) in 2017.
|
|
3)
|
Including share-based compensation expense of RMB18.2 million (US$2.8 million) in 2017.
|
|
4)
|
Including fair value adjustment of contingent considerations
of RMB3.6 million, nil and RMB8.3 million (US$1.3 million) in 2015, 2016 and 2017, respectively,
share of amortization of equity investments’ intangible assets not on their books
of RMB0.3 million, RMB2.5 million and RMB0.7 million (US$0.1 million) in 2015, 2016 and
2017, respectively, investment income associated with non-cash investment matters of
RMB141.2 million in 2015, investment loss associated with non-cash investment matters
of RMB40.4 million and RMB110.0 million (US$16.9 million) in 2016 and 2017, respectively,
amortization of the BCF discount on the convertible notes of RMB13.2 million and RMB57.2
million (US$8.8 million) in 2016 and 2017, respectively, and impairment on equity investees
of RMB21.2 million (US$3.3 million) in 2017.
|
|
5)
|
Including tax impact related to professional expenses incurred for the initial public offering of Yixin of RMB5.7 million (US$0.9
million) in 2017.
|
Year Ended December 31, 2017 Compared
to Year Ended December 31, 2016
Revenue
. Our total revenue increased
by 51.6% from RMB5.77 billion in 2016 to RMB8.75 billion (US$1.35 billion) in 2017. This increase was primarily due to the growth
of our transaction services business, advertising and subscription business and digital marketing solutions business.
Our advertising and subscription business
.
Revenue from our advertising and subscription business increased by 14.2% from RMB3.43 billion in 2016 to RMB3.92 billion (US$602.8
million) in 2017. The increase was primarily due to a 13.9% increase in paying subscribers for new cars from 23,700 in 2016 to
27,000 in 2017 and a 7.0% increase in average customers’ spending on our advertising services.
Our transaction services business
. Revenue
from our transaction services business increased by 149.6% from RMB1.55 billion in 2016 to RMB3.87 billion (US$595.2 million) in
2017. The increase was attributable to a 250.7% increase of leasing revenue from RMB863.7 million in 2016 to RMB3.03 billion (US$465.6
million) in 2017 and an increase of vehicle telematics devices sales revenue amounting to RMB362.2 million (US$55.7 million), offset
by a decrease of automobile sales revenue amounting to RMB432.3 million (US$66.4 million).
Our digital marketing solutions business
.
Revenue from our digital marketing solutions business increased by 21.4% from RMB788.3 million in 2016 to RMB956.9 million (US$147.1
million) in 2017. The increase was mainly due to increase of revenues from customer support services such as marketing activities
and website design and maintenance for our customers.
Cost of Revenue
. Our cost of revenue
increased by 55.7% from RMB2.08 billion in 2016 to RMB3.23 billion (US$497.2 million) in 2017.
Our advertising and subscription business
.
Cost of revenue from our advertising and subscription business decreased by 5.0% from RMB890.5 million in 2016 to RMB845.8 million
(US$130.0 million) in 2017.
Our transaction services business
. Cost
of revenue from our transaction services business increased by 123.0% from RMB883.4 million in 2016 to RMB1.97 billion (US$302.7
million) in 2017. This increase was mainly due to increased funding cost of RMB950.6 million (US$146.1 million), vehicle telematics
devices cost of RMB126.9 million (US$19.5 million), as well as turnover taxes and related surcharges of RMB180.3 million (US$27.7
million), offset by decrease in the cost of automobiles sold of RMB368.2 million (US$56.6 million).
Our digital marketing solutions business
.
Cost of revenue from our digital marketing solutions business increased by 37.9% from RMB304.1 million in 2016 to RMB419.2 million
(US$64.4 million) in 2017. This increase was mainly due to increase in direct costs of the customer support services such as marketing
activities and website design and maintenance for our customers.
Gross Profit
. Our gross profit
increased by 49.3% from RMB3.69 billion in 2016 to RMB5.52 billion (US$847.9 million) in 2017.
Selling and Administrative Expenses
.
Our selling and administrative expenses increased by 77.3% from RMB3.42 billion in 2016 to RMB6.06 billion (US$931.3 million) in
2017. This increase was primarily attributable to the increase in share-based compensation expense, sales and marketing expenses,
salaries and benefits and allowance for doubtful accounts for accounts receivable, and credit losses for finance receivables.
Share-based compensation expense
. Share-based
compensation expense was RMB1.17 billion (US$179.5 million) in 2017 compared to RMB77.0 million in 2016. The increase was mainly
due to options granted by Yixin to its employees in the third quarter of 2017.
Salaries and benefits
. Expenses relating
to our salaries and benefits increased by 41.4% from RMB972.1 million in 2016 to RMB1.37 billion (US$211.3 million) in 2017. This
increase was mainly attributable to the increase in the number of our sales and marketing employees and a modest increase in the
average employee salaries.
Sales and marketing expenses
. Our sales
and marketing expenses increased by 51.6% from RMB1.30 billion in 2016 to RMB1.97 billion (US$302.2 million) in 2017, which was
in line with our overall growth.
Allowance for doubtful accounts for accounts
receivable, and credit losses for finance receivables
. Allowance for doubtful accounts for accounts receivable, and credit
losses for finance receivables increased by 240.2% from RMB102.7 million in 2016 to RMB349.2 million (US$53.7 million) in 2017,
which was in line with the increases of our account receivables and finance receivables.
Amortization of intangible assets relating
to the strategic cooperation with JD.com
. Amortization of intangible assets relating to the strategic cooperation with JD.com
incurred for the years ended December 31, 2016 and 2017 was RMB603.1 million and RMB629.9 million (US$96.8 million).
Product Development Expenses
.
Our product development expenses increased by 23.7% from RMB457.4 million in 2016 to RMB565.7 million (US$86.9 million) in 2017.
This increase was primarily due to the increase in product development headcount and related expenses, and share-based compensation
expense.
Income Tax Expense
. Our income
tax expense increased from RMB147.6 million in 2016 to RMB203.8 million (US$31.3 million) in 2017. This increase was primarily
attributable to the increased net non-deductible expenses offset by impact of preferential tax treatment for certain subsidiaries.
Net Loss
. As a result of foregoing,
we recorded a net loss of RMB1.43 billion (US$219.3 million) in 2017.
Year Ended December 31, 2016 Compared
to Year Ended December 31, 2015
Revenue
. Our total revenue increased
by 35.7% from RMB4.25 billion in 2015 to RMB5.77 billion in 2016. This increase was primarily due to the growth of our transaction
services business and digital marketing solutions business.
Our advertising and subscription business
.
Revenue from our advertising and subscription business increased by 10.5% from RMB3.11 billion in 2015 to RMB3.43 billion in 2016.
The increase was primarily attributable to a 9.4% increase in customers’ spending on our advertising services.
Our transaction services business
. Revenue
from our transaction services business increased by 133.6% from RMB664.2 million in 2015 to RMB1.55 billion in 2016. The increase
was primarily due to a significant increase of leasing revenue from RMB64.7 million in 2015 to RMB863.7 million in 2016 and an
increase of automobile sales revenue amounting to RMB553.4 million, offset by a decrease of automobile e-commerce revenue amounting
to RMB471.6 million.
Our digital marketing solutions business
.
Revenue from our digital marketing solutions business increased by 62.9% from RMB483.9 million in 2015 to RMB788.3 million in 2016.
The increase was primarily attributable to an increase of 57.5% in gross billings which include the gross value of advertisements
placed by our customers. The growth of gross billings is mainly driven by (i) an increase in the number of customers including
40 automaker and auto-related customers, which contributed RMB941.1 million to the gross billings, and (ii) the increased spending
of our recurring customers, which amounted to RMB177.7 million.
Cost of Revenue
. Our cost of revenue
increased by 43.2% from RMB1.45 billion in 2015 to RMB2.08 billion in 2016.
Our advertising and subscription business
.
Cost of revenue from our advertising and subscription business increased by 17.0% from RMB761.2 million in 2015 to RMB890.5 million
in 2016. The increase was mainly due to a 34.9% increase in fees paid to partners’ websites to distribute automobile dealer
customers’ pricing and promotional information from RMB236.0 million in 2015 to RMB318.4 million in 2016.
Our transaction services business
. Cost
of revenue from our transaction services business increased by 107.1% from RMB426.6 million in 2015 to RMB883.4 million in 2016.
This increase was mainly due to increase in automobile cost of RMB471.7 million in relation to the purchase of automobiles that
were later sold, funding cost of RMB186.6 million as a result of rapid business expansion as well as turnover taxes and related
surcharges of RMB99.7 million, offset by a decrease in automobile e-commerce cost of RMB331.7 million.
Our digital marketing solutions business
.
Cost of revenue from our digital marketing solutions business increased by 15.6% from RMB263.0 million in 2015 to RMB304.1 million
in 2016. This increase was mainly due to increase in direct costs of the customer support services such as marketing activities
and website design and maintenance for our customers.
Gross Profit
. Our gross profit
increased by 31.8% from RMB2.80 billion in 2015 to RMB3.69 billion in 2016.
Selling and Administrative Expenses
.
Our selling and administrative expenses increased by 13.4% from RMB3.01 billion in 2015 to RMB3.42 billion in 2016. This increase
was primarily attributable to the increase in headcount and related expenses.
Salaries and benefits
. Expenses relating
to our salaries and benefits increased by 64.6% from RMB590.6 million in 2015 to RMB972.1 million in 2016. This increase was mainly
attributable to the increase in the number of our sales and marketing employees and a modest increase in the average employee salaries.
Amortization of intangible assets relating
to the strategic cooperation with JD.com
. Amortization of intangible assets relating to the strategic cooperation with JD.com
incurred for the years ended December 31, 2015 and 2016 was RMB469.8 million and RMB603.1 million.
Product Development Expenses
.
Our product development expenses increased by 46.5% from RMB312.1 million in 2015 to RMB457.4 million in 2016. This increase was
primarily due to an increase in product development headcount and related expenses.
Income Tax Expense
. Our income
tax expense increased from RMB64.5 million in 2015 to RMB147.6 million in 2016. This increase was primarily attributable to increased
profit before tax for some of our subsidiaries incorporated in the PRC, and impact of preferential tax treatment for certain subsidiaries
and to a lesser extent, the increased net non-deductible expenses, offset by the changes in valuation allowance.
Net Loss
. As a result of foregoing,
we recorded a net loss of RMB338.0 million in 2016.
Inflation
To date, inflation in China has not materially
impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes
in the consumer price index for 2015, 2016 and 2017 were increases of 1.6%, 2.1% and 1.8%, respectively. Although we have
not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by
higher rates of inflation in China. For example, certain operating costs and expenses, such as personnel expenses, real estate
leasing expenses, travel expenses and office operating expenses may increase as a result of higher inflation. Additionally, because
a substantial portion of our assets consists of cash and cash equivalents, high inflation could significantly reduce the value
and purchasing power of these assets. We are not able to hedge our exposures to higher inflation in China.
Recent Accounting Pronouncements
See Item 18 of Part III, “Financial Statements—Note
3—Recent accounting pronouncements.”
|
B.
|
Liquidity and Capital Resources
|
The following table presents a summary of our
consolidated balance sheets data as of December 31, 2016 and 2017.
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In thousands)
|
|
Cash, cash equivalents, time deposits and restricted cash
|
|
|
7,649,565
|
|
|
|
11,039,359
|
|
|
|
1,696,718
|
|
Total current assets
|
|
|
16,474,959
|
|
|
|
28,117,369
|
|
|
|
4,321,560
|
|
Total assets
|
|
|
29,934,756
|
|
|
|
51,515,732
|
|
|
|
7,917,823
|
|
Total current liabilities
|
|
|
11,953,916
|
|
|
|
22,699,239
|
|
|
|
3,488,809
|
|
Total liabilities
|
|
|
16,173,045
|
|
|
|
31,278,061
|
|
|
|
4,807,350
|
|
Redeemable non-controlling interests
|
|
|
3,939,646
|
|
|
|
301,953
|
|
|
|
46,409
|
|
Total shareholders’ equity
|
|
|
9,822,065
|
|
|
|
19,935,718
|
|
|
|
3,064,064
|
|
Total liabilities, redeemable non-controlling interests and shareholders’ equity
|
|
|
29,934,756
|
|
|
|
51,515,732
|
|
|
|
7,917,823
|
|
Our PRC subsidiaries are permitted to pay dividends
to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under
PRC law, each of our PRC subsidiaries and their variable interest entities are required to set aside at least 10% of their after-tax
profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of their registered capital. Although the
statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained
earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
As a result of these PRC laws and regulations, our PRC subsidiaries are restricted in their ability to transfer a portion of their
net assets, including general reserve and registered capital, either in the form of dividends, loans or advances. Such restricted
portion of retained earnings amounted to RMB89.8 million and RMB153.5 million (US$23.6 million) as of December 31, 2016 and 2017,
respectively.
To date, our principal sources of liquidity
have been cash collected from customers, the proceeds from the net proceeds from the private placement with investors including
Tencent and JD in February 2015 and Tencent, JD and Baidu in June 2016, the net proceeds from the initial public offering of Yixin
in 2017, asset-backed securitization debt and borrowings from some commercial banks in China. Additionally, see “Item 7.
Major Shareholders and Related Party Transactions—B. Related Party Transactions.” As of December 31, 2016 and 2017,
we had RMB7.65 billion and RMB11.04 billion (US$1.70 billion) in cash, cash equivalents, time deposits and restricted cash, respectively.
Although we consolidate the results of our PRC variable interest entities, we do not have direct access to their cash and cash
equivalents or future earnings. However, we can direct the use of their cash through agreements that provide us with effective
control of these entities. Moreover, we are entitled to receive annual fees from them in exchange for certain technology consulting
services provided by us and the use of certain intellectual properties owned by us. See “Item 7. Major Shareholders and Related
Party Transactions—B. Related Party Transactions—Contractual Arrangements with our PRC variable interest entities and
Their Shareholders.”
We believe that our current cash and anticipated
cash flows from our operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital
and capital expenditures, for at least the next 12 months. We may, however, require additional cash due to changing business conditions
or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient
to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions.
Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The incurrence of debt would divert
cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants
that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity
or debt financing as required, our business operations and prospects may suffer.
Our cash, cash equivalents, time deposits and
restricted cash as of December 31, 2016 and 2017 are listed in the table below.
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
(In millions)
|
|
Cash located outside of the PRC
|
|
|
|
|
|
|
|
|
- in US dollars
|
|
|
5,517.7
|
|
|
|
3,250.3
|
|
- in HK dollars
|
|
|
0.1
|
|
|
|
2,797.6
|
|
- in RMB
|
|
|
-
|
|
|
|
-
|
|
|
|
|
5,517.8
|
|
|
|
6,047.9
|
|
Cash located in the PRC:
|
|
|
|
|
|
|
|
|
- held by variable interest entities and subsidiaries of variable interest entities:
|
|
|
|
|
|
|
|
|
- in RMB
|
|
|
1,170.3
|
|
|
|
1,303.5
|
|
- in US dollars
|
|
|
-
|
|
|
|
-
|
|
- held by subsidiaries:
|
|
|
|
|
|
|
|
|
- in RMB
|
|
|
947.6
|
|
|
|
3,646.7
|
|
- in US dollars
|
|
|
13.9
|
|
|
|
41.3
|
|
|
|
|
2,131.8
|
|
|
|
4,991.5
|
|
Cash, cash equivalents, time deposits and restricted cash
|
|
|
7,649.6
|
|
|
|
11,039.4
|
|
Cash balances located in the PRC, which are
held by our variable interest entities and PRC subsidiaries, can be transferred to our subsidiaries outside of China through dividend
payments. Such transfer will incur cost in the form of PRC withholding tax. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—Dividends we receive from our subsidiaries located in the PRC may be subject to PRC withholding
tax, which could materially and adversely affect the amount of dividends, if any, we may pay our shareholders or ADS holders.”
Furthermore, cash transfers from our PRC subsidiaries
to our subsidiaries outside of China are subject to PRC government control of currency conversion. Restrictions on the availability
of foreign currency may affect the ability of our PRC subsidiaries and variable interest entities to remit sufficient foreign currency
to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Dividend payments
are current account transactions, which can be made in foreign currencies by complying with certain procedural requirements but
do not require prior approval from SAFE. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in China—Governmental control of currency conversion may affect the value of your investment.”
The following table sets forth a summary of
our cash flows for the periods indicated:
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(In thousands)
|
|
Net cash provided by operating activities
|
|
|
601,883
|
|
|
|
527,396
|
|
|
|
928,226
|
|
|
|
142,666
|
|
Net cash used in investing activities
|
|
|
(4,175,746
|
)
|
|
|
(16,966,591
|
)
|
|
|
(13,103,691
|
)
|
|
|
(2,014,001
|
)
|
Net cash provided by financing activities
|
|
|
5,274,932
|
|
|
|
15,422,674
|
|
|
|
19,842,120
|
|
|
|
3,049,678
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
18,332
|
|
|
|
97,636
|
|
|
|
(133, 617)
|
|
|
|
(20,536
|
)
|
Increase/ (Decrease) in cash and cash equivalents
|
|
|
1,719,401
|
|
|
|
(918,885
|
)
|
|
|
7,533,038
|
|
|
|
1,157,807
|
|
Cash and cash equivalents at beginning of the year
|
|
|
1,221,473
|
|
|
|
2,940,874
|
|
|
|
2,021,989
|
|
|
|
310,774
|
|
Cash and cash equivalents at the end of the year
|
|
|
2,940,874
|
|
|
|
2,021,989
|
|
|
|
9,555,027
|
|
|
|
1,468,581
|
|
Operating Activities
Net cash provided by operating activities was
RMB928.2 million (US$142.7 million) for the year ended December 31, 2017. This amount reflected net loss of RMB1.43 billion (US$219.3
million), and was (i) adjusted for certain non-cash expenses, principally share-based compensation of RMB1.19 billion (US$182.3
million), amortization of intangible assets of RMB688.6 million (US$105.8 million), allowance for doubtful accounts for accounts
receivable, and credit losses for finance receivables of RMB349.2 million (US$53.7 million), depreciation of property, plant and
equipment of RMB185.3 million (US$28.5 million) and investment loss of RMB75.1 million (US$11.5 million), and for changes in certain
working capital accounts that positively affected operating cash flow, primarily an increase in other payables and accruals of
RMB1.03 billion (US$157.8 million) and an increase in accounts payable of RMB483.3 million (US$74.3 million) and (ii) offset by
certain non-cash income and by changes in certain working capital accounts that negatively affected operating cash flow, primarily
being an increase of RMB869.7 million (US$133.7 million) in accounts receivable, an increase of RMB375.8 million (US$57.8 million)
in other non-current assets, an increase of RMB343.8 million (US$52.8 million) in prepayments and other receivables, and an increase
of RMB220.3 million (US$33.9 million) in bills receivable. The increase in other payables and accruals was attributable to an increase
in advances from customers. The increase in accounts receivable and bills receivable was primarily attributable to higher sales
volume in 2017. The increase in other non-current assets was attributable to prepayments related to automotive financial services
in 2017.
Net cash provided by operating activities was
RMB527.4 million for the year ended December 31, 2016. This amount reflected the net loss of RMB338.0 million, and was (i) adjusted
for certain non-cash expenses, principally amortization of intangible assets of RMB633.4 million, and for changes in certain working
capital accounts that positively affected operating cash flow, primarily an increase in other payables and accruals of RMB393.3
million and an increase in accounts payable of RMB619.8 million and (ii) offset by certain non-cash income and by changes in certain
working capital accounts that negatively affected operating cash flow, primarily being an increase of RMB426.8 million in accounts
receivable, an increase of RMB258.7 million in prepayments and other receivables, an increase of RMB104.3 million in other current
assets and an increase of RMB462.0 million in other non-current assets. The increase in other payables and accruals was attributable
to an increase in advances from customers, and taxes and related surcharges. The increase in accounts receivable was primarily
attributable to higher sales volume in 2016. The increase in other non-current assets was attributable to prepayments related to
automotive financial services in 2016.
Net cash provided by operating activities was
RMB601.9 million for the year ended December 31, 2015. This amount reflected the net loss of RMB385.3 million, and was (i) adjusted
for certain non-cash expenses, principally amortization of intangible assets of RMB495.6 million, write-down of assets of RMB280.6
million and for changes in certain working capital accounts that positively affected operating cash flow, primarily an increase
in other payables and accruals of RMB392.6 million and an increase in accounts payable of RMB433.6 million and (ii) offset by certain
non-cash income and by changes in certain working capital accounts that negatively affected operating cash flow, primarily an increase
of RMB384.2 million in accounts receivable and an increase of RMB154.2 million in prepayments and other receivables. The increase
in other payables and accruals was attributable to an increase in advances from customers, and taxes and related surcharges. The
increase in accounts receivable was primarily attributable to higher sales volume in 2015.
Investing Activities
Net cash used in investing activities was RMB13.10
billion (US$2.01 billion) for the year ended December 31, 2017. This amount was primarily attributable to RMB15.47 billion (US$2.38
billion) used in automotive financial services, RMB3.90 billion (US$600.0 million) used in placement of restricted cash, and RMB1.73
billion (US$265.7 million) used in purchases of property, plant and equipment. The amount was offset of RMB7.83 billion (US$1.20
billion) by proceeds from restricted cash and RMB242.3 million (US$37.2 million) by proceeds from disposal of property, plant and
equipment.
Net cash used in investing activities was RMB16.97
billion for the year ended December 31, 2016. This amount was primarily attributable to RMB11.11 billion used in automotive financial
services, RMB6.90 billion used in placement of restricted cash, RMB575.0 million used in purchases of property, plant and equipment
and RMB280.2 million used in purchase of investment in equity investees. The amount was offset of RMB1.82 billion by proceeds from
restricted cash and RMB100.0 million by proceeds from maturity of time deposits.
Net cash used in investing activities was RMB4.18
billion for the year ended December 31, 2015. This amount was primarily attributable to RMB2.78 billion used in automotive financial
services, RMB334.1 million used in placement of restricted cash, RMB2.39 billion used in placement of time deposits, RMB231.9 million
used in the purchases of property, plant and equipment and RMB921.1 million used in purchase of investment in equity investees.
The amount was offset of RMB2.44 billion by proceeds from maturity of time deposits.
Financing Activities
Net cash provided by financing activities was
RMB19.84 billion (US$3.05 billion) for the year ended December 31, 2017, mainly attributable to RMB8.66 billion (US$1.33 billion)
from net proceeds from borrowings, RMB5.53 billion (US$849.8 million) from issuance of subsidiary’s ordinary shares, net
of issuance costs, RMB4.35 billion (US$668.1 million) from net proceeds from asset-backed securitization debt, and RMB1.32 billion
(US$202.5 million) from issuance of subsidiaries’ redeemable convertible preference shares, net of issuance costs.
Net cash provided by financing activities was
RMB15.42 billion for the year ended December 31, 2016, mainly attributable to RMB6.96 billion from net proceeds from borrowings,
RMB4.43 billion from net proceeds from asset-backed securitization debt, RMB2.04 billion from issuance of subsidiary’s redeemable
convertible preference shares, net of issuance costs, RMB991.7 million from issuance of convertible debt and RMB978.0 million from
issuance of ordinary shares, net of issuance costs.
Net cash provided by financing activities was
RMB5.27 billion for the year ended December 31, 2015, mainly attributable to RMB361.1 million from proceeds from borrowings, RMB1.54
billion from issuance of subsidiary’s redeemable convertible preference shares, net of issuance costs and RMB3.37 billion
from issuance of ordinary shares, net of issuance costs.
Capital Expenditures
Our capital expenditures amounted to RMB1.16
billion, RMB945.3 million and RMB1.93 billion (US$295.9 million) in 2015, 2016 and 2017, respectively. In the past, our capital
expenditures consisted principally of purchases of property, plant and equipment, purchases of intangible assets, acquisitions
of subsidiaries and investment in equity investees. We expect our capital expenditures in 2018 to consist principally of similar
types of items.
Holding Company Structure
Bitauto Holdings Limited is a holding company
with no operations of its own. We conduct our operations in China primarily through our subsidiaries and consolidated affiliated
entities in China. As a results, although other means are available for us to obtain financing at the holding company level, Bitauto
Holdings Limited’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends
paid by our PRC subsidiaries and license and service fees paid by our PRC consolidated affiliated entities. If any of our subsidiaries
incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Bitauto
Holdings Limited. In addition, our PRC subsidiaries and consolidated affiliated entities are required to make appropriations to
certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of
the companies.
Our PRC subsidiaries, being foreign-invested
enterprises established in China, are required to make appropriations to certain statutory reserve, namely, a general reserve fund,
an enterprise expansion fund, a staff welfare fund and a bonus fund, all of which are appropriated from net profit as reported
in their PRC statutory accounts. Each of our PRC subsidiaries is required to allocate at least 10% of its after-tax profits to
a general reserve fund until such fund has reached 50% of its respective registered capital. Appropriations to the enterprise expansion
fund and staff welfare and bonus funds are at the discretion of the board of directors of the PRC subsidiaries.
Our consolidated affiliated entities must make
appropriations from their after-tax profits as reported in their PRC statutory accounts to non-distributable reserve funds, namely
a statutory surplus fund, a statutory public welfare fund and a discretionary surplus fund. Each of our consolidated affiliated
entities is required to allocate at least 10% of its after-tax profits to the statutory surplus fund until such fund has reached
50% of its respective registered capital. Appropriations to the statutory public welfare fund and the discretionary surplus fund
are at the discretion of our consolidated affiliated entities.
Under PRC laws and regulations, our PRC subsidiaries
and consolidated affiliated entities are subject to certain restrictions with respect to paying dividends or otherwise transferring
any of their net assets to us. As of December 31, 2017, our subsidiaries, variable interest entities and subsidiaries of variable
interest entities registered in PRC had registered capital and reserve funds in an amount of approximately RMB20.11 billion (US$3.09 billion).
See Item 18 “Financial Statements.”
|
C.
|
Research and Development, Patents and Licenses, Etc.
|
Intellectual Property
Our proprietary automotive content and database
and our other intellectual property contribute to our competitive advantage among internet automotive content and marketing service
providers in China. To protect our brand and other intellectual property, we rely on a combination of trademark, trade secret and
copyright laws in China as well as imposing procedural and contractual confidentiality and invention assignment obligations on
our employees, contractors and others. In 2009, we registered our “Bitauto” trademark under the Madrid Protocol of
the World Intellectual Property Organization, extending the trademark protection afforded to such trademark in China to all member
states of the Madrid Protocol system. As of March 31, 2018, we held 1,362 registered trademarks, 701 pending trademark applications,
11 patents and 213 computer software copyrights. We have registered 2,162 domain names for our company and our customers, including
our main website domain names www.bitauto.com and www.yiche.com.
We incurred research and development expenses
of RMB312.1 million, RMB457.4 million and RMB565.7 million (US$86.9 million) in 2015, 2016 and 2017, respectively.
See “Item 4. Information on the Company—B.
Business Overview—Product Development.”
Other than as disclosed elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or events since the beginning of our fiscal year 2017
that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results
or financial condition.
|
E.
|
Off-balance Sheet Arrangements
|
Other than the financial guarantees provided
by Dalian Rongxin as part of the services it provides, we have not entered into any other financial guarantees or other commitments
to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that
are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or
research and development services with us.
|
F.
|
Tabular Disclosure of Contractual Obligations
|
The following table sets forth our contractual
obligations as of December 31, 2017:
|
|
Payment Due by Period
|
|
|
|
Total
|
|
|
Less Than 1
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than 5
Years
|
|
|
|
(In thousands of RMB)
|
|
Operating lease obligations
(1)
|
|
|
293,759
|
|
|
|
119,484
|
|
|
|
154,579
|
|
|
|
17,873
|
|
|
|
1,823
|
|
Borrowings
|
|
|
17,234,324
|
|
|
|
11,716,185
|
|
|
|
5,518,139
|
|
|
|
—
|
|
|
|
—
|
|
Asset-backed securitization debt
|
|
|
9,217,497
|
|
|
|
6,514,105
|
|
|
|
2,703,392
|
|
|
|
—
|
|
|
|
—
|
|
Convertible debt
|
|
|
889,173
|
|
|
|
16,466
|
|
|
|
32,932
|
|
|
|
839,775
|
|
|
|
—
|
|
Capital commitment (Purchase of automobiles)
|
|
|
503,903
|
|
|
|
503,903
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
28,138,656
|
|
|
|
18,870,143
|
|
|
|
8,409,042
|
|
|
|
857,648
|
|
|
|
1,823
|
|
|
(1)
|
Operating lease obligations are primarily related to the lease
of office space. These leases have terms ranging from one to five years and are renewable
upon negotiation. During 2017, our operating lease obligations are RMB293.8 million.
|
See “Forward Looking Statements”
on page 1 of this annual report.
|
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
The following table sets forth information regarding
our executive officers and directors as of the date of this annual report.
Directors and Executive Officers
|
|
Age
|
|
Position/Title
|
Bin Li
|
|
43
|
|
Chairman of the Board of Directors
|
Xuan Zhang
|
|
42
|
|
Director and Chief Executive Officer
|
Sidney Xuande Huang
|
|
52
|
|
Director
|
Rob Huting
|
|
50
|
|
Director
|
Erhai Liu
|
|
49
|
|
Director
|
Yu Long
|
|
45
|
|
Director
|
Jun Hou
|
|
53
|
|
Director
|
Cynthia Kun He
|
|
42
|
|
Chief Financial Officer
|
Lei Zhu
|
|
32
|
|
Chief Technology Officer
|
Xiaoke Liu
|
|
37
|
|
Chief Operating Officer
|
Xiangzhi Kong
|
|
40
|
|
Chief Strategy Officer
|
Mr. Bin Li
is our founder and has served
as our chairman of the board of directors Since 2005. From 2005 to January 2018, Mr. Li also severed as our chief executive officer.
In 2000, Mr. Li co-founded Beijing Bitauto E-Commerce Co., Ltd. and served as its director and president until 2006. In 2002, Mr.
Li and Mr. Weihai Qu co-founded Beijing C&I Advertising Company Limited and has served as its chairman of the board of directors
and chief executive officer since its inception. In addition, Mr. Li currently serves as the vice-chairman of CADA. In 2014, Mr.
Li founded Nio, a global startup company that designs and develops electronic vehicles, and currently serves as chairman of the
board of directors and chief executive director. Mr. Li received his bachelor’s degree in Sociology from Peking University
where he minored in Law.
Mr. Xuan Zhang
has served as our director
since March 2017 and our chief executive officer since January 2018. He has also served as chief executive officer, executive director,
and chairman of Yixin since November 2014. Mr. Zhang was our president from September 2016 to January 2018, chief operating officer
from August 2015 to September 2016, our chief financial officer from 2009 to September 2016, and our vice president of finance
from 2006 to 2009. Mr. Zhang has over 10 years of operational and managerial experiences with both multinational companies and
local Chinese companies. His extensive involvement in Bitauto’s strategy and operations contributed significantly to the
growth of our company and our company’s successful listing on NYSE in 2010. Prior to 2006, Mr. Zhang co-founded a consulting
firm that provided professional marketing, finance and HR services to local Fortune 500 companies and multinationals in China.
He also served as a manager at Ernst & Young LLP and PricewaterhouseCoopers LLP between 2000 and 2004. Mr. Zhang is a certified
public accountant in the State of New York and he received both of his bachelor’s degrees in Finance and Accounting from
New York University.
Mr. Sidney Xuande Huang
has served as
our director since 2010. He was previously our independent director until we entered strategic partnership with JD.com and Tencent
in early 2015. Mr. Huang has been the chief financial officer of JD.com since September 2013. Prior to joining JD.com, he was the
chief financial officer of VanceInfo Technologies Inc., an NYSE-listed IT services provider, and its successor company, Pactera
Technology International Ltd., from 2006 to 2013. Mr. Huang also served as VanceInfo’s co-president from 2011 to 2012 and
its chief operating officer from 2008 until 2010. Prior to joining VanceInfo Technologies, he served as the chief financial officer
with two other China-based companies in technology and internet sectors between 2004 and 2006. Prior to 2004, Mr. Huang was an
investment banker with Citigroup Global Markets Inc. in New York and prior to that an audit manager of KPMG LLP. He was a Certified
Public Accountant in the State of New York. Mr. Huang obtained his master’s degree of business administration with distinction
from the Kellogg School of Management at Northwestern University as an Austin Scholar. He received his bachelor’s degree
in accounting from Bernard M. Baruch College, where he graduated as class valedictorian.
Mr. Rob Huting
has served as our director
since January 2018. Mr. Huting also serves on the boards of Mahindra First Choice Wheels Limited, Manheim Brasil, and Jingzhengu.
Mr. Huting is currently Corporate Development, Vice President of Cox Automotive Inc., a parent company of responsible for international
merger and acquisition transactions. In addition, Mr. Huting is responsible for managing and developing existing and potential
new strategic partnerships in emerging markets including Brazil, India and China. Cox Automotive, the parent company of Cox Automotive
International, is also the parent company of AutoTrader Group, or ATG Group, which is a major shareholder of us. Prior to Mr. Huting’s
current role, he was General Manager for Autotrader Classics from December 2007 to May 2011. Mr. Huting’s previous positions
include Managing Director Continental Europe for Manheim Retail Services, Director Sales and Marketing, and Director European Business
Development for Manheim Europe. Mr. Huting holds a Masters of International Business Studies from the University of South Carolina.
Mr. Erhai Liu
has served as our director
since 2005 and independent director since 2011. Mr. Liu is a founding and managing partner of Joy Capital. Before founding Joy
Capital in 2015, Mr. Liu had worked for Legend Capital around 12 years from 2003 to 2015. He was a managing director of Legend
Capital and led the TMT and innovative consumption team. At Legend Capital, Mr. Liu was responsible for investments in CAR Inc.
(HK: 0699), BitAuto Holdings Limited (NYSE: BITA), Renren Inc. (NYSE: RENN), iDreamSky Technology Limited (NASDAQ: DSKY), Zhaopin.com
Limited (NYSE: ZPIN) and many other public and private companies. In 2012, Forbes magazine ranked Mr. Liu No. 84 in its Midas List
of global top 100 technology investors. Mr. Liu was one of 2014 China best 50 Venture Capitalists selected by Forbes China. Before
joining Legend Capital in 2003, Mr. Liu had worked at China RailcomNet as a vice president of operations, at Clarent China as vice
general manager and head of value-added business unit at JiTong Communications. Mr. Liu holds a bachelor’s degree in communication
engineering from Guilin University of Electronic Technology, a master’s degree in communication and information system from
Xidian University, an MBA and a master’s degree in global finance from Fordham University, and a master’s degree in
psychology from Peking University.
Ms. Annabelle Yu Long
has served as our
director since 2008 and independent director since 2011. Ms. Long currently serves as a member of Bertelsmann Group Management
Committee, Chief Executive Officer of Bertelsmann China Corporate Center and Managing Partner of Bertelsmann Asia Investments.
Formerly, Ms. Long was a Principal at Bertelsmann Digital Media Investments. She joined the international media, services, and
education company via the Bertelsmann Entrepreneurs Program in 2005. From 1996 to 2003, Ms. Long was a Producer and Lead Anchor
for the Sichuan Broadcasting Group. From 1994 to 1996 she was a Producer and host for Chengdu People’s Radio Broadcasting.
Ms. Long is an active member of the World Economic Forum’s Young Global Leaders Advisory Council and is also a member of
its Global Agenda Council on the Future of Media, Entertainment & Information. In addition, she is a member of the Stanford
Graduate School of Business Advisory Council. Ms. Long serves on the Board of Directors of both Tapestry Inc. (NYSE: TPR, its portfolio
includes Coach, Stuart Weitzman and Kate Spade), China Distance Education (NYSE: DL) and iClick Interactive Asia Group Limited
(NASDAQ: ICLK).
Mr. Jun Hou
has served as our independent
director since March 2015. Mr. Jun Hou is currently chairman of Yanyuan Alumni (Beijing) Investment Management Limited, where he
manages the Entrepreneur’s Training Camp of Peking University. Mr. Hou has extensive experience in China’s telematics
sector. He was the co-founder and served as the honorary chairman of the board of directors of Autonavi Holdings Limited, from
May 2013 to July 2014 and the chairman from April 2002 to May 2013. Mr. Hou also held the position of chief executive officer of
Autonavi from April 2002 to October 2009. From June 1994 to April 2002, Mr. Hou served as the chairman of the board of directors
and was actively involved in the operations of China Da Tong Industrial Co., Ltd. Prior to this, he worked at China Science and
Technology International Trust and Investment Corporation from August 1990 to August 1993. Mr. Hou received a bachelor’s
degree in Chinese from Peking University in China.
Ms. Cynthia Kun He
has served as our chief
financial officer since September 2016. Prior to joining us, Ms. He worked at Deutsche Bank China where she ran corporate communications
for the past four years. Her previous roles have included head of investor relations for Baidu, the leading Chinese language internet
search provider, advisor with international consultancy Brunswick Group and analyst with Standard & Poor’s Rating Services.
She also served as Chief China Representative for Ignite! Learning, a leading US educational multimedia courseware provider. Ms.
He holds an MBA from Columbia Business School and a BA from New York University’s Stern School of Business.
Mr. Lei Zhu
has served as our chief technology
officer since December 2016. Before joining us, Mr. Zhu served for two years as Vice President of Didi Chuxing where he was also
General Manager of its Commercial Business Division, responsible for commercialization strategy and product development related
to automobiles, advertising, big data analytics as well as strategic alliances. Before joining Didi Chuxing, Mr. Zhu worked at
Baidu from 2007 to 2014, in charge of various business functions including vertical search technology, cloud computing, and big
data analytics. Mr. Zhu holds an MBA from Tsinghua University and a bachelor’s degree in Science from Shanghai Jiao Tong
University.
Mr. Xiaoke Liu
has served as our chief
operating officer since March 2018. Prior to this, he served as our senior vice president since February 2017. Before joining Bitauto,
Mr. Liu served as general manager of the auto business division of Sina.com since 2014, responsible for the division management
and operation. From 2012 to 2014, Mr. Liu was the general manager of the auto business division of Phoenix.com. Prior to this,
Mr. Liu worked at Sohu.com from 2004 to 2012 and was the associate editor-in-chief of the automobile channel from 2008 to 2012.
Mr. Liu holds a bachelor’s degree in Business Administration from the University of Luton in England.
Mr. Xiangzhi Kong
has served as our chief
strategy officer since March 2018. Prior to this, Mr. Kong served as Bitauto’s vice president from 2015, assistant vice president
from 2013 to 2015, and our business development director from 2008 to 2012. Mr. Kong has been responsible for Bitauto’s strategic
planning, investments and development of strategic partnerships. Prior to joining Bitauto, Mr. Kong had approximately 10 years
of experience in management consulting, providing strategic planning and marketing consulting services to the Fortune 500 and leading
technology companies. Mr. Kong received a bachelor’s degree in Economics from the University of International Business and
Economics in 1999.
|
B.
|
Compensation of Directors and Executive Officers
|
For the fiscal year ended December 31, 2017,
we paid an aggregate of approximately RMB17.4 million (US$2.7 million) in cash compensation to our executive officers and directors
as a group, which includes bonuses, salaries and social welfare benefits, and paid an aggregate of approximately RMB254.9 thousand
(US$39.2 thousand) in premiums for commercial medical insurance coverage. We have not set aside or accrued any amount to provide
pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiaries and variable interest
entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her
pension insurance, medical insurance, housing fund, unemployment and other statutory benefits.
Employment Agreements
We have entered into employment agreements with
each of our executive officers. Under these agreements, each of our executive officers is employed for a specified period. We may
terminate employment for cause, at any time, without notice or remuneration, for certain acts of the employee, such as willful
misconduct or gross negligence, and indictment or conviction for, or confession of, a felony or any crime involving moral turpitude.
We may also terminate an executive officer’s employment without cause upon thirty days’ advance written notice or with
thirty days’ salary in lieu of the written notice under certain circumstances when he or she is no longer able to perform
his or her duty.
Each executive officer has agreed to hold, both
during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required
in the performance of his or her duties in connection with his or her employment, any of our confidential information or trade
secrets, any confidential information or trade secrets of our customers or prospective customers, or the confidential or proprietary
information of any third party received by us and for which we have confidential obligations. In addition, each executive officer
has agreed to be bound by non-competition restrictions during his or her employment for one to two years after the termination
of his or her employment. Specifically, each executive officer has agreed (i) not to provide services to, own or operate any business
that provides products, services or technologies substantially similar to the business currently conducted or proposed to be conducted
by us; (ii) interfere with our business or solicit any of our suppliers or customers in connection with our business activities;
and (iii) solicit any employee or consultant who was employed or was engaged by us at any time in the year preceding such termination.
Share Incentives
2006 Stock Incentive Plan
On December 31, 2006, we adopted the 2006 Plan
to attract and retain the best available personnel and provide additional incentives to employees, directors and consultants. As
of March 31, 2018, options to purchase 149,501.5 ordinary shares and 71,607 RSUs under the 2006 Plan were outstanding.
The following table summarizes, as of March
31, 2018, the shares related to outstanding options and RSUs granted under the 2006 Plan to certain of our directors and executive
officers and to other individuals as a group.
Name
|
|
Number of
Options or
Restricted
Share Units
Granted
|
|
|
Exercise Price
(US$/ Share)
|
|
|
Date of Grant
|
|
Date of Expiration
|
|
Vesting
Schedule
|
Sidney Xuande Huang
|
|
|
*
|
|
|
|
10.20
|
|
|
December 28, 2010
|
|
December 28, 2020
|
|
vested
|
Other individuals as a group
|
|
|
65,951.5
|
|
|
|
10.20
|
|
|
December 28, 2010
|
|
December 28, 2020
|
|
vested
|
|
|
|
49,800
|
|
|
|
0.40
|
|
|
December 31, 2006
|
|
December 31, 2026
|
|
vested
|
|
|
|
71,607
|
|
|
|
—
|
|
|
March 16, 2016
|
|
March 16, 2026
|
|
4 years
|
|
*
|
Less than one percent of our outstanding shares.
|
The following paragraphs describe the principal
terms of the 2006 Plan.
Types of Awards
. The 2006 Plan permits
the awards of options, share application rights, restricted shares, restricted share units or deferred equity rights.
Plan Administration
. Our board of directors
or a committee designated by our board of directors will administer the 2006 Plan. The committee or the full board of directors,
as appropriate, will determine the terms and conditions of each award grant.
Award Agreement
. Awards granted under
the 2006 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award. In addition,
the award agreement may also provide that securities granted are subject to a 180-day lock-up period following the effective date
of a registration statement filed by us under the Securities Act, if so requested by us or any representative of the underwriters
in connection with any registration of the offering of any of our securities.
Evidence of Award
. Awards can be evidenced
by an agreement, certificate, resolution or other type of writing or an electronic medium approved by the board of directors that
sets forth the terms and conditions of the awards granted. An evidence of award, with the approval of the board of directors, need
not be signed by a representative of our company or the recipient.
Eligibility
. Awards other than incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended, may be granted to employees,
directors and consultants. Incentive stock options may be granted only to our employees.
Acceleration of Awards upon Change in Control
of Our Company
. Except as provided otherwise in an award agreement, in the event of a change in control, each award which is
at the time outstanding under the 2006 Plan automatically shall become fully vested and exercisable and be released from any repurchase
or forfeiture rights immediately prior to the specified effective date of such change in control, provided that the grantee’s
continuous service has not terminated prior to such date.
Exercise Price and Term of Awards
. Our
board of directors, or a committee designated by our board of directors, determines the exercise price, grant price and expiration
date for each award. The term of each award shall be stated in the award agreement, provided however, that the term of each option
may not be more than 10 years from the date of grant.
Vesting Schedule
. In general, our board
of directors, or a committee designated by our board of directors, determines, or the evidence of award specifies, the vesting
schedule.
Transfer Restrictions
. Incentive stock
options may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution. Awards
other than incentive stock options shall be transferable by will or the laws of descent and distribution and during the lifetime
of the grantee, to the extent and in the manner authorized by our board of directors, or a committee designated by our board of
directors.
Termination of the 2006 Stock Incentive Plan
.
Options granted under the 2006 Stock Incentive Plan typically expire 10 years from relevant grant date. In March 2016, we extended
the expiration date for 89,600 of those options to December 31, 2026. Our board of directors has the authority to amend or terminate
the 2006 Plan to the extent necessary to comply with applicable law or the rules of the principal securities exchange upon which
our ADSs are traded or quoted.
2010 Stock Incentive Plan
On February 8, 2010, we adopted a second stock
incentive plan, or the 2010 Plan, to attract and retain the best available personnel and provide additional incentives to employees,
directors and consultants. As of March 31, 2018, options to purchase 264,204.5 ordinary shares and 56,832 RSUs under the 2010 Plan
were outstanding.
The following table summarizes, as of March
31, 2018, the shares related to outstanding options and RSUs granted under the 2010 Plan to certain of our directors and executive
officers and to other individuals as a group.
Name
|
|
Number of
Options or
Restricted
Share Units
Granted
|
|
|
Exercise Price
(US$/ Share)
|
|
|
Date of Grant
|
|
Date of Expiration
|
|
Vesting
Schedule
|
Bin Li
|
|
|
*
|
|
|
|
10.20
|
|
|
December 28, 2010
|
|
December 28, 2020
|
|
vested
|
Other individuals as a group
|
|
|
83,167
|
|
|
|
3.20
|
|
|
February 8, 2010
|
|
February 8, 2020
|
|
vested
|
|
|
|
58,787.5
|
|
|
|
10.20
|
|
|
December 28, 2010
|
|
December 28, 2020
|
|
vested
|
|
|
|
72,250
|
|
|
|
4.03
|
|
|
August 7, 2012
|
|
August 7, 2022
|
|
vested
|
|
|
|
56,832
|
|
|
|
—
|
|
|
March 16, 2016
|
|
March 16, 2026
|
|
4 years
|
|
*
|
Less than one percent of our outstanding shares.
|
The following paragraphs describe the principal
terms of the 2010 Plan.
Types of awards
. The 2010 Plan permits
the awards of options, share application rights, restricted shares, restricted share units or deferred equity rights.
Plan Administration
. Our board of directors
or a committee designated by our board of directors will administer the 2010 Plan. The committee or the full board of directors,
as appropriate, will determine the terms and conditions of each award grant.
Award Agreement
. Awards granted under
the 2010 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award. In addition,
the award agreement may also provide that securities granted are subject to a 180-day lock-up period following the effective date
of a registration statement filed by us under the Securities Act, if so requested by us or any representative of the underwriters
in connection with any registration of the offering of any of our securities.
Evidence of Award
. Awards can be evidenced
by an agreement, certificate, resolution or other type of writing or an electronic medium approved by the board of directors that
sets forth the terms and conditions of the awards granted. An evidence of award, with the approval of the board of directors, need
not be signed by a representative of our company or the recipient.
Eligibility
. Awards other than incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended, may be granted to employees,
directors and consultants. Incentive stock options may be granted only to our employees.
Acceleration of Awards upon Change in Control
of Our Company
. Except as provided otherwise in an award agreement, in the event of a change in control, each award which is
at the time outstanding under the 2010 Plan automatically shall become fully vested and exercisable and be released from any repurchase
or forfeiture rights immediately prior to the specified effective date of such change in control, provided that the grantee’s
continuous service has not terminated prior to such date.
Exercise Price and Term of Awards
. Our
board of directors, or a committee designated by our board of directors, determines the exercise price, grant price and expiration
date for each award. The term of each award shall be stated in the award agreement, provided however, that the term of each option
may not be more than 10 years from the date of grant.
Vesting Schedule
. In general, our board
of directors, or a committee designated by our board of directors, determines, or the evidence of award specifies, the vesting
schedule.
Transfer Restrictions
. Incentive stock
options may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution. Awards
other than incentive stock options shall be transferable by will or the laws of descent and distribution and during the lifetime
of the grantee, to the extent and in the manner authorized by our board of directors, or a committee designated by our board of
directors.
Termination of the 2010 Stock Incentive Plan
.
Unless terminated earlier, the 2010 Plan will terminate automatically in 2020. Our board of directors has the authority to amend
or terminate the 2010 Plan to the extent necessary to comply with applicable law or the rules of the principal securities exchange
upon which our ADSs are traded or quoted.
2012 Share Incentive Plan
On August 7, 2012, we adopted our 2012 Share
Incentive Plan, or the 2012 Plan, to motivate, attract and retain employees, directors and consultants. As of March 31, 2018, 928,185
RSUs under the 2012 Plan were outstanding.
The following table summarizes, as of March
31, 2018, the outstanding RSUs granted to certain of our directors and executive officers and to other individuals as a group.
Name
|
|
Number of RSUs
|
|
|
Date of Grant
|
|
Date of Expiration
|
|
Vesting Schedule
|
Bin Li
|
|
|
*
|
|
|
August 7, 2013
|
|
August 7, 2023
|
|
vested
|
|
|
|
*
|
|
|
November 17, 2016
|
|
November 17, 2026
|
|
vested
|
Xuan Zhang
|
|
|
*
|
|
|
November 17, 2016
|
|
November 17, 2026
|
|
vested
|
Xiaoke Liu
|
|
|
*
|
|
|
March 16, 2017
|
|
March 16, 2027
|
|
4 years
|
Xiangzhi Kong
|
|
|
*
|
|
|
November 20, 2014
|
|
November 20, 2024
|
|
vested
|
|
|
|
*
|
|
|
November 17, 2016
|
|
November 17, 2026
|
|
vested
|
Sidney Xuande Huang
|
|
|
*
|
|
|
October 1, 2013
|
|
October 1, 2023
|
|
vested
|
Yu Long
|
|
|
*
|
|
|
February 17, 2015
|
|
February 17, 2025
|
|
vested
|
|
|
|
*
|
|
|
May 25, 2017
|
|
May 25, 2027
|
|
4 years
|
Jun Hou
|
|
|
*
|
|
|
March 5, 2015
|
|
March 5, 2025
|
|
4 years
|
Other individuals as a group
|
|
|
8,178
|
|
|
December 25, 2013
|
|
December 25, 2023
|
|
4 years
|
|
|
|
8,400
|
|
|
October 21, 2014
|
|
October 21, 2024
|
|
vested
|
|
|
|
187
|
|
|
November 12, 2014
|
|
November 12, 2024
|
|
vested
|
|
|
|
10,396
|
|
|
November 20, 2014
|
|
November 20, 2024
|
|
4 years
|
|
|
|
15,792
|
|
|
March 5, 2015
|
|
March 5, 2025
|
|
4 years
|
|
|
|
22,106
|
|
|
April 21, 2015
|
|
April 21, 2025
|
|
vested
|
|
|
|
4,488
|
|
|
August 20, 2015
|
|
August 20, 2025
|
|
vested
|
|
|
|
92,736
|
|
|
March 16, 2016
|
|
March 16, 2026
|
|
4 years
|
|
|
|
35,058
|
|
|
May 20, 2016
|
|
May 20, 2026
|
|
vested
|
|
|
|
143,176
|
|
|
November 17, 2016
|
|
November 17, 2026
|
|
vested
|
|
|
|
28,758
|
|
|
November 10, 2016
|
|
November 10, 2026
|
|
4 years
|
|
|
|
22,564
|
|
|
March 16, 2017
|
|
March 16, 2027
|
|
4 years
|
|
|
|
79,000
|
|
|
September 26, 2017
|
|
September 26, 2027
|
|
4 years
|
|
*
|
Less than one percent of our outstanding shares.
|
The following paragraphs describe the principal
terms of the 2012 Plan.
Types of Awards
. The 2012 Plan permits
the awards of options, restricted shares or restricted share units.
Plan Administration
. The plan administrator
is our board of directors or the compensation committee of the board. The board or the compensation committee may delegate a committee
of one or more members of the board the authority to grant or amend awards to participants other than senior executives of our
company. The plan administrator will determine the provisions and terms and conditions of each grant.
Award Agreement
. Options, restricted
shares, or restricted share units granted under the plan are evidenced by an award agreement that sets forth the terms, conditions,
and limitations for each grant.
Option Exercise Price
. The exercise price
subject to an option shall be determined by the plan administrator and set forth in the award agreement. The exercise price may
be amended or adjusted in the absolute discretion of the plan administrator, the determination of which shall be final, binding
and conclusive. To the extent not prohibited by applicable laws or the rules of any exchange on which our securities are listed,
a downward adjustment of the exercise prices of options shall be effective without the approval of the shareholders or the approval
of the affected participants.
Eligibility
. We may grant awards to our
employees, directors and consultants.
Term of the Awards
. The term of each
option grant shall be stated in the award agreement, provided that the term shall not exceed 10 years from the date of the grant.
As for the restricted shares and restricted share units, the plan administrator shall determine and specify the period of restriction
in the award agreement.
Vesting Schedule
. In general, the plan
administrator determines the vesting schedule, which is set forth in the award agreement.
Transfer Restrictions
. Options to purchase
our ordinary shares may not be transferred in any manner by the option holder other than by will or the laws of descent and distribution
and may be exercised during the lifetime of the option holder only by the option holder. Restricted shares and restricted share
units may not be transferred during the period of restriction.
Termination of the Plan
. Unless terminated
earlier, the 2012 plan will terminate automatically in 2022. In the event that the award recipient ceases employment with us or
ceases to provide services to us, the options will terminate after a period of time following the termination of employment and
the restricted shares and restricted share units that are at that time subject to restrictions will be forfeited to or repurchased
by us. Our board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in
any material way any awards previously granted pursuant to the 2012 Plan without the prior written consent of the participants.
2016 Share Incentive Plan
On November 17, 2016 we adopted our 2016 Share
Incentive Plan, or the 2016 Plan, which was amended and restated in March 2018, to motivate, attract and retain employees, directors
and consultants. The amended and restated 2016 Share Incentive Plan increased the maximum number of ordinary shares to 6,200,000
shares in order to further attract and retain the best available personnel and provide additional incentive to employees, officers,
directors and advisors of the Company. As of March 31, 2018, 3,764,701 RSUs under the 2016 Plan were outstanding.
The following table summarizes, as of March
31, 2018, the outstanding RSUs granted to certain of our directors and executive officers and to other individuals as a group.
Name
|
|
Number of RSUs
|
|
|
Date of Grant
|
|
Date of Expiration
|
|
Vesting Schedule
|
Xuan Zhang
|
|
|
*
|
|
|
January 5, 2017
|
|
January 5, 2027
|
|
vested
|
|
|
|
2,100,000
|
|
|
March 15, 2018
|
|
March 15, 2028
|
|
5 years
|
Cynthia Kun He
|
|
|
*
|
|
|
January 5, 2017
|
|
January 5, 2027
|
|
4 years
|
Lei Zhu
|
|
|
*
|
|
|
January 5, 2017
|
|
January 5, 2027
|
|
4 years
|
Xiangzhi Kong
|
|
|
*
|
|
|
January 5, 2017
|
|
January 5, 2027
|
|
4 years
|
Erhai Liu
|
|
|
*
|
|
|
March 15, 2018
|
|
March 15, 2028
|
|
4 years
|
Other individuals as a group
|
|
|
1,073,374
|
|
|
January 5, 2017
|
|
January 5, 2027
|
|
4 years
|
|
*
|
Less than one percent of our outstanding shares.
|
The following paragraphs describe the principal
terms of the 2016 Plan.
Types of Awards
. The 2016 Plan permits
the awards of options, restricted shares or restricted share units.
Plan Administration
. The plan administrator
is our board of directors. The board may delegate a committee of one or more members of the board the authority to grant or amend
awards to participants other than the board or the committee.
Award Agreement
. Options, restricted
shares, or restricted share units granted under the plan are evidenced by an award agreement that sets forth the terms, conditions,
and limitations for each grant.
Option Exercise Price
. The exercise price
subject to an option shall be determined by the plan administrator and set forth in the award agreement. The exercise price may
be amended or adjusted in the absolute discretion of the plan administrator, the determination of which shall be final, binding
and conclusive. To the extent not prohibited by applicable laws or the rules of any exchange on which our securities are listed,
a downward adjustment of the exercise prices of options shall be effective without the approval of the shareholders or the approval
of the affected participants.
Eligibility
. We may grant awards to our
employees, directors and consultants.
Term of the Awards
. The term of each
option grant shall be stated in the award agreement, provided that the term shall not exceed 10 years from the date of the grant.
As for the restricted shares and restricted share units, the plan administrator shall determine and specify the period of restriction
in the award agreement.
Vesting Schedule
. In general, the plan
administrator determines the vesting schedule, which is set forth in the award agreement.
Transfer Restrictions
. Options to purchase
our ordinary shares may not be transferred in any manner by the option holder other than by will or the laws of descent and distribution
and may be exercised during the lifetime of the option holder only by the option holder. Restricted shares and restricted share
units may not be transferred during the period of restriction.
Termination of the Plan
. The plan administrator
may terminate, amend or modify the 2016 plan at any time and from time to time, with the approval of the board.
Our board of directors consists of seven directors.
A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract,
proposed contract or arrangement in which he is materially interested provided the nature of the interest is disclosed prior to
voting. A director may exercise all the powers of our company to borrow money, mortgage its undertaking, property and uncalled
capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of our company or
of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination
of employment.
Committees of the Board of Directors
We have established three committees under the
board of directors: the audit committee, the compensation committee and the nominating and corporate governance committee. We have
adopted a charter for each of these committees. Each committee’s members and functions are summarized below.
Audit Committee
. Our audit committee
consists of Mr. Erhai Liu, Ms. Yu Long and Mr. Jun Hou. Mr. Erhai Liu is the chairman of our audit committee and Mr. Jun Hou meets
the criteria of an audit committee financial expert under applicable rules. Mr. Erhai Liu, Ms. Yu Long and Mr. Jun Hou satisfy
the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE and Rule 10A-3 under
the Securities Exchange Act of 1934. The audit committee oversees our accounting and financial reporting processes and the audits
of the financial statements of our company. The audit committee is responsible for, among other things:
|
·
|
selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditors;
|
|
·
|
reviewing with the independent auditors any audit problems or difficulties and management’s response;
|
|
·
|
reviewing and approving past or proposed related party transactions;
|
|
·
|
reviewing the annual audited financial statements with management and the independent auditors;
|
|
·
|
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material
control deficiencies; and
|
|
·
|
meeting separately and periodically with management and the independent auditors.
|
Compensation Committee
. Our compensation
committee consists of Mr. Erhai Liu and Ms. Yu Long. Mr. Erhai Liu is the chairman of our compensation committee. Each of Mr. Erhai
Liu and Ms. Yu Long satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of
the NYSE. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms
of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee
meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
|
·
|
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and
other executive officers;
|
|
·
|
reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; and
|
|
·
|
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements.
|
Nominating and Corporate Governance Committee
.
Our nominating and corporate governance committee consists of Mr. Bin Li and Mr. Erhai Liu. Mr. Bin Li is the chairman of our nominating
and corporate governance committee. Mr. Erhai Liu satisfies the “independence” requirements of Section 303A of the
Corporate Governance Rules of the NYSE. The nominating and corporate governance committee assists the board of directors in selecting
individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating
and corporate governance committee is responsible for, among other things:
|
·
|
selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
|
|
·
|
reviewing annually with the board the current composition of the board with regards to characteristics such as independence,
knowledge, skills, experience and diversity;
|
|
·
|
making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of
the board; and
|
|
·
|
advising the board periodically with regards to significant developments in the law and practice of corporate governance as
well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate
governance and on any remedial action to be taken.
|
Duties of Directors
Under Cayman Islands law, our directors have
a statutory duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to
exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable
circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of
association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
Terms of Directors and Officers
Our directors may hold office for such term
as the shareholders or the board may determine or in the absence of such determination until their successors are elected or appointed
or their office is otherwise vacated in accordance with our articles of association. Each director whose term of office expires
shall be eligible for re-election at a meeting of the board. A director will vacate office automatically if, among other things,
the director (i) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors,
or (ii) is found to be or becomes of unsound mind or dies.
Our officers are elected by and serve at the
discretion of the board of directors.
We had 5,282, 7,620 and 8,558 employees as of
December 31, 2015, 2016 and 2017, respectively. Of all the employees as of December 31, 2017, 3,316 were located in Beijing, and
5,242 in other cities in China.
The following table sets forth the number and
percentage of our employees by functional area as of December 31, 2017:
Functional Area
|
|
Number of
Employees
|
|
|
% of Total
|
|
Sales, marketing and customer support
|
|
|
5,608
|
|
|
|
66
|
%
|
Editorial and creative
|
|
|
525
|
|
|
|
6
|
%
|
Product development
|
|
|
1,577
|
|
|
|
18
|
%
|
General and administrative
|
|
|
848
|
|
|
|
10
|
%
|
Total
|
|
|
8,558
|
|
|
|
100
|
%
|
The number of our employees includes 5,930 employees
who are from the entities in which we acquired and holds controlling interests.
We invest significant resources in the recruitment,
retention, training and development of our employees. Through a combination of short-term performance evaluations and long-term
incentive arrangements, we have built a competent, loyal and highly motivated workforce. We believe that our relationships with
our employees are good, and we have not experienced any work stoppages due to labor disputes.
Except as specifically noted in the table, the
following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31, 2018 by:
|
·
|
each of our directors and executive officers;
|
|
·
|
each person known to us to own beneficially more than 5% of our ordinary shares; and
|
|
·
|
each selling shareholder.
|
Beneficial ownership is determined in accordance
with the rules and regulations of the United States Securities and Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire
within 60 days, including through the exercise of any option, warrant or other right or any other security. These shares, however,
are not included in the computation of the percentage ownership of any other person.
|
|
Shares Beneficially Owned
|
|
|
|
Number
|
|
|
%*
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Bin Li
(1)
|
|
|
7,755,863.5
|
|
|
|
10.8
|
%
|
Xuan Zhang
(2)
|
|
|
**
|
|
|
|
**
|
|
Sidney Xuande Huang
(3)
|
|
|
**
|
|
|
|
**
|
|
Rob Huting
(4)
|
|
|
—
|
|
|
|
—
|
|
Erhai Liu
(5)
|
|
|
—
|
|
|
|
—
|
|
Yu Long
(6)
|
|
|
**
|
|
|
|
**
|
|
Jun Hou
(7)
|
|
|
**
|
|
|
|
**
|
|
Cynthia Kun He
(8)
|
|
|
**
|
|
|
|
**
|
|
Lei Zhu
(9)
|
|
|
**
|
|
|
|
**
|
|
Xiaoke Liu
(10)
|
|
|
**
|
|
|
|
**
|
|
Xiangzhi Kong
(11)
|
|
|
**
|
|
|
|
**
|
|
All Directors and Executive Officers as a group
|
|
|
8,184,702.5
|
|
|
|
11.4
|
%
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
JD.com Global Investment Limited
(12)
|
|
|
18,161,020
|
|
|
|
25.4
|
%
|
ATG Global Management L.P.
(13)
|
|
|
9,000,000
|
|
|
|
12.6
|
%
|
Proudview Limited
(14)
|
|
|
6,942,779.5
|
|
|
|
9.7
|
%
|
Entities affiliated with PAG Holdings Limited
(15)
|
|
|
5,323,205
|
|
|
|
7.5
|
%
|
Entities affiliated with Tencent Holdings Limited
(16)
|
|
|
5,482,683
|
|
|
|
7.7
|
%
|
William von Mueffling
(17)
|
|
|
4,673,512
|
|
|
|
6.5
|
%
|
|
*
|
For each person and group included in this column, percentage
ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number
of shares issued and outstanding, which is 71,422,374.5 as of March 31, 2018 (excluding 1,317,591.5 treasury shares and ordinary
shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards
granted under the share incentive plans), and the number of shares such person or group has the right to acquire upon exercise
of options, RSUs or other rights within 60 days after March 31, 2018.
|
|
**
|
Less than 1% of our total outstanding shares.
|
|
1)
|
Includes (i) 6,942,779.5 ordinary shares includes 4,442,779.5 ordinary shares and 2,500,000 ADSs owned by Proudview Limited,
a British Virgin Islands company owned by Mr. Bin Li and Mr. Weihai Qu, (ii) 500,000 ordinary shares owned by Serene View Investment,
a British Virgin Islands company owned by Mr. Bin Li, and (iii) 313,084 vested restrict share units. Mr. Li owns 99.8% of the outstanding
capital stock of Proudview Limited and has the sole voting and investment power over Proudview Limited. The remaining 0.2% of Proudview
is owned by Mr. Weihai Qu. Mr. Li is a director of Proudview Limited. The business address of Mr. Li is New Century Hotel Office
Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China, 100044.
|
|
2)
|
The business address of Mr. Zhang is New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China,
100044.
|
|
3)
|
The business address of Mr. Huang is 18 Kechuang 11th Street, JD Tower A, 20/F, Beijing, China, 101111.
|
|
4)
|
The business address for Mr. Huting is c/o AutoTrader Group, Inc., 3003 Summit Boulevard Atlanta, Georgia 30319.
|
|
5)
|
The business address for Mr. Liu is 1501, Tower B, Greenland Center, No. 4 Wangjing Dong Yuan, Chaoyang District, Beijing,
China, 100102.
|
|
6)
|
The business address of Ms. Long is Unit 1609, 16/F, West Tower, Genesis Beijing, 8 Xinyuan South Rd., Chaoyang Dist., Beijing
100027, P.R.China.
|
|
7)
|
The business address of Mr. Hou is 48-19, Bishuizhuangyuan, Huilongguan Town, Changping District, Beijing, China, 102206.
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8)
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The business address of Ms. He is New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China, 100044.
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9)
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The business address of Mr. Zhu is New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China, 100044.
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10)
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The business address of Mr. Liu is New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China, 100044.
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11)
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The business address of Mr. Kong is New Century Hotel Office Tower, 6/F, No. 6 South Capital Stadium Road, Beijing, China,
100044.
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12)
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Includes 18,161,020 ordinary shares held by JD.com Global Investment Limited, as reported on Schedule 13D/A filed by JD.com
Global Investment Limited and other joint filers on June 21, 2016. JD.com Global Investment Limited is a British Virgin Islands
company, which is a wholly owned subsidiary of JD.com Investment Limited, which is in turn a wholly owned subsidiary of JD.com,
Inc., a Cayman Islands company with its shares listed on the Nasdaq Global Select Market. The business address of JD.com Global
Investment Limited is 18 Kechuang 11th Street, JD Tower A, 20/F, Beijing, China, 101111.
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13)
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Includes (i) 4,380,000 ordinary shares and (ii) 4,620,000 ordinary shares represented by ADSs owned by ATG Global Management
L.P., or ATGGM, which an indirect, wholly-owned subsidiary of Autotrader Group, Inc., ATG, as reported on Schedule 13D/A filed
by Autotrader Group, Inc., or ATG and another joint filer on January 12, 2017. ATG International Management, LLC, or ATGIM, a Delaware
limited liability company, is the general partner of ATGGM. In addition, (i) ATG Investments, Inc., or ATGI, a Delaware corporation,
as sole member of ATGIM, (ii) AutoTrader.com, Inc., or ATC, a Delaware corporation and sole stockholder of ATGI; and (iii) AutoTrader
Group, Inc., a Delaware corporation, as the sole stockholder of ATC, may be deemed to have beneficial ownership over our shares
held by ATGGM. Mr. Clement is the executive vice-president and chief financial officer for AutoTrader Group, Inc. The principal
office and business address for ATGGM, ATGIM, ATGI, ATC and AutoTrader Group, Inc. is c/o AutoTrader Group, Inc., 3003 Summit Boulevard,
Atlanta, Georgia 30319.
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15)
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Includes (i) 422,475 ordinary shares upon the conversion of the convertible notes held by PAG Asia Alpha LP, (ii) 633,713 ordinary
shares upon the conversion of the convertible notes held by PAG-P Asia Fund L.P., (iii) 675,962 ordinary share upon conversion
of the convertible notes held by PA Grand Opportunity Limited, and (iv) 3,591,052 ordinary shares upon the conversion of the convertible
notes held by Pacific Alliance Asia Opportunity, as reported on Schedule 13G jointly filed by PAG Holdings Limited, Pacific Alliance
Group Limited, or PAG Limited, Pacific Alliance Investment Management Limited, or Pacific Alliance Investment Management, Pacific
Alliance Group Asset Management Limited, or Asset Management, and Pacific Alliance Asia Opportunity Fund L.P., or Pacific Alliance
Asia Opportunity, on February 14, 2018. According to the Schedule 13G filing, PAG Asia Alpha LP is a Cayman Islands limited partnership,
of which PAG Asia Alpha GP Limited is the general partner. PAG Asia Alpha GP Limited has the power to make all decisions with respect
to PAG Asia Alpha LP. PAG Asia Alpha GP Limited is beneficially owned as to 100.0% by PAG Asia Alpha Limited, which is beneficially
owned as to 100.0% by PAG Limited. PAG-P Asia Fund L.P. is a Cayman Islands limited partnership of which PAG-P Management Limited
is the general partner. As such, PAG-P Management Limited has the power to make all decisions with respect to PAG-P Asia Fund L.P.
PAG-P Management Limited is beneficially owned as to 100.0% by PAG AR Opportunistic Strategies Limited, which is beneficially owned
as to 100.0% by PAG Limited. PA Grand Opportunity Limited is a Cayman Islands company which is beneficially owned as to 100.0%
by Pacific Alliance Asia Opportunity. Pacific Alliance Asia Opportunity is a Cayman Islands limited partnership of which PAG Asset
Management is the general partner. As such, PAG Asset Management has the power to make all decisions with respect to Pacific Alliance
Asia Opportunity. PAG Asset Management is beneficially owned as to 100.0% by Pacific Alliance Investment Management. Pacific Alliance
Investment Management is beneficially owned as to 90.0% by PAG Limited, which is beneficially owned as to 99.2% by PAG Holdings
Limited. Each of PAG Limited and PAG Holdings Limited may thereby be deemed to beneficially own 5,325,205 ordinary shares. Each
of Pacific Alliance Investment Management, PAG Asset Management and Pacific Alliance Asia Opportunity may thereby be deemed to
beneficially own 4,267,014 ordinary shares. The address of the principal business office of PAG Holdings Limited, PAG Limited,
Pacific Alliance Investment Management, PAG Asset Management and Pacific Alliance Asia Opportunity, is located at PO Box 472, 2nd
Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands.
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16)
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Includes (i) 2,046,106 ordinary shares held by Dongting Lake Investment Limited, or Dongting, (ii) 2,471,577 ordinary shares
held by Morespark Limited, or Morespark, and (iii) 965,000 ordinary shares represented by ADSs owned by THL E Limited, or THL,
as reported on Schedule 13D jointly filed by Dongting, Morespark, THL and Tencent Holdings Limited, or Tencent, on June 27, 2016.
Each of Dongting, Morespark, THL is a wholly-owned subsidiary of Tencent. Dongting, Morespark, and THL used the working capital
of Tencent to acquire their respective ordinary shares. According to the Schedule 13D filing, Tencent may be deemed to have beneficial
ownership and sole power to vote or direct the vote of 5,482,683 ordinary shares. The principal address of Tencent is Cricket Square,
Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal address of Dongting is P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, British Virgin Islands. The principal address of Morespark is 29/F., Three Pacific Place,
No. 1 Queen’s Road East, Wanchai, Hong Kong. The principal address of THL is P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands.
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17)
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Includes 4,673,512 ordinary shares represented by ADSs held by Mr. von Mueffling, as reported on a Schedule 13G/A filed by
Mr. von Mueffling, Cantillon Capital Management LLC, or CCM LLC, Cantillon Inc., and Cantillon Management L.P., or Cantillon Management
on February 14, 2018. CCM LLC maintains investment and/or voting power with respect to certain funds and managed accounts advised
by it or its indirect subsidiary. Cantillon Management is the managing member of CCM LLC. Cantillon Inc. is the general partner
of Cantillon Management. Mr. von Mueffling is the sole shareholder of Cantillon Inc. and controls each of CCM LLC, Cantillon Inc.
and Cantillon Management. According to the 13G, as amended, each of (i) CCM LLC, Cantillon Inc., Cantillon Management and Mr. von
Mueffling may be deemed to beneficially own 4,376,612 ordinary shares and (ii) Mr. von Mueffling may be deemed to beneficially
own 296,900 ordinary shares. Each of CCM LLC, Cantillon Inc., Cantillon Management and Mr. von Mueffling disclaims such beneficial
ownership. The address of the principal business office of CCM LLC, Cantillon Inc., Cantillon Management and William von Mueffling
is 40 West 57th Street, 27th Floor, New York, NY 10019.
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As of March 31, 2018, to our knowledge, we had
one record holder in the United States, which in the aggregate held 37,439,685 ordinary shares. This record holder in the United
States was Citibank, N.A., the depositary of our ADS program and 37,439,685 outstanding ordinary shares include 1,317,588 ordinary
shares reserved for future issuances upon the exercise or vesting of awards granted under our share incentive plans), representing
approximately 52.4% of our total outstanding shares. The number of beneficial owners of our ADSs in the United States is likely
to be much larger than the number of record holders of our ordinary shares in the United States. None of our existing shareholders
has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result
in a change of control of our company.
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ITEM 7.
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MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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Please refer to “Item 6. Directors, Senior
Management and Employees—E. Share Ownership.”
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B.
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Related Party Transactions
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Transactions with JD.com, Tencent and Baidu
Share Subscription Agreement
We entered into a share subscription agreement
with JD.com Global Investment Limited, or JD Global, a wholly owned subsidiary by JD.com, together with Morespark Limited, or Morespark,
a special purpose vehicle of Tencent, and Baidu Holdings Limited, or Baidu Holdings, a wholly owned subsidiary by Baidu, on June
6, 2016. Pursuant to this share subscription agreement, we issued to each of JD Global, Morespark and Baidu Holdings 2,471,577
ordinary shares, representing approximately 3.20% of our then outstanding ordinary shares on a fully diluted basis, in consideration
for US$50 million in cash.
We entered into a share subscription agreement
with JD.com, JD.com Global Investment Limited, or JD Global, a wholly owned subsidiary by JD.com, together with Dongting Lake Investment
Limited, or Dongting, a special purpose vehicle of Tencent on January 9, 2015. Pursuant to this share subscription agreement, we
issued to JD Global 15,689,443 ordinary shares, representing approximately 25% of our then outstanding ordinary shares on a fully
diluted basis, in consideration for US$400 million in cash and certain resources material to the JD.com’s finished automobile
business on February 16, 2015. On the same closing date, we also issued 2,046,106 ordinary shares to Dongting for a total purchase
price of US$150 million in cash.
Business Cooperation Agreement with
JD.com
We entered into a business cooperation agreement
with JD.com on January 9, 2015. Pursuant to the business cooperation agreement, JD.com has granted us an exclusive right to operate
JD.com’s finished automobile business, which includes the sale of finished automobiles (including new and used cars) on JD
Mall, Paipai, their respective mobile sites and JD.com’s mobile apps, as well as the provision of advertising services on
JD.com’s finished car channels, in mainland China. JD.com has also agreed to provide supports in areas such as traffic support,
big data capabilities and technology infrastructure. The term of the business cooperation is five years from April 9, 2015.
Non-compete. During the period of business cooperation,
JD.com has agreed not to engage in the business of selling finished automobile (including new and used cars) and providing advertising
services relating to finished automobile in mainland China, or control or otherwise be interested in entities or enterprises that
engage in such business, nor shall JD.com allow any third-party merchants other than us to operate finished automobile business
on its platform.
Investor Rights Agreement
We entered into an amended and restated investor
rights agreement with JD Global, Dongting, Morespark and Baidu Holdings on June 17, 2016, or the investor rights agreement. Pursuant
to the investor rights agreement, JD Global has received certain board representation rights and certain registration rights, a
brief summary of which is set forth below:
Board representation
. JD Global is entitled
to appoint one director on our board of directors, as long as JD Global holds no less than 12.5% of the then issued and outstanding
share capital of Bitauto on a fully diluted basis. The director appointed by JD Global is entitled to serve on the compensation
committee and the nominating and corporate governance committee of our board, unless a majority of the board determines in good
faith that such service on the committee would violate any applicable law or result in us being not in full compliance with the
applicable stock exchange requirements without seeking exemptions. If at any time any representative of any other shareholder has
the right to attend the meetings of any committee of the board in a non-voting observer capacity and the director appointed by
JD Global is not a member of such committee, the director appointed by JD Global has the right, as a non-voting observer, to attend
all meetings of and observe all deliberations of any such committee.
Demand registration rights
. Holders of
at least 50% of the registrable securities then outstanding have the right to demand that Bitauto file a registration statement
covering the registration of registrable securities with a market value in excess of US$100 million. However, we are not obligated
to effect any demand registration if it has already effected a registration within the six-month period preceding the demand. We
are obligated to effect only three demand registrations for either JD Global or Dongting. The demand registration rights in the
investor rights agreement are subject to customary restrictions, such as limitations on the number of securities to be included
in any underwritten offering imposed by the underwriter.
Piggyback registration rights
. If we
propose to file a registration statement for a public offering of its securities other than a registration statement relating to
any employee benefit plan or a corporate reorganization, we must offer holders of our registrable securities an opportunity to
include in the registration all or any part of their registrable securities. The demand registration rights in the investor rights
agreement are subject to customary restrictions, such as limitations on the number of securities to be included in any underwritten
offering imposed by the underwriter.
Form F-3 registration rights
. Holders
of a majority of the registrable securities then outstanding have the right to request us to effect registration statements on
Form F-3. However, we are not obligated to effect any such registration, if the proceeds from the sale of registrable securities
(net of underwriters’ discounts or commissions) will be less than US$1.0 million or we have already effected a registration
within the six-month period preceding the request.
Expenses of obligations
. We will bear
all registration expenses incurred in connection with any demand, piggyback or F-3 registration, including reasonable expenses
of one legal counsel for the holders, but excluding underwriting discounts and selling commissions and ADS issuance fees charged
by our depositary bank. Holders of registrable securities will bear such holder’s proportionate share (based on the total
number of shares sold in such registration other than for our account) of all underwriting discounts and selling commissions or
other amounts payable to underwriters or brokers.
Yixin Share Subscription Agreement
We entered into a share subscription agreement
with JD Financial Investment Limited, or JD Financial, a wholly-owned subsidiary of JD.com, Dongting and certain other parties
on January 9, 2015. The transactions contemplated under the Yixin share subscription agreement were completed on February 16,
2015. We contributed (i) our online financial service platform which links financiers, insurers, automobile dealers and users
to provide automobile related financial services to Yixin Group Limited, or Yixin, formerly known as Yixin Capital Limited, in
exchange for 13,499,906 ordinary shares of Yixin representing 27.0% of the issued and outstanding equity securities of Yixin on
a fully diluted basis, which were issued to our wholly owned subsidiary, Bitauto Hong Kong Limited, and (ii) 100% of the equity
interest in Shanghai Yixin Financing Lease Company Limited, our wholly foreign-owned subsidiary, which has been approved to engage
in the automobile financial leasing business, and US$100 million in cash to Yixin, in exchange for 11,534,156 series A preferred
shares of Yixin. JD Financial purchased 8,872,428 series A preferred shares for a total purchase price of US$100 million. In addition,
Dongting purchased 13,308,642 series A preferred shares for a total purchase price of US$150 million.
We entered into a share subscription agreement
in respect of the subscription of series B preferred shares of Yixin with JD Financial, Morespark, Baidu Hong Kong Limited, or
Baidu Hong Kong, a wholly-owned subsidiary of Baidu, and certain other parties on August 1, 2016. Pursuant to the share subscription
agreement, Bitauto Hong Kong Limited invested US$241 million in exchange for 72,544,580 series B preferred shares, Morespark invested
US$127 million in exchange for 38,229,050 series B preferred shares, JD Financial invested US$30 million in exchange for 9,030,480
series B preferred shares and Baidu Hong Kong invested US$90 million in exchange for 27,091,450 series B preferred shares.
We entered into a series of agreements in May
2017 in respect of the subscription of series C preferred shares of Yixin. Tencent Mobility Limited, or Tencent Mobility, a subsidiary
of Tencent, and certain other new investors also entered into share subscription agreements. We contributed our used automobile
business into Yixin pursuant to certain contribution agreement between Yixin and us. We also agreed to provide traffic support
to Yixin and made non-compete undertakings in relation to Yixin’s business pursuant to certain business cooperation agreement
between Yixin and us. In consideration of our contribution and business cooperation, we were issued 75,234,010 series C preferred
shares of Yixin, representing approximately 9.3% of the post-closing issued and outstanding equity securities of Yixin on a fully
diluted basis. Pursuant to the share subscription agreement between Yixin, Tencent Mobility, us, as amended, Tencent Mobility invested
US$75 million in exchange for 16,121,570 series C preferred shares.
Yixin Shareholders’ Agreement
We entered into an amended and restated shareholders
agreement of Yixin in May 2017. Pursuant to the amended and restated shareholders agreement, the board of Yixin consists of up
to eight members. Each of Tencent, JD.com and Baidu, through their investing entities, has the right to appoint two, one and one
director to the board, respectively, and Bitauto Hong Kong Limited has the right to appoint the other four directors to the board.
The preferred shareholders of Yixin, subject to certain conditions, have a preemptive right with respect to any issuance of new
shares by Yixin. Furthermore, the shareholders of Yixin have a right of first refusal and a tag-along right with respect to any
transfer of shares of Yixin by any shareholder. In addition, holders of a majority of the outstanding ordinary shares of Yixin
and holders of at least 70% of the outstanding preferred shares of Yixin have a drag-along right in the case of a trade sale. The
shareholders of Yixin also enjoy demand registration rights, piggyback registration rights and Form F-3 registration rights with
respect to the registrable securities they hold in Yixin Capital, subject to certain limitations. This agreement has been terminated
upon the listing of Yixin on the Hong Kong Stock Exchange on November 16, 2017.
Voting Proxy Agreement
We entered into a voting proxy agreement with
Tencent and JD.com on October 31, 2017. Pursuant to the voting proxy agreement, Tencent and JD.com granted us a voting proxy over
an aggregate of 10% of Yixin’s shares held by Tencent and JD.com, and we shall have the right to vote these shares on all
matters in our sole discretion. However, we agree to vote in favor of (i) the appointment of two nominees of Tencent to the board
of directors of Yixin for so long as Tencent continues to directly or indirectly hold an equity interest of at least 20% of Yixin,
and one nominee of Tencent for so long as Tencent continues to directly or indirectly hold an equity interest of at least 10% of
Yixin; and (ii) the appointment of one nominee from JD.com for so long as JD.com continues to directly or indirectly hold an effective
interest of at least 10% of Yixin’s shares. Without our prior written consent, Tencent and JD.com should not transfer the
shares subject to the voting proxy agreement during the term of the voting proxy agreement. The voting proxy agreement will terminate
on the earliest of: (i) the second anniversary commencing from November 16, 2017, (ii) we acquire over 50% of Yixin’s equity
interests, and (iii) our shareholding in Yixin together with shares of Yixin held by Tencent and JD.com that are subject to voting
proxy agreement falls below 50%.
Pursuant to the voting proxy agreement, we have
a right of first refusal for Yixin’s shares held by Tencent and JD.com that were not subject to the voting proxy, if Tencent
and JD.com propose to sell those shares during the term of the voting proxy agreement.
Transactions with Related Parties
Purchase from JD.com
. JD.com is an ordinary
shareholder of us that has significant influence over us. We made purchase from subsidiaries of JD.com in a total amount of RMB35.1
million, RMB22.1 million and RMB40.4 million (US$6.2 million) for marketing and promotion services in 2015, 2016 and 2017, respectively.
Purchase of services from Eclicks
. Shanghai
Eclicks Network Co. Ltd., or Eclicks, is an investee of us. In 2015, 2016 and 2017, we purchased advertising services from Eclicks
in a total amount of RMB69.6 million, RMB85.8 million and RMB98.5 million (US$15.1 million), respectively.
Purchase of services from
Xinchuang
. Beijing Xinchuang Interactive Advertising Company Limited, or Xinchuang is an investee of us in 2015 and 2016.
In 2015 and 2016, we purchased advertising services from Xinchuang in a total amount of RMB10.0 million and RMB16.0 million,
respectively. In January 2017, we acquired additional equity interest of Xinchuang to obtain control of it and Xinchuang
became a subsidiary of us as of December 31, 2017.
Purchase of services from Jingzhengu
.
Beijing Jingzhengu Information Technology Co., Limited, or Jingzhengu is an investee of the us. In 2016 and 2017, we purchased
used car valuation services from Jingzhengu in a total amount of RMB3.4 million and RMB14.4 million (US$2.2 million), respectively.
Purchase of services from Chetuan
. Chetuan
E-Commerce Limited, or Chetuan, is an investee of us. In 2016, we purchased automobile transaction services from a subsidiary of
Chetuan in a total amount of RMB86.6 million.
Services provided to Chetuan
. In 2015,
2016 and 2017, we provided automobile transaction services to a subsidiary of Chetuan for a total amount of RMB168.3 million, RMB79.6
million and RMB9.8 million (US$1.5 million), respectively.
Services provided to TTP
. TTP CAR INC.,
or TTP, is an investee of us. In 2015, 2016 and 2017, we provided advertising services to TTP for a total amount of RMB10.0 million,
RMB32.1 million and RMB15.3 million (US$2.3 million), respectively.
Services provided to Xinchuang
. In 2015
and 2016, we provided advertising services to Xinchuang for a total amount of RMB86.3 million and RMB79.9 million.
Services provided to Anxinbao
. Beijing
Anxinbao Insurance Brokerage Co., Limited, or Anxinbao is an investee of us. In 2017, we provided other transaction services to
Anxinbao for a total amount of RMB14.2 million (US$2.2 million).
Contractual Arrangements with our PRC Variable
Interest Entities and Their Shareholders
The following is a summary of the currently
effective contractual arrangements with our significant variable interest entities:
Agreements that Provide Us with Effective
Control over Our PRC Variable Interest Entities
Loan Agreements
As part of the contractual arrangements for
BBIT, each shareholder of BBIT entered into a loan agreement with BBII, pursuant to which BBII agreed to provide interest-free
loans to each of the shareholders of BBIT. The purpose of the loans is to provide capital and/or registered capital to our PRC
variable interest entities in order to develop their businesses.
Each loan agreement contains a number of covenants
to restrict the actions that a variable interest entity shareholder that entered into the loan agreements may take or cause the
variable interest entity to take. For example, a variable interest entity shareholder that entered into the loan agreement (i)
shall not transfer, sell, mortgage, dispose of, or encumber his/her equity interest in a variable interest entity except in accordance
with the share pledge agreement discussed below, (ii) without prior written consent of the relevant PRC subsidiaries, shall not
take actions or omissions that may have a material impact on the assets, business and liabilities of a variable interest entity,
(iii) shall cause the shareholders’ meeting and/or the board of directors of a variable interest entity not to approve the
merger or consolidation of such variable interest entity with any person, or any acquisition or investment in any person, without
prior written consent of the relevant PRC subsidiaries, and (iv) shall appoint any director candidates nominated by the relevant
PRC subsidiaries.
Irrevocable Power of Attorney
Each shareholder of BBII or Beijing Yixin executed
an irrevocable power of attorney, appointing the relevant PRC subsidiary or a person designated by such PRC subsidiary as his or
her attorney-in-fact to attend shareholders’ meetings of BBII or Beijing Yixin, exercise all the shareholder’s voting
rights, including but not limited to the sale, transfer, pledge or disposition of the shareholder’s equity interest in the
variable interest entity, and designate or appoint legal representatives, directors and officers of the relevant variable interest
entity. Each power of attorney remains valid and irrevocable from the date of execution so long as the person remains to be the
shareholder of the respective variable interest entity.
Share Pledge Agreement
On March 31, 2009, BBII entered into share pledge
agreements with BBIT and each of BBIT’s shareholders. Pursuant to the share pledge agreements, each shareholder of BBIT agrees
to pledge his/her shares in BBIT to secure BBIT’s payment obligations, including payment of consulting and service fees,
under the exclusive business cooperation agreement between BBII and BBIT described below. This agreement amended and replaced the
share pledge agreements among BBII, BBIT and BBIT’s shareholders dated March 9, 2006.
On August 20, 2017, Beijing KKC entered into
equity interest pledge agreements with Beijing Yixin and each of Beijing Yixin’s shareholders. Pursuant to the equity interest
pledge agreements, each shareholder of Beijing Yixin agrees to pledge their respective equity interests in Beijing Yixin to secure
Beijing Yixin and its shareholders’ performance of all of their obligations under the power of attorney executed by such
shareholder of Beijing Yixin, the exclusive option agreement between Beijing KKC, Beijing Yixin and its shareholders and the exclusive
business cooperation agreement between Beijing KKC and Beijing Yixin as described below.
Each pledge of shares or equity interests is
effective on the date when it is registered with the local administration for industry and commerce and remains effective until
all payments due under the relevant exclusive business cooperation agreement or all the obligations under the relevant contractual
agreements, as the case may be, have been fulfilled by the respective variable interest entity. During the term of a pledge, the
relevant PRC subsidiaries, the pledgees, may dispose of the pledge if the variable interest entity defaults under the exclusive
business cooperation agreement. Each of the relevant PRC subsidiaries also has the right to collect dividends generated by the
shares or equity interests pursuant to these pledge agreements. In addition, each shareholder of our PRC variable interest entities
agreed not to transfer or create any new encumbrance adverse to the relevant PRC subsidiaries on the shareholder’s equity
interest in such variable interest entities without prior written consent of the relevant PRC subsidiaries. We have registered
the pledges of the shares or equity interests in in BBIT and Beijing Yixin with the local administration for industry and commerce.
Agreements that Transfer Economic
Benefits from Our PRC Variable Interest Entities to Us
Exclusive Business Cooperation Agreement
On March 9, 2006, BBII entered into an exclusive
business cooperation agreement with BBIT, pursuant to which BBII agreed to provide BBIT, on an exclusive basis, with technical,
consulting and other services in relation to BBIT’s e-commerce and internet content business. BBII’s services include,
among other things, technical services, network support, business consultations, intellectual property licenses, equipment or property
leasing, marketing consultancy, product search and development and system maintenance. In return, BBIT agreed to pay BBII service
fees. BBII follows the commonly used methodology, which is to charge service fees based on each variable interest entity’s
revenues reduced by its turnover taxes, such as business taxes, value-added taxes and other surcharges, cost of revenues, operating
expenses and an appropriate amount of retained profit that is determined pursuant to tax planning strategies and relevant tax laws.
During the term of this agreement, BBIT agreed not to accept any consultation and/or services provided by any third party without
BBII’s prior written consent. The term of this agreement is 10 years and may be extended upon BBII’s prior written
consent. BBII determines the extended term and BBIT agrees to unconditionally accept such extended term.
On August 20, 2017, Beijing KKC entered into
an exclusive business cooperation agreement with Beijing Yixin, pursuant to which Beijing KKC agreed to provide Beijing Yixin on
an exclusive basis with technical, consulting and other services in relation to Beijing Yixin’s automobile related financing
business. In return, Beijing Yixin agreed to pay Beijing KKC service fees, which shall consist of an amount to be determined by
Beijing KKC and Beijing Yixin in writing on the basis of considering several metrics including (i) the complexity and difficulty
of the services; (ii) the title and the time spent by employees of Beijing KKC on providing the services; (iii) the contents and
value of the services; (iv) the market price of similar type of services; (v) the operation conditions of the Consolidated Affiliated
Entity; and (vi) the necessary costs, expenses, taxes and statutory reserves or retaining funds. The agreement remains effective
unless Beijing KKC terminates in writing or either Beijing KKC or Beijing Yixin fails to obtain the government’s approval
on the renewal of the business license. Each of Beijing KKC and Beijing Yixin must renew its operation term prior to the expiration
thereof so as to enable the agreement to remain effective.
Exclusive Option Agreements
On March 31, 2009, BBII entered into exclusive
option agreements with BBIT and each of BBIT’s shareholders. Pursuant to these agreements, each of BBIT’s shareholders
irrevocably granted BBII an exclusive right to purchase, or designate one or more persons to purchase, the equity interests in
BBIT then held by such shareholder of BBIT. BBII or its designee may elect to purchase such equity interests at any time, once
or at multiple times, in part or in whole at its own sole and absolute discretion to the extent permitted by the PRC laws. Unless
an appraisal is required by any applicable PRC laws, the purchase price shall equal the actual capital contribution paid in the
registered capital of BBIT by BBIT’s shareholders. As agreed in the loan agreements between BBII and BBIT’s shareholders,
upon BBII’s exercise of its option to purchase the equity interests in BBIT, BBII may elect to pay for the purchase by canceling
the outstanding amount of loans owed by BBIT’s shareholders to BBII. The terms of these agreements are 10 years. The agreements
may be renewed for an additional 10 years at BBII’s discretion. These agreements amended and replaced the exclusive option
agreements among BBII, BBIT and BBIT’s shareholders dated March 9, 2006.
On August 20, 2017, Beijing KKC entered into
exclusive option agreements with Beijing Yixin and each of Beijing Yixin’s shareholders. Pursuant to these agreements, each
of Beijing Yixin’s shareholders irrevocably granted Beijing KKC an exclusive right to purchase, or designate one or more
persons to purchase, the equity interests in Beijing Yixin then held by such shareholder of Beijing Yixin. Beijing Yixin or its
designee may elect to purchase such equity interests at any time, once or at multiple times, in part or in whole at its own sole
and absolute discretion to the extent permitted by the PRC laws. The purchase price for the equity interests of each shareholder
equals to the capital contribution paid in the registered capital of Beijing Yixin by Beijing Yixin’s such shareholder. If
the appraisal is required by the PRC law, the purchase price may be adjusted based on the appraisal. Each shareholder undertakes
to donate the applicable purchase price (exclusive of the relevant taxes) to Beijing KKC or any person designated by Beijing KKC.
The agreement remains effective until all the equity interests held by the shareholder of Beijing Yixin have been transferred or
assigned to Beijing KKC or any other persons designated by Beijing KKC.
We have also entered into contractual arrangements
with several other variable interest entities and their respective nominee shareholders through our subsidiaries. Our contractual
agreements with these other variable interest entities contain key terms substantially similar to those in the agreements with
our significant variable interest entities, which results in these subsidiaries being the primary beneficiary of the relevant variable
interest entities.
As a result of these contractual arrangements,
we control our variable interest entities and have consolidated the financial information of these variable interest entities and
their subsidiaries into our consolidated financial statements in accordance with U.S. GAAP. We have been advised by our PRC counsel,
Han Kun Law Offices, that each of such contractual agreements for operating our business in China, including our corporate structure
and contractual arrangements with the variable interest entities, complies with all applicable existing PRC laws, rules and regulations,
and does not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations.
However, we cannot assure you that the PRC regulatory
authorities will not adopt any new regulations to restrict or prohibit foreign investment in internet and online internet and advertising
businesses through contractual arrangements in the future, or will not determine that our corporate structure and contractual arrangements
violate the PRC laws, rules or regulations. See “—Risk Factors—Risks Related to Our Corporate Structure—If
the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with
applicable PRC governmental restrictions on foreign investment in internet content and marketing services, or if these regulations
or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish
our interests in those operations” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties
with respect to the PRC legal system could limit the protection available to you and us.”
For further disclosure on related party transactions,
see “Item 18 Financial Statements—Notes to the financial statements—Note 24.”
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C.
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Interests of Experts and Counsel
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Not applicable.
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ITEM 8.
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FINANCIAL INFORMATION
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|
A.
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Consolidated Statements and Other Financial Information
|
See Item 18 “Financial Statements.”
Legal and Administrative Proceedings
From time to time, we are subject to legal proceedings,
investigations and claims incidental to the conduct of our business. We are currently not involved in any legal or administrative
proceedings that may have a material adverse impact on our business, financial position or results of operations.
Dividend Policy
We are a Cayman Islands holding company and
substantially all of our operations are conducted through our PRC subsidiaries, and our variable interest entities. We rely principally
on dividends paid to us by our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other
cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. In China, the payment of
dividends is subject to certain limitations. PRC regulations currently permit payment of dividends only out of retained earnings
as determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China are
required to allocate at least 10% of its after-tax profit based on PRC accounting standards to its statutory general reserves each
year until the accumulative amount of the reserves reaches 50% of its registered capital. Our operating subsidiaries, as foreign-invested
enterprises, are required to set aside funds for employee bonus and welfare fund from its after-tax profits each year at percentages
determined at its sole discretion. These reserves are not distributable as cash dividends.
Our operating subsidiaries had retained earnings
amounting to RMB2.26 billion (US$348.1 million) as of December 31, 2017 pursuant to PRC Accounting Standards. Therefore, our operating
subsidiaries appropriated reserves amounting to RMB153.5 million (US$23.6 million) as of December 31, 2017. The accounting policies
applied by our operating subsidiaries in preparing their financial statements under PRC accounting standards are materially consistent
with our accounting policies under U.S. GAAP. There is no material difference between the retained earnings of our operating subsidiaries
determined under PRC accounting standards and the retained earnings of our operating subsidiaries consolidated by us under U.S.
GAAP. For a description of how earnings are transferred from our PRC subsidiaries, and our variable interest entities to us, see
“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements
with our PRC Variable Interest Entities and Their Shareholders.”
In addition, we do not have any present plan
to pay cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our
available funds and any future earnings to operate and expand our business.
Our board of directors has significant discretion
on whether to distribute dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will
depend upon our future operations and earnings, capital requirements and surplus, general financial position, contractual restrictions
and other factors that the board of directors may deem relevant. If we pay any dividends, the depositary will distribute such payments
to our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including
the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
Except as disclosed elsewhere in this annual
report, we have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.
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ITEM 9.
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THE OFFER AND LISTING
|
|
A.
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Offering and Listing Details
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See “—C. Markets.”
Not applicable.
Our ADSs, each representing one ordinary share,
has been listed on the NYSE since November 17, 2010 and trade under the symbol “BITA.” The following table provides
the high and low trading prices for our ADSs on the NYSE for the periods indicated.
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|
Trading Price
|
|
|
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High
|
|
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Low
|
|
|
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US$
|
|
|
US$
|
|
2015
|
|
|
95.00
|
|
|
|
22.00
|
|
2016
|
|
|
33.16
|
|
|
|
16.09
|
|
First Quarter of 2016
|
|
|
28.38
|
|
|
|
16.09
|
|
Second Quarter of 2016
|
|
|
28.60
|
|
|
|
17.50
|
|
Third Quarter of 2016
|
|
|
33.16
|
|
|
|
24.66
|
|
Fourth Quarter of 2016
|
|
|
31.75
|
|
|
|
16.56
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter of 2017
|
|
|
26.80
|
|
|
|
18.04
|
|
Second Quarter of 2017
|
|
|
34.18
|
|
|
|
23.22
|
|
Third Quarter of 2017
|
|
|
47.82
|
|
|
|
27.51
|
|
Fourth Quarter of 2017
|
|
|
54.42
|
|
|
|
27.33
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
October 2017
|
|
|
54.42
|
|
|
|
43.88
|
|
November 2017
|
|
|
53.37
|
|
|
|
29.68
|
|
December 2017
|
|
|
32.96
|
|
|
|
27.33
|
|
2018
|
|
|
|
|
|
|
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
January 2018
|
|
|
39.54
|
|
|
|
31.05
|
|
February 2018
|
|
|
34.56
|
|
|
|
25.41
|
|
March 2018
|
|
|
32.20
|
|
|
|
19.66
|
|
April 2018 (through April 26, 2018)
|
|
|
22.49
|
|
|
|
18.47
|
|
Not applicable.
Not applicable.
Not applicable.
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ITEM 10.
|
ADDITIONAL INFORMATION
|
Not applicable.
|
B.
|
Memorandum and Articles of Association
|
We are a Cayman Islands company and our affairs
are governed by our memorandum and articles of association and the Companies Law of the Cayman Islands, which is referred to as
the Companies Law below. The following are summaries of material provisions of our amended and restated memorandum and articles
of association in effect as of the date of this annual report insofar as they relate to the material terms of our ordinary shares.
Registered Office and Objects
Our registered office in the Cayman Islands
is located at the offices of Vistra (Cayman) Limited, P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman,
KY1 – 1205 Cayman Islands, or at such other place as our board of directors may from time to time decide. The objects for
which our company is established are unrestricted and we have and are capable of exercising all the functions of a natural person
of full capacity irrespective of any question of corporate benefit, as provided by Section 27(2) of the Companies Law.
Board of Directors
A director is not required to hold any shares
in our company by way of qualification. A director may generally vote with respect to any contract, proposed contract or arrangement
in which he is materially interested provided the nature of his interest is disclosed prior to voting. Our board may exercise all
the powers of our company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other
securities whenever money is borrowed or as security for any obligation of our company or of any third party. The directors may
receive such remuneration as our board may from time to time determine. There is no age limit requirement with respect to the retirement
or non-retirement of a director. See also “Item 6. Directors, Senior Management and Employees—C. Board Practices—Duties
of Directors” and “—Terms of Directors and Officers.”
Ordinary Shares
General
. All of our outstanding ordinary
shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders
who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares.
Dividends
. The holders of our ordinary
shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law and to our amended
and restated memorandum and articles of association.
Voting Rights
. Each ordinary share is
entitled to one vote on all matters upon which the ordinary shares are entitled to vote. Voting at any shareholders’ meeting
is by show of hands unless required by the rules of the listing exchange or a poll is demanded. A poll may be demanded by the chairman
of such meeting or any one shareholder present in person or by proxy.
An ordinary resolution to be passed by the shareholders
requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general meeting, while
a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast
in a general meeting. A special resolution is required for important matters such as amending our amended and restated memorandum
and articles of association. Holders of the ordinary shares may effect certain changes by ordinary resolution, including increasing
the amount of our authorized share capital, consolidate and divide all or any of our share capital into shares of larger amount
than our existing share capital, and cancel any shares.
Transfer of Shares
. Subject to the restrictions
contained in our amended and restated memorandum and articles of association, any of our shareholders may transfer all or any of
his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of
directors. Our board of directors may, in its sole discretion, decline to register any transfer of any ordinary share. Our directors
may also decline to register any transfer of any ordinary share unless (a) the instrument of transfer is lodged with us, accompanied
by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably
require to show the right of the transferor to make the transfer; (b) the instrument of transfer is in respect of only one class
of ordinary shares; (c) the instrument of transfer is properly stamped, if required; (d) the ordinary shares transferred are fully
paid and free of any lien in favor of us; (e) in the case of a transfer to joint holders, the number of joint holders to whom the
ordinary share is to be transferred does not exceed four; or (f) any fee related to the transfer has been paid to us.
If our directors refuse to register a transfer
they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and
the transferee notice of such refusal. The registration of transfers may, after compliance with any notice requirements of the
NYSE, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine,
provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any
year.
Liquidation
. On a return of capital on
winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the
holders of ordinary shares shall be distributed among the holders of the ordinary shares pari passu amongst the holders of ordinary
shares in proportion to the capital paid up on the shares held. If our assets available for distribution are insufficient to repay
all of the paid-up capital, the assets will be distributed so that the losses are borne by the holders of ordinary shares in proportion
to the capital paid up or ought to have been paid up on the shares held.
Redemption of Shares
. Subject to the
provisions of the Companies Law and other applicable law, we may issue shares on terms that are subject to redemption, at our option
or at the option of the holders, on such terms and in such manner, including out of capital, as may be determined by the board
of directors.
Variations of Rights of Shares
. All or
any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the
sanction of a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon
the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari
passu with such previously existing class of shares.
Inspection of Books and Records
. Holders
of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders
or our corporate records. However, we have in our amended and restated memorandum and articles of association provided our shareholders
with the right to inspect our list of shareholders and to receive annual audited financial statements. See “Item 10 Additional
Information—H. Documents on Display.”
Anti-Takeover Provisions
. Some provisions
of our amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our
company or management that shareholders may consider favorable, including provisions that:
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·
|
authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences,
privileges and restrictions of such preference shares without any further vote or action by our shareholders; and
|
|
·
|
limit the ability of shareholders to call meetings of shareholders.
|
However, under Cayman Islands law, our directors
may only exercise the rights and powers granted to them under our memorandum and articles of association for a proper purpose and
for what they believe in good faith to be in the best interests of our company.
General Meetings of Shareholders
. Shareholders’
meetings may be convened by a majority of our board of directors or our chairman. Advance notice of at least ten clear days is
required for the convening of our annual general shareholders’ meeting and any other general meeting of our shareholders.
A quorum for a meeting of shareholders consists of at least two shareholders present or by proxy, representing not less than one-third
in nominal value of the total issued voting shares in our company.
We have not entered into any material contracts
other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,”
and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in
this annual report on Form 20-F.
See “Item 4. Information on the Company—B.
Business Overview—Regulation—Regulations on Foreign Currency Exchange.”
Cayman Islands Taxation
The Cayman Islands currently levies no taxes
on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance
tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except
for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands.
The Cayman Islands is not party to any double tax treaties except for a double tax treaty entered into with the United Kingdom
in 2010. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions
Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Cabinet:
|
(1)
|
that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation
shall apply to us or our operations; and
|
|
(2)
|
that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures
or other obligations.
|
The undertaking for us is for a period of twenty
years from August 24, 2010.
People’s Republic of China Taxation
Under the Enterprise Income Tax Law, or EIT
Law, and its implementation rules, enterprises established under the laws of jurisdictions outside China with their “de facto
management bodies” located within China may be considered to be PRC tax resident enterprises for tax purposes. We are a holding
company incorporated in the Cayman Islands, which indirectly holds, through our Hong Kong subsidiaries, controlling equity interests
in our subsidiaries in the PRC. Our business operations are principally conducted through our PRC subsidiaries and their variable
interest entities and most of our directors and management staff are PRC nationals. If we are considered a PRC tax resident enterprise
under the above definition, then our global income will be subject to PRC enterprise income tax at the rate of 25%. Further, the
EIT Law and the implementation rules provide that an income tax rate of 10% may apply to China-sourced income of foreign enterprises,
such as dividends paid by a PRC subsidiaries to its overseas parent company that is not a PRC resident enterprise, which (i) do
not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC but the
relevant income is not effectively connected with the establishment or place of business, unless there are applicable treaties
that reduce such rate. Under a special arrangement between China and Hong Kong, such dividend withholding tax rate is reduced to
5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company distributing the dividends and
is determined by the competent PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance
Arrangement between Hong Kong and Mainland China and other applicable PRC laws. As our Hong Kong subsidiaries own controlling interests
of our PRC subsidiaries, under the aforesaid arrangement, any dividends that our PRC subsidiaries pay our Hong Kong subsidiaries
may be subject to a withholding tax at the rate of 5% if our Hong Kong subsidiaries are not considered to be a PRC tax resident
enterprises as described below and is determined by the competent PRC tax authority to have satisfied relevant conditions and requirements.
However, if our Hong Kong subsidiaries are not considered to be the beneficial owners of such dividends under the Circular 9 issued
by the SAT in February 2018 or is determined by the competent PRC tax authority not to have satisfied any other relevant condition
or requirement, such dividends would be subject to the withholding tax rate of 10%.
The implementation rules of the Enterprise Income
Tax Law provide that (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realized from
transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced
income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction
where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for tax purposes, any
dividends we pay to our overseas shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from
the transfer of our shares or ADSs may be regarded as China-sourced income and as a result become subject to PRC withholding tax
at a rate of up to 10% if such shareholders are non-PRC resident enterprises or up to 20% if such shareholders are non-PRC resident
individuals, and it is not clear whether the tax treaty benefit would be applicable in such cases.
See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—Dividends we receive from our subsidiaries located in the PRC
may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay
our shareholders or ADS holders.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China—Under the EIT Law, we may be classified as a “resident enterprise” of China; such classification could
result in unfavorable tax consequences to us and our non-PRC shareholders and materially and adversely affect our results of operations
and financial condition.”
On February 3, 2015, the State Administration
of Taxation issued Public Notice 7, which partially replaced and supplemented previous rules under Circular 698. On October 17,
2017, the SAT issued SAT Bulletin 37, which came into effect on December 1, 2017 and concurrently abolished Circular 698. The SAT
Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. By promulgating
and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of
equity interests or other taxable assets in a PRC resident enterprise by a non-resident enterprise. Under Public Notice 7 and SAT
Bulletin 37, where a non-resident enterprise transfers the equity interests or other taxable assets of a PRC “resident enterprise”
indirectly by disposition of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor,
or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority this “indirect
transfer.” Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect transfer
as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains
derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and
consequences on private equity financing transactions, share exchange or other transactions involving the transfer of shares in
our company by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies
or other taxable assets by us. We and our non-resident investors may be at risk of being required to file a return and being taxed
under Public Notice 7 and SAT Bulletin 37, and we may be required to expend valuable resources to comply with Public Notice 7 and
SAT Bulletin 37 or to establish that we should not be taxed under these circulars.
See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfers of equity
interests in PRC resident enterprises by their non-PRC shareholders.”
In November 2011, the PRC Ministry of Finance
and the SAT jointly issued two circulars setting out the details of the VAT Pilot Program, which change business tax to value-added
tax for certain industries, including, among others, transportation services, research and development and technical services,
information technology services, and cultural and creative services. The VAT Pilot Program initially applied only to these industries
in Shanghai, and has been expanded to eight additional provinces, including Beijing, Tianjin, Zhejiang Province (including Ningbo),
Anhui Province, Guangdong Province (including Shenzhen), Fujian Province (including Xiamen), Hubei Province and Jiangsu province.
The VAT Pilot Program has been rolled out to the whole country since August 1, 2013. On April 29, 2014, the PRC Ministry of Finance
and the SAT issued the Circular on the Inclusion of Telecommunications Industry in the Pilot Collection of Value-added Tax in Lieu
of Business Tax. On March 23, 2016, the PRC Ministry of Finance and the SAT issued the Circular on Comprehensively Promoting the
Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax. Effective from May 1, 2016, the PRC tax authorities
will collect value-added tax in lieu of business tax on a trial basis within the territory of China, and in industries such as
construction industries, real estate industries, financial industries, and living service industries.
For the period immediately prior to the implementation
of the VAT Pilot Program, revenues from our services are subject to a 5% PRC business tax. Our entities have been subject to a
6% or 17% value-added tax since the respective effective time of the VAT Pilot Program for our services that are deemed by the
relevant tax authorities to be within the relevant industries.
See “Item 3. Key Information—D.
Risk Factors—Risks Related to Our Corporate Structure—We may have exposure to greater than anticipated tax liabilities.”
Certain United States Federal Income Tax
Considerations
The following is a summary of certain
U.S. federal income tax considerations relating to the ownership and disposition of our ADSs or ordinary shares by a U.S.
Holder (as defined below) that holds our ADSs or ordinary shares as “capital assets” (generally, property held
for investment) under the United States Internal Revenue Code of 1986, as amended (“the Code”). This summary is
based upon existing United States federal tax law, including the Code, its legislative history, existing, temporary and
proposed regulations thereunder, published rulings and court decisions, all of which are subject to differing interpretations
or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service
(“IRS”) with respect to any U.S. federal income tax consequences described below, and there can be no assurance
that the IRS or a court will not take a contrary position. This summary does not discuss all aspects of U.S. federal income
taxation that may be important to particular holders in light of their individual investment circumstances, including holders
subject to special tax rules that differ significantly from those summarized below (for example, banks, financial
institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in
securities that elect mark-to-market treatment, partnerships (or other entities treated as partnerships for U.S. federal
income tax purposes) and their partners and tax-exempt organizations (including private foundations), holders who are not
U.S. Holders, holders who own (directly, indirectly or constructively) 10% or more of our stock (by vote or value), holders
who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation, holders who
will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated
transaction for U.S. federal income tax purposes, certain expatriates or former long-term residents of the United States,
governments or agencies or instrumentalities thereof, or holders who have a functional currency other than the United States
dollar). In addition, this summary does not discuss any United States federal estate, gift, Medicare, alternative minimum
tax or other non-income tax consequences or any non-United States, state or local tax considerations.
Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local and non-United States
income and other tax considerations relating to the ownership and disposition of our ADSs or ordinary shares.
General
For purposes of this summary, a “U.S.
Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal income tax purposes, (i) an individual
who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal
income tax purposes) created in, or organized under the law of, the United States or any state thereof or the District of Columbia,
(iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source,
or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one
or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise
validly elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as
a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of
a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If a U.S.
Holder is a partner of a partnership holding our ADSs or ordinary shares, the U.S. Holder is urged to consult its tax advisor regarding
their ownership and disposition of our ADSs or ordinary shares.
It is generally expected that a U.S. Holder
of ADSs should be treated as the beneficial owner, for United States federal income tax purposes, of the underlying shares represented
by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly,
deposits or withdrawals of our ordinary shares for our ADSs will not be subject to United States federal income tax.
Passive Foreign Investment Company
Considerations
A non-United States corporation, such as our
company, will be classified as a “passive foreign investment company” (a “PFIC”), for U.S. federal income
tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive”
income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce
or are held for the production of passive income (the “asset test”). For this purpose, cash and assets readily convertible
into cash are categorized as passive assets and the company’s goodwill and unbooked intangibles associated with active business
activities may generally be classified as non-passive assets. Passive income generally includes, without limitation, dividends,
interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income, net gains from commodity
transactions, net foreign currency gains and net income from notional principal contracts. We will be treated as owning a proportionate
share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly,
at least 25% (by value) of the stock.
Although the law in this regard is unclear,
we treat our PRC variable interest entities as being owned by us for U.S. federal income tax purposes, not only because we exercise
effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits,
and, as a result, we consolidate their results of operations in our consolidated financial statements.
Assuming we are the owner of our PRC variable
interest entities for U.S. federal income tax purposes, and based on our income, assets, and the market price of our ADSs, we
believe that we were a PFIC for the taxable year ending December 31, 2017. In addition, we will very likely be classified as a
PFIC for our current taxable year ending December 31, 2018, and for future taxable years.
If we are classified as a PFIC for any year
during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding
years during which such U.S. Holder holds our ADSs or ordinary shares even if we cease to be a PFIC in subsequent years (unless
such U.S. Holder makes a “deemed sale” election, as discussed below), and such a U.S. Holder will become subject to
special rules discussed below. U.S. Holders are urged to consult with their tax advisors regarding the consequences of potentially
holding an interest in a PFIC, and the ramifications of making a “deemed sale” election, as discussed further below.
The discussion below under
“Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that
we will not be classified as a PFIC for U.S. federal income tax purposes. As discussed above, we believe that we were a PFIC
for the taxable year ending December 31, 2017, and will very likely be classified as a PFIC for our current taxable year
ending December 31, 2018, and for future taxable years. The U.S. federal income tax rules that apply if we are classified as
a PFIC for our current or subsequent taxable years are generally discussed below under “Passive Foreign Investment
Company Rules”.
Dividends
Any cash distributions (including the amount
of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income
on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the
case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles,
any distribution paid will generally be treated as a “dividend” for U.S. federal income tax purposes. A non-corporate
recipient of dividend income generally will be subject to tax on dividend income from a “qualified foreign corporation”
at the lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income, provided
that certain holding period requirements are met. A non-United States corporation (other than a corporation that is classified
as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be
a qualified foreign corporation if (i) it is eligible for the benefits of a comprehensive tax treaty with the United States which
the Secretary of Treasury of the United States determines is satisfactory for purposes of the rules applicable to qualified dividends
and which includes an exchange of information program, or (ii) our ADSs or ordinary shares are readily tradable on an established
securities market in the United States. Our ADSs are listed on the New York Stock Exchange and will be considered readily tradable
on an established securities market in the United States for as long as the ADSs continue to be listed on such exchange. Thus,
we believe that we will be a qualified foreign corporation with respect to dividends we pay on our ADSs, though no assurances can
be given with respect to our ADSs in this regard.
Since we do not expect that our ordinary shares
will be listed on established securities markets, it is unclear whether dividends that we pay on our ordinary shares that are not
backed by ADSs currently meet the conditions required for the reduced tax rate. However, in the event that we are deemed to be
a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional Information—E. Taxation—People’s
Republic of China Taxation”), we may be eligible for the benefits of the United States-PRC income tax treaty(which the Secretary
of the Treasury of the United States has determined is satisfactory for this purpose) and be treated as a qualified foreign corporation
with respect to dividends we pay on our ADSs or ordinary shares, regardless of whether such shares are represented by the ADSs.
You are urged to consult your tax advisor regarding the availability of the lower rate for dividends paid with respect to our ADSs
or ordinary shares. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends-received deduction
allowed to corporations.
Dividends generally will be treated as income
from foreign sources for United States foreign tax credit purposes and generally will constitute passive category income. In the
event we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC
withholding taxes on dividends paid, if any, on our ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number
of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received
on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld, may instead
claim a deduction, for U.S. federal income tax purposes, in respect of such withholdings, but only for a year in which such U.S.
Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders
are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition of ADSs
or Ordinary Shares
A U.S. Holder will generally recognize capital
gain or loss upon the sale or other disposition of ADSs or ordinary shares in amounts equal to the difference, if any, between
the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital
gain or loss will be long-term gain or loss if the ADSs or ordinary shares have been held for more than one year and will generally
be United States-source gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers
are currently eligible for reduced rates of taxation. The deductibility of a capital loss may be subject to limitations. In the
event that we are treated as a PRC resident enterprise under the PRC Enterprise Income Tax Law, and gain from the disposition of
the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC-source gain for United States foreign
tax credit purposes under the United States-PRC income tax treaty. U.S. Holders are urged to consult their tax advisors regarding
the tax consequences if a foreign withholding tax is imposed on a disposition of our ADSs or ordinary shares, including the availability
of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company
Rules
As discussed above, we believe that we
were a PFIC for the taxable year ending December 31, 2017, and will very likely be classified as a PFIC for our current
taxable year ending December 31, 2018, and for future taxable years. If we are classified as a PFIC for any taxable year
during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election
(with respect to our ADSs, as described below), the U.S. Holder will generally be subject to special U.S. federal income tax
rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to
the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125%
of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding
period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including under certain
circumstances a pledge, of ADSs or ordinary shares. Under the PFIC rules:
|
·
|
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary
shares;
|
|
·
|
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the
first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”) will be taxable as ordinary income;
|
|
·
|
the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to
tax at the highest tax rate in effect applicable to the U.S. Holder for that year, and
|
|
·
|
such amounts will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to
such prior taxable years, other than a pre-PFIC year.
|
If we are a PFIC for any taxable year during
which a U.S. Holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC (a “lower-tier
PFIC”), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of each such lower-tier
PFIC for purposes of the application of these rules. U.S. Holders should consult their tax advisors regarding the application of
the PFIC rules to any of our subsidiaries.
If we are classified as a PFIC, our ADSs or
ordinary shares generally will continue to be treated as shares in a PFIC for all succeeding years during which a U.S. Holder holds
our ADSs or ordinary shares, unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect
to the ADSs or ordinary shares. If you make a deemed sale election, you will be deemed to have sold the ADSs or ordinary shares
you hold at their fair market value as of the last day of the last year during which we were a PFIC. Any gain from such deemed
sale would be taxed as an excess distribution as described above. You are urged to consult your tax advisor regarding our possible
status as a PFIC as well as the benefit of making a deemed sale election.
As an alternative to the foregoing rules, a
U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election for such stock in a PFIC to elect out
of the tax treatment discussed in the preceding paragraphs, provided such stock is regularly traded on a qualified exchange, including
the New York Stock Exchange. We anticipate that our ADSs should qualify as being regularly traded on the New York Stock Exchange,
but no assurances may be given in this regard. If a U.S. Holder makes a valid mark-to-market election with respect to our ADSs,
the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the
fair market value of ADSs held at the end of the taxable year over the adjusted tax basis in such ADSs and (ii) deduct as an ordinary
loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable
year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S.
Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market
election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation
ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during
any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S.
Holder recognizes upon the sale or other disposition of our ADSs will be treated as ordinary income and any loss will be treated
as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
In the case of a U.S. Holder who has held ADSs during any taxable year in respect of which we were classified as a PFIC and continues
to hold such ADSs (or any portion thereof) and has not previously determined to make a mark-to-market election, and who is now
considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ADSs.
Because a mark-to-market election, as a technical
matter, cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with
respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a
PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary
for U.S. Holders to make qualified electing fund election, which, if available, would result in tax treatment different from the
general tax treatment of PFICs described above.
If a U.S. Holder owns our ADSs or ordinary shares
during any taxable year that we are a PFIC or are treated as such with respect to such U.S. Holder, the U.S. Holder will generally
be required to file an annual IRS Form 8621. Each U.S. Holder is urged to consult its tax advisor concerning the U.S. federal income
tax consequences of holding and disposing ADSs or ordinary shares if we are or become classified as a PFIC, including the possibility
of making a mark-to-market election and the unavailability of the QEF election.
Information Reporting
Certain U.S. holders are required to report
information to the IRS relating to an interest in “specified foreign financial assets,” including shares issued by
a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000
(or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial
accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. holder is required
to submit such information to the IRS and fails to do so.
In addition, U.S. Holders may be subject to
information reporting to the IRS with respect to dividends on and proceeds from the sale or other disposition of our ADSs or ordinary
shares. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States information
reporting rules to their particular circumstances.
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F.
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Dividends and Paying Agents
|
Not applicable.
Not applicable.
We are subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act,
we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F
within four months after the end of each fiscal year for fiscal years, which is December 31. The SEC maintains a website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings
with the SEC using its EDGAR system. Copies of reports and other information, when filed, may also be inspected without charge
and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC
at 1-800-SEC-0330. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing
and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish Citibank, N.A., the depositary
of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements
prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that
are made generally available to our shareholders. The depositary will make such notices, reports and communications available to
holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’
meeting received by the depositary from us.
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I.
|
Subsidiary Information
|
See “Item 4. Information on the Company—C.
Organizational Structure.”
|
ITEM 11.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Foreign Exchange Risk
Our presentation currency is Renminbi. The functional
currencies of our holding company Bitauto Holdings Limited and our subsidiaries outside of China are U.S. dollar and Hong Kong
dollar, while the functional currency of our PRC subsidiaries and variable interest entities is Renminbi. We earn all of our revenues
and incur most of our expenses in Renminbi, and substantially all of our services contracts are denominated in Renminbi. We do
not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments
to hedge our exposure to such risk. Although in general, our exposure to foreign exchange risks should be limited, the value of
your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the Renminbi because the value of
our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars.
The value of the Renminbi against the U.S. dollar
and Hong Kong dollar may fluctuate and is affected by, among other things, changes in China’s political and economic conditions.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of
China. The PRC government allowed the Renminbi to appreciate by more than 20% against the U.S. dollar between July 2005 and July
2008. Between July 2008 and June 2010, this appreciation was halted and the exchange rate between the Renminbi and the U.S. dollar
remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably.
The depreciation of the Renminbi against the U.S. dollar was approximately 4.4% and 7.2% in 2015 and 2016, respectively. The appreciation
of the Renminbi against the U.S. dollar was approximately 6.3% in 2017. It is difficult to predict how market forces or PRC or
U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. Because the Hong Kong dollar
is pegged with the U.S. dollar, the fluctuation experienced in converting between Renminbi and U.S. dollar is similar to that in
Hong Kong dollars.
To the extent that we need to convert U.S.
dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of the RMB against the
U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert
RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, strategic acquisitions
or investments or other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the
U.S. dollar amount available to us.
As of December 31, 2017, we had RMB-denominated
cash, cash equivalents and restricted cash of RMB4.95 billion, HKD-denominated cash and cash equivalents of HKD3.35 billion, and
U.S. dollar-denominated cash, cash equivalents and restricted cash of US$503.7 million. Assuming we had converted RMB4.95 billion
into U.S. dollars at the exchange rate of RMB6.5063 for US$1.00 as of December 29, 2017, our U.S. dollar cash balance would have
been US$1.26 billion. If the RMB had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been
US$1.20 billion instead. Assuming we had converted US$503.7 million into RMB at the exchange rate of RMB6.5063 for US$1.00 as
of December 29, 2017, our RMB cash balance would have been RMB8.23 billion. If the RMB had depreciated by 10% against the U.S.
dollar, our RMB cash balance would have been RMB8.56 billion instead.
Interest Risk
Our exposure to interest rate risk primarily
relates to the interest income generated by excess cash and interest charge resulted from borrowing. We have not used derivative
financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not
been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future
interest income may fall short of expectations due to changes in market interest rates.
Our earnings are affected by changes in interest
rates due to the impact of such changes on interest income and interest expense from interest-bearing financial assets and liabilities.
Our interest-bearing financial assets comprised primarily of cash deposits at floating rates based on Hong Kong Interbank Offered
Rate and People’s Bank of China daily bank deposit rates.
For the years ended December 31, 2015, 2016
and 2017, interest income from cash deposits was approximately RMB25.0 million, RMB41.7 million and RMB93.0 million (US$14.3 million).
The weighted average interest rate on our cash deposits is 1.07%, 0.76% and 1.00% for the years ended December 31, 2015, 2016
and 2017. The following demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of interest-bearing
financial assets affected. With all other variables held constant, a 0.5% increase or decrease in annual interest rates would
increase or decrease interest income by RMB55.2 million (US$8.5 million), respectively, based on the cash, cash equivalents, time
deposit and restricted cash balance at December 31, 2017.
Our interest-bearing financial liabilities
comprised primarily of borrowings at fixed rates or variable rates. Borrowings at fixed rates do not expose us to interest rate
risk. For borrowings at variable rates, interest charge incurred for the years ended December 31, 2015, 2016 and 2017 was nil,
RMB24.3 million and RMB219.3 million (US$33.7 million). With all other variables held constant, a 0.5% increase or decrease in
annual interest rates would increase or decrease interest charge by RMB26.8 million (US$4.1 million), respectively, based on the
balance of borrowings at variable rates as of December 31, 2017.
See Item 18 “Financial Statements—Notes
to the financial statements—Note 26.”
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ITEM 12.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Not applicable.
Not applicable.
Not applicable.
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D.
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American Depositary Shares
|
Fees and Charges our ADS Holders May Have to
Pay
All fees and charges may, at any time and from
time to time, be changed by agreement between the depositary and us but, in the case of fees and charges payable by holders or
beneficial owners of our ADSs, only in the manner contemplated by paragraph (22) of the ADR and as contemplated in the deposit
agreement. The depositary will provide, without charge, a copy of its latest fee schedule to anyone upon request.
Depositary fees payable upon (i) deposit of
shares against issuance of ADSs and (ii) surrender of ADSs for cancellation and withdrawal of deposited securities will be charged
by the depositary to the person to whom the ADSs so issued are delivered (in the case of ADS issuances) and to the person who delivers
the ADSs for cancellation to the depositary (in the case of ADS cancellations). In the case of ADSs issued by the depositary into
DTC or presented to the depositary via DTC, the ADS issuance and cancellation fees will be payable to the depositary by the DTC
Participant(s) receiving the ADSs from the depositary or the DTC participant(s) surrendering the ADSs to the depositary for cancellation,
as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account(s) of the
applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participant(s) as in effect at the time.
Depositary fees in respect of distributions and the depositary services fee are payable to the depositary by ADS holders as of
the applicable ADS record date established by the depositary. In the case of distributions of cash, the amount of the applicable
depositary fees is deducted by the depositary from the funds being distributed. In the case of distributions other than cash and
the depositary service fee, the depositary will invoice the applicable ADS holders as of the ADS record date established by the
depositary. For ADSs held through DTC, the depositary fees for distributions other than cash and the depositary service fee are
charged by the depositary to the DTC participants in accordance with the procedures and practices prescribed by DTC from time to
time and the DTC participants in turn charge the amount of such fees to the beneficial owners for whom they hold ADSs.
The depositary may remit to us all or a portion
of the depositary fees charged for the reimbursement of certain expenses incurred by us in respect of the ADR program established
pursuant to the deposit agreement upon such terms and conditions as we and the depositary may agree from time to time. We will
pay to the depositary such fees and charges and reimburse the depositary for such out-of-pocket expenses as the depositary and
we may agree from time to time. Responsibility for payment of such charges and reimbursements may from time to time be changed
by agreement between us and the depositary. The charges and expenses of the custodian are for the sole account of the depositary.
The right of the depositary to receive payment
of fees, charges and expenses as provided above shall survive the termination of the deposit agreement. As to any depositary, upon
the resignation or removal of such depositary as described in section 5.4 of the deposit agreement, such right shall extend for
those fees, charges and expenses incurred prior to the effectiveness of such resignation or removal.
Service
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Fees
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·
Issuance of ADSs
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Up to US$5¢ per ADS issued
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·
Cancellation of ADSs
|
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Up to US$5¢ per ADS canceled
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·
Distribution of cash dividends or other cash distribution
|
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Up to US$5¢ per ADS held
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·
Distribution of ADSs pursuant to stock dividends, free stock distribution or exercise of rights
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Up to US$5¢ per ADS held
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·
Distribution of securities other than ADSs or rights to purchase additional ADSs
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Up to US$5¢ per ADS held
|
·
Depositary services
|
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Up to US$5¢ per ADS held on the applicable record date(s) established by the depositary bank
|
·
Transfer of ADSs
|
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US$1.50 per certificate presented for transfers
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ADS holders will also be responsible to pay
certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as:
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·
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fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares
in the Cayman Islands (i.e. upon deposit and withdrawal of ordinary shares);
|
|
·
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expenses incurred for converting foreign currency into U.S. dollars;
|
|
·
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expenses for cable, telex and fax transmissions and for delivery of securities;
|
|
·
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taxes and duties upon the transfer of securities (i.e. when ordinary shares are deposited or withdrawn from deposit); and
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|
·
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fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
|
Fees and Other Payments Made by the Depositary
to Us
The depositary bank may
reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit agreement, by
making available a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions
as the Company and the Depositary may agree from time to time. Since the completion of our initial public offering in November
2010, we have received approximately US$2.5 million, net of applicable withholding taxes in the U.S., from the depositary as reimbursement
for our expenses incurred in connection with the establishment and maintenance of the ADR program.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
1.
|
Principal activities and organization
|
Bitauto Holdings Limited (the
“Company”) is a limited liability company incorporated and domiciled in the Cayman Islands. The registered office is
located at Scotia Centre, George Town, Grand Cayman, Cayman Islands.
The Company does not conduct
any substanti
al operations of its own, but conducts
most of its business through its operating subsidiaries, variable interest entities (“VIEs”) and subsidiaries of VIEs
established in the People’s Republic of China (the “PRC”). The Company owns the equity interest of its operating
subsidiaries, VIEs and subsidiaries of VIEs through its subsidiaries established in Cayman Islands and Hong Kong. The Company,
its subsidiaries, VIEs and subsidiaries of VIEs are collectively referred to as the “Group”.
The Group is principally engaged
in the provision of internet content and marketing services, and transaction services in the automobile industry, including advertising
services, subscription services, transaction services and one-stop digital marketing solution services in the PRC.
On November 16, 2017, Yixin
Group Limited (“Yixin”), the Group’s subsidiary engaging in automobile transaction services, completed its initial
public offering (“IPO”) on the Main Board of The Stock Exchange of Hong Kong Limited. After Yixin’s IPO,
the Group held 45.2% of the outstanding ordinary shares of Yixin.
The
Group continues to take control of Yixin and consolidate Yixin as its controlling shareholder through the voting proxy agreement
that the Group entered into with certain other shareholders, and recognizes noncontrolling interests reflecting the shares held
by the shareholders other than the Group in the consolidated financial statements.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
1.
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Principal activities and organization (continued)
|
As of December 31, 2017, the
Company’s principal subsidiaries, VIEs and subsidiaries of VIEs are as follows:
Name
|
|
Date of
incorporation or
acquisition
|
|
Place of
operations
|
|
%
equity
interest
|
|
Bitauto Hong Kong Limited
|
|
April 27, 2010
|
|
Hong Kong
|
|
|
100
|
|
Beijing Bitauto Internet Information Company Limited
|
|
January 20, 2006
|
|
PRC
|
|
|
100
|
|
Dalian Rongxin Financial Guarantees
Company Limited
|
|
June 6, 2016
|
|
PRC
|
|
|
100
|
|
Yixin Group Limited (“Yixin”, formerly
known as Yixin Capital Limited)
|
|
November 19, 2014
|
|
Cayman Islands
|
|
|
45.2
|
|
Yixin Holding Hong Kong Limited (formerly known
as Yixin Capital Hongkong Limited)
|
|
November 27, 2014
|
|
Hong Kong
|
|
|
45.2
|
|
Xinche Investment (Shanghai) Company Limited
|
|
January 16, 2015
|
|
PRC
|
|
|
45.2
|
|
Shanghai Yixin Financing Lease Company Limited
|
|
August 12, 2014
|
|
PRC
|
|
|
45.2
|
|
Tianjin Hengtong Jiahe Financing Lease Company Limited
|
|
May 18, 2015
|
|
PRC
|
|
|
45.2
|
|
Xinjiang Yin'an Information
Technology Company Limited
|
|
September 6, 2017
|
|
PRC
|
|
|
45.2
|
|
KKC Holdings Limited (“KKC”)
|
|
November 10, 2016
|
|
Cayman Islands
|
|
|
45.2
|
|
KKC Holdings Limited
|
|
November 10, 2016
|
|
Hong Kong
|
|
|
45.2
|
|
Beijing KKC Technology Company Limited
|
|
November 10, 2016
|
|
PRC
|
|
|
45.2
|
|
Beijing C&I Advertising Company Limited (“CIG”)
|
|
December 30, 2002
|
|
PRC
|
|
|
75.5
|
|
Beijing Bitauto Information Technology Company Limited
|
|
November 30, 2005
|
|
PRC
|
|
|
100
|
|
Beijing Easy Auto Media Company Limited
|
|
March 7, 2008
|
|
PRC
|
|
|
100
|
|
Beijing Bitauto Interactive Advertising Company
Limited
|
|
December 12, 2007
|
|
PRC
|
|
|
100
|
|
Beijing Xinbao Information Technology Company Limited
|
|
February 2, 2008
|
|
PRC
|
|
|
100
|
|
Tianjin Boyou Information Technology
Company Limited (formerly known as Bitauto (Tianjin) Commerce Company Limited)
|
|
May 16, 2014
|
|
PRC
|
|
|
100
|
|
Beijing Bit EP Information Technology Company Limited
(“Bit EP”)
|
|
June 3, 2011
|
|
PRC
|
|
|
100
|
|
Beijing Yixin Information Technology Company Limited
|
|
January 9, 2015
|
|
PRC
|
|
|
45.2
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
1.
|
Principal activities and organization (continued)
|
Variable interest entities
To comply with the PRC laws
and regulations that restrict foreign ownership of companies involved in provision of internet content and other restricted businesses,
the Group operates its websites and engages in such restricted businesses in the PRC through certain PRC domestic companies, whose
equity interest are held by certain management members of the Company (“nominee shareholders”). The Company obtained
control over these PRC domestic companies by entering into a series of contractual agreements with these PRC domestic companies
and their respective nominee shareholders. These contractual agreements include loan agreements, irrevocable power of attorney,
share pledge agreements, exclusive business cooperation agreements and exclusive option agreements. Through these contractual agreements,
the Company is entitled to receive a majority of residual returns and is obligated to absorb a majority of the risk of losses of
these PRC domestic companies. Based on these contractual agreements, management concluded that these PRC domestic companies are
VIEs of the Company, of which the Company is the primary beneficiary. As such, the Group consolidated financial results of VIEs
and subsidiaries of VIEs in the Group’s consolidated financial statements.
The summary of these contractual
agreements are further described as below.
Loan Agreements
Pursuant to the relevant loan
agreements, the relevant PRC subsidiaries provided interest-free loans to the respective nominee shareholders of the VIEs. The
purpose of the loans is to provide capital and/or registered capital to VIEs in order to develop their businesses. The loan agreements
have indefinite terms or certain terms that could be extended upon mutual written consent of the parties.
Irrevocable Power of Attorney
Each nominee shareholder of
the VIEs executed an irrevocable power of attorney, appointing the relevant PRC subsidiaries or a person designated by such PRC
subsidiaries as his or her attorney-in-fact to attend shareholders' meetings of the respective VIEs, exercise all the shareholder's
voting rights, including but not limited to the sale, transfer, pledge or disposition of the shareholder's equity interest in the
VIEs, and designate or appoint legal representatives, directors and officers of the relevant VIEs. Each power of attorney remains
valid and irrevocable from the date of execution so long as the person remains as the nominee shareholder of the respective VIEs.
Share Pledge Agreements
Pursuant to the share pledge
agreements, the nominee shareholders of the VIEs have pledged all of their equity interest in the relevant VIEs to the relevant
PRC subsidiaries as collateral for all of the VIEs’ and nominee shareholders’ payments due to the relevant PRC subsidiaries
and to secure their obligations under applicable contractual agreements. Each pledge of shares or equity interest is effective
on the date when it is registered with the local administration for industry and commerce and remains effective until all payments
due under the relevant exclusive business cooperation agreement or all the obligations under the relevant contractual agreements
have been fulfilled by the relevant VIEs. During the term of a pledge, the relevant PRC subsidiaries, the pledgees, may dispose
of the pledge if the VIE defaults under the exclusive business cooperation agreement. Each of the relevant PRC subsidiaries also
has the right to collect dividends generated by the shares or equity interest pursuant to these pledge agreements. In addition,
each nominee shareholder of the relevant VIEs agrees not to transfer or create any new encumbrance adverse to the relevant PRC
subsidiaries on the shareholder's equity interest in such VIEs without prior written consent of the relevant PRC subsidiaries.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
1.
|
Principal activities and organization (continued)
|
Exclusive Business Cooperation
Agreement
The relevant PRC subsidiaries
and relevant VIEs entered into exclusive business cooperation agreements under which the relevant PRC subsidiaries provide the
relevant VIEs, on an exclusive basis, with technical, consulting and other services in relation to the respective VIEs’ business.
The VIEs shall pay service fees to the relevant PRC subsidiaries determined based on several metrics including the type, value
and market price of the services provided by the relevant PRC subsidiaries and the operating conditions of the relevant VIEs. During
the terms of the agreements, the relevant VIEs have agreed not to accept any consultation and/or services provided by any third
party without the relevant PRC subsidiaries' prior written consent. The agreements have certain terms that could be extended upon
the relevant PRC subsidiaries’ prior written consent, or remain effective unless the relevant PRC subsidiaries terminate
them in writing or either the relevant PRC subsidiaries or the relevant VIEs fail to obtain the government's approval for the renewal
of the relevant business license.
Exclusive Option Agreements
Pursuant to
these exclusive option agreements, each of the nominee shareholders of the VIEs irrevocably granted the relevant PRC subsidiaries
an exclusive right to purchase, or designate one or more persons to purchase, the equity interest in the relevant VIEs then held
by such nominee shareholder of the respective VIEs. The relevant PRC subsidiaries or their designees may purchase such equity interest
at any time, once or at multiple times, in part or in whole at their own sole and absolute discretion to the extent permitted by
the PRC laws. The agreements have certain terms that could be extended at the relevant PRC subsidiaries’ discretion, or remain
effective until all the equity interest held by the nominee shareholders of the VIEs have been transferred or assigned to the relevant
PRC subsidiaries or any other persons designated by them.
Risks in relations to the
VIE structure
Based on the advice of the
Company’s PRC legal counsel, the ownership structure and contractual agreement of the VIEs and subsidiaries in the PRC do
not violate any existing PRC laws and regulations. Therefore, in the opinion of management, (i) the ownership structure of the
Company and the VIEs do not violate any existing PRC laws and regulations;(ii) the contractual agreement with VIEs and their nominee
shareholders are valid and binding, and will not result in any violation of PRC laws or regulations currently in effect;(iii) the
Group’s business operation are in compliance with existing PRC laws and regulations in all material respects.
However, there are uncertainties
regarding the interpretation and application of current and future PRC laws and regulations, and the PRC government may in the
future take a view that is contrary to the above opinion. If the current ownership structure of the Company and its contractual
arrangements with the VIEs and their nominee shareholders were found to be in violation of any existing or future PRC laws or regulations,
the Group may be subject to penalties, which may include but not to be limited to, revocation of the Group’s business and
operating licenses, being required to discontinue or restrict the Group’s operations, or being required to restructure the
Group’s ownership structure or operations. These penalties may result in a material and adverse effect on the Group’s
ability to conduct its operations. In such cases, the Company may not be able to operate or control the VIEs, which may result
in deconsolidation of the VIEs.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
1.
|
Principal activities and organization (continued)
|
Changes in VIE structures
In 2017, BBII, CIG and its
nominee shareholders entered into an agreement to terminate all of contractual arrangements among them and BBII acquired all of
nominee shareholders’ equity interests in CIG. The acquisition was considered as common control transaction and had no impact
on the Company’s consolidation of CIG.
The following financial information
of the VIEs and subsidiaries of VIEs in the PRC was included in the Group’s consolidated financial statements with intercompany
transactions eliminated:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
6,037,614
|
|
|
|
7,287,858
|
|
Total liabilities
|
|
|
4,338,170
|
|
|
|
3,682,006
|
|
|
|
For
the year ended December 31
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
Revenue
|
|
|
4,153,558
|
|
|
|
4,389,398
|
|
|
|
4,419,967
|
|
Net income/(loss)
|
|
|
217,858
|
|
|
|
126,673
|
|
|
|
(111,574
|
)
|
|
|
For
the year ended December 31
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
110,226
|
|
|
|
603,227
|
|
|
|
660,690
|
|
Net cash (used in)/provided by investing activities
|
|
|
(301,659
|
)
|
|
|
(415,610
|
)
|
|
|
57,568
|
|
Net cash provided by/(used
in) financing activities
|
|
|
641,084
|
|
|
|
39,107
|
|
|
|
(426,603
|
)
|
As of December 31, 2016 and
2017, the total assets of the Group’s VIEs and subsidiaries of VIEs were mainly consisting of cash and cash equivalents,
accounts receivable, net, prepayments and other receivables, investment in equity investees, property, plant and equipment, net,
and intangible assets, net. As of December 31, 2016 and 2017, the total liabilities of the VIEs and subsidiaries of VIEs were mainly
consisting of accounts payable, other payables and accruals. These balances have been reflected in the Group’s consolidated
financial statements with intercompany transactions eliminated.
In accordance with contractual
agreements, the Company has the power to direct activities of the VIEs and subsidiaries of VIEs and can have assets transferred
out of the VIEs and subsidiaries of VIEs. Therefore, the Company considers that there is no asset in any of the consolidated VIEs
and subsidiaries of VIEs that can be used only to settle obligations of these entities, except for registered capital and PRC statutory
reserves. Creditors of the VIEs and subsidiaries of VIEs do not have recourse to the general credit of the Company for any of the
liabilities of the consolidated VIEs and subsidiaries of VIEs.
Currently, there is no contractual
arrangement that requires the Company to provide any additional financial support to VIEs and subsidiaries of VIEs. As the Company
conducts its business primarily based on the licenses and approvals held by its VIEs and subsidiaries of VIEs, the Company may
provide additional financial support on a discretionary basis in the future.
In addition to above variable interest entities the Company consolidated through contractual arrangements,
the Company also established a number of asset-backed securitization vehicles to issue debt securities to third party investors.
The vehicles are considered variable interest entities in accordance with ASC 810 and the Company are considered primary beneficiary
of such variable interest entities. Accordingly, the Company consolidated these asset-backed securitization vehicles. As of December
31, 2016 and 2017, none of asset-backed securitization vehicles are considered individually significant to the Group.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies
|
|
(a)
|
Basis of presentation
|
The consolidated financial statements
of the Group are prepared in accordance with accounting principles generally accepted in the United States of America (‘‘U.S.
GAAP’’).
|
(b)
|
Principles of consolidation
|
The consolidated financial statements
include the financial statements of the Company, its subsidiaries, the VIEs and subsidiaries of VIEs for which the Company is the
ultimate primary beneficiary.
A subsidiary is an entity in
which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint
or remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors
or to govern the financial and operating policies.
A VIE is an entity in which
the Company, or its subsidiaries, through contractual agreements, bears the risks of, and enjoys the rewards normally associated
with, ownership of the entity, and therefore the Company or its subsidiaries are the primary beneficiary of the entity.
All transactions and balances
among the Company, its subsidiaries, the VIEs and subsidiaries of VIEs have been eliminated upon consolidation. The results of
subsidiaries, the VIEs and subsidiaries of VIEs acquired or disposed of during the year are recorded in the consolidated statements
of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(c)
|
Business combinations and noncontrolling interests
|
The Group accounts for its business
combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (‘‘ASC’’)
805 ‘‘Business Combinations’’. The consideration transferred in an acquisition is measured as the aggregate
of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as
the contingent considerations and all contractual contingencies as of the acquisition date. Transaction costs directly attributable
to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at
their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the
total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity
interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the
cost of acquisition is less than the fair value of the net assets of the acquiree, the difference is recognized directly in the
consolidated statements of comprehensive income. During the measurement period, which can be up to one year from the acquisition
date, the Group may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income.
In a business combination considered
as a step acquisition, the Group remeasures the previously held equity interest in the acquiree immediately before obtaining control
at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of
comprehensive income.
For the Company’s majority-owned
subsidiaries, VIEs and subsidiaries of VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which
is not attributable, directly or indirectly, to the Company. Noncontrolling interests are classified as a separate line item in
the equity section of the Group’s consolidated balance sheets and have been separately disclosed in the Group’s consolidated
statements of comprehensive income to distinguish the interests from that of the Company.
The preparation of financial
statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect the reported amounts of
assets and liabilities, related disclosures of contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Significant accounting estimates are used for, but not limited to
the valuation and recognition of share-based compensation, realization of deferred tax assets, fair value of assets and liabilities
acquired in business combinations, assessment for impairment of long-lived assets, investment in equity investees, intangible assets
and goodwill, allowance for doubtful accounts for accounts receivable, allowance for credit losses for finance receivables, and
useful lives of intangible assets. The Group bases its estimates on historical experience and on various other assumptions that
are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and
liabilities. Actual results could differ from those estimates.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
Operating segments are reported
in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating
resources and assessing performance of the operating segments, and has been identified as the Chief Executive Officer of the Group.
The Group managed its business in three segments, namely advertising and subscription business, transaction services business
and digital marketing solutions business.
|
(f)
|
Foreign currency translation
|
The Company, its subsidiaries, VIEs
and subsidiaries of VIEs individually determine their functional currency based on the criteria of ASC 830 “Foreign Currency
Matters”. The functional currencies of the Company and its subsidiaries outside China are the U.S. dollar (“US$”)
and the Hong Kong dollar (“HKD”), and the functional currency of PRC subsidiaries, VIEs and subsidiaries of VIEs
is the RMB. Since the Group’s operations are primarily denominated in the RMB, the Group has chosen the RMB as the reporting
currency for the consolidated financial statements.
Transactions denominated in
foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing
at the balance sheet date. Exchange gains or losses arising from foreign currency transactions are recorded in the consolidated
statements of comprehensive income.
The financial statements of
the entities with non-RMB functional currencies are translated into RMB using the exchange rate as of the balance sheet date for
assets and liabilities, average exchange rate for the year for income and expense items, and historical exchange rate for equity
items. Translation gains or losses arising from the translation are recognized in accumulated other comprehensive income as a component
of shareholders’ equity.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(g)
|
Cash and cash equivalents
|
Cash and cash equivalents comprise
cash at banks and on hand, time deposits and highly liquid investments with an original maturity of three months or less.
Time deposits comprise highly
liquid investments with original maturities of greater than three months, but less than one year.
Cash that is restricted as to
withdrawal for use or pledged as security is reported separately on the face of the consolidated balance sheets, and is not included
in the total cash and cash equivalents in the consolidated statements of cash flows. The Group held restricted cash of RMB5.63
billion and RMB1.48 billion as of December 31, 2016 and 2017, respectively, which were primarily pledged for bank borrowings. Changes
in the restricted cash balances are classified as cash flows from investing activities in the consolidated statements of cash flows
as the Group considers restricted cash arising from these activities similar to an investment.
|
(j)
|
Accounts receivable, net
|
Accounts receivable are amounts
due from customers for services performed or merchandise sold in the ordinary course of business. If collection of accounts receivable
is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets.
If not, they are presented as non-current assets.
Accounts receivable are recorded
net of allowance for doubtful accounts. An allowance for doubtful accounts is recorded in the period when a loss is probable based
on an assessment of specific evidence indicating troubled collection, such as the accounts aging, financial conditions of the customer
and industry trend.
Bills receivable represent short-term
notes receivables issued by reputable financial institutions that entitle the Group to receive the full face amount from the financial
institutions at maturity, which generally range from three to six months from the date of issuance.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(l)
|
Investment in equity investees
|
Investment in equity investees
represents the Group’s investments in privately-held companies. The Group applies the equity method to account for an equity
investment, in common stock or in-substance common stock, according to ASC 323 ‘‘Investment - Equity Method and Joint
Ventures’’, over which it has significant influence but does not own a majority equity interest or otherwise control.
An investment in in-substance
common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s
common stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining
whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
For other equity investments
that are not considered as debt securities or equity securities that have readily determinable fair values and over which the Group
neither has significant influence nor control through investment in common stock or in-substance common stock, the cost method
is used.
Under the equity method, the
Group’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements
of comprehensive income and its share of post-acquisition movements in accumulated other comprehensive income is recognized in
shareholders’ equity. The excess of the carrying amount of the investment over the underlying equity in net assets of the
equity investee represents goodwill and intangible assets acquired. When the Group’s share of losses in the equity investee
equals or exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred
obligations or made payments or guarantees on behalf of the equity investee.
Under the cost method, the Group
carries the investment at cost and recognizes income to the extent of dividends received from the distribution of the equity investee’s
post-acquisition profits.
From time to time, the rights
on certain investments in which the Group has significant influence were modified with new rounds of financing. These modifications
may be additions or removals of certain rights. As a result of such modification, these equity investments, which were accounted
for using equity method, were reclassified as investments accounted for using cost method, or vice versa. The carrying amount of
the investments was remeasured upon the reclassification and a deemed disposal gain or loss was recognized in the investment income/(loss)
in the consolidated statements of comprehensive income.
The Group continually reviews
its investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary.
The primary factors the Group considers in its determination are the length of time that the fair value of the investment is below
the carrying value; the financial condition, operating performance and the prospects of the equity investee; and other company
specific information such as recent financing rounds. If the decline in fair value is deemed to be other than temporary, the carrying
value of the equity investee is written down to fair value, which is reflected in share of results of equity investees and investment
income/(loss) in the consolidated statements of comprehensive income.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(m)
|
Property, plant, and equipment, net
|
Property, plant, and equipment
are stated at cost less accumulated depreciation and impairment if any. Depreciation is computed using the straight-line method
with no residual value based on the estimated useful lives of the various classes of assets, which range as follows:
Computers
and servers
|
3
– 5 years
|
Automobiles for Group uses
|
5 years
|
Automobiles for
operating leases
|
5 years
|
Furniture and
fixtures
|
3 – 5 years
|
Leasehold
improvements
|
shorter
of remaining lease period or estimated useful life
|
Costs of repairs and maintenance
are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed
of or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statements of comprehensive
income.
Goodwill represents the excess
of the purchase consideration over the fair value of the identifiable net assets acquired in a business combination. Goodwill is
not amortized but is tested for impairment on an annual basis as of December 31, or more frequently if events or changes in circumstances
indicate that it might be impaired. The Group has the option to first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative goodwill impairment test. In the qualitative assessment, the Group considers primary factors
such as industry and market considerations, overall financial performance of the reporting unit, and other specific information
related to the operations. The Group will perform the quantitative impairment test if the Group bypasses the qualitative assessment,
or based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the
carrying amount.
In performing the two-step quantitative
impairment test, the first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If
the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will
not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value
of goodwill to the carrying amount of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a
manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first
step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned
to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes
of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application
of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning
assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(o)
|
Intangible assets, net
|
Intangible assets are stated
at cost less accumulated amortization and impairment if any. Intangible assets acquired in a business combination are recognized
initially at fair value at the date of acquisition. Intangible assets with an indefinite useful life are not amortized and are
tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired in
accordance with ASC subtopic 350-30 (“ASC 350-30”), Intangibles-Goodwill and Other: General Intangibles Other than
Goodwill. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated
useful lives using the straight-line method as follows:
Purchased software
|
5 - 10 years
|
Digital Sales Assistant system
|
10 years
|
Domain names
|
10 years
|
Brand name
|
10.1 - 15.25 years
|
Customer relationship
|
2 - 15.25 years
|
Business cooperation (Note 5)
|
5 years
|
Others
|
5 - 10 years
|
Trademark and lifetime membership
|
10 years / Indefinite
|
|
(p)
|
Impairment of long-lived assets
|
The Group reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Borrowings are recognized initially
at fair value, net of upfront fees, debt issuance costs, and debt discounts or premiums. Upfront fees, debt issuance costs, and
debt discounts or premiums are recorded as a reduction of the proceeds received and the related accretion is recorded as interest
expense in the consolidated statements of comprehensive income over the estimated term of the facilities and borrowings using the
effective interest method.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(r)
|
Asset-backed securitization debt
|
The Group securitizes finance
receivables arising from its consumers through the transfer of those assets to asset-backed securitization vehicles. The securitization
vehicles usually issue senior tranche debt securities to third party investors, collateralized by the transferred assets, and subordinate
tranche debt securities to the Group. In limited circumstances, the Group may also subscribe a portion of the senior tranche debt
securities. The asset-backed debt securities issued by the securitization vehicles to third party investors are recourse to the
Group. The securitization vehicles are considered consolidated variable interest entities of the Group, and the asset-backed debt
securities subscribed by third party investors are reported as current and non-current liabilities in the consolidated balance
sheets based on their respective expected repayment dates.
Accounts payable are obligations
to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified
as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).
If not, they are presented as non-current liabilities.
The Group determines the appropriate
accounting treatment of its convertible debt in accordance with the terms in relation to the conversion feature, call and put option,
and beneficial conversion feature. After considering the impact of such features, the Company may account for such instrument as
a liability in its entirety, or separate the instrument into debt and equity components following the respective guidance described
under ASC 815 “Derivatives and Hedging” and ASC 470 “Debt”.
The debt discount, if any, together
with related issuance cost are subsequently amortized as interest expense, using the effective interest method, from the issuance
date to the earliest conversion date. Convertible debt is classified as a current liability if their due date is or will be within
one year from the balance sheet date.
Accounting guidance defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurement for assets and liabilities required
or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the asset or liability.
The Group measures certain
financial assets, including the investments under the cost method and equity method on other-than-temporary basis, intangible
assets, goodwill and property, plant and equipment are marked to fair value when an impairment charge is recognized.
Accounting guidance establishes
a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may
be used to measure fair value:
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(v)
|
Fair value (continued)
|
Level 1 - Observable inputs
that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs
that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs
which are supported by little or no market activity.
Accounting guidance also describes
three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost
approach. The market approach uses prices and other relevant information generated from market transactions involving identical
or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present
value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost
approach is based on the amount that would currently be required to replace an asset.
The Company’s equity instruments
that are repurchased are recognized at cost and deducted from equity as treasury shares. No gain or loss is recognized in the consolidated
statements of comprehensive income on the purchase, sale, issue or cancellation of the Company’s equity instruments. Any
difference between the carrying amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting
rights related to treasury shares are nullified for the Company and no dividends are allocated to them. For the years ended December
31, 2015, 2016 and 2017, the Company did not repurchase any shares.
In accordance with the laws
applicable to the Foreign Investment Enterprises established in the PRC, the Company’s subsidiaries registered as wholly-owned
foreign enterprise have to make appropriations from their net income based on PRC accounting standards to reserve funds including
general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The appropriation to the general reserve fund
must be at least 10% of the net income based on PRC accounting standards until such appropriations for the fund reach 50% of the
registered capital of the entity. Appropriations to the enterprise expansion fund and staff bonus and welfare fund are made at
the discretion of the respective entity.
In addition, in accordance with
the PRC Company Laws, the Company’s VIEs and subsidiaries of VIEs, registered as Chinese domestic companies, must make appropriations
from their net income based on PRC accounting standards to non-distributable reserve funds including statutory surplus fund and
discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the net income based on PRC
accounting standards until such appropriations for the fund reach 50% of the registered capital of the entity. Appropriation to
the discretionary surplus fund is made at the discretion of the respective entity.
None of these reserves are allowed
to be transferred to the Company in terms of dividends, loans or advances, nor can they be distributed except under liquidation.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
Revenue principally represents
advertising and subscription services revenue, transaction services revenue and agent services revenue. Consistent with the criteria
of ASC 605 ‘‘Revenue Recognition’’, the Group recognizes revenue when the following four revenue recognition
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered,
(iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured. Revenue is measured at the fair
value of the consideration received or receivable. The Group assesses its revenue arrangements against specific criteria in order
to determine if it is acting as principal or agent. Value-added tax (“VAT”) is included in revenue.
Revenue arrangements with multiple
deliverables are divided into separate units of accounting. The arrangement consideration is allocated at the inception of the
arrangement to each element based on their relative fair values for revenue recognition purposes. The consideration is allocated
to each element using vendor-specific objective evidence or third-party evidence of the standalone selling price for each deliverable,
or if neither type of evidence is available, using management’s best estimate of selling price.
Advertising and subscription
services
Advertising services
Revenue from advertising services
is recognized when the advertisements are published over the stated display period, and when the collectability is reasonably assured.
The Group also organizes promotional events to help customers to promote their products. The Group recognizes revenue from organizing
promotional events when the services have been rendered, and the collectability is reasonably assured. Revenues from advertising
services are reported at a gross amount.
Subscription services
The Group provides web-based
and mobile-based integrated digital marketing solutions, via SaaS platform, to dealer customers in China. Such SaaS platform enables
dealer subscribers to create their own online showrooms, list pricing and promotional information, provide dealer contact information,
place advertisements and manage customer relationships, which help them effectively market their automobiles to consumers. The
revenue is recognized on a straight-line basis over the subscription or listing period. Revenues from dealer subscription and listing
services are reported at a gross amount.
The Group invoices its customers
based on the payment terms stipulated in the executed subscription agreements, which generally ranges from several months to one
year. The Group records amounts received prior to revenue recognition in advances from customers, which is included in the other
payables and accruals line item in the Group’s consolidated balance sheets.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(y)
|
Revenue recognition (continued)
|
Transaction services
Automobile financing lease
and operating lease services
The Group provides automobile
financing lease services to individual customers and automobile dealers through two models: direct financing lease and sales-and-leaseback.
In a direct financing lease arrangement, revenue is recognized over the lease period on a systematic and rational basis so as
to produce a constant periodic rate of return on the net investment in the financing leases. In a sales-and-leaseback arrangement,
the transaction is in substance a collateral financing and revenue is recognized over the lease period using the effective interest
rate method. The Group also provides automobile operating lease services to individual and corporate customers. Revenue from these
services is recognized on a straight-line basis over the lease period.
Other transaction services
The Group recognizes revenue
from direct automobile sales to automobile dealers and institutional customers. The revenue is recorded on a gross basis as the
Group acts as the principal, is primarily responsible for the sales arrangements and is subject to inventory risk. Revenue from
direct automobile sales is recognized when a sales contract has been executed and the automobiles have been delivered.
The
Group recognizes revenue from facilitation and other services when assisting the customers to complete a used automobile purchase
transaction or an automobile financing transaction. The Group recognizes sales revenue of vehicle telematics devices upon transfer
of the title and associated risks and rewards of the devices to its business partners. The Group also recognizes commission-based
fees for the provision of automobile e-commerce services.
Agent services
The Group receives commissions
for assisting customers in placing advertisements on media vendor websites (“advertising agent services”). The net
commission revenue from advertising agent services is recognized when the advertisements are published over the stated display
period, and when the collectability is reasonably assured. The Group also receives performance−based rebates from the media
vendors, equal to a percentage of the purchase price for qualifying advertising space purchased and utilized by the customers the
Group represents. Revenue is recognized when the amounts of these performance-based rebates are probable and reasonably estimable.
The Group also provides project-based services such as public relations and marketing campaign. Revenue is recognized when the
services have been rendered, and the collectability is reasonably assured.
Cost of revenue mainly includes
fees paid to the Group’s business partners to distribute the dealer customers’ automobile pricing and promotional information,
direct service cost, funding costs, cost of automobiles sold and vehicle telematics devices sold, and turnover taxes and related
surcharges.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(aa)
|
Selling and administrative expenses
|
Selling and administrative expenses
consist primarily of salaries and benefits for the sales and marketing personnel and administrative personnel, sales and marketing
expenses, share-based compensation expense, depreciation and amortization of assets and other expenses for daily operations.
Advertising expenditures are
expensed as incurred and are included in selling and administrative expenses. Total advertising expenditures were RMB495.2 million,
RMB363.8 million and RMB631.7 million for the years ended December 31, 2015, 2016 and 2017.
|
(bb)
|
Product development expenses
|
Product development expenses
consist primarily of staff costs related to personnel involved in the development and enhancement of the Group’s service
offerings on its websites, mobile application and related software. The Group recognizes these costs as expenses when incurred,
unless they result in significant additional functionality, in which case they are capitalized.
|
(cc)
|
Share-based compensation
|
The Group’s share-based
awards mainly comprise share options and RSUs. In accordance with ASC 718 “Compensation – Stock Compensation”,
share-based awards granted to employees are measured at fair value on grant date and share-based compensation expense is recognized
(i) immediately at the grant date if no vesting conditions are required, or (ii) using the graded vesting method, net of estimated
forfeitures, over the requisite service period.
All transactions in which goods
or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more reliably measurable.
If a share-based award is modified
after the grant date, additional compensation expenses are recognized in an amount equal to the excess of the fair value of the
modified equity instrument over the fair value of the original equity instrument immediately before modification. The additional
compensation expenses are recognized immediately on the date of the modification or over the remaining requisite service period,
depending on the vesting status of the award.
The Group determined the fair
value of share options with the assistance of independent third-party valuation firms. The binomial option pricing model was applied
in determining the fair value of share options. The fair value of RSUs granted subsequent to the initial public offering will be
the price of publicly traded shares on the date of grant.
The Group also determined
the fair value of share options granted by Yixin with the assistance of independent third-party valuation firms. In determining
the fair value of ordinary shares granted by Yixin as share-based awards in 2017 before Yixin's IPO, the discounted cash flow
method with a discount for lack of marketability was applied, given that the shares underlying the awards were not publicly traded
at the time of grant. Based on fair value of the underlying ordinary shares, the binomial option pricing model was applied in
determining the fair value of share options on the date of grant.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
|
(dd)
|
Employee Benefits - PRC contribution scheme
|
Full-time employees of the
Group in the PRC participate in a government mandated contribution scheme pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations
require that the Group makes contributions to the government for these benefits based on certain percentages of the employees’
salaries. The Group has no legal or constructive obligations for further contributions if the fund does not hold sufficient assets
to pay all employees the benefit relating to their current and past services. The total expenses for the scheme were RMB178.2
million, RMB282.2 million and RMB364.5 million for the years ended December 31, 2015, 2016 and 2017, respectively.
The Group accounts for income
taxes using the asset and liability method, under which deferred income taxes are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized
as income or expense in the period that includes the enactment date. Valuation allowance is provided on deferred tax assets to
the extent that it is more likely than not that the asset will not be realizable in the foreseeable future.
The Group adopts ASC 740-10-25
‘‘Income Taxes’’ which prescribes a more likely than not threshold for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition of
income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest
and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The Group
did not have significant unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated
with unrecognized tax benefit for the years ended December 31, 2015, 2016 and 2017.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant
accounting policies (continued)
|
Each lease is classified at
the inception date as either a capital lease or an operating lease.
For the lessee, a lease is a
capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term,
b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life
or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the
leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset
and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. Payments
made under operating lease are charged to the consolidated statements of comprehensive income on a straight-line basis over the
terms of underlying lease.
For direct financing
leases where the Group is the lessor and for the sales and leaseback transactions where the Group is the buyer-lessor, the
transaction is accounted for as a capital lease if the transaction satisfies one of the four capital lease conditions as
discussed above. The leased automobiles the Group purchased would be derecognized upon the inception of the lease and the net
investment of the lease will be recorded as finance receivables. The net investment in a lease consists of the minimum lease
payments, net of executory costs plus the unguaranteed residual value, less the unearned interest income plus the unamortized
initial direct costs related to the lease. The accrued interests are also included in the finance receivables balance. Over
the period of a lease, each lease payment received is allocated between the repayment of the net investment in the lease and
lease income based on the effective interest method so as to produce a constant rate of return on the net investment in the
lease. The lease income is recorded as the Group’s revenue in the consolidated statements of comprehensive income.
Initial direct costs of the capital leases are amortized over the lease term by adjusting against the related lease income.
The net investment in the leases, net of allowance for credit losses, is presented as finance receivables and classified as
current or non-current assets in the balance sheets based on the duration of the remaining lease terms. The Group’s
finance receivables are typically secured with automobiles in the lease arrangements. The allowance for credit losses is
based on a systematic, ongoing review and valuation performed as part of the credit-risk evaluation process.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
The Group reviews credit quality
of its finance receivables based on customer payment activities, including past due information. The entire balance of a finance
receivable is considered contractually past due if the minimum required repayment is not received by the contractual repayment
day. If any delinquency arises, the Group will consider initiating collection process, which includes (a) making phone calls and
sending collection notice to the customers; (b) outsourcing to collection specialists to conduct collection of the automobiles;
(c) re-possessing the automobiles directly followed by bidding of the automobiles. As of December 31, 2016 and 2017, the carrying
amount of the repossessed automobiles is minimal. The Group has not established a practice of modifying the contractual payment
terms, or entering into any troubled debt restructurings of the finance receivables with its customers.
Accrued lease income on finance
receivables is calculated based on the effective interest rate of the net investment. Finance receivables are placed on non-accrual
status upon reaching past due status for more than 90 days. When a finance receivable is placed on non-accrual status, the Group
stops accruing interest and reverses all accrued but unpaid interest when such finance receivable is past due for 180 days. For
the years ended December 31, 2016 and 2017, such reversals were immaterial. The finance receivable in non-accrual status was RMB57.2
million and RMB245.7 million as of December 31, 2016 and 2017, respectively. Lease income is subsequently recognized only upon
the receipt of cash payments. The Group determines it is probable that, certain finance receivables that are past due for 180 days
after the above mentioned collection process has been administered, will become uncollectable, and writes off such finance receivables.
If a lease transaction does
not meet the criteria for classification as a capital lease as specified above, it is classified by the lessor as an operating
lease. The payments received by the lessor are recorded as lease income in the period in which the payment is received or becomes
receivable. The Group records the leased property as property, plant and equipment, net on the consolidated balance sheets and
depreciated in the same manner as the other equipment.
Government grants are recognized
where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the
grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for
which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts
over the expected useful life of the related asset.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
2.
|
Summary of significant accounting policies (continued)
|
Basic earnings per share is
computed by dividing net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per ordinary
share is computed by dividing the net income/(loss) attributable to ordinary shareholders for the year by the weighted average
number of ordinary and potential ordinary shares outstanding during the year, if the effect of potential ordinary shares is dilutive.
Potential ordinary shares for the Company include incremental shares of ordinary shares issuable upon the exercise of share options
and RSUs, and conversion of convertible debt.
Additionally, for purposes of
calculating basic and diluted earnings per share, Yixin’s net income/(loss) attributable to Bitauto Holdings Limited is adjusted
as follows:
For the purpose of calculating
basic earnings per share, Yixin’s net income/(loss) attributable to Bitauto Holdings Limited was determined using the two-class
method by allocating Yixin’s net income/(loss) to each class of participating shares issued by Yixin, including the outstanding
ordinary shares and redeemable convertible preference shares.
For the purpose of calculating
diluted earnings per share, the potentially issuable shares of Yixin, namely (i) the redeemable convertible preference shares,
prior to the IPO of Yixin, and (ii) the share options granted by Yixin, are assessed for dilutive impact. The diluted earnings
per share will be adjusted if the impact is deemed dilutive.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
3.
|
Recent accounting pronouncements
|
In May 2014, the FASB issued
Accounting Standards Update (“ASU”) No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)”.
This guidance supersedes current guidance on revenue recognition in Topic 605, ‘‘Revenue Recognition”. In addition,
there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015,
the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business
entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2017 and interim periods therein. Early adoption is permitted
to the original effective date. The Group will adopt the new revenue standard beginning January 1, 2018 by applying the modified
retrospective approach. Based on the assessment completed, the Group noted the most significant impact is the change from presentation
of VAT on a gross basis to a net basis. According to the provision of Topic 606, the Group determined VAT are collected from the
customers on behalf of the government and as an agent, the Group will report VAT on a net basis. Other than the change above,
the Group expects revenue recognition for its major revenue streams to remain materially consistent with its historical revenue
recognition practices.
In
January, 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”,
which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This amendment
requires all equity investments to be measured at fair value, with changes in the fair value recognized through net income (other
than those accounted for under equity method of accounting or those that result in consolidation of the investee). An entity may
choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of
the same issuer. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Early adoption is permitted. The Group will apply the new standard beginning January 1, 2018. For investments
in equity securities lacking of readily determinable fair values, the Group will elect to use the measurement alternative defined
as cost, less impairments, adjusted by observable price changes. The Group anticipates that the adoption of ASU 2016-01 will increase
the volatility of its
investment income/(losses)
,
as a result of the remeasurement of its equity securities upon the occurrence of observable price changes.
On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases”. ASU No. 2016-02 specifies
the accounting for leases. For operating leases, this standard requires a lessee to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee
to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line
basis. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions.
This standard is effective for public companies for annual reporting periods, and interim periods within those years, beginning
after December 15, 2018. Early adoption is permitted. The Group is currently evaluating the impact that the standard will have
on its consolidated financial statements and related disclosures.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
3.
|
Recent accounting pronouncements (continued)
|
In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable
and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses
on financial assets measured at amortized cost. Topic 326 introduces “expected credit loss” model, which is different
from the “incurred loss” model the Group currently applied. It will incorporate both available forward looking information
and historical pattern to estimate the lifetime expected credit losses for all finance receivables, including those that have not
become past due. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. While the Group is currently evaluating the impact that the standard will have on its consolidated
financial statements and related disclosures, it is generally expected that the adoption will likely increase the level of provision
for credit losses of finance receivables.
In August 2016, the FASB issued
ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments”, which
clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This guidance
is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted. The Group does not expect significant impact of the adoption of the guidance on the
Group’s consolidated financial statements.
In November 2016, the FASB issued
ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The guidance requires that a statement of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period
within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied
using a retrospective transition method to each period presented. The Group will adopt the standard beginning January 1, 2018 using
a retrospective transition method. The balances of restricted cash will be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows and changes in the restricted
cash balances will no longer be classified as cash flows from investing activities.
In January 2017, the FASB issued
ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the
definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied
prospectively on or after the effective date. The Group will adopt the standard prospectively and does not expect material impact.
In January 2017, the FASB issued
ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”. The guidance removes Step 2 of the goodwill impairment
test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting
unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted
on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is currently
evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
4.
|
Concentration of risks
|
|
(a)
|
Concentration of customers
|
There were no customers that
individually represented greater than 10% of the total revenue for the years ended December 31, 2015, 2016 and 2017, respectively.
|
(b)
|
Concentration of credit risks
|
Financial instruments that potentially
subject the Group to significant concentration of credit risk consist principally of cash and cash equivalents, time deposits,
restricted cash, accounts receivable and finance receivables.
As of December 31, 2015, 2016
and 2017, substantially all of the Group’s cash and cash equivalents, time deposits and restricted cash were held by major
financial institutions located in Hong Kong and the PRC, which management believes are of high credit quality. Under the new Bankruptcy
Law effective in 2007, a Chinese bank may go into bankruptcy. In the event of bankruptcy of one of the banks which holds the Group’s
deposits, it is unlikely to claim its deposits bank in full since it is unlikely to be classified as a secured creditor based on
PRC laws.
Accounts receivable and finance
receivables are typically unsecured or secured with automobiles for financing lease and derived from revenue earned from customers
in the PRC, which are exposed to credit risk. The risk is mitigated by credit evaluations the Group performs on its customers and
its ongoing monitoring process of outstanding balance. The Group maintains reserves for estimated credit losses and these losses
have generally been within its expectations.
|
(c)
|
Foreign currency exchange rate risk
|
In July 2005, the PRC government
changed its decades-old policy of pegging the value of the RMB to the US$, and the RMB appreciated more than 20% against the US$
over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB
and the US$ remained within a narrow band. Since June 2010, the RMB has fluctuated against the US$, at times significantly and
unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between
the RMB and the US$ in the future.
|
(d)
|
Currency convertibility risk
|
Substantially all of the Group’s
businesses are transacted in RMB, which is not freely convertible into foreign currencies. In the PRC, foreign exchange transactions
are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank
of China (the “PBOC”). Remittances in currencies other than RMB by the Group in the PRC must be processed through the
PBOC or other PRC foreign exchange regulatory bodies and require certain supporting documentation in order to effect the remittance.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
5.
|
Significant equity transactions and acquisitions
|
Acquisition
of additional interest in Target Net (Beijing) Technology Company Limited (“Target Net”)
As
of December 31, 2015 and 2016, the Group held 51% equity interest in Target Net, an unlisted entity based in the PRC and involved
in the provision of internet information distribution services. In October 2017, Target Net repurchased its equity interests held
by a noncontrolling shareholder for a total consideration of RMB36.3 million, which increased the Group’s ownership interest
in Target Net to 74.8%. It was considered to be an equity transaction and the excess of the noncontrolling interest repurchased
over the consideration was recorded in equity.
Acquisition of KKC
In
April 2015 and September 2016, the Group acquired equity interest of KKC, an unlisted entity based in the PRC and involved in the
used car business, in aggregate to approximately 54.8% on a fully diluted basis. Although holding the majority of equity interest,
the Group did not obtain control over KKC due to the absence of the majority of voting power at the board of directors of KKC.
In November 2016, the Group further acquired equity interest of KKC, increasing its equity interest to 49.7% of ordinary shares
and approximately 74.8% on a fully diluted basis, and obtained control over KKC. The Group acquired KKC to expand its used car
business.
The
transaction in November 2016 was considered a step acquisition under ASC 805 “Business Combinations”. A step acquisition
gain of RMB28.1 million arising from the revaluation of previously held equity interest was recognized in the investment income/(loss)
in the consolidated statements of comprehensive income for the year ended December 31, 2016.
In May 2017, the Group acquired
the remaining equity interest of KKC from the noncontrolling shareholders for a total consideration of RMB13.2 million, which increased
the Group’s ownership interest in KKC to 100%. It was considered to be an equity transaction and the difference between the
consideration paid and the carrying amount of the non-controlling interest was recorded in equity.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
5.
|
Significant equity transactions and acquisitions (continued)
|
Acquisition of Beijing Xinchuang Interactive
Advertising Company Limited (“Xinchuang”)
As of December 31, 2016,
the Group held 30% equity interest in Xinchuang, an unlisted entity located in the PRC and engaged in internet digital marketing
services. In January 2017, the Group acquired an additional 30% of the equity interest,
increasing
its ownership interest to 60%. The Group acquired Xinchuang to expand its digital marketing solutions business.
This transaction was considered
as a step acquisition under ASC 805 “Business Combinations”. A step acquisition gain of RMB36.3 million arising from
revaluation of previously held equity interest was recognized in the investment income/(loss) in the consolidated statements of
comprehensive income.
The total purchase consideration
for acquiring Xinchuang was RMB105.6 million, including a liability of RMB63.6 million for the committed purchase of the remaining
40% equity interest in the following two years equally. In October 2017, a modification of the original share purchase agreement
was entered into whereby the Group was no longer committed to buy and the selling shareholder was no longer committed to sell
the remaining 40% equity interest. It was considered an equity transaction and the difference between the liability as at modification
date and the carrying amount of the non-controlling interest was recorded in equity.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
5.
|
Significant equity transactions and acquisitions (continued)
|
Other acquisitions
For the year ended December
31, 2017, the Group acquired equity interests in other acquirees for total purchase consideration of RMB26.5 million.
The fair values of the identifiable
assets and liabilities as at the date of the acquisitions are summarized in the following table:
|
|
Fair value recognized
on acquisition
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
-
|
|
|
|
39,406
|
|
|
|
23,072
|
|
Property, plant and equipment, net
|
|
|
-
|
|
|
|
1,211
|
|
|
|
292
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
63,922
|
|
|
|
60,684
|
|
Other assets
|
|
|
-
|
|
|
|
41,778
|
|
|
|
61,142
|
|
Current liabilities
|
|
|
-
|
|
|
|
(73,021
|
)
|
|
|
(59,867
|
)
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
(15,977
|
)
|
|
|
(15,171
|
)
|
Net assets
|
|
|
-
|
|
|
|
57,319
|
|
|
|
70,152
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
(15,689
|
)
|
|
|
-
|
|
Mandatorily redeemable noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,569
|
)
|
Goodwill arising on acquisitions
|
|
|
-
|
|
|
|
115,848
|
|
|
|
103,136
|
|
Total
|
|
|
-
|
|
|
|
157,478
|
|
|
|
109,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
|
-
|
|
|
|
20,366
|
|
|
|
68,480
|
|
Fair value of previously held equity interests
|
|
|
-
|
|
|
|
137,112
|
|
|
|
41,239
|
|
Total consideration
|
|
|
-
|
|
|
|
157,478
|
|
|
|
109,719
|
|
The goodwill represented expected
synergies arising on acquisitions. The knowledge and expertise of employees is not separable. Therefore, it does not meet the criteria
for recognition as intangible asset under ASC 350 “Intangibles – Goodwill and Other”. None of the goodwill recognized
is expected to be deductible for income tax purposes. The intangible assets arising from the acquisition include customer relationship,
software, contract backlog, and brand name. The estimated useful lives were described in Note 2 (o).
The noncontrolling interest
has been recognized at fair value on the acquisition date.
Neither the results of operations
since the acquisition date nor the pro forma results of operations of the acquirees were presented because the effects of these
business combinations, individually or in the aggregate, were not significant to the Group’s consolidated results of operations.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
5.
|
Significant equity transactions and acquisitions (continued)
|
Transaction with JD.com, Inc.
(“JD”) and Tencent Holdings Limited (“Tencent”)
On January 9, 2015, the Group
entered into a share subscription agreement with JD.com, Inc. and JD.com Global Investment Limited (collectively as “JD”),
together with Dongting Lake Investment Limited, a special purpose vehicle of Tencent Holdings Limited (collectively as “Tencent”
together with Tencent Holdings Limited). On the same date, the Group entered into a business cooperation agreement with JD.com,
Inc. Pursuant to the share subscription agreement and business cooperation agreement, JD invested RMB2.45 billion and certain resources
to the Group and Tencent invested RMB919.1 million to the Group.
As consideration for the transaction,
the Group issued 15,689,443 ordinary shares to JD, representing approximately 25% of the then outstanding ordinary shares on a
fully diluted basis and 2,046,106 ordinary shares to Tencent, representing approximately 3.3% of the then outstanding ordinary
shares on a fully diluted basis, upon the closing of the transaction on February 16, 2015.
Pursuant to the business cooperation
agreement, the resources provided by JD include (a) an exclusive right to operate JD’s finished automobile business, which
includes the sale of finished automobiles on JD Mall, Paipai.com, their respective mobile sites and JD’s mobile applications,
as well as the provision of advertising services on JD’s finished car channels, in mainland China, (b) traffic supports including
traffic generating from and advertising display on JD website and mobile applications, (c) general business cooperation such as
big data capabilities and technology infrastructure. The term of the business cooperation is five years from April 9, 2015.
The general business cooperation
as above (c) is not recognized as a separate intangible asset because such provisions only set out the general principal for the
cooperation between the Group and JD with no specific deliverables provided to the Group. The amount recognized for the business
cooperation agreement relates to the exclusive right to operate JD’s finished automobile business as above (a) and traffic
support as above (b). The fair value was established using two forms of the income approach known as the excess earnings method
and the cost saving method. The Group applied a discount rate of 16% for valuing the business cooperation agreement. The business
cooperation is amortized on a straight-line basis over five years from April 9, 2015.
At the end of 2015, the Group
recorded a write-down of assets amounting to RMB238.6 million for the business cooperation relating to resources to be provided
through the channel of Paipai.com, as the Paipai.com business was terminated by JD.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
6.
|
Accounts receivable, net
|
Accounts receivable, net as of
December 31, 2016 and 2017 are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,168,655
|
|
|
|
3,107,315
|
|
Less: allowance for doubtful accounts
|
|
|
(100,040
|
)
|
|
|
(252,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,068,615
|
|
|
|
2,854,410
|
|
Accounts receivable are non-interest
bearing and are generally on terms of 60 to 90 days. In some cases, these terms are extended up to 360 days for certain qualifying
long-term customers who have met specific credit requirements.
As of December 31, 2017, accounts
receivable at carrying value of RMB252.9 million (2016: RMB100.0 million) were impaired and fully provided for. The movements in
the allowance for doubtful accounts are as follows:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
|
37,699
|
|
|
|
46,441
|
|
|
|
100,040
|
|
Charge for the year
|
|
|
8,931
|
|
|
|
53,599
|
|
|
|
152,865
|
|
Write off for the year
|
|
|
(189
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
|
46,441
|
|
|
|
100,040
|
|
|
|
252,905
|
|
|
7.
|
Prepayments and other receivables
|
Components of prepayments and
other receivables as of December 31, 2016 and 2017 are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Advances to suppliers
|
|
|
73,815
|
|
|
|
80,647
|
|
Prepaid expenses
|
|
|
11,320
|
|
|
|
45,818
|
|
Deposits
|
|
|
29,840
|
|
|
|
88,587
|
|
Advances to used car dealers
|
|
|
14,131
|
|
|
|
62,843
|
|
Staff advances
|
|
|
33,268
|
|
|
|
57,355
|
|
VAT and other taxes receivables
|
|
|
366,697
|
|
|
|
638,267
|
|
Interest receivable
|
|
|
25,912
|
|
|
|
23,548
|
|
Other receivables
|
|
|
56,692
|
|
|
|
106,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
611,675
|
|
|
|
1,103,683
|
|
Prepayments and other receivables
are unsecured, interest-free, have no fixed terms of repayment and are due on demand.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
8.
|
Fair value measurement
|
Financial instruments measured
at fair value on a recurring basis
As of December 31, 2016 and 2017,
there is no asset or liability measured at fair value in the consolidated balance sheets.
The following are other financial
instruments not measured at fair value in the consolidated balance sheets, but for which the fair value is estimated for disclosure
purposes.
Cash and cash equivalents, time
deposits, restricted cash, accounts receivable, bills receivable, finance receivables, other receivables and due from related parties
are financial assets with carrying values that approximate fair value due to their short-term nature. Accounts payable, other payables
and due to related parties are financial liabilities with carrying values that approximate fair value due to their short-term nature.
Borrowings. Interest rates under
the loan agreements with the lending banks were determined based on the prevailing interest rates in the market. The Group classifies
the valuation techniques that use these inputs as Level 2 fair value measurement. The carrying value of borrowings approximate
fair value.
Assets and liabilities measured
at fair value on a nonrecurring basis
The Group holds investments
in equity investees of privately-held companies that are accounted for using the cost method or equity method. The Group performs
impairment assessments of these investments whenever events or changes in circumstances indicate that the carrying value of the
investment may not be fully recoverable. The Group determined certain investments in equity investees were fully impaired after
evaluated the business prospects, operational data and financial results of the investees. Impairment charges were recorded in
connection with the investment in equity investees of nil, RMB86.6 million and RMB165.2 million for the years ended December 31,
2015, 2016 and 2017, respectively. The fair value of the investments were measured using significant unobservable inputs as Level
3.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
9.
|
Investment in equity investees
|
The Group’s investment
in equity investees consisted of the follows:
|
|
Cost method
|
|
|
Equity method
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
Balance as of January 1, 2015
|
|
|
69,698
|
|
|
|
72,364
|
|
|
|
142,062
|
|
Additions
|
|
|
1,042,134
|
|
|
|
171,813
|
|
|
|
1,213,947
|
|
Share of loss of equity investees
|
|
|
-
|
|
|
|
(16,663
|
)
|
|
|
(16,663
|
)
|
Less: disposals and transfers
|
|
|
(16,000
|
)
|
|
|
(44,788
|
)
|
|
|
(60,788
|
)
|
Foreign currency translation adjustments
|
|
|
3,287
|
|
|
|
913
|
|
|
|
4,200
|
|
Balance as of December 31, 2015
|
|
|
1,099,119
|
|
|
|
183,639
|
|
|
|
1,282,758
|
|
Additions
|
|
|
268,535
|
|
|
|
34,685
|
|
|
|
303,220
|
|
Share of loss of equity investees
|
|
|
-
|
|
|
|
(25,640
|
)
|
|
|
(25,640
|
)
|
Less: disposals and transfers
|
|
|
(75,675
|
)
|
|
|
(6,486
|
)
|
|
|
(82,161
|
)
|
Less: impairment losses
|
|
|
(86,618
|
)
|
|
|
-
|
|
|
|
(86,618
|
)
|
Foreign currency translation adjustments
|
|
|
55,415
|
|
|
|
498
|
|
|
|
55,913
|
|
Balance as of December 31, 2016
|
|
|
1,260,776
|
|
|
|
186,696
|
|
|
|
1,447,472
|
|
Additions
|
|
|
34,737
|
|
|
|
103,472
|
|
|
|
138,209
|
|
Share of loss of equity investees
|
|
|
-
|
|
|
|
(50,643
|
)
|
|
|
(50,643
|
)
|
Less: disposals and transfers
|
|
|
(14,623
|
)
|
|
|
(126,512
|
)
|
|
|
(141,135
|
)
|
Less: impairment losses
|
|
|
(143,974
|
)
|
|
|
(21,223
|
)
|
|
|
(165,197
|
)
|
Foreign currency translation adjustments
|
|
|
(44,836
|
)
|
|
|
326
|
|
|
|
(44,510
|
)
|
Balance as of December 31, 2017
|
|
|
1,092,080
|
|
|
|
92,116
|
|
|
|
1,184,196
|
|
Cost method
As of December 31, 2016 and 2017,
the carrying value of the Group’s cost-method investments were RMB1.26 billion and RMB1.09 billion, respectively. Investments
are accounted for under the cost method if the underlying stocks the Group invested in had no readily determinable fair value or
the Group has neither significant influence nor control through investment in common stock or in-substance common stock. For the
years ended December 31, 2015, 2016 and 2017, the Group invested RMB1.04 billion, RMB268.5 million, and RMB34.7 million in multiple
private companies accounted for under the cost method respectively, which management believes will lead to future operating synergies
with the Group’s business in future years.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
9.
|
Investment in equity investees (continued)
|
Equity method
As of December 31, 2016 and
2017, the carrying value of the Group’s investments accounted for under the equity method were RMB186.7 million and RMB92.1
million, respectively. The Group applies the equity method to account for its equity investments, in common stock or in-substance
common stock, over which it has significant influence but does not own a majority equity interest or otherwise control. For the
year ended December 31, 2017, the Group disposed certain investments accounted for under the equity method and recorded a disposal
gain of RMB43.6 million, which was recognized in the investment income/(loss) in the consolidated statements of comprehensive
income.
The condensed financial information
of the Group’s equity investments accounted for under the equity method were summarized as a group below in accordance with
Rule 4-08 of Regulation S-X:
|
|
For the year ended
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
Revenue
|
|
|
120,930
|
|
|
|
652,864
|
|
|
|
80,095
|
|
Gross profit
|
|
|
13,846
|
|
|
|
138,640
|
|
|
|
4,981
|
|
Loss from operations
|
|
|
(45,351
|
)
|
|
|
(35,586
|
)
|
|
|
(133,910
|
)
|
Net loss
|
|
|
(45,621
|
)
|
|
|
(47,855
|
)
|
|
|
(133,207
|
)
|
Net loss attributable to the equity-method investees
|
|
|
(45,621
|
)
|
|
|
(36,886
|
)
|
|
|
(129,223
|
)
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
400,179
|
|
|
|
222,030
|
|
Non-current assets
|
|
|
33,689
|
|
|
|
133,003
|
|
Current liabilities
|
|
|
208,515
|
|
|
|
45,515
|
|
Non-current liabilities
|
|
|
2,171
|
|
|
|
-
|
|
Noncontrolling interests
|
|
|
4,656
|
|
|
|
8,603
|
|
|
10.
|
Property, plant and equipment, net
|
Property, plant and equipment,
net as of December 31, 2016 and 2017 are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Computers and servers
|
|
|
129,842
|
|
|
|
150,593
|
|
Automobiles for Group uses
|
|
|
29,436
|
|
|
|
35,805
|
|
Automobiles for operating leases
|
|
|
84,318
|
|
|
|
1,267,556
|
|
Furniture and fixtures
|
|
|
9,745
|
|
|
|
14,101
|
|
Leasehold improvements
|
|
|
94,741
|
|
|
|
98,594
|
|
Less: accumulated depreciation
|
|
|
(153,522
|
)
|
|
|
(270,453
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
194,560
|
|
|
|
1,296,196
|
|
Depreciation expenses recognized
for the years ended December 31, 2015, 2016 and 2017 were RMB55.5 million, RMB55.9 million and RMB185.3 million, respectively.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
11.
|
Intangible assets, net
|
Intangible assets, net as of
December 31, 2016 and 2017 are as follows:
|
|
As of December 31, 2016
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Impairment
amount
|
|
|
Net carrying
amount
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software
|
|
|
43,942
|
|
|
|
(17,471
|
)
|
|
|
-
|
|
|
|
26,471
|
|
Digital Sales Assistant system
|
|
|
25,430
|
|
|
|
(12,927
|
)
|
|
|
-
|
|
|
|
12,503
|
|
Trademark and lifetime membership
|
|
|
9,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,960
|
|
Domain names
|
|
|
22,101
|
|
|
|
(6,285
|
)
|
|
|
-
|
|
|
|
15,816
|
|
Customer relationships
|
|
|
211,310
|
|
|
|
(44,989
|
)
|
|
|
-
|
|
|
|
166,321
|
|
Brand name
|
|
|
20,830
|
|
|
|
(819
|
)
|
|
|
-
|
|
|
|
20,011
|
|
Business cooperation
|
|
|
3,447,689
|
|
|
|
(1,131,710
|
)
|
|
|
(254,873
|
)
|
|
|
2,061,106
|
|
Others
|
|
|
32,191
|
|
|
|
(1,539
|
)
|
|
|
-
|
|
|
|
30,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,813,453
|
|
|
|
(1,215,740
|
)
|
|
|
(254,873
|
)
|
|
|
2,342,840
|
|
|
|
As of December 31, 2017
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Impairment
amount
|
|
|
Net carrying
amount
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software
|
|
|
58,686
|
|
|
|
(25,038
|
)
|
|
|
-
|
|
|
|
33,648
|
|
Digital Sales Assistant system
|
|
|
25,430
|
|
|
|
(15,470
|
)
|
|
|
-
|
|
|
|
9,960
|
|
Trademark and lifetime membership
|
|
|
13,095
|
|
|
|
(265
|
)
|
|
|
-
|
|
|
|
12,830
|
|
Domain names
|
|
|
25,399
|
|
|
|
(8,431
|
)
|
|
|
-
|
|
|
|
16,968
|
|
Customer relationships
|
|
|
244,822
|
|
|
|
(75,349
|
)
|
|
|
-
|
|
|
|
169,473
|
|
Brand name
|
|
|
20,830
|
|
|
|
(2,760
|
)
|
|
|
-
|
|
|
|
18,070
|
|
Business cooperation
|
|
|
3,447,689
|
|
|
|
(1,761,589
|
)
|
|
|
(254,873
|
)
|
|
|
1,431,227
|
|
Others
|
|
|
39,113
|
|
|
|
(4,968
|
)
|
|
|
-
|
|
|
|
34,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,875,064
|
|
|
|
(1,893,870
|
)
|
|
|
(254,873
|
)
|
|
|
1,726,321
|
|
Amortization expenses for the
years ended December 31, 2015, 2016 and 2017 amounted to RMB495.6 million, RMB633.4 million and RMB688.6 million, respectively.
The impairment of business cooperation in 2015 mainly related to resources to be provided through the channel of Paipai.com, as
the Paipai.com business was terminated by JD. Further details are set out in Note 5.
The estimated aggregate amortization
expenses for each of the five succeeding fiscal years are as follows:
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expenses
|
|
|
697,100
|
|
|
|
671,441
|
|
|
|
206,881
|
|
|
|
26,525
|
|
|
|
20,444
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
|
328,927
|
|
|
|
329,000
|
|
|
|
444,933
|
|
Acquisition of subsidiaries
|
|
|
-
|
|
|
|
115,848
|
|
|
|
103,136
|
|
Disposal of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,326
|
)
|
Foreign exchange difference
|
|
|
73
|
|
|
|
85
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
|
329,000
|
|
|
|
444,933
|
|
|
|
543,655
|
|
Goodwill impairment is tested at the business segment
level and there is no impairment charge as of December 31, 2015, 2016 and 2017.
|
|
As of December 31, 2016
|
|
|
|
Advertising and
subscription
business
|
|
|
Transaction
services
business
|
|
|
Digital
marketing
solutions
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
327,754
|
|
|
|
115,848
|
|
|
|
1,331
|
|
|
|
444,933
|
|
|
|
As of December 31, 2017
|
|
|
|
Advertising and
subscription
business
|
|
|
Transaction
services
business
|
|
|
Digital
marketing
solutions
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
327,754
|
|
|
|
116,716
|
|
|
|
99,185
|
|
|
|
543,655
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
13.
|
Finance receivables, net
|
The Group provides automobile
financial leasing services on its automotive financial services platform. Detailed information of finance receivables as of December
31, 2016 and 2017 are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Finance receivables, gross
|
|
|
|
|
|
|
|
|
- Within one year
|
|
|
7,443,959
|
|
|
|
16,363,872
|
|
- After one year but not more than five years
|
|
|
8,935,544
|
|
|
|
17,224,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,379,503
|
|
|
|
33,588,476
|
|
|
|
|
|
|
|
|
|
|
Unearned finance income
|
|
|
(2,673,982
|
)
|
|
|
(3,662,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
13,705,521
|
|
|
|
29,925,774
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
|
(22,486
|
)
|
|
|
(134,169
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
13,683,035
|
|
|
|
29,791,605
|
|
Aging analysis of finance receivables
are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Not past due
|
|
|
13,497,984
|
|
|
|
29,069,556
|
|
|
|
|
|
|
|
|
|
|
Past due
|
|
|
|
|
|
|
|
|
- Up to 1 month
|
|
|
110,032
|
|
|
|
411,830
|
|
- 1 to 3 months
|
|
|
40,331
|
|
|
|
198,671
|
|
- 3 to 6 months
|
|
|
37,584
|
|
|
|
177,070
|
|
- Over 6 months
|
|
|
19,590
|
|
|
|
68,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,705,521
|
|
|
|
29,925,774
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
|
(22,486
|
)
|
|
|
(134,169
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
13,683,035
|
|
|
|
29,791,605
|
|
Finance receivables due from
related parties for the years ended December 31, 2016 and 2017 were RMB680.8 million and RMB121.0 million, which are presented
as due from related parties.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
13.
|
Finance receivables, net (continued)
|
Management assesses the allowance
for credit losses of finance receivables collectively based on its estimates on historical experience and on various other assumptions
that are believed to be reasonable, including estimated loss percentages of contracts that are not collectable, the historical
migration pattern of past due balances, other information gathered through collection efforts and general economic conditions.
Management reassesses the provision at each balance sheet date. As of December 31, 2016 and 2017, the allowance for credit losses
was RMB22.5 million and RMB134.2 million, respectively. The movements in the allowance for credit losses are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
|
-
|
|
|
|
22,486
|
|
Charge for the year
|
|
|
29,052
|
|
|
|
196,320
|
|
Write off for the year
|
|
|
(6,566
|
)
|
|
|
(84,637
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
|
22,486
|
|
|
|
134,169
|
|
Since 2016, the Group securitizes
finance receivables arising from its consumers through transfer of those assets to asset-backed securitization vehicles. The securitization
vehicles usually issue senior tranche debt securities to third party investors, collateralized by the transferred assets, and subordinate
tranche debt securities to the Group. As of December 31, 2016 and 2017, the collateralized finance receivables transferred to the
securitization vehicles were RMB5.12 billion and RMB10.44 billion, respectively. Please refer to “Note 2 - Summary of significant
accounting policies—Asset-backed securitization debt” for details. The Group also secures certain borrowings from financial
institutions with the cash proceeds of certain of the Group’s finance receivables. As of December 31, 2016 and 2017, the
finance receivables collateralized for borrowings from financial institutions were RMB2.18 billion and RMB12.20 billion, respectively.
|
14.
|
Other non-current assets
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment for automobiles
|
|
|
191,360
|
|
|
|
261,768
|
|
Automobiles purchased for future leases
|
|
|
250,151
|
|
|
|
583,298
|
|
Long-term prepaid expenses
|
|
|
387,408
|
|
|
|
123,554
|
|
Deposits and others
|
|
|
108,926
|
|
|
|
416,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937,845
|
|
|
|
1,385,044
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
The Group’s short term
borrowings represent the borrowings which were payable within one year or on demand.
These short term and long term
borrowings are collateralized by a pledge of time deposits with carrying values of RMB5.41 billion and RMB1.06 billion as of December
31, 2016 and 2017, respectively, which are presented as restricted cash in the consolidated balance sheets.
During 2017, the Group entered
into revolving line of credit agreements with some commercial banks located in China. As of December 31, 2017, the total revolving
line of credit was RMB1.98 billion (2016: RMB2.79 billion) and available within one year from the respective agreement date. There
are no commitment fees associated with the unused portion of the line of credit. The major revolving line of credit is guaranteed
by the Company or other entities within the Group.
The weighted average interest
rate on borrowings outstanding as of December 31, 2016 and 2017 was approximately 4.9% and 6.4%, respectively.
As of December 31, 2017, the
borrowings will be due according to the following schedule:
|
|
Within 1 year
|
|
|
Between 1 to
2 years
|
|
|
Between 2 to
3 years
|
|
|
Between 3 to
4 years
|
|
|
Between 4 to
5 years
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amounts
|
|
|
11,243,614
|
|
|
|
4,140,463
|
|
|
|
933,810
|
|
|
|
-
|
|
|
|
-
|
|
|
16.
|
Asset-backed securitization debt
|
As of December 31, 2016 and 2017,
the asset-backed debt securities were RMB4.43 billion and RMB8.78 billion, respectively. The weighted average interest rate for
the outstanding asset-backed securitization debt as of December 31, 2016 and 2017 were approximately 4.7% and 5.7%. The amount
of interest charges recognized for the year ended December 31, 2016 and December 31, 2017 were RMB81.0 million and RMB453.0 million.
As of December 31, 2017, the
asset-backed securitization debt will be due according to the following schedule:
|
|
Within 1 year
|
|
|
Between 1 to
2 years
|
|
|
Between 2 to
3 years
|
|
|
Between 3 to
4 years
|
|
|
Between 4 to
5 years
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amounts
|
|
|
6,165,429
|
|
|
|
2,320,331
|
|
|
|
291,490
|
|
|
|
-
|
|
|
|
-
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
On August 2, 2016, the Company
issued convertible notes (the “PAG Notes”) for an aggregate principal amount of US$150.0 million to PA Grand Opportunity
Limited (PAG). The PAG Notes are due on August 1, 2021 and bear interest of 2% annually which will be paid semi-annually beginning
on February 2, 2017.
The PAG Notes can be converted,
at the holder's option, into the Company’s fully paid American Depositary Shares (“ADSs”) or ordinary shares
with an initial conversion price of approximately US$23.67 per ADS, representing an initial conversion rate of 4,224.7671 ADSs
per US$100,000 principal amount of the PAG Notes.
The issuance costs of the PAG
Notes were US$0.18 million and are being amortized to interest expense, using the effective interest method, until the maturity
date of the PAG Notes.
The Company has accounted for
the PAG Notes in accordance with ASC 470, as a single instrument classified as a long-term debt within the consolidated financial
statements. The value of the PAG Notes is measured by the cash received. The Company recorded the interest expenses according
to its annual interest rate. As of December 31, 2016 and 2017, the value of the PAG Notes in non-current liabilities is RMB859.2
million and RMB707.9 million, respectively.
The Company evaluated the embedded
conversion features contained in the PAG Notes in accordance with ASC 815-10-15 to determine if the conversion option requires
bifurcation. In accordance with ASC 815-10-15-83, the conversion option meets the definition of a derivative. However, bifurcation
of conversion option from the PAG Notes is not required as the scope exception prescribed in ASC 815-10-15-74 is met as the conversion
option is considered indexed to the entity’s own stock and classified in stockholders’ equity.
As the conversion option was
not bifurcated, the Company then assessed if there was any beneficial conversion feature (“BCF”) in accordance with
ASC 470-20. The Company recognized a BCF of US$27.9 million (RMB185.7 million) through a credit to additional paid-in capital because
the fair value per ordinary share of US$28.08 exceeded the conversion price of US$23.67 at the commitment date on August 2, 2016.
The resulting discount of US$27.9 million to the PAG Notes is then accreted to the redemption value as interest expense using the
effective interest method through the consolidated statement of comprehensive income over the term of the PAG Notes.
The Company evaluated the embedded
contingent redemption features contained in the PAG Notes in accordance with ASC 815-15-25-42 and ASC 815-15-25-26. The contingent
redemption features were not required to be bifurcated because they are considered to be clearly and closely related to the debt
host contract, as the PAG Notes were not issued at a substantial discount and are puttable at par.
On November 23, 2017, a third
party investor who purchased US$24.0 million of the PAG Notes from PAG notified the Company of its intent of conversion. Upon
conversion, the Company issued 1,013,941 ordinary shares to the investor and accordingly, the balance of the PAG Notes converted
and related unamortized discounts and issuance costs, which amounted to RMB158.5 million, were recorded as the Company’s
shareholders’ equity. The unamortized BCF associated with the PAG Notes converted, which amounted to RMB23.3 million, was
expensed immediately in accordance with ASC 470-20 “Debt with conversion and other options”.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
17.
|
Convertible debt (continued)
|
For the year ended December 31,
2016 and December 31, 2017, the effective interest rate for PAG Notes was 6.5% and 6.5%, and the amount of interest charges recognized
was RMB21.4 million and RMB53.8 million.
The expected repayment amount
of the convertible debt is nil for each of the years ending December 31, 2018, 2019 and 2020 and US$126.0 million for the year
ended December 31, 2021.
|
18.
|
Other payables and accruals
|
Components of other payables
and accruals as of December 31, 2016 and 2017 are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
|
196,693
|
|
|
|
251,651
|
|
Accrued expenses
|
|
|
49,304
|
|
|
|
150,835
|
|
Advances from customers
|
|
|
786,078
|
|
|
|
1,182,840
|
|
Other payables
|
|
|
195,632
|
|
|
|
488,428
|
|
Other tax payables
|
|
|
281,220
|
|
|
|
296,336
|
|
Deferred revenue
|
|
|
37,956
|
|
|
|
81,629
|
|
Interest payable
|
|
|
50,210
|
|
|
|
96,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,597,093
|
|
|
|
2,548,221
|
|
The above balances are non-interest-bearing
and are normally settled under the terms of 120 to 150 days. Included in advances from customers, are amounts received from dealer
subscriptions and listing customers prior to revenue recognition amounting to RMB669.7 million and RMB898.7 million, and from leasing
customers prior to revenue recognition amounting to RMB59.9 million and RMB240.6 million as of December 31, 2016 and 2017, respectively.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
19.
|
Redeemable noncontrolling interests
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
|
1,697,718
|
|
|
|
3,939,646
|
|
Issuance of shares of the Group’s subsidiaries
|
|
|
2,036,641
|
|
|
|
1,353,293
|
|
Conversion of redeemable noncontrolling interests
to ordinary shares
|
|
|
-
|
|
|
|
(5,323,103
|
)
|
Accretion to redeemable noncontrolling
interests
|
|
|
205,287
|
|
|
|
332,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,939,646
|
|
|
|
301,953
|
|
In 2015, 2016 and 2017, Yixin
issued redeemable convertible preference shares to JD and other third-party investors. The redeemable convertible preference shares
contain conversion features and redemption features. The Group records accretion of redemption value in accordance with ASC 480
“Distinguishing Liabilities from Equity”. The Group elects to use the effective interest method for the changes of
redemption value over the period from the date of issuance to the earliest redemption date of the noncontrolling interests.
Upon completion of Yixin’s
IPO on November 16, 2017, all the redeemable convertible preference shares were automatically converted into ordinary shares of
Yixin. As a result, the Group held 45.2% of the outstanding ordinary shares of Yixin. However, through the voting proxy agreement
that the Group entered into with JD and another shareholder, the Group is able to control Yixin by gaining the simple majority
of the voting rights in Yixin’s shareholders’ meeting immediately after the IPO. Accordingly, the Group continues
to consolidate the operations and the financial results of Yixin and provide for noncontrolling interests reflecting ordinary
shares in Yixin held by shareholders other than the Group in the consolidated financial statements. The Group recognized a one-time
credit to additional paid-in capital of RMB2.37 billion in shareholders’ equity in the consolidated balance sheets to reflect
the increase in the value of the Group’s equity in Yixin that resulted from the completion of Yixin’s IPO and conversion
of redeemable convertible preference shares.
In 2017, one subsidiary of the
Group issued ordinary shares with redemption features to certain third-party investors. The Group classifies redeemable noncontrolling
interests as mezzanine equity and records accretion of redemption value in accordance with ASC 480 “Distinguishing Liabilities
from Equity”. The Group elects to use the effective interest method for the changes of redemption value over the period from
the date of issuance to the earliest redemption date of the noncontrolling interests.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and subscription services
|
|
|
3,106,025
|
|
|
|
3,432,986
|
|
|
|
3,922,158
|
|
Transaction services
|
|
|
664,225
|
|
|
|
1,551,676
|
|
|
|
3,872,244
|
|
Agent services
|
|
|
483,945
|
|
|
|
788,286
|
|
|
|
956,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,254,195
|
|
|
|
5,772,948
|
|
|
|
8,751,259
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gains/(losses)
|
|
|
30,744
|
|
|
|
4,005
|
|
|
|
(1,721
|
)
|
(Losses)/Gains on disposal of property, plant and equipment and intangible assets, net
|
|
|
(1,779
|
)
|
|
|
22,993
|
|
|
|
16,430
|
|
Government grants
|
|
|
22,512
|
|
|
|
26,788
|
|
|
|
28,946
|
|
Others, net
|
|
|
9,031
|
|
|
|
17,195
|
|
|
|
(12,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,508
|
|
|
|
70,981
|
|
|
|
31,576
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
Cayman Islands
Under the current laws of the
Cayman Islands, the Company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or capital
gain. Additionally, the Cayman Islands do not impose a withholding tax on payments of dividends to shareholders.
Hong Kong
Under the Hong Kong tax laws,
subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they may be exempted from income tax on their
foreign-derived income and there is no withholding tax in Hong Kong on remittance of dividends.
PRC
Under the PRC Enterprise
Income Tax Law (“EIT Law”), EIT rate is 25% for enterprises incorporated in the PRC. Preferential EIT rates are
available for enterprises qualified as High and New Technology Enterprises (“HNTEs”) and Software Enterprises
(“SEs”). Entities qualified as HNTEs enjoy a reduced tax rate of 15% within three years after obtaining the HNTE
certificate. An entity could re-apply for the HNTE certificate when the prior certificate expires. Historically, all of HNTEs
of the Group successfully re-applied for the certificates when the prior ones expired. Entities qualified as SEs enjoy a
two-year exemption for EIT from the first profitable year followed by a three-year half reduction in tax rate. In addition,
in accordance with relevant PRC tax regulations, qualified entities established in specific geographical areas are exempt
from EIT for five years, commencing from the first year of operation.
Further, pursuant to the EIT
Law, a 10% withholding tax is levied on dividends declared by PRC enterprises to their foreign non-resident enterprise investors.
A lower withholding tax rate will be applied if tax treaty or arrangement benefits are available. According to the tax arrangement
between the PRC and Hong Kong, withholding tax rate of 5% is applicable if direct foreign non-resident enterprise investors own
directly at least 25% equity interest in the PRC enterprises and meet the relevant requirements.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
22.
|
Income tax expense (continued)
|
C
omposition
of income tax expense:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax
|
|
|
75,458
|
|
|
|
140,706
|
|
|
|
249,995
|
|
Deferred income tax
|
|
|
(10,940
|
)
|
|
|
6,863
|
|
|
|
(46,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,518
|
|
|
|
147,569
|
|
|
|
203,824
|
|
Composition
of deferred tax assets and liabilities:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
680
|
|
|
|
698
|
|
Tax losses carried forward
|
|
|
29,255
|
|
|
|
26,828
|
|
Allowance for credit losses
|
|
|
5,622
|
|
|
|
41,119
|
|
Others
|
|
|
-
|
|
|
|
2,374
|
|
Less: valuation allowance
|
|
|
(18,170
|
)
|
|
|
(18,511
|
)
|
|
|
|
17,387
|
|
|
|
52,508
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Intangible assets arising from business combinations
|
|
|
(51,617
|
)
|
|
|
(52,237
|
)
|
|
|
|
(51,617
|
)
|
|
|
(52,237
|
)
|
Net deferred tax (liabilities)/assets
|
|
|
(34,230
|
)
|
|
|
271
|
|
Movement
of valuation allowance:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
|
2,044
|
|
|
|
17,471
|
|
|
|
18,170
|
|
Additions
|
|
|
16,707
|
|
|
|
1,014
|
|
|
|
2,319
|
|
Reversals
|
|
|
(1,280
|
)
|
|
|
(315
|
)
|
|
|
(1,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
|
17,471
|
|
|
|
18,170
|
|
|
|
18,511
|
|
As of December
31, 2017, the Group had net operating losses carried forward of approximately RMB107.5 million which arose from the subsidiaries,
VIEs and subsidiaries of VIEs established in the PRC. The losses carried forward will expire during the period from 2018 to 2022.
The Group
did not provide for deferred taxes on the undistributed earnings of its subsidiaries, VIEs and subsidiaries of VIEs registered
in the PRC as of December 31, 2016 and 2017 on the basis of its intent to reinvest the earnings. As of December 31, 2016 and 2017,
the total amount of undistributed earnings from the subsidiaries, VIEs and subsidiaries of VIEs registered in the PRC was RMB1.86
billion and RMB2.79 billion, respectively. As of December 31, 2016 and 2017, determination of the amount of unrecognized deferred
tax liability related to the earnings that are indefinitely reinvested is not practical.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
22.
|
Income tax expense (continued)
|
Reconciliation
of the differences between the statutory EIT rate applicable to profits of the consolidated entities and the income tax expenses
of the Group:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before tax
|
|
|
(320,766
|
)
|
|
|
(190,384
|
)
|
|
|
(1,223,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax computed at statutory EIT rate (25%)
|
|
|
(80,192
|
)
|
|
|
(47,596
|
)
|
|
|
(305,791
|
)
|
Effect
of preferential tax rates for certain entities comprising the Group
|
|
|
(60,798
|
)
|
|
|
(20,409
|
)
|
|
|
(112,684
|
)
|
Effect
of differing tax rates in different jurisdictions
|
|
|
177,749
|
|
|
|
184,235
|
|
|
|
422,677
|
|
Non-deductible
expenses and non-taxable income, net
|
|
|
11,960
|
|
|
|
34,012
|
|
|
|
188,069
|
|
Tax
savings from additional deductions on certain research and development expenses available for subsidiaries incorporated in
the PRC
|
|
|
-
|
|
|
|
(3,253
|
)
|
|
|
(3,822
|
)
|
Change
in valuation allowances
|
|
|
15,427
|
|
|
|
699
|
|
|
|
1,933
|
|
Others
|
|
|
372
|
|
|
|
(119
|
)
|
|
|
13,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
64,518
|
|
|
|
147,569
|
|
|
|
203,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
(20.1
|
%)
|
|
|
(77.5
|
%)
|
|
|
(16.7
|
%)
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation
|
For the years ended December
31, 2015, 2016 and 2017, total share-based compensation expenses recognized were RMB120.0 million, RMB77.0 million and RMB1.19
billion, respectively.
Share incentive plan
On December 31, 2006, the Company
implemented an Employee Stock Incentive Plan (“2006 Plan”) under which the Company has reserved 1,028,512.5 ordinary
shares for employees. The Board of Directors of the Company may invite employees of the Group to subscribe for options over the
Company’s ordinary shares.
On February 8, 2010, the Company
implemented an Employee Stock Incentive Plan (“2010 Plan”) under which the Company has reserved 3,089,887.5 ordinary
shares for employees. The 2010 Plan stipulates that if options are forfeited, the forfeited options can be added back to the option
pool to be granted to other employees. The board of the Company may invite employees of the Company to subscribe for options over
the Company’s ordinary shares.
On August 7, 2012, the Company
implemented an Employee Stock Incentive Plan (“2012 Plan”) under which the Company has reserved 1,908,180.0 ordinary
shares to motivate, attract and retain employees, and directors. The 2012 Plan permits the awards of options and RSUs.
On November 17, 2016, the Company
implemented an Employee Stock Incentive Plan (“2016 Plan”) under which the Company has reserved 2,500,000.0 ordinary
shares to attract and retain the best available personnel and provide additional incentives to employees, officers, directors and
advisors of the Company. The 2016 Plan permits the awards of options and RSUs.
Share options
The Company granted share options
on December 31, 2006, February 8, 2010, December 28, 2010 and August 7, 2012, respectively. Options granted typically expire in
ten years from the respective grant dates, except for options granted on December 31, 2006 whose expiration date was extended to
December 31, 2026. The options have graded vesting terms, and vest in equal tranches from the grant date over three or four years,
on the condition that employees remain in service without any performance requirements.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation (continued)
|
The activities of share options
for the year ended December 31, 2017 is summarized as below:
|
|
Number of
shares
|
|
|
Weighted
average
exercise prices
US$/Share
|
|
|
Aggregate
intrinsic
value
US$ in thousands
|
|
|
Weighted
average
remaining
contractual
life
|
Outstanding as of January 1, 2017
|
|
|
972,581.0
|
|
|
|
5.71
|
|
|
|
12,867
|
|
|
4.99 years
|
Granted during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised during the year
|
|
|
(558,875.0
|
)
|
|
|
5.10
|
|
|
|
|
|
|
|
Forfeited during the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
413,706.0
|
|
|
|
6.54
|
|
|
|
10,450
|
|
|
3.82 years
|
Exercisable as of December 31, 2017
|
|
|
413,706.0
|
|
|
|
6.54
|
|
|
|
10,450
|
|
|
3.82 years
|
The aggregate intrinsic value
in the table above represents the difference between the Company’s closing stock price on the last trading day of the year
and the exercise price.
Total intrinsic value of options
exercised for the years ended December 31, 2015, 2016 and 2017 was RMB51.2 million, RMB126.6 million and RMB93.2 million, respectively.
The total fair value of options vested during the years ended December 31, 2015, 2016 and 2017 was RMB3.2 million, RMB3.4 million
and nil, respectively.
For the years ended December
31, 2015, 2016 and 2017, share-based compensation expenses recognized associated with the share options were RMB1.4 million, RMB0.5
million and nil, respectively. As of December 31, 2017, there were no unrecognized share-based compensation expenses related to
share options.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation (continued)
|
Restricted shares units
Starting from 2013, the Company
granted RSUs under share incentive plans. The RSUs granted would vest (i) on the anniversary of the grant date, or in equal tranches
from the grant date over three or four years, on the condition that employees remain in service without any performance requirements;
or (ii) on specific dates, or in equal tranches from the grant date over three or four years, if the grantees’ key performance
indicators were achieved on each vest date.
Once the vesting conditions underlying
the respective RSUs are met, the RSUs are considered duly and validly issued to the holder, and free of restrictions on transfer.
The activities of RSUs for the
year ended December 31, 2017 is summarized as below:
|
|
Number of RSUs
|
|
|
Weighted-average fair
value per RSU granted
(US$)
|
|
Outstanding as of January 1, 2017
|
|
|
1,446,080.0
|
|
|
|
26.34
|
|
Granted during the year
|
|
|
2,660,687.0
|
|
|
|
22.44
|
|
Vested and sold during the year
|
|
|
(890,959.0
|
)
|
|
|
25.33
|
|
Forfeited during the year
|
|
|
(404,056.0
|
)
|
|
|
23.26
|
|
Outstanding as of December 31, 2017
|
|
|
2,811,752.0
|
|
|
|
23.42
|
|
Vested as of December 31, 2017
|
|
|
922,178.0
|
|
|
|
22.28
|
|
The weighted-average grant-date
fair value during the years ended December 31, 2015, 2016 and 2017 was US$54.03, US$23.25 and US$22.44, respectively. The total
fair value of the RSUs vested during the years ended December 31, 2015, 2016 and 2017 was RMB83.8 million, RMB99.4 million, RMB209.5
million, respectively.
For the years ended December
31, 2015, 2016 and 2017, share-based compensation recognized associated with the RSUs was RMB118.6 million, RMB75.8 million and
RMB268.5 million, respectively. As of December 31, 2017, there was RMB181.4 million of unrecognized share-based compensation expense
related to RSUs. The compensation expenses are expected to be recognized over a weighted-average period of 3.02 years.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation (continued)
|
Subsidiaries-Yixin
In November 2017, Yixin implemented
share recapitalization to effect a 7-for-1 share split for all ordinary shares then issued and outstanding. All information related
to Yixin’s ordinary shares and stock options have been retroactively adjusted to give effect to the share split.
On May 26, 2017, Yixin approved
the establishment of the Pre-IPO Share Option Scheme which was amended on September 1, 2017, the purpose of which is to provide
an incentive for employees and persons contributing to Yixin. The Pre-IPO Share Option Scheme shall be valid and effective for
10 years from the grant date. The maximum number of shares that may be issued pursuant to all awards (including incentive share
options) under 2017 Share Incentive Plan shall be 418,464,263 shares.
On May 26, 2017, Yixin approved
the establishment of the First Share Award Scheme which was amended on September 1, 2017, the purpose of which is to provide an
incentive for employees and persons contributing to Yixin. The First Share Award Scheme shall be valid and effective for 10 years
from the grant date. The maximum number of shares that may be issued pursuant to all awards (including incentive share options)
under First Share Award Scheme shall be 70,830,417 shares.
On September 1, 2017, Yixin approved
the establishment of the Second Share Award Scheme with the purpose of which is to provide an incentive for employees and persons
contributing to Yixin. The maximum number of shares that may be issued pursuant to all awards (including incentive share options)
under Second Share Award Scheme shall be 5% of the total number of issued shares without Shareholders’ approval, subject
to an annual limit of 3% of the total number of issued shares at the relevant time.
From July 2017 to October 2017,
395,341,709 share options were granted under the Pre-IPO Share Option Scheme to 149 grantees of Yixin. Subject to the grantee
continuing to be an employee of Yixin, 49.0%, 17.7%, 12.0%, 12.0%, 9.0% and 0.3% of the share options shall vest in 2017, 2018,
2019, 2020, 2021 and 2022, respectively. The exercise price of the share options is US$0.0014 per share.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation (continued)
|
The activities of Yixin’s
share options for the year ended December 31, 2017 is summarized as below:
|
|
Number of
shares
|
|
|
Weighted
average
exercise prices
US$/Share
|
|
|
Aggregate
intrinsic
value
US$ in thousands
|
|
|
Weighted
average
remaining
contractual
life
|
|
Outstanding as of January 1, 2017
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Granted
during the year
|
|
|
395,341,709
|
|
|
|
0.0014
|
|
|
|
|
|
|
|
|
|
Exercised
during the year
|
|
|
(1,134,000
|
)
|
|
|
0.0014
|
|
|
|
|
|
|
|
|
|
Forfeited
during the year
|
|
|
(1,778,000
|
)
|
|
|
0.0014
|
|
|
|
|
|
|
|
|
|
Outstanding as of December
31, 2017
|
|
|
392,429,709
|
|
|
|
0.0014
|
|
|
|
314,387
|
|
|
|
9.55
|
|
Exercisable as of December
31, 2017
|
|
|
192,599,071
|
|
|
|
0.0014
|
|
|
|
314,387
|
|
|
|
9.51
|
|
The aggregate intrinsic value
in the table above represents the difference between Yixin’s closing stock price on the last trading day of the year and
the exercise price.
Total intrinsic value of options
exercised for the years ended December 31, 2017 was RMB5.2 million. The total fair value of options vested during the years ended
December 31, 2017 was RMB690.0 million.
For the year ended December 31
2017, total share-based compensation expenses recognized were RMB891.7 million, and there was RMB567.0 million unrecognized compensation
expenses related to share options granted by Yixin. The compensation expenses are expected to be recognized over a weighted-average
period of 3.39 years.
The estimate of the fair values
of the options were measured based on the binomial model, taking into account the terms and conditions upon which the options were
granted. The following table lists the inputs to the model used on the date of grant and weighted-average fair value per option
granted:
|
|
July 3, 2017
|
|
|
October 1, 2017
|
|
|
|
|
|
|
|
|
Fair value per share
|
|
US$
|
0.53
|
|
|
US$
|
0.70
|
|
Exercise price
|
|
US$
|
0.0014
|
|
|
US$
|
0.0014
|
|
Risk-free interest rate
|
|
|
2.50
|
%
|
|
|
2.46
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Weighted-average fair value per option granted
|
|
US$
|
0.53
|
|
|
US$
|
0.70
|
|
Expected volatility
|
|
|
51
|
%
|
|
|
56
|
%
|
Expected terms
|
|
|
10 years
|
|
|
|
10 years
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
23.
|
Share-based compensation (continued)
|
Subsidiaries-Others
Other subsidiary of the Company
also has equity incentive plans granting RSUs. For the year ended December 31 2017, total share-based compensation expenses recognized
were RMB23.3 million, and there was RMB63.0 million unrecognized compensation expenses related to RSUs granted by other subsidiary.
The following table sets forth
the computation of basic and diluted net loss per share for the following periods:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Bitauto
Holdings Limited
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,611,114
|
)
|
Income allocation to participating
securities of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,936
|
)
|
Numerator for basic net
loss per share
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,614,050
|
)
|
Dilutive effect of redeemable
convertible preference shares and share options of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,036
|
)
|
Numerator for diluted net
loss per share
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,625,086
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares - basic
|
|
|
58,142,432
|
|
|
|
65,160,205
|
|
|
|
70,154,910
|
|
Dilutive effect of potentially
issuable ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average number of shares - diluted
|
|
|
58,142,432
|
|
|
|
65,160,205
|
|
|
|
70,154,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary
share - basic
|
|
|
(8.72
|
)
|
|
|
(8.31
|
)
|
|
|
(23.01
|
)
|
Net loss per ordinary
share - diluted
|
|
|
(8.72
|
)
|
|
|
(8.31
|
)
|
|
|
(23.16
|
)
|
The redeemable convertible preference
shares were not included in the calculation of diluted net loss per share because they are anti-dilutive for the years ended December
31, 2015 and 2016.
The weighted average number of
shares, that could potentially dilute basic net loss per share in the future including incremental shares of ordinary shares issuable
upon the exercise of share options and RSUs, and conversion of convertible debt, but were not included in the computation of diluted
net loss per share because they were anti-dilutive for the years presented, are 2,157,626, 4,030,651 and 8,126,552 for the years
ended December 31, 2015, 2016 and 2017.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
25.
|
Related party transactions
|
The table below sets forth the related parties and
their relationships with the Group as of December 31, 2017:
Name of related parties
|
|
Relationship with the Group
|
|
|
|
Chetuan E-Commerce Ltd. (“Chetuan”)
|
|
An investee of the Group
|
Shanghai Eclicks Network Co. Ltd. (“Eclicks”)
|
|
An investee of the Group
|
TTP
CAR INC. (“TTP”)
|
|
An investee of the Group
|
Beijing Anxinbao Insurance Brokerage Co., Ltd. (“Anxinbao”)
|
|
An investee of the Group
|
Beijing Jingzhengu Information Technology Co., Ltd.(“Jingzhengu”)
|
|
An investee of the Group
|
Wuhan Kuanter Investment Co., Ltd (“Wuhan Kuantu”)
|
|
An investee of the Group
|
JD
|
|
Ordinary shareholder of the Group
|
As of December 31, 2015 and 2016, Xinchuang was a
related party as an investee of the Group. In January 2017, the Group acquired additional equity interests of Xinchuang to obtain
control of it and Xinchuang became a subsidiary of the Group as of December 31, 2017.
The Group entered into the following transactions
for the years ended December 31, 2015, 2016 and 2017 with related parties:
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Services provided to related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile transaction services
provided to Chetuan
|
|
|
168,343
|
|
|
|
79,632
|
|
|
|
9,830
|
|
Advertising services provided to Xinchuang
|
|
|
86,308
|
|
|
|
79,922
|
|
|
|
-
|
|
Advertising services provided to TTP
|
|
|
10,020
|
|
|
|
32,059
|
|
|
|
15,260
|
|
Other transaction services provided to Anxinbao
|
|
|
-
|
|
|
|
-
|
|
|
|
14,183
|
|
Others
|
|
|
2,079
|
|
|
|
2,966
|
|
|
|
27,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,750
|
|
|
|
194,579
|
|
|
|
67,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services purchased from related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
transaction services purchased from Chetuan
|
|
|
-
|
|
|
|
86,632
|
|
|
|
-
|
|
Advertising services purchased from Xinchuang
|
|
|
9,982
|
|
|
|
16,024
|
|
|
|
-
|
|
Advertising services purchased from Eclicks
|
|
|
69,642
|
|
|
|
85,838
|
|
|
|
98,530
|
|
Marketing and promotion services purchased from
JD
|
|
|
35,051
|
|
|
|
22,102
|
|
|
|
40,411
|
|
Used car valuation services purchased from Jingzhengu
|
|
|
-
|
|
|
|
3,366
|
|
|
|
14,400
|
|
Others
|
|
|
4,806
|
|
|
|
16,597
|
|
|
|
31,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,481
|
|
|
|
230,559
|
|
|
|
184,496
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
25.
|
Related party transactions (continued)
|
The Group had the following
balances as of December 31, 2016 and 2017 with related parties:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Due from Chetuan
|
|
|
341,796
|
|
|
|
153,214
|
|
Due from Xinchuang
|
|
|
24,162
|
|
|
|
-
|
|
Due from Anxinbao
|
|
|
-
|
|
|
|
9,593
|
|
Due from Wuhan Kuantu
|
|
|
-
|
|
|
|
5,281
|
|
Others
|
|
|
43,133
|
|
|
|
36,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,091
|
|
|
|
205,031
|
|
|
|
|
|
|
|
|
|
|
Due to Eclicks
|
|
|
55,000
|
|
|
|
81,440
|
|
Due to Jingzhengu
|
|
|
-
|
|
|
|
3,170
|
|
Others
|
|
|
29,447
|
|
|
|
13,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,447
|
|
|
|
98,241
|
|
The Group provided unsecured
loans for a total of RMB20.0 million to Wuhan Kuantu, with an initial term of 12 months at an interest rate of 1.5% per annum.
As at December 31, 2017, a provision of RMB15.0 million was recorded against the loan balance, based on the amount the Group expected
to recover from Wuhan Kuantu.
Loans from JD:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Balance
as of January 1
|
|
|
-
|
|
|
|
-
|
|
Loans
received during year
|
|
|
-
|
|
|
|
2,036,020
|
|
Loans
repayment made
|
|
|
-
|
|
|
|
(2,036,020
|
)
|
Interest
charged
|
|
|
-
|
|
|
|
22,244
|
|
Interest
paid
|
|
|
-
|
|
|
|
(22,244
|
)
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31
|
|
|
-
|
|
|
|
-
|
|
On March 3, 2017, JD subscribed
to a total of RMB835.0 million in Yixin’s asset-backed securitization transactions with the applicable interest rate per
annum of 6.20% and 8.94% in the two separate tranches of asset-backed debt securities, respectively. Yixin also agreed to repurchase
the securities in three months at a price comprised of the cost of the investment and any accrued interests. The transaction is
accounted for as a collateral loan from JD. On June 2, 2017, the loan was repaid in full by Yixin. On July 12, 2017, JD subscribed
to a total of RMB201.0 million of asset-backed debt securities mentioned above. On November 14, 2017, the principal of the loan
was repaid in full by Yixin. On December 27, 2017, Yixin settled all interests charged. On November 7, 2017, Yixin extended a
short-term loan amounting to RMB1.00 billion from JD at an interest rate of 6.525% per annum. On December 4, 2017, the loan was
repaid in full by Yixin.
The transactions with other related
parties, and balance with other related parties are individually and aggregately insignificant.
|
26.
|
Commitments and contingencies
|
Operating lease
commitments
The Group has leased office premises
under non-cancellable operating lease agreements. These leases have varying terms and renewal rights. The future aggregate minimum
lease payments under non-cancellable operating leases are as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
93,185
|
|
|
|
119,484
|
|
After one year but not more than five years
|
|
|
150,467
|
|
|
|
172,452
|
|
Later than five years
|
|
|
-
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,652
|
|
|
|
293,759
|
|
For the years ended December
31, 2015, 2016 and 2017, the Group incurred rental expenses under operating leases of RMB104.5 million, RMB123.1 million and RMB136.6
million, respectively.
Capital commitments
Capital expenditure contracted
for at the end of the year but not yet incurred is as follows:
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of automobiles
|
|
|
499,822
|
|
|
|
503,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499,822
|
|
|
|
503,903
|
|
Legal proceedings
From time to time, the Group
is subject to legal proceedings, investigations and claims incidental to the conduct of our business. The Group is currently not
involved in any legal or administrative proceedings that may have a material adverse impact on the Group’s business, balance
sheets, results of operations or cash flows. From time to time, the Group may be subject to legal proceedings, investigations and
claims incidental to our business conduct.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
27.
|
Operating segment
information
|
As disclosed in Note 2(e),
the Group managed its business in three segments, namely advertising and subscription business, transaction services business and
digital marketing solutions business.
Management monitors the operating
results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.
Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial
statements.
As the Group’s long-lived
assets are substantially all located in the PRC and substantially all the Group’s revenues are derived from external customers
within the PRC, no geographical segments are presented.
For the purpose of preparing
segment information, all the intersegment transactions have been eliminated and only revenue from external customers are presented
as segment revenue. The Group does not allocate non-operating income and expenses to each reportable segment. Accordingly, the
measure of profit and loss for each reportable segment as reported to the chief operating decision maker is operating profit. A
reconciliation of operating profit to profit before tax is presented in the consolidated statements of comprehensive income.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
27.
|
Operating segment information (continued)
|
|
|
Advertising
and
subscription
business
|
|
|
Transaction
services
business
|
|
|
Digital
marketing
solutions
|
|
|
Total
|
|
|
|
|
|
Year ended, December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
3,106,025
|
|
|
|
664,225
|
|
|
|
483,945
|
|
|
|
4,254,195
|
|
Gross profit
|
|
|
2,344,872
|
|
|
|
237,585
|
|
|
|
220,994
|
|
|
|
2,803,451
|
|
Income/(Loss) from operations
|
|
|
553,455
|
|
|
|
(1,053,483
|
)
|
|
|
37,890
|
|
|
|
(462,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended, December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
3,432,986
|
|
|
|
1,551,676
|
|
|
|
788,286
|
|
|
|
5,772,948
|
|
Gross profit
|
|
|
2,542,534
|
|
|
|
668,238
|
|
|
|
484,197
|
|
|
|
3,694,969
|
|
Income/(Loss) from operations
|
|
|
592,611
|
|
|
|
(848,267
|
)
|
|
|
146,428
|
|
|
|
(109,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended, December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
3,922,158
|
|
|
|
3,872,244
|
|
|
|
956,857
|
|
|
|
8,751,259
|
|
Gross profit
|
|
|
3,076,332
|
|
|
|
1,902,614
|
|
|
|
537,633
|
|
|
|
5,516,579
|
|
Income/(Loss) from operations
|
|
|
444,564
|
|
|
|
(1,525,073
|
)
|
|
|
3,916
|
|
|
|
(1,076,593
|
)
|
The income/(loss) from operations
for the year ended December 31, 2015 for advertising and subscription business, transaction services business, and digital marketing
solutions included depreciation and amortization expenses of RMB69.4 million, RMB745.0 million and RMB6.1 million, respectively.
The income/(loss) from operations
for the year ended December 31, 2016 for advertising and subscription business, transaction services business, and digital marketing
solutions included depreciation and amortization expenses of RMB52.3 million, RMB619.3 million and RMB8.3 million, respectively.
The income/(loss) from operations
for the year ended December 31, 2017 for advertising and subscription business, transaction services business, and digital marketing
solutions included depreciation and amortization expenses of RMB58.5 million, RMB788.7 million and RMB26.7 million, respectively.
For the years ended December
31, 2016 and 2017, the leasing revenue were RMB863.7 million and RMB3.03 billion, and funding costs were RMB187.2 million and
RMB1.14 billion, respectively. The leasing revenue and funding costs were immaterial for the years ended December 31, 2015.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
28.
|
Restricted net assets
|
The Company’s ability to
pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC laws and
regulations permit payments of dividends by the Company’s subsidiaries, VIEs and subsidiaries of VIEs registered in the PRC
only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.
In accordance with the laws
applicable to the Foreign Investment Enterprises established in the PRC, the Company’s subsidiaries registered as wholly-owned
foreign enterprise have to make appropriations from their net income based on PRC accounting standards to reserve funds including
general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The appropriation to the general reserve fund
must be at least 10% of the net income based on PRC accounting standards until such appropriations for the fund reach 50% of the
registered capital of the entity. Appropriations to the enterprise expansion fund and staff bonus and welfare fund are made at
the discretion of the respective entity.
In addition, in accordance with
the PRC Company Laws, the Company’s VIEs and subsidiaries of VIEs, registered as Chinese domestic companies, must make appropriations
from their net income based on PRC accounting standards to non-distributable reserve funds including statutory surplus fund and
discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the net income based on PRC
accounting standards until such appropriations for the fund reached 50% of the registered capital of the entity. Appropriation
to the discretionary surplus fund is made at the discretion of the respective entity. In addition, registered capital is also restricted
from withdrawal in the PRC.
As of December 31, 2017, the
Company’s subsidiaries, VIEs and subsidiaries of VIEs registered in the PRC had registered capital and reserve funds appropriated
of RMB20.11 billion.
As a result of these PRC laws
and regulations that require annual appropriations of 10% of net income to be set aside, prior to payments of dividends as general
reserve fund or statutory reserve fund, the Company’s subsidiaries, VIEs and subsidiaries of VIEs registered in the PRC are
restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends, loans and advances.
Even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital
and other funding purposes, the Company may in the future require additional cash resources from them due to changes in business
conditions, funding of future acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
29.
|
Parent company only
condensed financial information
|
The Company performed a test
on the restricted net assets of consolidated subsidiaries, VIEs and subsidiaries of VIEs in accordance with Securities and Exchange
Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable
for the Company to disclose the financial information for the parent company only. The subsidiaries did not pay any dividend to
the Company for the years presented. Certain information and footnote disclosures generally included in financial statements prepared
in accordance with U.S. GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating
to the operations of the Company, as such, these statements should be read in conjunction with the notes to the consolidated financial
statements of the Company.
The Company did not have significant
capital and other commitments, long-term obligations, or guarantees as of December 31, 2017.
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
29.
|
Parent company only condensed financial information
(continued)
|
Condensed balance sheets
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
154,020
|
|
|
|
66,662
|
|
Prepayments and other receivables
|
|
|
13,046
|
|
|
|
51,760
|
|
Total current assets
|
|
|
167,066
|
|
|
|
118,422
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Investments in subsidiaries, VIEs and subsidiaries
of VIEs
|
|
|
1,562,089
|
|
|
|
6,429,473
|
|
Investment in equity investees
|
|
|
48,276
|
|
|
|
43,945
|
|
Intangible assets, net
|
|
|
2,061,106
|
|
|
|
1,431,226
|
|
Due from subsidiaries, VIEs and subsidiaries
of VIEs
|
|
|
6,583,747
|
|
|
|
6,222,037
|
|
Total non-current assets
|
|
|
10,255,218
|
|
|
|
14,126,681
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
10,422,284
|
|
|
|
14,245,103
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accruals and other payables
|
|
|
19,498
|
|
|
|
73,807
|
|
Total current liabilities
|
|
|
19,498
|
|
|
|
73,807
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Due to subsidiaries, VIEs and subsidiaries of
VIEs
|
|
|
102
|
|
|
|
2,134,755
|
|
Convertible debt
|
|
|
859,166
|
|
|
|
707,854
|
|
Total non-current liabilities
|
|
|
859,268
|
|
|
|
2,842,609
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
878,766
|
|
|
|
2,916,416
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Ordinary shares(US$0.00004 par value;
1,250,000,000
shares authorized as of December 31, 2016 and 2017, respectively; 70,726,025 shares issued and outstanding as of December
31, 2016; 72,739,966 shares issued and outstanding as of December 31, 2017, respectively)
|
|
|
19
|
|
|
|
19
|
|
Additional paid-in capital
|
|
|
8,903,759
|
|
|
|
12,220,493
|
|
Treasury shares
|
|
|
(41,888
|
)
|
|
|
(20,411
|
)
|
Statutory reserve
|
|
|
89,841
|
|
|
|
153,538
|
|
Accumulated other comprehensive income
|
|
|
742,302
|
|
|
|
468,257
|
|
Accumulated deficit
|
|
|
(150,515
|
)
|
|
|
(1,493,209
|
)
|
Total shareholders’ equity
|
|
|
9,543,518
|
|
|
|
11,328,687
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
10,422,284
|
|
|
|
14,245,103
|
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
29.
|
Parent company only condensed financial information
(continued)
|
Condensed statements of comprehensive
income
|
|
For the year ended
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
(806,198
|
)
|
|
|
(689,656
|
)
|
|
|
(910,515
|
)
|
Other gains
|
|
|
11
|
|
|
|
5
|
|
|
|
38,948
|
|
Loss from operations
|
|
|
(806,187
|
)
|
|
|
(689,651
|
)
|
|
|
(871,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11,201
|
|
|
|
1,209
|
|
|
|
1,592
|
|
Interest expense
|
|
|
-
|
|
|
|
(21,407
|
)
|
|
|
(77,158
|
)
|
Share of results of equity investees
|
|
|
(4,782
|
)
|
|
|
(24,354
|
)
|
|
|
(52,055
|
)
|
Equity in profit/(loss) of subsidiaries, VIEs
and subsidiaries of VIEs
|
|
|
292,776
|
|
|
|
192,858
|
|
|
|
(611,926
|
)
|
Loss before tax
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,611,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(506,992
|
)
|
|
|
(541,345
|
)
|
|
|
(1,611,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gains/(losses), net
of tax of nil
|
|
|
344,748
|
|
|
|
459,227
|
|
|
|
(274,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss, net of tax
|
|
|
(162,244
|
)
|
|
|
(82,118
|
)
|
|
|
(1,885,159
|
)
|
BITAUTO HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2015,
2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”), except for share and per share data)
|
29.
|
Parent company only condensed financial information
(continued)
|
Condensed statements of cash flows
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
23,307
|
|
|
|
(9,711
|
)
|
|
|
104,295
|
|
Net cash used in investing activities
|
|
|
(2,561,029
|
)
|
|
|
(3,195,265
|
)
|
|
|
(238,475
|
)
|
Net cash provided by financing activities
|
|
|
3,375,896
|
|
|
|
2,198,272
|
|
|
|
354,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
111,329
|
|
|
|
148,031
|
|
|
|
(307,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) in cash and cash equivalents
|
|
|
949,503
|
|
|
|
(858,673
|
)
|
|
|
(87,358
|
)
|
Cash and cash equivalents at beginning of the year
|
|
|
63,190
|
|
|
|
1,012,693
|
|
|
|
154,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
|
1,012,693
|
|
|
|
154,020
|
|
|
|
66,662
|
|
Basis of presentation
The Company’s accounting
policies are the same as the Group’s accounting policies with the exception of the accounting for the investments in subsidiaries,
VIEs and subsidiaries of VIEs.
For the Company only condensed
financial information, the Company records its investments in subsidiaries, VIEs and subsidiaries of VIEs under the equity method
of accounting as prescribed in ASC 323 “Investments-Equity Method and Joint Ventures”. Such investments are presented
on the condensed balance sheets as “investment in subsidiaries, VIEs and subsidiaries of VIEs” and shares in the subsidiaries,
VIEs and subsidiaries of VIEs’ profit are presented as “equity in profit of subsidiaries, VIEs and subsidiaries of
VIEs” on the condensed statements of comprehensive income. The cash flows used in the investing activities are primarily
associated with the loans to the subsidiaries, VIEs and subsidiaries of VIEs. The parent company only condensed financial information
should be read in conjunction with the Group’ consolidated financial statements.