NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(U.S. dollars in thousands, except share and per share amounts)
1. BASIS OF PREPARATION
On July 1, 2010, AsiaInfo Holdings, Inc. (“AsiaInfo”) completed its combination with internet technology
(“IT”) software and solutions provider Linkage Technologies International Holdings Limited through the acquisition of 100% of the outstanding share capital of its wholly-owned subsidiary, Linkage Technologies Investment Limited
(“Linkage Technologies”), and was renamed “AsiaInfo-Linkage, Inc.” (“AsiaInfo-Linkage”). Starting in the third quarter of 2010, AsiaInfo-Linkage’s financial statements consolidated the operating results and
financial position of Linkage Technologies and its consolidated subsidiaries.
(a) The accompanying unaudited condensed consolidated
financial statements include the accounts of AsiaInfo-Linkage, its subsidiaries, and its variable interest entities (the “VIEs”) (collectively, the “Company”). All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X, as promulgated by the Securities and Exchange Commission.
Accordingly, they do not include all of the information and notes required by US GAAP for completing annual financial statements. However, management believes that the disclosures are adequate to ensure the information presented is not
misleading. US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingencies and results of operations. While management has based its assumptions and estimates on the facts
and circumstances existing as of September 30, 2013, final amounts may differ from these estimates.
In the opinion of the management
of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results for the interim periods
presented. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s audited financial statements included in its Form 10-K for the fiscal year ended
December 31, 2012. The results of operations for the interim periods presented are not indicative of the operating results to be expected for any subsequent interim period or for the Company’s fiscal year ending December 31, 2013.
AsiaInfo-Linkage uses the United States (“U.S.”) dollar as its reporting currency and functional currency. The financial
records of the Company’s People’s Republic of China (“PRC”) subsidiaries and VIEs are maintained in Renminbi (“RMB”), their functional currency and the currency of the PRC. The financial records of the Company’s
subsidiaries and VIEs established in Southeast Asian countries are maintained in their local currencies. Their balance sheets are translated into U.S. dollars based on the exchange rate as of the balance sheet date. Their statements of operations
are translated using a weighted average exchange rate for the period. Translation adjustments are reflected in accumulated other comprehensive income in equity.
The RMB is not freely convertible into U.S. dollars or other currencies. All foreign exchange transactions involving RMB must take place
through the People’s Bank of China or other institutions authorized to buy and sell foreign currencies. The exchange rates adopted for foreign exchange transactions involving RMB are the rates of exchange quoted by the People’s Bank of
China.
As of December 31, 2012, no assets of the Company’s consolidated VIEs were collateral for such VIEs’ obligations
and there were no restrictions on the use of the VIEs’ assets to settle the Company’s obligations. The Company disposed of all the VIEs in the second quarter of 2013. Therefore, as of September 30, 2013 and December 31, 2012,
respectively, there were $0 and $3,222 of liabilities of the Company’s consolidated VIEs for which creditors (or beneficial interest holders) did not have recourse to the general credit of AsiaInfo-Linkage or its subsidiaries.
6
(b) The accompanying unaudited condensed consolidated financial statements have been prepared
using the same accounting policies as used in the preparation of the Company’s consolidated financial statements on Form 10-K for the fiscal year ended December 31, 2012.
Disposal of Variable Interest Entities
The Company and its two consolidated VIEs in China, Beijing Zhongxinjia Sci-Tech Development Co., Ltd. (“ZXJ”) and Beijing Star VATS
Technologies Co., Inc. (“Beijing Star VATS”), entered into a series of agreements in May 2013. Pursuant to these agreements, the Company transferred its interests in the VIEs in the second quarter of 2013 in exchange for payments secured
by a charge over and pledge of the interests in the VIEs in favor of the Company. As a result of these agreements, the Company no longer holds a controlling financial interest in the VIEs. The disposal loss recognized in the second quarter of 2013
was $186.
Formation of Subsidiary
In September 2013, the Company formed a subsidiary in the United Kingdom as part of its ongoing initiative to expand into European markets.
Accounting Pronouncements
Newly adopted accounting pronouncements
In December 2011, the Financial Accounting Standard Board (the “FASB”) issued an authoritative pronouncement related to disclosures
about offsetting assets and liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial
position. In January 2013, the FASB further clarifies that ordinary trade receivables and receivables are not in the scope of the authoritative pronouncement and the pronouncement applies only to derivatives, repurchase agreements and reverse
purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the FASB Accounting Standards Codification or subject to a master netting arrangement or
similar agreement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those
amendments retrospectively for all comparative periods presented. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.
In February 2013, the FASB issued an authoritative pronouncement related to reporting of amounts reclassified out of accumulated other
comprehensive income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later
reclassified out of accumulated other comprehensive income into net income. The guidance does not change the current requirements for reporting net income or other comprehensive income in financial statements.
The guidance will require an organization to:
|
|
•
|
|
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income,
but only if the item reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period.
|
|
|
•
|
|
Cross-reference to other disclosures currently required under US GAAP for other reclassification items (that are not required under US GAAP) to be reclassified directly to net income in their entirety in the same
reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to
income or expense.
|
7
The guidance applies to all public and private companies that report items of other comprehensive
income. Public companies are required to comply with the guidance for all reporting periods (interim and annual) effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013 and
has presented the relevant details in the notes to the financial statements.
Recent accounting pronouncements not yet adopted
In February 2013, the FASB issued an authoritative pronouncement related to obligations resulting from joint and several liability
arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance addresses the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total
amount of the obligation within the scope of this pronouncement is fixed at the reporting date, except for obligations addressed within existing guidance in US GAAP. The guidance requires an entity to measure those obligations as the sum of the
amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature
and amount of the obligation as well as other information about those obligations. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The guidance should be applied
retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the scope that exist at the beginning of an entity’s fiscal year of adoption. An entity may elect to use
hindsight for the comparative periods (if it changed its accounting as a result of adopting the guidance in this pronouncement) and should disclose that fact. Early adoption is permitted. The Company is in the process of evaluating the effect of
adoption of this guidance on the Company’s consolidated financial statements.
In March 2013, the FASB issued an authoritative
pronouncement related to parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. When a reporting entity
(parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign
entity, the parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance still applies. As such, a pro rata portion of the
cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the
cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the guidance clarifies
that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity (i.e., irrespective of any retained investment); and (2) events that result in an
acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net
income upon the occurrence of those events. The guidance is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The guidance should be applied prospectively to
derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the guidance, it should apply the guidance as of the beginning of the entity’s fiscal
year of adoption. The Company is in the process of evaluating the effect of adoption of this guidance on the Company’s consolidated financial statements.
8
In July 2013, the FASB issued a pronouncement which provides guidance on financial statement
presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax
loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the
applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The guidance should be applied prospectively to all
unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company is in the process of evaluating the effect of adoption of this guidance on the Company’s consolidated financial statements.
2. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable,
other receivables, accounts payable, accrued expenses, other payables, income taxes payable and recoverable, other taxes payable and long-term investments.
Short-term investments are classified as available-for-sale securities and held-to-maturity securities, as discussed in Note 4. Certain
long-term investments have been written down to their fair value, as discussed in Note 7. Fair value of other long-term investments is not disclosed because the fair value of the investments is not readily determinable.
The carrying values of other financial instruments approximate their fair values due to the short-term nature of these instruments. The
Company does not use derivative instruments to manage risks.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments, which are unrestricted as
to withdrawal or use, and which have remaining maturities of three months or less when purchased. The following table provides additional information concerning the breakdown of the Company’s cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
Cash
|
|
$
|
92,166
|
|
|
$
|
101,642
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
126,137
|
|
|
|
148,332
|
|
|
Seven-day notice deposits
|
|
|
13,012
|
|
|
|
0
|
|
|
Others
|
|
|
65,062
|
|
|
|
23,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
296,377
|
|
|
$
|
273,520
|
|
|
|
|
|
|
|
|
|
|
|
4. SHORT-TERM INVESTMENTS
Short-term investments consist of available-for-sale securities and held-to-maturity securities. As of September 30,
2013 and December 31, 2012, the Company did not hold trading securities.
As of September 30, 2013 and December 31, 2012,
the Company’s held-to-maturity securities were carried at cost of $13,012 and $12,728, respectively. The held-to-maturity securities are either not allowed to be redeemed early or are subject to penalty for early redemption before their
maturity. The carrying amounts of the held-to-maturity securities approximate their fair values due to their short-term nature, which are within a one-year maturity period.
9
The following table provides additional information concerning the Company’s
available-for-sale securities, which consist principally of bond funds and corporate convertible notes issued by major financial institutions or companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
Bond funds
|
|
$
|
8,715
|
|
|
$
|
678
|
|
|
$
|
0
|
|
|
$
|
9,393
|
|
|
$
|
26,090
|
|
|
$
|
938
|
|
|
$
|
0
|
|
|
$
|
27,028
|
|
|
Corporate convertible notes
|
|
|
2,400
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,400
|
|
|
|
900
|
|
|
|
0
|
|
|
|
0
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,115
|
|
|
$
|
678
|
|
|
$
|
0
|
|
|
$
|
11,793
|
|
|
$
|
26,990
|
|
|
$
|
938
|
|
|
$
|
0
|
|
|
$
|
27,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides additional information on the realized gains of the sale of available-for-sale
securities during the three-month and nine-month periods ended September 30, 2013 and 2012, respectively. For purposes of determining gross realized gains, the cost of securities sold is based on specific identification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Proceeds
|
|
|
Costs
|
|
|
Gains
|
|
|
Proceeds
|
|
|
Costs
|
|
|
Gains
|
|
|
Available-for-sale securities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
109
|
|
|
$
|
48
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
109
|
|
|
$
|
48
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Proceeds
|
|
|
Costs
|
|
|
Gains
|
|
|
Proceeds
|
|
|
Costs
|
|
|
Gains
|
|
|
Available-for-sale securities
|
|
$
|
19,893
|
|
|
$
|
18,740
|
|
|
$
|
1,153
|
|
|
$
|
18,045
|
|
|
$
|
14,712
|
|
|
$
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,893
|
|
|
$
|
18,740
|
|
|
$
|
1,153
|
|
|
$
|
18,045
|
|
|
$
|
14,712
|
|
|
$
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company reported no impairment loss for its short-term investments for the three-month and nine-month
periods ended September 30, 2013 or 2012.
5. ACCOUNTS RECEIVABLE
Accounts receivable balances included both billed and unbilled amounts. Revenue recognized in excess of billings is recorded
as unbilled receivables. All billed and unbilled amounts are expected to be collected within one year. Accounts receivable balances included bank acceptance drafts receivable and commercial acceptance drafts receivable. These bank acceptance drafts
and commercial acceptance drafts were non-interest bearing and were due within six months of issuance.
The Company generated service
revenues by acting as a sales agent for International Business Machines Corporation (“IBM”) or its distributors, and for a few other hardware companies, for certain products sold to the customers of the Company (each, an “IBM-Type
Arrangement”). The components of the Company’s accounts receivable as of September 30, 2013 and December 31, 2012, including amounts attributable to the IBM-Type Arrangements, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
IBM-Type
Arrangement
|
|
|
Non-IBM-Type
Arrangement
|
|
|
Total
|
|
|
IBM-Type
Arrangement
|
|
|
Non-IBM-Type
Arrangement
|
|
|
Total
|
|
|
Billed accounts receivable
|
|
$
|
42,349
|
|
|
$
|
77,816
|
|
|
$
|
120,165
|
|
|
$
|
17,656
|
|
|
$
|
87,830
|
|
|
$
|
105,486
|
|
|
Unbilled accounts receivable
|
|
|
42,051
|
|
|
|
159,452
|
|
|
|
201,503
|
|
|
|
37,069
|
|
|
|
141,993
|
|
|
|
179,062
|
|
|
Bank acceptance drafts
|
|
|
0
|
|
|
|
1,483
|
|
|
|
1,483
|
|
|
|
0
|
|
|
|
1,684
|
|
|
|
1,684
|
|
|
Commercial acceptance drafts
|
|
|
0
|
|
|
|
4,427
|
|
|
|
4,427
|
|
|
|
0
|
|
|
|
2,462
|
|
|
|
2,462
|
|
|
Less: allowance for doubtful accounts
|
|
|
(133
|
)
|
|
|
(3,228
|
)
|
|
|
(3,361
|
)
|
|
|
(291
|
)
|
|
|
(2,708
|
)
|
|
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$
|
84,267
|
|
|
$
|
239,950
|
|
|
$
|
324,217
|
|
|
$
|
54,434
|
|
|
$
|
231,261
|
|
|
$
|
285,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
6. INVENTORIES, NET
The components of inventories, net as of September 30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
Deferred costs
|
|
$
|
15,611
|
|
|
$
|
10,857
|
|
|
Finished goods
|
|
|
8,661
|
|
|
|
13,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,272
|
|
|
$
|
24,107
|
|
|
|
|
|
|
|
|
|
|
|
Deferred costs represent the costs incurred for the implementation phases of the projects outside of China,
which provide multiple services and products (software, hardware, implementation, maintenance and managed services) to customers and include around 1-2 year system implementation periods. The deferred costs are to be reimbursed after the successful
launch of the system, and were capitalized as inventories and expected to be transferred to cost of revenues upon revenue recognition.
7. LONG-TERM INVESTMENTS
(a) In October 2005, the Company acquired five percent of the outstanding equity interests of Hinge. The investment is
accounted for using the cost method as the Company does not have a significant influence over the business and operations of Hinge. Due to the effects of the global financial crisis in 2008, Hinge’s business dropped significantly during 2008
causing a significant decline in fair value of Hinge. The Company determined that its investment in Hinge became worthless as of December 31, 2008 and that the decline in the fair value was other-than-temporary. Consequently, the Company
recognized an impairment loss of $2,042, which is equal to the carrying amount of the investment after foreign exchange adjustment from the initial investment cost.
(b) On September 12, 2008, the Company acquired 2,170,000 redeemable convertible Series B Preferred Shares of C-Platform Corporation
(“C-Platform”), for a total cash consideration of $4,696, including $52 in transaction costs. The total consideration had been paid as of September 30, 2008. Following the transaction, the Company owned approximately 19.9% of
C-Platform’s issued and outstanding share capital, or 17% of C-Platform’s share capital on a fully-diluted basis. In August 2009 and March 2011, the Company paid for and acquired $167 and $409 of convertible promissory notes from
C-Platform, respectively. Such convertible promissory notes were accounted for as a short-term investment, available-for-sale securities. In March 2011, the Company converted $167 of the convertible promissory notes into 78,023 of C-Platform’s
Series B Preferred Shares, which were accounted for as a long-term investment, and obtained the share certificate in July 2011, while $409 of convertible promissory notes remained unconverted. Following the transaction, the Company owned
approximately 19.61% of C-Platform’s issued and outstanding share capital. In February 2012, the Company converted the remaining $409 of convertible promissory notes into 191,008 of C-Platform’s Series B Preferred Shares, which were
accounted for as a long-term investment, and obtained the share certificate in April 2012. Following the transaction, the Company owned approximately 18.63% of C-platform’s issued and outstanding shares. Because the Company does not have the
ability to exercise significant influence over the operating and financial policies of C-Platform, the Company uses the cost method of accounting to record its investment in C-Platform.
C-Platform is a Cayman Islands company, which, through its subsidiaries in China, provides data operating services, a form of value-added
telecommunication services, to telecommunications carriers in China. The Company believes that the transaction furthers its ongoing strategy of expanding its market leading telecommunications software solutions business in China.
(c) On November 30, 2010, the Company acquired 3,562,500 Series A-1 Preferred Shares of Santen Corporation (“Santen”), for a
total cash consideration of $950 for 9.5% of Santen’s issued and outstanding voting share capital. Since the Company does not have the ability to exercise significant influence over the operating and financial policies of Santen, the Company
uses the cost method of accounting to record its investment in Santen.
11
Santen is a Cayman Islands company, which, through its subsidiaries in China, provides a form of
value-added telecommunication services, to telecommunications carriers in China. In 2011, the Company performed an assessment of the financial condition of Santen and determined there was an other-than-temporary decline of fair value. Based on the
assessment, the Company provided for an impairment loss of $950, which is equal to the carrying amount of the investment.
(d) On
June 20, 2012, Beijing Star VATS entered into an investment agreement with Beijing Naomi Technology Limited (“Naomi”), which provides personalized internet-based product recommendations based on customers’ on-line purchasing
patterns. Pursuant to the investment agreement, Beijing Star VATS agreed to invest $1,898 in Naomi in two tranches. The first tranche totaling $947 was paid to Naomi in July 2012. The second tranche totaling $951 was paid to Naomi in April 2013.
The Company has adopted the equity method to recognize the investment as the Company, which holds a 40% voting interest in Naomi, is able
to exercise significant influence over the operating and financial policies of Naomi. The Company has recognized a loss on equity method investment in the amount of $0 and $461 for the three-month and nine-month period ended September 30, 2013,
respectively.
In May 2013, the Company disposed of its long-term investment in Naomi following the disposal of Beijing Star VATS.
(e) On January 28, 2013, the Company acquired 9,566,716 Series A-1 Preferred Shares of GEO Holdings Ltd. (“GEO”), for a total
cash consideration of $2,100 representing 6.89% of GEO’s issued and outstanding voting share capital. Since the Company does not have the ability to exercise significant influence over the operating and financial policies of GEO, the Company
uses the cost method of accounting to record its investment in GEO. In September 2013, the Company paid $2,400 to acquire convertible promissory notes issued by GEO, which were recorded as short-term investments – available-for-sale securities
as of September 30, 2013.
8. GOODWILL
The changes in the carrying amount of goodwill during the nine months ended September 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Gross amount:
|
|
|
|
|
|
Beginning balance at January 1, 2013:
|
|
$
|
460,045
|
|
|
Disposal of variable interest entities
|
|
|
(1,448
|
)
|
|
Exchange differences
|
|
|
190
|
|
|
|
|
|
|
|
|
Ending balance at September 30, 2013:
|
|
|
458,787
|
|
|
|
|
|
|
|
|
Accumulated impairment loss:
|
|
|
|
|
|
Beginning balance at January 1, 2013:
|
|
|
(26,500
|
)
|
|
Impairment of goodwill
|
|
|
(286,782
|
)
|
|
Exchange differences
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
Ending balance at September 30, 2013:
|
|
|
(313,293
|
)
|
|
|
|
|
|
|
|
Goodwill, net at September 30, 2013
|
|
$
|
145,494
|
|
|
|
|
|
|
|
In the second quarter of 2013, the Company’s operating environment began to deteriorate as evidenced by a
decrease in current and projected growth rates for the China gross domestic product, compared to historical growth rates, and continued uncertainty of government policies for the telecommunications and internet industries which changed market
participant valuation assumptions including discount rates. On May 12, 2013, upon the unanimous recommendation of the Special Committee of its Board of Directors and the approval of its Board of Directors, the Company entered into a definitive
agreement under which the Company would be acquired by an investor consortium led by CITIC Capital Partners, a director of the Company and their respective affiliates. Under the terms of the definitive agreement, the Company was valued at
approximately $896,700. In management’s judgment, the valuation represented the fair value of the Company’s reporting unit in assessing goodwill impairment considering the aforementioned factors. Because the fair value of the reporting
unit was less than its carrying amount, the Company performed the second step of the interim test for goodwill impairment in the second quarter of 2013 in order to determine the implied fair value of goodwill for the reporting unit. This required
management to allocate the fair value of the reporting unit to all of the assets and liabilities, including any unrecognized intangible assets of the reporting unit. Based on the results of the impairment test, the Company recognized a loss on
impairment of goodwill of $286,782 in the three months ended June 30, 2013.
12
In the third quarter of 2013, the Company did not identify any impairment indicators. The Company
recognized no loss on impairment of goodwill in the three months ended September 30, 2013.
9. OTHER ACQUIRED INTANGIBLE ASSETS, NET
The carrying amounts of the components of other acquired intangible assets, net as of September 30, 2013 and
December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Disposal of
VIE
|
|
|
Foreign
exchange
difference
|
|
|
Net
carrying
amount
|
|
|
Gross
carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Foreign
exchange
difference
|
|
|
Net
carrying
amount
|
|
|
Core technologies
|
|
$
|
45,931
|
|
|
$
|
(25,948
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,983
|
|
|
$
|
45,931
|
|
|
$
|
(20,498
|
)
|
|
$
|
0
|
|
|
$
|
25,433
|
|
|
Trade names and trademarks
|
|
|
21,037
|
|
|
|
(3,876
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
17,161
|
|
|
|
21,037
|
|
|
|
(3,059
|
)
|
|
|
0
|
|
|
|
17,978
|
|
|
Contract backlogs
|
|
|
12,474
|
|
|
|
(12,486
|
)
|
|
|
0
|
|
|
|
12
|
|
|
|
0
|
|
|
|
12,474
|
|
|
|
(12,480
|
)
|
|
|
12
|
|
|
|
6
|
|
|
Customer lists
|
|
|
131
|
|
|
|
(143
|
)
|
|
|
0
|
|
|
|
12
|
|
|
|
0
|
|
|
|
131
|
|
|
|
(143
|
)
|
|
|
12
|
|
|
|
0
|
|
|
Customer relationships
|
|
|
117,755
|
|
|
|
(60,187
|
)
|
|
|
0
|
|
|
|
311
|
|
|
|
57,879
|
|
|
|
117,755
|
|
|
|
(47,287
|
)
|
|
|
311
|
|
|
|
70,779
|
|
|
Distribution networks
|
|
|
870
|
|
|
|
(870
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
870
|
|
|
|
(870
|
)
|
|
|
0
|
|
|
|
0
|
|
|
Software
|
|
|
1,721
|
|
|
|
(1,884
|
)
|
|
|
0
|
|
|
|
163
|
|
|
|
0
|
|
|
|
1,721
|
|
|
|
(1,884
|
)
|
|
|
163
|
|
|
|
0
|
|
|
Non-compete agreements
|
|
|
1,249
|
|
|
|
(965
|
)
|
|
|
0
|
|
|
|
25
|
|
|
|
309
|
|
|
|
1,249
|
|
|
|
(810
|
)
|
|
|
25
|
|
|
|
464
|
|
|
Corporate business agency agreements
|
|
|
2,037
|
|
|
|
(1,961
|
)
|
|
|
(75
|
)
|
|
|
6
|
|
|
|
7
|
|
|
|
2,037
|
|
|
|
(1,695
|
)
|
|
|
5
|
|
|
|
347
|
|
|
Existing technology
|
|
|
38,500
|
|
|
|
(38,464
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
36
|
|
|
|
38,500
|
|
|
|
(31,978
|
)
|
|
|
0
|
|
|
|
6,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
241,705
|
|
|
$
|
(146,784
|
)
|
|
$
|
(75
|
)
|
|
$
|
529
|
|
|
$
|
95,375
|
|
|
$
|
241,705
|
|
|
$
|
(120,704
|
)
|
|
$
|
528
|
|
|
$
|
121,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The future amortization expenses for the net carrying amount of intangible assets with definite
lives as of September 30, 2013 are expected to be as follows:
|
|
|
|
|
|
|
Three-month period ended December 31, 2013
|
|
$
|
6,449
|
|
|
2014
|
|
|
23,469
|
|
|
2015
|
|
|
21,110
|
|
|
2016
|
|
|
14,950
|
|
|
2017 and thereafter
|
|
|
29,397
|
|
|
|
|
|
|
|
|
|
|
$
|
95,375
|
|
|
|
|
|
|
|
10. LAND USE RIGHT, NET
From 2009, the Company completed the process to obtain a land use right for a piece of land in Beijing, on which the Company
plans to construct a building for use as its new corporate headquarters. In October 2009, the Company entered into an agreement with Zhongguancun Software Park Development Co., Ltd. (“ZSPD”), pursuant to which ZSPD agreed to develop the
land in preparation for construction of the building, for an aggregate consideration of approximately $10,777, of which $10,000 was paid in years 2009 and 2010 and $777 was paid in 2011.
In connection with the agreement with ZSPD, the Company became eligible to enter into a land transfer agreement with relevant PRC government
authorities in order to obtain the land use right with respect to such land. In May 2011, the Company entered into a land use right transfer agreement with the Beijing Municipal Bureau of Land and Resources pursuant to which the Company would
acquire the land use right with a 50-year term, for a consideration of approximately $2,870, plus related local levy of $111, paid in June and August 2011, respectively.
In respect of these agreements, the Company has recorded the aggregate amount of the consideration paid, amounting to $14,739 after an
exchange rate effect of $981, as a payment for land use right. In November 2011, the Company obtained the National Land Use Right Certificate, issued by the Beijing Municipal Bureau of Land and Resources, and accordingly the Company records the
payment for land use right at cost less accumulated amortization and amortizes the cost of the land use right on a straight-line basis over the 50-year term of the land use right certificate. As of September 30, 2013, the land use right
amounted to $14,378, which was the cost less the accumulated amortization of $714 and plus an exchange rate gain of $353.
11. OTHER NON-CURRENT ASSETS
In 2012, the Company launched an employee housing loan program which provides non-interest bearing loans to qualified
employees with a five-year term. As of September 30, 2013 and December 31, 2012, the total amount of loans granted under the program was $1,517 and $1,611, respectively, and the loans due in more than one year classified in other
non-current assets were $1,253 and $1,332, respectively.
12. ACCOUNTS PAYABLE
Accounts payable included bank acceptance drafts payable of $1,680 and $3,427, and commercial acceptance drafts payable of
$0 and $139 as of September 30, 2013 and December 31, 2012, respectively. These bank acceptance drafts and commercial acceptance drafts were non-interest bearing and were due within six months of issuance.
As of September 30, 2013 and December 31, 2012, the Company’s accounts payable balance related to the IBM-Type Arrangements was
$91,579 and $63,148, respectively, under which the Company is contractually obligated to pay its vendors only when its customers pay the Company.
14
13. CREDIT FACILITIES
As of September 30, 2013, the Company had credit facilities for working capital purposes totaling $152,526 expiring on
various dates up to August 2014, which were secured by bank deposits of $34,081. As of September 30, 2013, unused credit facilities were $126,755 and used credit facilities totaled $25,771. The credit facilities were used to cover issuance of
standby letters of credit for customers, borrowing of short-term bank loans and issuance of bank acceptance drafts payable to hardware suppliers.
As of December 31, 2012, the Company had credit facilities for working capital purposes totaling $150,480 expiring on various dates up to
March 2014, which were secured by bank deposits of $33,482. As of December 31, 2012, unused credit facilities were $122,802 and used credit facilities totaled $27,678. The credit facilities were used to cover issuance of standby letters of
credit to customers, borrowing of short-term bank loans and issuance of bank acceptance drafts payable to hardware suppliers.
In addition
to the bank deposits pledged for the above credit facilities, the Company also collateralized bank deposits of $5,553 and $6,157 for the issuance of certain standby letters of credit and bank acceptance drafts, as of September 30, 2013 and
December 31, 2012, respectively. Therefore, total bank deposits of $39,634 and $39,639 were presented as restricted cash in the consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively.
14. VALUE-ADDED TAXES REBATE
Revenue from software products and solutions included the benefit of the rebate of value-added taxes on sales of software
and services as part of the PRC government’s policy of encouraging software development in the PRC. The rebate totaled $5,063 and $6,317 for the nine months ended September 30, 2013 and 2012, respectively.
15. INCOME TAXES
The Company is subject to U.S. federal and state income taxes and the Company’s subsidiaries and VIEs incorporated in
the PRC are subject to PRC income taxes.
Reconciliation between the provision for income tax expenses (benefit) from continuing
operations, which is computed by applying the U.S. federal tax rate to income (loss) before income taxes, and the actual provision for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
U.S. federal rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
Difference between statutory rate and foreign effective tax rate
|
|
|
(25
|
%)
|
|
|
(28
|
%)
|
|
Subpart F income inclusion and other dividend income
|
|
|
4
|
%
|
|
|
7
|
%
|
|
Stock-based compensation
|
|
|
3
|
%
|
|
|
5
|
%
|
|
Tax effect due to reduced rate granted for 2011 and 2012
|
|
|
(40
|
%)
|
|
|
0
|
%
|
|
Impairment of goodwill
|
|
|
15
|
%
|
|
|
0
|
%
|
|
Change in valuation allowance
|
|
|
12
|
%
|
|
|
(4
|
%)
|
|
Effect of change in repatriation of foreign earnings of certain subsidiaries
|
|
|
3
|
%
|
|
|
0
|
%
|
|
Non-deductible meals and entertainment expenses
|
|
|
3
|
%
|
|
|
0
|
%
|
|
PRC super research and development deduction
|
|
|
(4
|
%)
|
|
|
0
|
%
|
|
True-up of China tax returns
|
|
|
(2
|
%)
|
|
|
0
|
%
|
|
Others
|
|
|
(3
|
%)
|
|
|
(1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
The tax rate for the nine months ended September 30, 2013 was lower than that of the same period in 2012
mainly because two of the Company’s subsidiaries, AsiaInfo-Linkage Technologies (China), Inc. (“AIBJ”) and Linkage-AsiaInfo Technologies (Nanjing), Inc., (“Linkage Nanjing”) recognized the tax benefit of 2011 and 2012 Key
Software Enterprise (“KSE”) status in the first quarter of 2013. Pursuant to the relevant rules, a company with KSE status could apply a reduced income tax rate of 10%. These entities applied for this status for 2011 and 2012 and received
approvals in the first quarter of 2013. Thus, the tax benefit was reflected in the three months ended March 31, 2013. Total income taxes recoverable related to being granted this reduced income tax rate was $2,508 as of September 30, 2013.
15
Aggregate undistributed earnings of approximately $57,894 on September 30, 2013 of the
Company’s PRC subsidiaries and VIEs that were available for distribution to the Company are considered to be indefinitely reinvested under US GAAP and, accordingly, no provision has been made for the Chinese withholding taxes on dividends
that would be payable upon the distribution of those amounts to AsiaInfo-Linkage. Additionally, the Chinese tax authorities have clarified that distributions to be made out of retained earnings from prior to January 1, 2008 would not be subject
to the Chinese withholding tax. Determination of the amount of any unrecognized deferred income tax liabilities on those earnings is not practicable.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. There is no ongoing examination by any tax
authority at this time. The Company did not change its position regarding recognition of uncertain tax benefit in the nine months ended September 30, 2013, and the movement in unrecognized tax benefits was mainly due to the true-up for
AIBJ’s reduced income tax rate for 2011 and 2012. The Company’s various tax years from 2003 to 2012 remain open in these taxing jurisdictions.
16. STOCK-BASED COMPENSATION
2002 Stock Option Plan and Prior Plans
Under the Company’s 2002 Stock Option Plan (the “2002 Plan”), the Company was authorized to grant options for the purchase of up
to 4,500,000 shares of common stock to employees, directors and consultants at prices not less than the fair market value on the date of grant for incentive stock options and nonqualified options. Shares as to which an option is granted under the
2002 Plan but remains unexercised at the expiration, forfeiture or other termination of such option may be the subject of the grant of further options. Prior to adopting the 2002 Plan, the Company adopted annual stock option plans for each of 1995,
1996, 1997, 1998, 1999 and 2000 (such plans, together with the 2002 Plan, are referred to hereinafter as the “Option Plans”).
The vesting periods of the options under the Option Plans are determined based on individual stock option agreements. Options granted prior to
1998 generally vested and became exercisable over three years at an equal annual rate. Exercise terms of options granted in 1998, 1999, 2000 and 2002 are substantially similar to those of options granted prior to 1998 except that the vesting and
exercise periods were generally over four years at an annual rate of 20%, 20%, 30% and 30% for the 1999 plan and were generally over four year cliffs at an annual rate of 25% for the 2000 plan, and are generally no more than four years at an annual
rate of 25% from the date of grant for the 2002 Plan.
The Option Plans as of September 30, 2013 and activities during the nine
months ended September 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average
exercise price per share
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
Outstanding, January 1, 2013
|
|
|
200,248
|
|
|
$
|
5.41
|
|
|
|
|
|
|
Expired
|
|
|
(500
|
)
|
|
|
3.42
|
|
|
|
|
|
|
Exercised
|
|
|
(2,582
|
)
|
|
|
5.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2013
|
|
|
197,166
|
|
|
$
|
5.42
|
|
|
$
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(8,325
|
)
|
|
|
6.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2013
|
|
|
188,841
|
|
|
$
|
5.37
|
|
|
$
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(60,370
|
)
|
|
|
5.42
|
|
|
|
|
|
|
Exercised
|
|
|
(48,190
|
)
|
|
|
6.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2013
|
|
|
80,281
|
|
|
$
|
4.84
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised and expected to exercise, September 30, 2013
|
|
|
80,281
|
|
|
|
4.84
|
|
|
|
539
|
|
|
Exercisable, September 30, 2013
|
|
|
80,281
|
|
|
$
|
4.84
|
|
|
$
|
539
|
|
16
The aggregate intrinsic value was calculated as the difference between the exercise price of the
underlying awards and the closing stock price of $11.54 per share of the Company’s common stock on the last trading day in the Company’s third fiscal quarter of 2013 (September 30, 2013).
Total intrinsic value of options exercised for each of the three months ended September 30, 2013 and 2012 was $256 and $1,173,
respectively.
As of September 30, 2013, although there was no unrecognized stock-based compensation cost relating to the Option
Plans, the Option Plans still had unexercised options, which are expected to be exercised over a weighted-average vesting period of 0.72 years.
2005 Stock Incentive Plan – Restricted Stock Units (RSUs)
Under the 2005 Stock Incentive Plan (the “2005 Plan”), the Company was authorized to grant participants restricted stock units, stock
options, or other types of equity incentives. The number of shares authorized for issuance was (a) 600,000 shares plus (b) any authorized shares of common stock that, as of April 21, 2005, were available for issuance under the
Company’s 2002 Stock Option Plan, or that thereafter became available for issuance under the 2002 Plan in accordance with its terms.
An RSU is an agreement to issue stock at the time the award vests. These units vest on an annual basis equally over four years, 25% on each
anniversary of the grant date. The fair value of each RSU is measured on the grant date based on the market price of the stock on the grant date. The Company also has the right at its sole discretion to pay cash in lieu of the issuance of vested
shares of common stock. No such cash payment right was exercised by the Company.
RSUs under the 2005 Plan as of September 30, 2013
and activities during the nine months ended September 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average
grant date fair
value per share
|
|
|
Restricted stock units unvested at January 1, 2013
|
|
|
41,850
|
|
|
$
|
22.60
|
|
|
Vested
|
|
|
(10,700
|
)
|
|
|
24.52
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at March 31, 2013
|
|
|
31,150
|
|
|
$
|
21.95
|
|
|
Vested
|
|
|
(3,000
|
)
|
|
|
19.44
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at June 30, 2013
|
|
|
28,150
|
|
|
$
|
22.21
|
|
|
Vested
|
|
|
(7,500
|
)
|
|
|
20.63
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at September 30, 2013
|
|
|
20,650
|
|
|
$
|
22.79
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic values of RSUs vested for the three months ended September 30, 2013 and 2012 were $86 and
$89, respectively.
As of September 30, 2013, there was $256 of unrecognized stock-based compensation cost related to RSUs, which is
expected to be recognized into the consolidated statements of operations over a weighted-average vesting period of 0.59 years. To the extent the actual forfeiture rate is different from the original estimate, the stock-based compensation cost
related to these awards may be different from the expectation.
2008 Stock Incentive Plan – Performance-based Restricted Stock
Units (PSUs)
On February 25, 2008, the Board of Directors of the Company authorized the 2008 Stock Incentive Plan, as amended
(the “2008 Plan”). The 2008 Plan was subsequently approved by the Company’s stockholders at the 2008 annual meeting of stockholders. Under the 2008 Plan, the Company may grant participants restricted stock awards, stock options, or
other types of equity incentives. The number of shares authorized for issuance is (a) 2,000,000 shares plus (b) any authorized shares of the Company’s common stock that, as of February 25, 2008, were available for issuance under
the Company’s 2005 Plan, or that thereafter become available for issuance under the 2005 Plan in accordance with its terms.
17
As of September 30, 2013, an aggregate of 1,689,400 PSUs granted under the 2008 Plan had
fully vested based on certain performance criteria.
2011 Stock Incentive Plan
In February 2011, the Board of Directors of the Company authorized the 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan was
subsequently approved by the Company’s stockholders on April 21, 2011 at the 2011 annual meeting of stockholders. Under the 2011 Plan, the Company is authorized to grant participants restricted stock awards, stock options, or other types
of equity incentives. The number of shares authorized for issuance was (a) 7,501,752 shares plus (b) any authorized shares of the Company’s common stock that, as of April 21, 2011, were available for issuance under the 2008 Plan,
or that thereafter become available for issuance under the 2008 Plan in accordance with its terms.
RSUs under 2011 Plan
As of September 30, 2013, 235,367 RSUs were granted under the 2011 Plan. Each RSU represents a contingent right to receive
one share of common stock. Some awards vest in two equal installments on the 6-month and 12-month anniversaries of the grant date, and the other awards vest on annual basis equally over four years, 25% on each anniversary of the grant date. The fair
value of each RSU is measured on the grant date based on the market price of the stock on the grant date. The Company also has the right, in its sole discretion, to pay cash in lieu of the issuance of vested shares of common stock. No such cash
payment right was exercised by the Company.
RSUs under the 2011 Plan as of September 30, 2013 and activities during the nine months
ended September 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average
grant date fair
value per share
|
|
|
Restricted stock units unvested at January 1, 2013
|
|
|
137,758
|
|
|
$
|
12.86
|
|
|
Vested
|
|
|
(47,379
|
)
|
|
|
10.92
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at March 31, 2013
|
|
|
90,379
|
|
|
$
|
13.88
|
|
|
Vested
|
|
|
(9,625
|
)
|
|
|
18.80
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at June 30, 2013
|
|
|
80,754
|
|
|
$
|
13.30
|
|
|
Granted
|
|
|
88,564
|
|
|
|
11.54
|
|
|
Vested
|
|
|
(50,879
|
)
|
|
|
11.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units unvested at September 30, 2013
|
|
|
118,439
|
|
|
$
|
12.91
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of RSUs vested for the three months ended September 30, 2013 and 2012 was $586
and $520, respectively.
As of September 30, 2013, there was $1,302 of unrecognized stock-based compensation cost related to RSUs,
which is expected to be recognized into the consolidated statements of operations over a weighted-average vesting period of 0.96 years. To the extent the actual forfeiture rate is different from original estimate, actual stock-based compensation
related to these awards may be different from these expectations.
In December 2011, the Compensation Committee of the Board of Directors
of the Company, pursuant to the 2011 Plan, approved grants of stock options to the Company’s executive officers and employees.
18
Stock Options under 2011 Plan
Stock options under 2011 Plan as of September 30, 2013 and activities during the nine months ended September 30, 2013 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average
exercise price per share
|
|
|
Aggregate
intrinsic value
|
|
|
Outstanding, January 1, 2013
|
|
|
6,467,950
|
|
|
$
|
8.84
|
|
|
|
|
|
|
Granted
|
|
|
28,000
|
|
|
|
11.02
|
|
|
|
|
|
|
Exercised
|
|
|
(20,475
|
)
|
|
|
8.73
|
|
|
|
|
|
|
Forfeited
|
|
|
(43,650
|
)
|
|
|
8.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2013
|
|
|
6,431,825
|
|
|
$
|
8.85
|
|
|
$
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
32,000
|
|
|
|
11.81
|
|
|
|
|
|
|
Exercised
|
|
|
(84,175
|
)
|
|
|
8.73
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,650
|
)
|
|
|
8.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2013
|
|
|
6,312,000
|
|
|
$
|
8.86
|
|
|
$
|
17,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,100
|
)
|
|
|
8.73
|
|
|
|
|
|
|
Forfeited
|
|
|
(45,900
|
)
|
|
|
8.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2013
|
|
|
6,216,000
|
|
|
$
|
8.87
|
|
|
$
|
16,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised and expected to exercise, September 30, 2013
|
|
|
6,216,000
|
|
|
|
8.87
|
|
|
|
16,767
|
|
|
Exercisable, September 30, 2013
|
|
|
1,314,510
|
|
|
$
|
8.82
|
|
|
$
|
3,603
|
|
The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying
awards and the closing stock price of $11.54 per share of the Company’s common stock on the last trading day in the Company’s third fiscal quarter of 2013 (September 30, 2013).
Total intrinsic value of options exercised for the three months ended September 30, 2013 and 2012 was $140 and nil, respectively.
As of September 30, 2013, there was $21,635 of unrecognized stock-based compensation cost relating to the 2011 Plan, which is expected to
be exercised over a weighted-average vesting period of 8.22 years. To the extent the actual forfeiture rate is different from original estimate, actual stock-based compensation related to these awards may be different from these expectations.
The amount of stock-based compensation attributable to cost of revenues, sales and marketing, general and administrative expenses, and
research and development is included in those line items in the accompanying consolidated statements of operations. For the three months and nine months ended September 30, 2013 and 2012, stock-based compensation expense related to the stock
options and stock units were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Cost of revenues
|
|
$
|
791
|
|
|
$
|
814
|
|
|
$
|
2,429
|
|
|
$
|
2,481
|
|
|
Sales and marketing
|
|
|
609
|
|
|
|
614
|
|
|
|
1,829
|
|
|
|
1,816
|
|
|
General and administrative
|
|
|
755
|
|
|
|
692
|
|
|
|
2,245
|
|
|
|
2,103
|
|
|
Research and development
|
|
|
261
|
|
|
|
295
|
|
|
|
797
|
|
|
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expenses
|
|
$
|
2,416
|
|
|
$
|
2,415
|
|
|
$
|
7,300
|
|
|
$
|
7,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. FAIR VALUE MEASUREMENTS
Measured on recurring basis
The Company measured the cash and cash equivalents, restricted cash and the short-term investments – available-for-sale securities at fair
value on a recurring basis as of September 30, 2013 and December 31, 2012.
19
Cash and cash equivalents and restricted cash are classified within Level 1 of the fair value
hierarchy because they are valued based on the quoted market price in an active market.
The Company uses quoted prices in active markets
for identical assets (Level 1 investments) to determine the fair value of available-for-sale securities. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted
prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly, which are included in Level 2 investments.
The Company did not have Level 2 investments as of September 30, 2013 and December 31, 2012.
The Company had Level 3 investments as of September 30, 2013 and December 31, 2012 in the form of convertible promissory notes
issued by GEO. As of September 30, 2013, the notes provided that they would bear an annual interest rate of 8% after January 28, 2014 and would be due and payable to the purchaser, or convertible into shares of GEO’s Series A
Preferred Shares or other similar equity securities, upon execution of securities purchase and sales agreements. As of December 31, 2012, the notes bore an annual interest rate of 8% after 90 days from the date of issuance, and were to be
redeemed in February 2013.
As the convertible notes were issued by a private company and not traded on any market, in determining the
fair value of the Level 3 investments, the Company used the principal amount of the investments, and the interest accrued on a quarterly basis after January 28, 2014. The Company also considered the credit risk related to the issuer. The
Company believes this method provided a reasonable fair value of the investments.
The available-for-sale securities measured and recorded
at fair value as of September 30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Fair Value Measurements at the Reporting Date Using
|
|
|
Fair Value Measurements at the Reporting Date Using
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
|
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
|
Bond funds
|
|
$
|
9,393
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
9,393
|
|
|
$
|
27,028
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
27,028
|
|
|
Corporate convertible notes
|
|
|
0
|
|
|
|
0
|
|
|
|
2,400
|
|
|
|
2,400
|
|
|
|
0
|
|
|
|
0
|
|
|
|
900
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,393
|
|
|
$
|
0
|
|
|
$
|
2,400
|
|
|
$
|
11,793
|
|
|
$
|
27,028
|
|
|
$
|
0
|
|
|
$
|
900
|
|
|
$
|
27,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in Level 3 investments measured on a recurring basis for the nine-month
periods ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Beginning balance
|
|
$
|
900
|
|
|
$
|
10,985
|
|
|
Purchases
|
|
|
2,400
|
|
|
|
450
|
|
|
Redemption
|
|
|
(900
|
)
|
|
|
(8,956
|
)
|
|
Realized gain
|
|
|
0
|
|
|
|
(2,027
|
)
|
|
– Included in other income
|
|
|
0
|
|
|
|
(40
|
)
|
|
– Included in other comprehensive income
|
|
|
0
|
|
|
|
(1,987
|
)
|
|
Exchange difference
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,400
|
|
|
$
|
450
|
|
|
|
|
|
|
|
|
|
|
|
20
Measured on non-recurring basis
The Company’s financial assets and liabilities measured at fair value on a non-recurring basis include acquired assets and liabilities at
initial recognition based on Level 3 inputs in connection with business acquisitions.
The Company measured the fair value of the
purchased intangible using the “cost,” “income approach-excess earnings” or “with & without” valuation methods. These purchased intangible assets are considered Level 3 assets because the Company used
unobservable inputs, such as forecasted financial performance of the acquired business and discount rates, to determine the fair value of these purchased assets.
18. EARNINGS PER SHARE
The following is
a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Amounts attributable to AsiaInfo-Linkage, Inc. common stockholders (numerator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
$
|
7,769
|
|
|
$
|
4,619
|
|
|
$
|
(260,782
|
)
|
|
$
|
17,214
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
1,153
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,769
|
|
|
$
|
4,619
|
|
|
$
|
(259,629
|
)
|
|
$
|
17,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,941,169
|
|
|
|
72,613,106
|
|
|
|
72,835,190
|
|
|
|
72,532,007
|
|
|
Dilutive effect of employee stock options and restricted stock units
|
|
|
97,085
|
|
|
|
191,282
|
|
|
|
0
|
|
|
|
232,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
73,038,254
|
|
|
|
72,804,388
|
|
|
|
72,835,190
|
|
|
|
72,764,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to AsiaInfo-Linkage, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
|
$
|
(3.58
|
)
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
|
$
|
(3.58
|
)
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations attributable to AsiaInfo-Linkage, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AsiaInfo-Linkage, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
|
$
|
(3.56
|
)
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
|
$
|
(3.56
|
)
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The dilutive effects of the stock options and restricted stock units are calculated using the
treasury stock method. Under the treasury stock method, the proceeds from the assumed conversion of stock options and restricted stock units which include the benefit of the compensation costs attributable to future services and not yet recognized,
are used to repurchase outstanding shares of common stock using a quarterly average market price.
The Company had 6,426,145 and 6,419,410
stock options outstanding for the three months and nine months ended September 30, 2012, respectively, which could potentially dilute earnings per share (“EPS”) in the future, but were excluded in the computation of diluted EPS as their
exercise prices were above the average market values in such periods. The Company also excluded 74,100 and 84,986 restricted stock units from the computation of diluted EPS for the three months and nine months ended September 30, 2012, respectively.
The Company had 6,216,000 stock options outstanding for the three months ended September 30, 2013, which could potentially dilute
EPS in the future, but were excluded from the computation of diluted EPS as their exercise prices were above the average market values during that period. The Company also excluded 39,400 restricted stock units from the computation of diluted EPS
for the three months ended September 30, 2013.
19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three months
and nine months ended September 30, 2013 and 2012, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2013
|
|
|
|
|
Unrealized gain (loss)
on available-for-sale
securities
|
|
|
Foreign currency
items
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
(611
|
)
|
|
$
|
53,264
|
|
|
$
|
52,653
|
|
|
Other comprehensive income before reclassifications
|
|
|
(26
|
)
|
|
|
2,479
|
|
|
|
2,453
|
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
|
(26
|
)
|
|
|
2,479
|
|
|
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(637
|
)
|
|
$
|
55,743
|
|
|
$
|
55,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2012
|
|
|
|
|
Unrealized gain (loss)
on available-for-sale
securities
|
|
|
Foreign currency
items
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
322
|
|
|
$
|
43,536
|
|
|
$
|
43,858
|
|
|
Other comprehensive income before reclassifications
|
|
|
(137
|
)
|
|
|
(1,184
|
)
|
|
|
(1,321
|
)
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
|
(39
|
)
|
|
|
0
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive loss
|
|
|
(176
|
)
|
|
|
(1,184
|
)
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
146
|
|
|
$
|
42,352
|
|
|
$
|
42,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2013
|
|
|
|
|
Unrealized gain (loss)
on available-for-sale
securities
|
|
|
Foreign currency
items
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
(405
|
)
|
|
$
|
45,555
|
|
|
$
|
45,150
|
|
|
Other comprehensive income before reclassifications
|
|
|
748
|
|
|
|
10,188
|
|
|
|
10,936
|
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
|
(980
|
)
|
|
|
0
|
|
|
|
(980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
|
(232
|
)
|
|
|
10,188
|
|
|
|
9,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(637
|
)
|
|
$
|
55,743
|
|
|
$
|
55,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2012
|
|
|
|
|
Unrealized gain (loss)
on available-for-sale
securities
|
|
|
Foreign currency
items
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
2,211
|
|
|
$
|
44,913
|
|
|
$
|
47,124
|
|
|
Other comprehensive income before reclassifications
|
|
|
631
|
|
|
|
(2,561
|
)
|
|
|
(1,930
|
)
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
|
(2,696
|
)
|
|
|
0
|
|
|
|
(2,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive loss
|
|
|
(2,065
|
)
|
|
|
(2,561
|
)
|
|
|
(4,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
146
|
|
|
$
|
42,352
|
|
|
$
|
42,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the reclassification out of accumulated other comprehensive income (loss) for the
three months and nine months ended September 30, 2013 and 2012, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
|
|
|
Before Tax
|
|
|
Tax Effect
|
|
|
Net of Tax
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Net unrealized loss on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain arising during the period
|
|
|
(35
|
)
|
|
|
(162
|
)
|
|
|
(9
|
)
|
|
|
(25
|
)
|
|
|
(26
|
)
|
|
|
(137
|
)
|
|
Less: reclassification adjustment for gain realized and recorded as gain from sales of short-term investments
|
|
|
0
|
|
|
|
61
|
|
|
|
0
|
|
|
|
22
|
|
|
|
0
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on investment securities
|
|
$
|
(35
|
)
|
|
$
|
(223
|
)
|
|
$
|
(9
|
)
|
|
$
|
(47
|
)
|
|
$
|
(26
|
)
|
|
$
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
|
|
|
Before Tax
|
|
|
Tax Effect
|
|
|
Net of Tax
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Net unrealized loss on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain arising during the period
|
|
|
892
|
|
|
|
839
|
|
|
|
144
|
|
|
|
208
|
|
|
|
748
|
|
|
|
631
|
|
|
Less: reclassification adjustment for gain realized and recorded as gain from sales of short-term investments
|
|
|
1,153
|
|
|
|
3,333
|
|
|
|
173
|
|
|
|
637
|
|
|
|
980
|
|
|
|
2,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on investment securities
|
|
$
|
(261
|
)
|
|
$
|
(2,494
|
)
|
|
$
|
(29
|
)
|
|
$
|
(429
|
)
|
|
$
|
(232
|
)
|
|
$
|
(2,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
20. GOVERNMENT SUBSIDIES
Government subsidies include amounts granted by government authorities to encourage research and development for
high-technology companies. Subsidies are recognized in the Company’s financial statements once the approvals are obtained from the relevant government authorities and the Company has the right to receive the subsidies.
If the subsidy is granted in connection with a specific project, it is recorded as a reduction to cost of revenues. Otherwise, the subsidy is
recorded as other operating income. For the three-month periods ended September 30, 2013 and 2012, the Company recognized government subsidies as a reduction to costs of revenues of $0 and $0, respectively, and government subsidies in other
operating income of $6 and $0, respectively. For the nine-month periods ended September 30, 2013 and 2012, the Company recognized government subsidies as a reduction of costs of revenues of $1,241 and $1,891, respectively, and government
subsidies in other operating income of $279 and $0, respectively.
21. SEGMENT INFORMATION
The Company’s operations are currently organized into five business units by three telecommunication carriers in China,
multiple Cable Television providers in China, and telecommunication carriers internationally. In accordance with FASB guidance, each of these five business units represents an operating segment, of which discrete financial information is available
and is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The five operating segments are aggregated into one reportable segment because they meet
the aggregation criteria.
The Company’s chief operating decision maker is the Company’s Business Committee, comprising the
Company’s Chief Executive Officer, Chief Financial Officer, Chief Technology Officer and senior management team.
The Company
primarily operates in the PRC and substantially all of the Company’s long-lived assets are located in the PRC.
22. COMMITMENTS AND CONTINGENCIES
Commitments
In May 2011, the Company entered into a land use right transfer agreement with the Beijing Municipal Bureau of Land and Resources, under which
the Company acquired land use right for a 50-year term. Pursuant to the agreement, the Company has committed a minimum of $12,135 as of September 30, 2013 for capital expenditures to the building construction project, to commence construction
by April 30, 2012, and to complete construction by April 30, 2014.
In November 2011, the Company entered into a software
purchase agreement with IBM, pursuant to which the Company is committed to the purchase of software from IBM with corresponding payment obligations from 2012 to 2014. As of September 30, 2013, the Company is committed to the purchase of
software from IBM amounting to $3,254. The committed purchase amounts are $1,627 and $1,627 for the next two years, respectively.
24
Contingencies – Litigation
In October 2012, a putative stockholder of the Company filed a civil action, derivatively on behalf of the Company, against the members of the
Board of Directors and certain officers in the United States District Court for the District of Delaware under the caption
Halpert v. Zhang, et al
. The Company was also named as a nominal defendant. The plaintiff asserted claims for breach of
fiduciary duty against all defendants, corporate waste against the director defendants, and unjust enrichment against the officer defendants in connection with grants of stock options allegedly made in an amount that violates purported limitations
set forth in the 2011 Plan. The plaintiff requested rescission of the option grants in question, an award of unspecified damages to the Company, certain other equitable and injunctive relief, and an award of plaintiff’s costs and disbursements,
including legal fees. In August 2013, the court denied the Company’s motion to dismiss the action. In October 2013, the plaintiff filed a motion for judgment on the pleadings, which the Company expects to be heard in November 2013, and the
Company filed a motion to stay the action, which remains pending.
Upon the unanimous recommendation of the Special Committee of its Board
of Directors and the approval of its Board of Directors, on May 12, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Skipper Limited (“Parent”) and Skipper Acquisition Corporation
(“Merger Sub”), which are owned indirectly by CITIC Capital Partners, the private equity arm of CITIC Capital Holdings Ltd. Pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub would merge (the
“Merger”) with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent, and each share of outstanding Company common stock would convert automatically into the right to receive
$12.00 in cash without interest, except for dissenting shares, shares of treasury stock, and shares held by members of the buyer group that will own all of Parent following the Merger.
Following the Company’s announcement that it entered into the Merger Agreement, three alleged Company stockholders filed putative class
action complaints against the Company, each member of its Board of Directors and Merger Sub in the Delaware Court of Chancery. These actions have been consolidated under the caption
In re AsiaInfo-Linkage, Inc. Stockholder Litigation
.
Plaintiffs have alleged that each member of the Company’s Board of Directors breached his fiduciary duties to the Company’s stockholders by favoring Parent over other potential purchasers, favoring his own interests over the interests of
the Company’s stockholders, failing to take appropriate steps to maximize the value of the Company to its stockholders, agreeing to preclusive deal protection devices and otherwise agreeing to sell the Company for an unfairly low price.
Plaintiffs have further alleged that the Company and Merger Sub aided and abetted those alleged breaches of fiduciary duty. In addition, plaintiffs have alleged that the preliminary version of the Company’s proxy statement filed on
July 23, 2013, omitted certain material information essential to the Company’s stockholders in order to allow them to cast a fully-informed vote at the upcoming stockholders’ meeting concerning the Merger. Plaintiffs have requested an
injunction, rescission of the Merger to the extent consummated, money damages if the Merger is consummated, certain other equitable relief, a declaration that the Merger is unfair, unjust and inequitable, and an award of plaintiffs’ costs,
including legal fees. In October 2013, the parties executed a memorandum of understanding setting forth an agreement-in-principle which, when finalized as a stipulation of settlement, is intended to fully and finally resolve and settle the action
and all related claims.
While the Company cannot guarantee the outcome of these proceedings, the Company believes that the final results
will not have a material effect on its consolidated financial condition, results or operations, or cash flows.
Contingencies
– Letters of Credit
As of September 30, 2013, the Company had outstanding standby letters of credit in the amount of
$25,577. They were used for performance guarantees amounting to $23,403 with respect to the Company’s performance on certain customer projects, and guarantees amounting to $2,174 with respect to future payments for building construction.
23. NONCONTROLLING INTEREST
(a) On
September 25, 2008, the Company established a new subsidiary, Shanghai Xinjia Science & Technology Co., Ltd (“AISH”) in Shanghai, with a total capital contribution of $732. The Company and Ms. Yao Yuan, the other
shareholder of AISH, hold 90% and 10% of AISH’s share capital, respectively. AISH mainly provides software and services to telecommunication carriers in Shanghai. The 10% of AISH’s share capital held by Ms. Yao Yuan was recorded as
noncontrolling interest.
25
(b) In October 2009, the Company acquired 60% of the share capital of SmartCall Holding Limited
(“Smartcall”) and the remaining 40% of the share capital was recorded as noncontrolling interest. In May 2013, the Company disposed of its interest in Smartcall together with Smartcall’s interest in a VIE named ZXJ.
(c) In September 2011, the Company’s VIE Beijing Star VATS acquired 60% of the share capital of Chengdu Yalian Zhixing Technology Ltd
(“Yalian Zhixing”). The remaining 40% of the share capital was recorded as noncontrolling interest. In May 2013, the Company disposed of its interest in Beijing Star VATS, together with its 60% share capital of Yalian Zhixing.
24. REDEEMABLE NONCONTROLLING INTEREST
(a) In October 2009, the Company formed AsiaInfo International Pte Ltd (“AIP”) with Alpha Growth International Pte Ltd, a company
incorporated under the laws of Singapore (“AGI”), in Singapore. AIP has total issued and paid-up share capital of $4,000. The Company contributed $2,800 to AIP in cash, which represents 70% of AIP’s share capital. AGI contributed
$1,200 to AIP in cash, which represents 30% of AIP’s share capital. AIP serves as an exclusive agent to market and distribute the Company’s telecommunications software and service solutions in certain regions in Southeast Asia until
December 2014 or such other date as the Company and AGI may mutually agree. The Company has consolidated AIP since its incorporation.
Pursuant to the agreement with AGI, the Company granted a put option to AGI to sell, while the Company received a call option from AGI to
purchase, the 30% equity interest held by AGI. The options are exercisable within a 30 day-period from the date of issuing the audit report of AIP’s 2013 financial statements. The exercise prices for the call and the put options of the 30%
equity interest held by AGI are the same and are determined by a formula based on the performance of AIP for years 2012 and 2013.
(b) In
May 2010, the Company, through a subsidiary of the Company, acquired an 80% equity interest in Hangzhou Zhongbo for an aggregate purchase price of $7,068 in cash. Hangzhou Zhongbo provides IT solutions to broadcasting operators in China.
Pursuant to the agreement with the other shareholder of Hangzhou Zhongbo, the Company granted a put option to such shareholder of Hangzhou
Zhongbo to sell, while the Company received a call option from such shareholder of Hangzhou Zhongbo to purchase, the 20% equity interest held by such shareholder in Hangzhou Zhongbo. The options were exercisable after December 31, 2011. The
exercise prices for the call and the put options of the 20% equity interest held in Hangzhou Zhongbo were the same and were determined by a formula based on the performance of Hangzhou Zhongbo for years 2010 and 2011.
In June 2012, the Company exercised the call option and purchased the remaining 20% equity interest in Hangzhou Zhongbo for a consideration of
$1,034. As a result, the Company holds 100% equity interest in Hangzhou Zhongbo.
These noncontrolling interests were recorded outside of
the permanent equity on the consolidated balance sheets initially at the fair value of the noncontrolling interests as of the date of incorporation or the date of acquisition of these subsidiaries. Subsequently, each noncontrolling interest was
carried at the higher of (1) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss or (2) the accreted amount to the expected redemption value. The change of the carrying
amounts of the redeemable noncontrolling interest is recognized as net loss attributable to noncontrolling interest in the consolidated statements of operations. For the nine months ended September 30, 2013, the amount charged to net loss
attributable to noncontrolling interests was $1,962, which represents the noncontrolling interests’ share of net loss of these subsidiaries.
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling
Interest
|
|
|
Balance at January 1, 2013
|
|
$
|
(3,488
|
)
|
|
Net loss
|
|
|
(854
|
)
|
|
Adjustment to redemption value
|
|
|
0
|
|
|
|
|
|
|
|
|
Balance at March 31, 2013
|
|
$
|
(4,342
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
|
(543
|
)
|
|
Adjustment to redemption value
|
|
|
0
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
(4,885
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
|
(565
|
)
|
|
Adjustment to redemption value
|
|
|
0
|
|
|
|
|
|
|
|
|
Balance at September 30, 2013
|
|
$
|
(5,450
|
)
|
|
|
|
|
|
|
26