Securities registered or to be registered pursuant to Section
12(b) of the Act.
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.
362,097,257 Class A ordinary shares (excluding 1,760,787
Class A ordinary shares, represented by American depositary shares, issued and reserved for the future exercise of options or the
vesting of other awards under the 2008 Plan and the 2014 Plan) and 17,373,500 Class B ordinary shares, par value US$0.0001 per
share, as of December 31, 2016.
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 the definitions
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
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:
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
In this annual report, except where the
context otherwise requires and for purposes of this annual report only:
This annual report on Form 20-F contains
forward-looking statements that reflect our current expectations and views of future events. These statements are made under the
“safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking
statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,”
“intend,” “plan,” “believe,” “estimate,” “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:
We would like to caution you not to place
undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed
in “Item 3.D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in a rapidly evolving
environment. New risks emerge from time to time and it is impossible 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 from those contained in any forward-looking statement. We do not undertake any obligation to update or revise
the forward-looking statements, statements, whether as a result of new information, future events or otherwise, except as required
under applicable law.
This annual report also contains statistical
data and estimates that we obtained from industry publications and reports generated by government agencies and third-party providers
of market intelligence. These industry publications and reports generally indicate that the information contained therein was obtained
from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe
that the publications and reports are reliable, we have not independently verified the data.
PART I
|
Item 1.
|
Identity of Directors, Senior Management and Advisers
|
Not applicable.
|
Item 2.
|
Offer Statistics and Expected Timetable
|
Not applicable.
|
A.
|
Selected Financial Data
|
The following table presents selected consolidated
financial information for our company. The selected consolidated statements of comprehensive loss for the three years ended December
31, 2014, 2015 and 2016 and the consolidated balance sheets data as of December 31, 2015 and 2016 have been derived from our audited
consolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statements
of comprehensive loss for the year ended December 31, 2012 and 2013 and the selected consolidated balance sheet data as of December
31, 2012, 2013 and 2014 have been derived from our audited consolidated financial statements not included in this annual report.
Our historical results do not necessarily indicate results expected for any future periods. The selected consolidated financial
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 and presented in accordance with U.S. GAAP.
|
|
For the Year Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except for share, per share and per ADS data)
|
|
Summary Consolidated Statements of Comprehensive Loss Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organized tours
|
|
|
1,075,094
|
|
|
|
1,892,826
|
|
|
|
3,432,825
|
|
|
|
7,358,879
|
|
|
|
9,926,628
|
|
|
|
1,429,732
|
|
Self-guided tours
|
|
|
32,359
|
|
|
|
48,901
|
|
|
|
93,126
|
|
|
|
194,162
|
|
|
|
253,349
|
|
|
|
36,490
|
|
Others
|
|
|
12,875
|
|
|
|
20,744
|
|
|
|
28,756
|
|
|
|
127,745
|
|
|
|
385,603
|
|
|
|
55,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,120,328
|
|
|
|
1,962,471
|
|
|
|
3,554,707
|
|
|
|
7,680,786
|
|
|
|
10,565,580
|
|
|
|
1,521,760
|
|
Less: Business and related taxes
|
|
|
(7,447
|
)
|
|
|
(12,784
|
)
|
|
|
(19,768
|
)
|
|
|
(35,526
|
)
|
|
|
(17,307
|
)
|
|
|
(2,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
1,112,881
|
|
|
|
1,949,687
|
|
|
|
3,534,939
|
|
|
|
7,645,260
|
|
|
|
10,548,273
|
|
|
|
1,519,267
|
|
Cost of revenues
|
|
|
(1,073,732
|
)
|
|
|
(1,829,665
|
)
|
|
|
(3,308,801
|
)
|
|
|
(7,274,675
|
)
|
|
|
(9,921,304
|
)
|
|
|
(1,428,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
39,149
|
|
|
|
120,022
|
|
|
|
226,138
|
|
|
|
370,585
|
|
|
|
626,969
|
|
|
|
90,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and product development
|
|
|
(33,370
|
)
|
|
|
(38,994
|
)
|
|
|
(104,881
|
)
|
|
|
(298,199
|
)
|
|
|
(601,402
|
)
|
|
|
(86,620
|
)
|
Sales and marketing
|
|
|
(57,994
|
)
|
|
|
(110,071
|
)
|
|
|
(434,191
|
)
|
|
|
(1,154,155
|
)
|
|
|
(1,908,424
|
)
|
|
|
(274,870
|
)
|
General and administrative
|
|
|
(62,006
|
)
|
|
|
(69,679
|
)
|
|
|
(166,988
|
)
|
|
|
(385,442
|
)
|
|
|
(658,790
|
)
|
|
|
(94,885
|
)
|
Other operating income
|
|
|
775
|
|
|
|
1,689
|
|
|
|
6,902
|
|
|
|
12,175
|
|
|
|
22,323
|
|
|
|
3,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(113,446
|
)
|
|
|
(97,033
|
)
|
|
|
(473,020
|
)
|
|
|
(1,455,036
|
)
|
|
|
(2,519,324
|
)
|
|
|
(362,858
|
)
|
Other income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
7,432
|
|
|
|
16,163
|
|
|
|
31,284
|
|
|
|
76,516
|
|
|
|
87,305
|
|
|
|
12,575
|
|
Foreign exchange gains/(losses), net
|
|
|
(741
|
)
|
|
|
1,286
|
|
|
|
(5,334
|
)
|
|
|
(83,118
|
)
|
|
|
(9,734
|
)
|
|
|
(1,402
|
)
|
Other loss, net
|
|
|
(357
|
)
|
|
|
(48
|
)
|
|
|
(788
|
)
|
|
|
(1,336
|
)
|
|
|
(2,553
|
)
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(107,112
|
)
|
|
|
(79,632
|
)
|
|
|
(447,858
|
)
|
|
|
(1,462,974
|
)
|
|
|
(2,444,306
|
)
|
|
|
(352,053
|
)
|
Income tax (expense) benefit
|
|
|
(78
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
589
|
|
|
|
1,711
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(107,190
|
)
|
|
|
(79,632
|
)
|
|
|
(447,858
|
)
|
|
|
(1,462,385
|
)
|
|
|
(2,442,595
|
)
|
|
|
(351,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,006
|
)
|
|
|
(15,470
|
)
|
|
|
(2,228
|
)
|
Less: Net loss attributable to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
(5
|
)
|
Net loss attributable to Tuniu Corporation
|
|
|
(107,190
|
)
|
|
|
(79,632
|
)
|
|
|
(447,858
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,091
|
)
|
|
|
(349,574
|
)
|
Accretion on redeemable noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(15
|
)
|
Deemed dividends to preferred shareholders
|
|
|
—
|
|
|
|
(59,428
|
)
|
|
|
(15,606
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable to ordinary shareholders
|
|
|
(107,190
|
)
|
|
|
(139,060
|
)
|
|
|
(463,464
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,197
|
)
|
|
|
(349,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share attributable to ordinary shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(4.12
|
)
|
|
|
(5.35
|
)
|
|
|
(4.38
|
)
|
|
|
(5.88
|
)
|
|
|
(6.50
|
)
|
|
|
(0.94
|
)
|
Diluted
|
|
|
(4.12
|
)
|
|
|
(5.35
|
)
|
|
|
(4.38
|
)
|
|
|
(5.88
|
)
|
|
|
(6.50
|
)
|
|
|
(0.94
|
)
|
Net loss per ADS attributable to ordinary shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(12.37
|
)
|
|
|
(16.05
|
)
|
|
|
(13.15
|
)
|
|
|
(17.63
|
)
|
|
|
(19.50
|
)
|
|
|
(2.82
|
)
|
Diluted
|
|
|
(12.37
|
)
|
|
|
(16.05
|
)
|
|
|
(13.15
|
)
|
|
|
(17.63
|
)
|
|
|
(19.50
|
)
|
|
|
(2.82
|
)
|
Weighted average number of ordinary shares used in computing basic and diluted loss per share
|
|
|
26,000,000
|
|
|
|
26,000,000
|
|
|
|
105,746,313
|
|
|
|
248,362,837
|
|
|
|
373,347,855
|
|
|
|
373,347,855
|
|
|
|
As of December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Summary Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
299,238
|
|
|
|
419,403
|
|
|
|
1,457,722
|
|
|
|
2,101,217
|
|
|
|
1,085,236
|
|
|
|
156,306
|
|
Restricted cash
|
|
|
6,875
|
|
|
|
9,250
|
|
|
|
44,030
|
|
|
|
338,997
|
|
|
|
124,561
|
|
|
|
17,941
|
|
Short-term investments
|
|
|
30,000
|
|
|
|
327,000
|
|
|
|
468,570
|
|
|
|
1,226,415
|
|
|
|
3,603,497
|
|
|
|
519,012
|
|
Prepayments and other current assets
|
|
|
127,050
|
|
|
|
286,560
|
|
|
|
575,297
|
|
|
|
1,285,607
|
|
|
|
1,632,329
|
|
|
|
235,104
|
|
Total assets
|
|
|
502,838
|
|
|
|
1,075,373
|
|
|
|
2,645,017
|
|
|
|
7,186,141
|
|
|
|
9,156,317
|
|
|
|
1,318,783
|
|
Accounts payable
|
|
|
127,240
|
|
|
|
288,965
|
|
|
|
382,705
|
|
|
|
767,307
|
|
|
|
879,383
|
|
|
|
126,657
|
|
Advances from customers
|
|
|
244,214
|
|
|
|
396,738
|
|
|
|
638,828
|
|
|
|
1,223,313
|
|
|
|
1,951,764
|
|
|
|
281,112
|
|
Total liabilities
|
|
|
433,262
|
|
|
|
784,017
|
|
|
|
1,236,294
|
|
|
|
3,848,418
|
|
|
|
4,583,877
|
|
|
|
660,215
|
|
Total mezzanine equity
|
|
|
350,744
|
|
|
|
716,441
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,072
|
|
|
|
12,973
|
|
Total shareholders’ equity/(deficit)
|
|
|
(281,168
|
)
|
|
|
(425,086
|
)
|
|
|
1,408,723
|
|
|
|
3,337,723
|
|
|
|
4,482,368
|
|
|
|
645,595
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Summary Consolidated Statements of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
14,663
|
|
|
|
116,736
|
|
|
|
(271,102
|
)
|
|
|
(514,735
|
)
|
|
|
(2,239,444
|
)
|
|
|
(322,550
|
)
|
Net cash used in investing activities
|
|
|
(46,786
|
)
|
|
|
(304,218
|
)
|
|
|
(227,923
|
)
|
|
|
(1,915,168
|
)
|
|
|
(2,514,247
|
)
|
|
|
(362,127
|
)
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
306,360
|
|
|
|
1,540,397
|
|
|
|
3,005,838
|
|
|
|
3,627,058
|
|
|
|
522,405
|
|
The following table presents summary operating
data for the years indicated:
|
|
For the Year Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Number of trips
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organized tours (excluding local tours)
|
|
|
236
|
|
|
|
367
|
|
|
|
712
|
|
|
|
1,633
|
|
|
|
2,773
|
|
Local tours
|
|
|
503
|
|
|
|
687
|
|
|
|
1,074
|
|
|
|
1,702
|
|
|
|
2,207
|
|
Self-guided tours
|
|
|
110
|
|
|
|
221
|
|
|
|
396
|
|
|
|
1,114
|
|
|
|
1,759
|
|
Exchange Rate Information
Our business is primarily conducted in
China and almost all of our revenues are denominated in Renminbi. However, periodic reports made to shareholders will include
current period amounts translated into U.S. dollars using the then current exchange rates, for the convenience of the readers.
The conversion of Renminbi into U.S. dollars in this annual report is based on the noon buying rate in New York City for cable
transfers in RMB as certified for customs purposes by 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 RMB6.9430 to US$1.00,
the noon buying rate in effect as of December 30, 2016. 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, 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 7, 2017, the noon buying rate was RMB6.8978 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.
|
|
Noon Buying Rate
|
|
|
|
Period-End
|
|
|
Average
(1)
|
|
|
Low
|
|
|
High
|
|
|
|
(RMB per U.S. Dollar)
|
|
2012
|
|
|
6.2301
|
|
|
|
6.2990
|
|
|
|
6.3879
|
|
|
|
6.2221
|
|
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
|
|
|
|
6.6563
|
|
|
|
6.9580
|
|
|
|
6.4480
|
|
October
|
|
|
6.7735
|
|
|
|
6.7303
|
|
|
|
6.7819
|
|
|
|
6.6685
|
|
November
|
|
|
6.8837
|
|
|
|
6.8402
|
|
|
|
6.9195
|
|
|
|
6.7534
|
|
December
|
|
|
6.9430
|
|
|
|
6.9198
|
|
|
|
6.9580
|
|
|
|
6.8771
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.8768
|
|
|
|
6.8907
|
|
|
|
6.9575
|
|
|
|
6.8360
|
|
February
|
|
|
6.8665
|
|
|
|
6.8694
|
|
|
|
6.8821
|
|
|
|
6.8517
|
|
March
|
|
|
6.8832
|
|
|
|
6.8940
|
|
|
|
6.9132
|
|
|
|
6.8687
|
|
April (through April 7, 2017)
|
|
|
6.8978
|
|
|
|
6.8903
|
|
|
|
6.8978
|
|
|
|
6.8832
|
|
Source: Federal Reserve Statistical Release
|
(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
Declines or disruptions in the
leisure travel industry in China may materially and adversely affect our business and results of operations.
We are dependent on the leisure travel industry
for substantially all of our revenues. The leisure travel industry is dependent on personal discretionary spending levels, which
may be materially and adversely affected by economic downturns and recessions. Although the leisure travel industry in China has
experienced rapid growth over the past decade, any severe or prolonged slowdown in the Chinese economy could reduce expenditures
for leisure travel, which in turn may adversely affect our financial condition and results of operations. The Chinese economy has
slowed down in recent years. According to the National Bureau of Statistics of China, China’s gross domestic product (GDP)
growth slowed to 6.7% in 2016. It is uncertain whether this economic slowdown will continue into 2017 and beyond. Any severe or
prolonged slowdown in the Chinese economy, slowdown in the growth rate of disposable income per capita in China or the recurrence
of any financial disruptions may materially and adversely affect the leisure travel industry in China and our business, financial
condition and results of operations.
Our business may also be significantly affected
by other factors that tend to reduce leisure travel, including increased prices in hotel, air-ticketing, fuel or other travel-related
sectors, work stoppages or labor unrest at airlines, increased occurrences of travel-related accidents, outbreaks of contagious
diseases, natural disasters and extreme unexpected bad weather, terrorist attacks and political unrest. For example, the travel
industry was negatively impacted by snowstorms that severely affected southern China in early 2008, the outbreak of H1N1 influenza
(swine flu) that occurred in Mexico and the United States in April 2009, the earthquake, tsunami and nuclear crisis in Japan in
early 2011, heavy haze that shrouded central and northern China and some Southeast Asian countries in 2013, the outbreak of Ebola
hemorrhagic fever in West Africa beginning in March 2014, the disappearance of a Malaysia Airlines flight in March 2014 as well
as the crashes of Malaysia Airlines and AirAsia flights in July and December 2014, respectively, which all had a negative impact
on air travel among our target customers. In addition, overseas leisure travel products and services accounted for over 63.8% of
our packaged tour gross bookings in 2016. Even though China has recently reached agreements with certain countries such as the
United States and Canada to relax existing travel visa restrictions for Chinese nationals, our overseas leisure travel business
may be negatively affected by any adverse change in the visa policies of foreign countries that makes it difficult for Chinese
nationals to obtain tourist visas. Terrorist attacks or threats of terrorist attacks, political unrests, wars, imposition of taxes
or surcharges by regulatory authorities and regional hostilities may also reduce the demand for overseas tours. For example, the
Nice terrorist attack in France, the coup in Turkey, and the deployment of THAAD by South Korea in 2016 negatively impacted short-term travel demand for the affected regions.
We have little or no control over the occurrence of such declines or disruptions,
which could result in a decrease in demand for our travel products and services. This decrease in demand, depending on the scope
and duration, could materially and adversely affect our business and results of operations over the short and long term.
If we do not continue to provide
competitive travel products and services, we may not be able to attract new customers or to retain existing customers, and our
business, financial condition and results of operations could suffer.
Our success depends on our ability to attract
new customers and retain existing customers, which in turn requires our continual provision of a wide array of competitive travel
products and services. In light of the rapidly rising levels of disposable income in China, demand for vacation, recreation and
other forms of leisure travel has increased rapidly in recent years. Participants in the online travel industry are continually
developing new travel products and services in response to increasing customer demand. We strive to stay abreast of emerging and
rapidly changing customer preferences and to continue to anticipate trends that will appeal to existing and potential customers.
We will also continue to invest in research and development in order to constantly improve the speed, accuracy and comprehensiveness
of our online platform. If we fail to keep on improving our travel products and services and platform at a competitive pace, we
may lose customers to our competitors and may not attract new customers. In addition to packaged tours, we provide other travel-related
services, such as sales of tourist attraction tickets, visa application services, financial services, hotel booking services and
air ticketing services. We intend to further broaden our product selection by extending our coverage of departing cities and travel
destinations as well as offering more departure time selections. If we fail to continue to source quality travel products and services
tailored to accommodate our customers’ changing needs and preferences, we may not be able to sell additional products and
services to our current customers, retain our current customers or attract new customers, and our business, financial condition
and results of operations will be materially and adversely affected.
Failure to maintain the quality
of customer services could harm our reputation and our ability to retain existing customers and attract new customers, which may
materially and adversely affect our business, financial condition and results of operations.
Our business is significantly affected by
the overall size of our customer base, which in turn is determined by, among other factors, their experience with our customer
services. As such, the quality of customer services is critical to retaining our existing customers and attracting new customers.
If we fail to provide quality customer services, our customers may be less inclined to book travel products and services with us
or recommend us to new customers, and may switch to our competitors. Failure to maintain the quality of customer services could
harm our reputation and our ability to retain existing customers and attract new customers, which may materially and adversely
affect our business, financial condition and results of operations.
We may not be able to adequately
control and ensure the quality of travel products and services sourced from our travel suppliers. If there is any deterioration
in the quality of their performance, our customers may seek damages from us and not continue using our online platform.
Our ability to ensure satisfactory customer
experience in a large part depends on our travel suppliers to provide high-quality travel products and services. Our reputation
and brand will be negatively affected if our travel suppliers fail to provide quality travel products and services.
The actions we take to monitor and enhance
the performance of our travel suppliers may be inadequate in timely discovering quality issues. There have been customer complaints
and litigation against us due to our travel suppliers’ failure to provide satisfactory travel products or services. If our
customers are dissatisfied with the travel products and services provided, they may reduce their use of, or completely forgo, our
online platform, and may even demand refunds of their payments to us or claim compensation from us for the damages suffered as
a result of our travel suppliers’ performance or misconduct, which could materially and adversely affect our business, financial
condition and results of operations.
We have incurred losses in the
past and will likely continue to incur losses in the future.
We have incurred net losses historically
and will likely continue to incur losses in the future as we grow our business. We had a net loss of RMB447.9 million, RMB1,462.4
million and RMB2,442.6 million (US$351.8 million) in 2014, 2015 and 2016, respectively. Our historical net losses were partially
attributable to our spending associated with our rapidly expanding business operations, including expenses related to regional
expansion, branding and advertising campaigns, mobile related initiatives and expenses related to technology, product development
and administrative personnel such as share-based compensation. We expect that we will continue to incur significant expenses to
further grow our business, which will affect our profitability and cash flow from operations in the future.
In addition, our ability to achieve profitability
is affected by various factors that are beyond our control. For example, our revenues and profitability depend on the continual
development of the online leisure travel industry in China and consumers’ preference to make travel bookings online. We cannot
assure you that making travel bookings online will become more widely accepted in China or that consumers will increase their spending
on online leisure travel booking. Factors negatively affecting our travel suppliers’ profitability will in turn adversely
affect our financial condition and results of operations.
If we are unsuccessful in addressing any
of these risks and uncertainties, our business may be materially and adversely affected and we will likely continue to incur net
loss in the near future.
We face intense competition and
may not be able to compete successfully against existing and new competitors.
We operate in China’s highly competitive
travel industry. We compete with not only other online travel companies, but also traditional travel service providers and tour
operators, airlines and hotels and large, established Internet search engines. See “Item 4.B. Information on the Company—Business
Overview—Competition.” Some of our current and potential competitors may have greater financial, marketing and other
resources than we do. In addition, some of our competitors may be acquired by, receive investments from or enter into strategic
relationships with larger, well-established and well-financed companies or investors. Furthermore, our business model causes us
to maintain a cooperative-competitive relationship with some of our competitors, especially tour operators, as they are also our
travel suppliers.
Many of our competitors have launched, and
may continue to launch, aggressive advertising campaigns, special promotions and other marketing activities to promote their brands,
attract new customers or increase their market shares. In response, we started to take and may continue to take similar measures
and as a result will incur significant expenses, which in turn could negatively affect our operating margin in the quarters or
years when such promotional activities are carried out. We cannot assure you that we will be able to successfully compete against
existing or new competitors. If we are not able to compete successfully, we may lose our market share and our business, financial
condition and results of operations may be materially and adversely affected.
If we fail to enhance our brand
recognition, we may face difficulty in retaining existing and attracting new customers and travel suppliers and our business may
be harmed.
Recognition and reputation of our “Tuniu”
brand among our targeted customers and travel suppliers have contributed significantly to our growth. We have made continual investments
in enhancing awareness of our brand among customers and travel suppliers since our inception. Our brand recognition and reputation
also depend on our ability to provide high-quality customer services, address customer needs and handle customer complaints properly,
maintain our relationships with travel suppliers and provide a user-friendly online platform. See “—Risks Related to
Our Business and Industry—Failure to maintain the quality of customer services could harm our reputation and our ability
to retain existing customers and attract new customers, which may materially and adversely affect our business, financial condition
and results of operations”, “—Risks Related to Our Business and Industry—If we are unable to maintain existing
relationships with our travel suppliers, or develop relationships with new travel suppliers on favorable terms or terms similar
to those we currently have, our business and results of operations may suffer” and “—Risks Related to Our Business
and Industry—The proper functioning of our online platform, including our web and mobile platforms, and management systems
is essential to our business. Any failure to maintain their satisfactory performance will materially and adversely affect our business,
reputation, financial condition and results of operations.” Failure to maintain the strength of our brand could reduce the
number of customers and deteriorate our relationships with travel suppliers.
In addition, some of our competitors have
well-established brands in the travel industry, and may have more financial and other resources to advertise and promote their
brands. Therefore, we expect to continue incurring advertising and marketing expenditures and use other resources to maintain and
increase our brand recognition. Our marketing costs may also increase as a result of inflation in media pricing in China, including
costs for purchasing search engine keywords and placing online and offline advertisements. If we fail to cost-effectively maintain
and increase our brand recognition, our financial condition and results of operations may be materially and adversely affected.
We are exposed to proceedings
or claims arising from travel-related accidents or customer misconduct during their travels, the occurrence of which may be beyond
our control.
Accidents are a leading cause of mortality
and morbidity among tourists. We are exposed to risks of our customers’ claims arising from or relating to travel-related
accidents. As we enter into contracts with our customers directly, our customers typically take actions against us for the damages
they suffer during their travels. However, such accidents may result from the negligence or misconduct of our travel suppliers
or other service providers, over which we have no or limited control. See also “—Risks Related to Our Business and
Industry—We may not be able to adequately control and ensure the quality of travel products and services sourced from our
travel suppliers. If there is any deterioration in the quality of their performance, our customers may seek damages from us and
not continue using our online platform.” We maintain insurance coverage for our liabilities as a travel company, and are
indemnified by the liable travel suppliers for the damages claimed by our customers. However, there is no assurance that such insurance
or indemnification will be sufficient to cover all of our losses. In addition, some of the travel-related accidents result from
adventure activities undertaken by our customers during their travels, such as scuba diving, white water rafting, wind surfing
and skiing. Furthermore, we may be affected by our customers’ misconduct during their travels, over which we have no or limited
control. Such accidents and misconduct, even if not resulting from our or our travel suppliers’ negligence or misconduct,
could create a public perception that we are less reliable than our competitors, which would harm our reputation, and could adversely
affect our business and results of operations.
The proper functioning of our
online platform, including our web and mobile platforms, and management systems is essential to our business. Any failure to maintain
their satisfactory performance will materially and adversely affect our business, reputation, financial condition and results of
operations.
Availability, satisfactory performance and
reliability of our online platform, including our web and mobile platforms, are critical to our ability to attract and retain customers
and provide quality travel products and services to our customers. Any unavailability or slowdown of our online platforms would
reduce the number of our customers and our customers’ travel bookings. Some telecommunications carriers have system constraints
that can affect our customer experience. For example, if a large number of customers use the same telecommunications carrier at
the same time for services requiring a large amount of data transmission, the customers could experience reduced speed or other
technical issues due to the carrier’s capacity constraints, over which we have no control. Our servers may also be vulnerable
to computer viruses, physical or electronic break-ins or other potential disruptions, which could lead to interruptions, delays,
loss of data or the inability to accept and process customer queries or bookings. We may also experience interruptions caused by
reasons beyond our control such as power outages. Unexpected interruptions could damage our reputation and result in a material
decrease in our revenues. In addition, our online platform may contain undetected errors or “bugs” that could adversely
affect their performance.
In 2016, the number of orders placed through
our mobile platform accounted for approximately 80% of total orders placed through our online platform and average daily unique
visitors on our mobile platform accounted for approximately 70% of the average daily unique visitors on our online platform. As
a result, our mobile platform serves as an important and integral part of our customers’ research on travel-related information.
The lower functionality, speed and memory generally associated with mobile devices may make it more difficult for our customers
to fully access our mobile platform, and we may fail to attract and retain a significant portion of the growing number of customers
who search for and book travel products and services through mobile devices. We may also experience difficulties monetizing customer
traffic to our mobile platform.
In addition, we rely significantly on our
proprietary N-Booking system and other management systems to facilitate and process transactions. We may in the future experience
system interruptions that prevent us from efficiently fulfilling bookings or providing services and support to our customers or
travel suppliers. Any interruptions, outages or delays in our systems, or deterioration in their performance, could impair our
ability to process transactions and decrease the quality of our services to our customers or travel suppliers. If we were to experience
frequent or persistent system failures, our reputation and brand would be harmed.
If we are unable to maintain existing
relationships with our travel suppliers, or develop relationships with new travel suppliers on favorable terms or terms similar
to those we currently have, our business and results of operations may suffer.
Our business is dependent on our ability
to maintain our relationships and arrangements with existing travel suppliers. For most of our suppliers, we do not prohibit our
travel suppliers from developing business relationships with our competitors or selling, through their direct sales, travel products
that are the same as or similar to those they supply to us. If we are unable to maintain satisfactory relationships with our existing
travel suppliers, or if our travel suppliers establish similar or more favorable relationships with our competitors, or if our
travel suppliers increase their competition with us through their direct sales, we may not have the necessary supply to meet the
needs of our customers, or we may not obtain it at satisfactory rates. We do not enter into any long-term agreements with our travel
suppliers.
We cannot assure you that our travel suppliers will renew our agreements in the future on favorable terms
or terms similar to those we currently have agreed. Our travel suppliers may increase the prices that they charge us or the deposits
that they require from us. As a result, the amount, pricing and breadth of travel products and services that we are able to offer
may be reduced and our business and results of operations could be materially and adversely affected.
Furthermore, in order to grow our business,
we will need to develop relationships with new travel suppliers of good quality. We cannot assure you that we will be able to identify
appropriate travel suppliers or enter into arrangements with those travel suppliers on favorable terms or at all. Any failure to
do so could harm the growth of our business and adversely affect our financial condition and results of operations.
We may suffer losses if we are
unable to predict the amount of travel products we will need to purchase in advance.
For peak seasons and for certain tours and
destinations, we have made commitments with a number of travel suppliers to purchase packaged tours, hotel rooms and air tickets
before selling them to our customers and thereby incur inventory risk. If we are unable to accurately predict demand for the packaged
tours, hotel rooms and air tickets that we are committed to purchase and which are nonrefundable, we would be responsible for bearing
the cost of the travel products we are unable to sell, and our financial condition and results of operations would be adversely
affected.
We may not be able to effectively
manage our growth and expansion or implement our business strategies, in which case our business and results of operations may
be materially and adversely affected.
We have experienced a period of rapid growth
and expansion, including our recent rapid expansion in lower tier cities in China. Such growth and expansion has placed, and will
continue to place, significant strain on our management and resources. We cannot assure you that this level of significant growth
and expansion will be sustainable or achieved at all in the future. We believe that our continued growth and expansion will depend
on our ability to provide competitive travel products and services, attract new customers, continue developing travel products
and services and innovative technologies in response to customer demand and preferences, increase brand awareness through marketing
and promotional activities, expand into new market segments, and take advantage of any growth in the relevant markets. We cannot
assure you that we will achieve any of the above.
To manage our growth and expansion, and
to achieve profitability, we anticipate that we will need to implement a variety of new and upgraded operational and financial
systems, procedures and controls, including the improvement of our N-Booking system and other management systems. We will also
need to further expand, train, manage and motivate our workforce and manage our relationships with our travel suppliers and customers.
All of these objectives entail risks and will require substantial management efforts and skills and significant additional expenditures.
Our further expansion may divert our management, operational or technological resources from our existing business operations.
In addition, our expansion has required us to operate in new cities in China, including a number of small cities in China, where
we may have difficulty in adjusting to local market demands and regulatory requirements. We cannot assure you that we will be able
to effectively manage our growth and expansion or implement our future business strategies effectively, and failure to do so may
materially and adversely affect our business and results of operations.
Our quarterly results are likely
to fluctuate because of seasonality in the leisure travel industry in China.
Our business experiences fluctuations, reflecting
seasonal variations in demand for leisure travel services. Sales of leisure travel products and services will increase in respect
of holiday periods and decrease in respect of off-peak times, while prices of leisure travel products and services are subject
to fluctuation between peak seasons and low seasons. For example, the third quarter of each year generally contributes the highest
percentage of our annual revenues, because many of our customers tend to travel during summer holidays in July and August. Consequently,
our results of operations may fluctuate from quarter to quarter. Our rapid growth has tended to mask the seasonality of our business.
As our growth rate slows, the seasonality in our business will become more pronounced and cause our operating results to fluctuate.
If we are unable to identify,
attract, hire, train and retain key individuals and highly skilled employees, our business may be adversely affected
Our future performance depends on the continued
service of our senior management, in particular, Mr. Dunde Yu, our co-founder, chairman and chief executive officer, and Mr. Haifeng
Yan, our co-founder, director, president and chief operating officer. If one or more of our key executives were unable or unwilling
to continue in their present positions, we may not be able to replace them easily, our future growth may be constrained, our business
may be disrupted and our financial condition and results of operations may be materially and adversely affected. There is no assurance
that we can continue to retain their services and there can be no assurance that they will not compete against us.
If our business continues to expand, we
will need to hire additional employees, including supplier management personnel to maintain and expand our travel supplier network,
information technology and engineering personnel to maintain and expand our online platform and customer service personnel to serve
an increasing number of customers. If we are unable to identify, attract, hire, train and retain sufficient employees in these
areas, our customers may not have satisfactory experiences with us and may turn to our competitors, which may adversely affect
our business and results of operations.
We may be subject to legal or
administrative proceedings regarding our travel products and services, information provided on our online platform or other aspects
of our business operations, which may be time-consuming to defend and affect our reputation.
From time to time, we have become and may
in the future become a party to various legal or administrative proceedings arising in the ordinary course of our business, including
breach of contract claims, anti-competition claims and other matters. For details, see “Item 8.A. Financial Information—Consolidated
Statements and Other Financial Information—Legal Proceedings.” Such proceedings are inherently uncertain and their
results cannot be predicted with certainty. Regardless of the outcome and merit of such proceedings, any such legal action could
have an adverse impact on our business because of defense costs, negative publicity, diversion of management’s attention
and other factors. In addition, it is possible that an unfavorable resolution of one or more legal or administrative proceedings,
whether in the PRC or in another jurisdiction, could materially and adversely affect our financial position, results of operations
or cash flows in a particular period or damage our reputation. In addition, our online platform contains information about our
travel products and services, vacation destinations and other travel-related topics. It is possible that our customers would take
action against us in the event that any content accessible on our online platform were to contain errors or false or misleading
information.
We may be subject to detrimental
adverse publicity, malicious allegations or other conduct by people or entities, which could harm our reputation, adversely affect
our business and the trading price of our ADSs.
We have been, and in the future may be,
the target of adverse publicity, malicious allegations or other detrimental conduct by people or entities. Such allegations, directly
or indirectly against us, may be posted in internet chat-rooms or on blogs or any website by anyone on an anonymous basis. We may
be required to spend significant time and incur substantial costs in response to such allegations or other detrimental conduct,
and there is no assurance that we will be able to conclusively refute each of them within a reasonable period of time, or at all.
Our reputation may be harmed as a result of the public dissemination of malicious allegations about our personnel, business, operations,
accounting, prospects or business ethics, which in turn could adversely affect our business and the trading price of our ADSs.
We have limited experience and
operating history in developing and providing new products and services, which may negatively affect our business, financial condition
and results of operations.
As part of our growth strategy, we intend
to develop and offer new travel products and services to satisfy the evolving needs of our customers. In January 2016, we launched
an open platform for air ticketing and hotel booking services. New bundles such as the “Air Ticket plus X” and “Hotel
plus X” allow our new services to closely complement our core leisure travel services. We also launched bus ticketing and
mobile car rental channels in order to provide leisure travelers with the most comprehensive solutions. We have limited experience
and operating history in developing and operating these new services. These and other new products and services we may offer in
the future present operating and marketing challenges that are different from those we currently encounter. In addition, the market
for our new travel products and services may be highly competitive. If we fail to successfully develop and offer our new travel
products and services in an increasingly competitive market, we may not be able to capture the growth opportunities associated
with them or recover the development and marketing costs, and our future results of operations and growth strategies could be adversely
affected.
We have limited experience in
operating a finance business. Increased exposure to credit risks or significant deterioration in the asset quality of our finance
business may have a material adverse effect on our business, results of operations and financial condition.
We started to participate in the finance
sector in China in 2015. We offer a range of financial services, including consumer financing, supply chain financing and microcredit,
yield enhancement products and insurance products to our customers. Expansion in this new business area involves new risks and
challenges. For certain financial products, we have committed or will commit our own capital. Our lack of familiarity with the
finance sector may make it difficult for us to anticipate the demands and preferences in the market and develop financial products
that meet the requirements and preference. We may not be able to successfully identify new product and service opportunities or
develop and introduce these opportunities to our clients in a timely and cost-effective manner, or our clients may be disappointed
in the returns from financial products that we offer.
The risk of nonpayment of loans is inherent
in the finance business and we are subject to credit risk resulting from defaults in payment for loans by the suppliers and customers.
Credit risks are exacerbated in consumer financing because there is relatively limited information available about the credit histories
of customers. 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. Furthermore, our
ability to manage the quality of our loan portfolio and the associated credit risks will have significant impact on the results
of operations of our finance business. 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 finance sectors, which may adversely affect the businesses,
operations or liquidity of our suppliers and customers or their ability to repay or roll over their debt. Any significant deterioration
in the asset quality of our finance business and significant increase in associated credit risks may have a material adverse effect
on our business, results of operations and financial condition.
In addition, the development of finance
business is capital intensive. We continue to provide management, administration and collection services on the transferred financial
assets and are obligated to absorb a portion of the losses incurred in the outstanding portfolio of the transferred financial assets
in the event of default. We may need additional cash resources due to further developments of our financial services or changed
business conditions, which may cause us to seek credit facilities or sell additional equity or debt securities. The incurrence
of indebtedness would result in increased debt obligations and could result in operating and financial covenants that would restrict
our operations. Additionally, it is uncertain whether financing will be available in amounts or on terms acceptable, if at all.
If the fragmented travel industry
in China becomes consolidated, our business, financial condition and results of operations may be adversely affected.
China’s enormous size and population,
imbalanced economic development and differences in consumer behavior across the country have created a highly fragmented and diverse
travel industry. In recent years, customers have been shifting from highly fragmented traditional offline travel companies to travel
websites for a wider product selection and greater convenience. If, however, traditional tour operators form alliances, or merge
or consolidate among themselves, or if one of our travel suppliers is acquired by another company with which we do not have a relationship,
we may not be able to maintain our strength in offering a wider selection of travel products and services as compared to traditional
travel companies, and our business, financial condition and results of operations may be adversely affected.
The Tourism Law may reduce the
demand of organized tours and materially and adversely affect our business and results of operations.
On April 25, 2013, the Standing Committee
of the National People’s Congress promulgated the Tourism Law, which became effective as of October 1, 2013 and was amended
in 2016. The Tourism Law imposes more stringent restrictions on tour operators. Pursuant to the Tourism Law, tour operators are
prohibited from arranging compulsory shopping or other activities which charge additional fees on top of the contract prices that
the tourist has already paid, unless it is agreed upon by both parties through consultation or requested by the tourist and does
not affect the itinerary of other tourists. See “Item 4.B. Information on the Company—Business Overview—PRC Regulation—Regulations
on Travel Companies.” If our travel suppliers fail to comply with these restrictions, our reputation and brand may be negatively
affected. In addition, as a result of the Tourism Law, the commissions or rebates that tour operators receive from shopping establishments
have declined and organized tour prices have risen, which have reduced the demand for organized tours in the short term and may
continue to reduce the demand for organized tours in the future. If customers cannot adapt to the increased organized tour prices,
our business and results of operations will be materially and adversely affected.
We may not be able to prevent
others from using our intellectual property, which may harm our business and expose us to litigation.
We regard our intellectual property as critical
to our success. We rely primarily on a combination of copyright, software registration, trademark, trade secret and unfair competition
laws and contractual rights, such as confidentiality agreements with our employees and others, to protect our intellectual property
rights. The protection of intellectual property rights in China may not be as effective as that in the United States. Unauthorized
use or other misappropriation of our technologies would enable third parties to benefit from our technologies without paying us,
or enable our competitors to offer travel products and services that are comparable to or better than ours. From time to time,
we may have to enforce our intellectual property rights through litigation. Such litigation may result in substantial costs and
diversion of resources and management attention. If we are not successful in protecting our intellectual property, our business,
financial condition and results of operations may be materially and adversely affected.
Claims by third parties that we
infringe on their intellectual property rights could lead to government administrative actions and result in significant costs
and have a material adverse effect on our business, financial condition and results of operations.
We cannot be certain that our operations
or any aspects of our business do not or will not infringe upon copyrights or other intellectual property rights held by third
parties. We have been in the past, and may be from time to time in the future, subject to legal proceedings, claims or government
administrative actions relating to alleged infringement on copyrights or other intellectual property rights held by third parties
in relation to the content on our online platform or intellectual property rights otherwise used in our operation. For example,
our website may be found to contain pictures that infringe on copyrights of third parties or hotel reviews that are third parties’
proprietary information. In addition, some of the software that we are currently using in our business may infringe on third parties’
copyrights. If we are found to have infringed on the intellectual property rights of others, we may be subject to liability for
our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees. Successful
infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our
business and operations by restricting or prohibiting our use of the intellectual property in question. Moreover, regardless of
whether we successfully defend against such claims, we could suffer negative publicity and our reputation could be severely damaged.
Any of these events could have a material and adverse effect on our business, financial condition and results of operations.
In addition, user-generated content on our
online platform may contain or provide links to information that infringes on the copyrights or other intellectual property rights
of third parties or violates applicable rules or regulations in relation to censorship, or we may use the user-generated content
in a way that infringes on the rights of the users or third parties. Any claims, with or without merit, could be time-consuming
to defend, result in litigation and divert management’s attention and resources.
The successful operation of our
business depends upon the performance and reliability of the Internet infrastructure and telecommunications networks in China.
Our business depends on the performance
and reliability of the Internet infrastructure and telecommunications networks in China. Almost all access to the Internet is maintained
through state-owned telecommunications operators under the administrative control and regulatory supervision of the Ministry of
Industry and Information Technology of the PRC, or the MIIT. In addition, the national networks in China are connected to the Internet
through international gateways controlled by the PRC government. These international gateways are the only channels through which
domestic users can connect to the Internet. We rely on a limited number of telecommunications service providers, primarily China
Telecom and China Unicom, to provide us with data communications capacity. We, our customers or travel suppliers, may not have
access to alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure.
With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing
traffic on our online platform. However, we have no control over the costs of the services provided by telecommunications service
providers. If the prices we pay for telecommunications and Internet services rise significantly, our results of operations may
be materially and adversely affected. If Internet access fees or other charges to Internet users increase, the number of Internet
users may decline and our business may be harmed. Moreover, if we are not able to renew services agreements with the telecommunications
carriers when they expire and are not able to enter into agreements with alternative carriers on commercially reasonable terms
or at all, the quality and stability of our online platform may be adversely affected.
We are subject to payment-related
risks.
We enable our customers to make payments
through our website by working with various third-party online payment processing service providers. As we rely on third parties
to provide payment processing services, including processing payments made with credit cards and debit cards, it could disrupt
our business if these companies become unwilling or unable to provide these services to us. We may be subject to human error, fraud
and other illegal activities in connection with third-party online payment services. If our data security systems are breached
or compromised, we may lose our ability to accept credit and debit card payments from our customers, and we may be subject to claims
for damages from our customers and third parties, all of which could adversely and materially affect our reputation as well as
our results of operations.
If we fail to adopt new technologies
or adapt our online platform and management systems to changing user requirements, increasing traffic or emerging industry standards,
our business may be materially and adversely affected.
The online travel industry is subject to
rapid technological changes. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and
features of our online platform. The online travel industry is also characterized by rapid technological evolution and changes
in customer requirements and preferences. Our success will depend, in part, on our ability to identify, develop, acquire or license
leading technologies useful in our business and respond to technological advances and emerging industry standards and practices
in a cost-effective and timely manner. The development of our online platform and other proprietary technology entails significant
technical and business risks. In addition, the widespread adoption of new Internet, networking or telecommunications technologies
or other technological changes could require substantial expenditures to modify or adapt our infrastructure. We may not be able
to use new technologies effectively or adapt our online platform, proprietary technologies and operating systems to the requirements
of our customers and travel suppliers or emerging industry standards. If we are unable to adapt in a cost-effective and timely
manner to changing market conditions or user requirements, whether for technical, legal, financial, or other reasons, our business
may be materially and adversely affected.
Our business may be harmed if we are unable
to upgrade our systems and infrastructure quickly enough to accommodate increasing traffic levels, or to avoid obsolescence, or
successfully integrate any newly developed or purchased technologies with our existing systems. Capacity constraints could cause
unanticipated system disruptions, slower response times, poor customer experience, impaired quality and speed of reservations and
confirmations and delays in reporting accurate financial and operating information. These factors could cause us to lose customers.
Additionally, we will continue to upgrade and improve our technology infrastructure to support our business growth. However, we
cannot assure you that we will be successful in executing these system upgrades and improvement strategies. In particular, our
systems may experience interruptions during upgrades, and any new technologies or infrastructures may not be fully integrated with
our existing systems on a timely basis, or at all. If our existing or future technology infrastructure does not function properly,
it could cause system disruptions and slow response times that affect data transmission, which in turn could materially and adversely
affect our business.
We are exposed to risks associated
with online security.
The secure transmission of confidential
information over the Internet is essential in maintaining customer confidence in us. We conduct a significant portion of our transactions
through our website. We utilize digital certificates to help us conduct secure communications and transactions. In addition, sensitive
customer information, such as password and payment information, is stored with encryption, and our data servers are secured with
firewalls. However, advances in technology or other developments could result in a compromise or breach of the technology that
we use to protect customer and transaction data. Our security measures may not be sufficient to prevent security breaches. Any
failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related
legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable
information or other customer data, could cause our customers to lose trust in us and could expose us to legal claims.
Our use of open source software
could adversely affect our ability to offer our products and services and subject us to possible litigation.
We use open source software in connection
with our development of technology infrastructure. From time to time, companies that use open source software have faced claims
challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties
claiming ownership of what we believe to be open source software, or claiming noncompliance with open source licensing terms. Some
open source licenses require users who distribute software containing open source to make available all or part of such software,
which in some circumstances could include valuable proprietary code. While we monitor the use of open source software and try to
ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach
the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often
ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to our
business, results of operations or financial condition, and could help our competitors develop travel products and services that
are similar to or better than ours.
We may not be successful in pursuing
strategic alliances and acquisitions, and future alliances and acquisitions may not bring us anticipated benefits.
Part of our growth strategy is the pursuit
of strategic alliances and acquisitions. There can be no assurance that we will succeed in implementing this strategy as it is
subject to many factors which are beyond our control, including our ability to identify and successfully execute suitable acquisition
opportunities and alliances. Any future acquisitions, investments, and strategic alliances may expose us to new operational, regulatory
and market risks, as well as risks associated with additional capital requirements, including risks associated with unforeseen
or hidden liabilities, diversion of management resources and costs of integrating acquired businesses, the inability to generate
sufficient revenue to offset the costs and expenses of acquisitions, and potentially significant loss of investments. Any acquisitions
we pursue could also create difficulties with integrating the technology of acquired businesses with our existing technology, and
employees of acquired businesses into the various departments and ranks in our company, and it could take substantial time and
effort to integrate the business processes being used in the acquired businesses with our existing business processes. Should we
fail to integrate acquired companies efficiently, our earnings, revenues, gross margins, operating margins and business operations
could be negatively affected. Furthermore, acquired companies may not perform to our expectations for various reasons, including
legislative or regulatory changes that affect the products and services in which the acquired companies specialize and the loss
of key personnel and customer accounts. Any alliances we pursue could also subject us to a number of risks, including risks associated
with sharing proprietary information, non-performance by the third party and increased expenses in establishing new strategic alliances,
any of which may materially and adversely affect our business. We may also have limited ability to monitor or control the actions
of these third parties and, to the extent any of these strategic third parties suffer negative publicity or harm to their reputation
from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association
with any such third party.
We may not be able to identify suitable
future acquisition or investment candidates or alliance partners. Moreover, there is no assurance that such alliances or acquisitions
will achieve our intended objectives or benefits. Even if we identify suitable candidates or partners, we may be unable to complete
an acquisition, investment or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or
partners, or complete desired acquisitions, investments or alliances, we may not be able to implement our strategies effectively
or efficiently, and our overall profitability and growth plans may be adversely affected.
If we fail to implement and maintain
an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud or fail
to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.
We are subject to the Sarbanes-Oxley Act
of 2002. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal
control over financial reporting in our annual report on Form 20-F. In addition, our independent registered public accounting firm
must report on the effectiveness of our internal control over financial reporting.
Our management has concluded that our internal
control over financial reporting was effective as of December 31, 2016. See “Item 15. Controls and Procedures.” Our
independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over
financial reporting was effective in all material aspects as of December 31, 2016. However, if we fail to maintain the effectiveness
of our internal control over financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control over financial
reporting is necessary for us to produce reliable financial reports. As a result, any failure to maintain effective internal control
over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which
in turn could negatively impact the trading price of our ADSs. Furthermore, we may need to incur additional costs and use additional
management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
We have limited business insurance
coverage in China.
Insurance companies in China offer limited
business insurance products. Business disruption insurance is available to a limited extent in China, but we have determined that
the risks of disruption, the cost of such insurance and the difficulties associated with acquiring such insurance make it commercially
impractical for us to have such insurance. We maintain insurance coverage for travel company liabilities, but we do not maintain
insurance coverage for business disruptions and would have to bear the costs and expenses associated with any such events out of
our own resources.
We may need additional capital,
and financing may not be available on terms acceptable to us, or at all.
Although we believe that our current cash
and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for at least
the next 12 months, we may require additional cash resources due to changed business conditions or other future developments, including
any marketing initiatives or investments we may decide to pursue. If these resources are insufficient to satisfy our cash requirements,
we may seek to obtain a credit facility or sell additional equity or debt securities. The sale of additional equity securities
could result in dilution of our existing 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.
We have granted share options
and restricted shares, and may grant share options and other share-based awards in the future, which may materially increase our
net loss.
We adopted an incentive compensation plan
in 2008, or the 2008 Plan, which permits the granting of options to purchase our ordinary shares and restricted shares. We also
adopted a separate incentive compensation plan in 2014, or the 2014 Plan, which permits the granting of options to purchase our
ordinary shares, restricted shares and restricted share units. In particular, our 2014 Plan contains an evergreen provision which
allows us to automatically increase the maximum aggregate number of ordinary shares reserved under the 2014 Plan to 5% of the then-issued
and outstanding shares on an as-converted basis without shareholder approval, if and whenever the shares reserved in the 2014 Plan
account for less than 1% of the total then-issued and outstanding shares on an as-converted basis. For more details regarding the
2008 Plan and the 2014 Plan, see “Item 6.B. Directors, Senior Management and Employees—Compensation.” As of March
31, 2017, there were options to acquire 9,336,745 ordinary shares outstanding under the 2008 Plan, and options to acquire 21,892,922
ordinary shares and 383,598 restricted shares outstanding under the 2014 Plan. In addition, we plan to grant employees share options
and other share-based compensation in the future. Expenses associated with share-based awards may materially impact our results
of operations.
Risks Related to Our Corporate Structure
Substantial uncertainties and
restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to restrictions on foreign
investment in value-added telecommunications and travel companies in China. If the PRC government finds that the structure we have
adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including
shutting down of our online platform.
Foreign ownership of Internet-based businesses
is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates Internet access, the
distribution of online information and the conduct of online commerce through strict business licensing requirements and other
government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that provide
Internet content distribution services. Specifically, foreign investors are not allowed to own more than 50% of the equity interest
in any entity conducting value-added telecommunications business. The Circular on Strengthening the Administration of Foreign Investment
in and Operation of Value-added Telecommunications Business issued by the Ministry of Industry and Information Technology in July
2006, or the MIIT Circular, reiterated the regulations on foreign investment in telecommunications business, which require foreign
investors to set up foreign-invested telecom enterprises and obtain business operating licenses for Internet content provision,
or an ICP license to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company
that holds an ICP license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and
from providing any assistance, including providing 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 must be owned by the domestic ICP license holder or its shareholders. Due to a lack of interpretation
from the MIIT, it is unclear what impact the MIIT Circular will have on us or other PRC Internet companies that have adopted the
same or similar corporate structures and contractual arrangements as ours. Nanjing Tuniu holds our ICP licenses, and owns the domain
name used in our value-added telecommunications business. Nanjing Tuniu is also the owner of all registered trademarks used in
our value-added telecommunications business and is the applicant of all the applications for trademark registration we have made.
We are a Cayman Islands company and our
wholly owned PRC subsidiary, Beijing Tuniu Technology Co., Ltd., or Beijing Tuniu, is considered a foreign invested enterprise.
To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered
into among Beijing Tuniu, Nanjing Tuniu, and the shareholders of Nanjing Tuniu. As a result of these contractual arrangements,
we exert control over Nanjing Tuniu and its subsidiaries and consolidate their results of operations in our financial statements
under U.S. GAAP. For a detailed description of these contractual arrangements, see “Item 4.C. Information on the Company—Organizational
Structure.”
In the opinion of our PRC counsel, Fangda
Partners, our current ownership structure, the ownership structure of our PRC subsidiaries and our consolidated affiliated entities,
each of the shareholders’ voting rights agreement, powers of attorney, equity interest pledge agreement and purchase option
agreement entered into among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing Tuniu, and the cooperation agreement
between Beijing Tuniu and Nanjing Tuniu, which establish our contractual arrangement with Nanjing Tuniu and its shareholders, and,
except as otherwise disclosed in this annual report, our business operations are not in violation of existing PRC laws, rules and
regulations. However, we are advised by our PRC counsel, Fangda Partners, that there are substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government
will ultimately take a view that is consistent with the opinion of our PRC counsel stated above.
In or around September 2011, various media
sources reported that the China Securities Regulatory Commission, or the CSRC, had prepared a report proposing regulating the use
of variable interest entity structures, such as ours, in industry sectors subject to foreign investment restrictions in China and
overseas listings by China-based companies. However, it is unclear whether the CSRC officially issued or submitted such a report
to a higher level government authority or what any such report provides, or whether any new PRC laws or regulations relating to
variable interest entity structures will be adopted or if adopted, what they would provide.
If our ownership structure, contractual
arrangements and business of our company, our PRC subsidiaries or our consolidated affiliated entities are found to be in violation
of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the
relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating
our income or the income of our PRC subsidiaries or consolidated affiliated entities, revoking the business licenses or operating
licenses of our PRC subsidiaries or consolidated affiliated entities, shutting down our servers or blocking our online platform,
discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive
restructuring, restricting or prohibiting our use of proceeds from our earlier initial public offering and the related concurrent
private placement as well as our subsequent private placement in December 2014, May 2015 and November 2015 to finance our business
and operations in China, and taking other regulatory or enforcement actions that could be harmful to our business. Any of these
actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially
and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability
to direct the activities of any of our consolidated affiliated entities that most significantly impact its economic performance,
and/or our failure to receive the economic benefits from any of our consolidated affiliated entities, we may not be able to consolidate
the entity in our consolidated financial statements in accordance with U.S. GAAP.
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 its 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
, together with their implementation
rules and ancillary regulations. 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 legislative efforts to unify the corporate
legal requirements for both foreign and domestic investments.
Among other things, the draft Foreign Investment
Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether
a company is considered a foreign-invested enterprise, or FIE. The draft Foreign Investment Law specifically provides that entities
established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity established in
a foreign jurisdiction would nonetheless be, upon market entry clearance by the MOC, treated as a PRC domestic investor provided
that entity is “controlled” by PRC entities and/or citizens. In this connection, “control” is broadly defined
in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, 50% or more of the equity interests
or voting rights of the subject entity; (ii) holding less than 50% of the equity interests or voting rights of the subject entity
but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the
voting power to materially influence the board, shareholders’ meetings or other equivalent decision making bodies; or (iii)
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. Under the draft Foreign Investment Law, once an entity is determined
to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,”
to be separately issued by the State Council at a later date, in the event that the FIE is engaged in an industry listed on the
negative list. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance
by the MOC, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no
longer be required for establishment of the FIE.
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 industries that are currently subject to foreign investment restrictions in China. See “—Risks Related to Our Corporate
Structure—Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws
and regulations relating to restrictions on foreign investment in value-added telecommunications and travel companies in China.
If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations,
we could be subject to severe penalties, including the forced closure of our online platform” and “Item 4.C. Information
on the Company—Organizational Structure
.
” Under the draft Foreign Investment Law, variable interest entities
that are controlled via contractual arrangements would also be deemed FIEs, if they are ultimately “controlled” by
foreign investors. Therefore, there is a risk that, for any company which invests in an industry category that is on the “negative
list” using a VIE structure established after the Foreign Investment Law takes effect the VIE structure would be deemed legitimate
only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the
actual controlling person(s) is/are of foreign nationalities, then there is the risk that the variable interest entities will be
treated as FIEs and any operation in industry categories on the “negative list” without market entry clearance would
possibly be considered as illegal. But as for investments in industry categories contained in the negative list through VIE structures
established before the Foreign Investment Law takes effect, there is no specific clause in the draft Foreign Investment Law specifying
how these investments will be treated. In accordance with an explanation on the draft Foreign Investment Law issued concurrently
by the MOC, the MOC is conducting further research and studying on this matter and will put forward disposition suggestions after
soliciting public comments. The MOC solicited comments on the draft Foreign Investment Law and substantial uncertainties exist
with respect to its enactment timetable, interpretation and implementation. Moreover, it is uncertain whether the value-added telecommunications
and travel industries in which our variable interest entities operate will be subject to the foreign investment restrictions or
prohibitions set forth in the “negative list” to be issued by the State Council. If a final version of the Foreign
Investment Law and the “negative list” are promulgated and mandate further actions, such as MOC market entry clearance,
to be completed by companies like us, with existing VIE structures, we face uncertainties as to whether such clearance can be timely
obtained, or at all. Any such development could materially impact the viability of our current corporate structure, corporate governance
and business operations in many aspects. In the event that a final version of the Foreign Investment Law is enacted, we will conduct
a full analysis of our corporate structure, corporate governance and business operations to assess our conformity with the requirements
set forth therein.
The draft Foreign Investment Law, if enacted
as proposed, may also materially impact our corporate governance practices and increase our compliance costs. For instance, the
draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and
the applicable FIEs. 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 these 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 liability.
We rely on contractual arrangements
with Nanjing Tuniu and its shareholders for the operation of our business, which may not be as effective as direct ownership. If
Nanjing Tuniu or its shareholders fail to perform their obligations under these contractual arrangements, we may have to resort
to litigation or arbitration to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations
and reputation. If we are unable to maintain effective control we would not be able to continue to consolidate the financial results
of our consolidated affiliated entities with our financial results.
Although we have been advised by our PRC
counsel, Fangda Partners, that our contractual arrangements with Nanjing Tuniu and its shareholders did not and does not result
in any violation of current PRC laws, these contractual arrangements may not be as effective in providing control as direct ownership.
If Nanjing Tuniu or its shareholders fail to perform their obligations under the contractual arrangements, we may have to incur
substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under
contract law, including seeking specific performance or injunctive relief and claiming damages, which we cannot assure you will
be effective. For example, if the shareholders of Nanjing Tuniu refuse to transfer their equity interests in Nanjing Tuniu to us
or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad
faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. Furthermore, while
the company chops of Nanjing Tuniu are held by its legal and accounting departments, our ability to ensure its performance under
the contractual agreements may be limited if we are unable to secure control of the company chops in the event of a dispute with
its management or shareholders, as many official documents require affixation of company chops to become fully effective. If we
were the controlling shareholder of Nanjing Tuniu with direct ownership, we would be able to exercise our rights as shareholders
to effect changes to its board of directors, which in turn could implement changes at the management and operational level.
All the agreements under our contractual
arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these
contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures.
There remain significant uncertainties regarding how our contractual arrangements would be interpreted under PRC laws and the ultimate
outcome of the resolution of disputes in relation to such contractual arrangements, should arbitration become necessary. The legal
system 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. Under PRC laws, if the losing parties fail
to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards
in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event
we are unable to enforce these contractual arrangements, we may not be able to exert effective control over Nanjing Tuniu and its
shareholders, and our ability to conduct our business may be negatively affected. If we are unable to maintain effective control,
we would not be able to continue to consolidate the financial results of our consolidated affiliated entities with our financial
results.
The shareholders of Nanjing Tuniu
may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
We have designated individuals who are PRC
nationals to be the shareholders of Nanjing Tuniu. The equity interests of Nanjing Tuniu are held by Messrs. Dunde Yu, Haifeng
Yan, Tong Wang, Jiping Wang, Xin Wen, Yongquan Tan and Haifeng Wang. The interests of these individuals as the shareholders of
Nanjing Tuniu may differ from the interests of our company as a whole. These shareholders may breach, or cause Nanjing Tuniu to
breach, the existing contractual arrangements we have with them and Nanjing Tuniu, which would have a material and adverse effect
on our ability to effectively control Nanjing Tuniu. We cannot assure you that when conflicts of interest arise, any or all of
these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements
to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase
option under the purchase option agreement with these shareholders to request them to transfer all of their equity interests in
Nanjing Tuniu to a PRC entity or individual designated by us, to the extent permitted by PRC laws. We rely on Messrs. Dunde Yu
and Haifeng Yan, who are our founders, directors and beneficial owners, Messrs. Tong Wang, Jiping Wang, Xin Wen and Yongquan Tan,
who are our beneficial owners and Mr. Haifeng Wang, who is an employee of one of our shareholders, to abide by the PRC law. If
we cannot resolve any conflict of interest or dispute between us and the shareholders of Nanjing Tuniu, we would have to rely on
legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome
of any such legal proceedings.
Our contractual arrangements with
Nanjing Tuniu and its shareholders may be subject to scrutiny by the PRC tax authorities, and a finding that we owe additional
taxes could substantially increase our consolidated net loss and reduce the value of your investment.
Under PRC laws and regulations, arrangements
and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material
and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Beijing Tuniu, Nanjing
Tuniu and the shareholders of Nanjing Tuniu do not represent an arm’s-length transaction and adjust Nanjing Tuniu’s
income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction,
for PRC tax purposes, of expense deductions recorded by Nanjing Tuniu, which could in turn increase its tax liabilities without
reducing our tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties to Nanjing
Tuniu for under-paid taxes. Our consolidated net loss may be increased if our tax liabilities increase or if we are found to be
subject to late payment fees or other penalties.
If Nanjing Tuniu becomes the subject
of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy its assets, which could materially and adversely
affect our business.
To comply with PRC laws and regulations
relating to foreign ownership restrictions in the online value-added telecommunications business, we hold our ICP license and operate
our business through contractual arrangements with Nanjing Tuniu as well as its shareholders. As part of these arrangements, Nanjing
Tuniu holds assets that are important to the operation of our business.
We do not have priority pledges or liens
against Nanjing Tuniu’s assets. As a contractual and property right matter, this lack of priority pledges and liens has remote
risks. If Nanjing Tuniu undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some or all
of its assets and we may not have priority against such third-party creditors on Nanjing Tuniu’s assets. If Nanjing Tuniu
undergoes a voluntary liquidation, we may take part in the liquidation procedures as a general creditor under the PRC Enterprise
Bankruptcy Law and recover any outstanding liabilities owed by Nanjing Tuniu to Beijing Tuniu under the cooperation agreement between
them. To ameliorate the risks of an involuntary liquidation proceeding initiated by a third-party creditor, we closely monitor
the operations and finances of Nanjing Tuniu through carefully designed budgetary and internal controls to ensure that Nanjing
Tuniu is well capitalized and is highly unlikely to trigger any third party monetary claims in excess of its assets and cash resources.
Furthermore, Beijing Tuniu has the ability, if necessary, to provide financial support to Nanjing Tuniu to avoid such an involuntary
liquidation.
If the shareholders of Nanjing Tuniu were
to attempt to voluntarily liquidate Nanjing Tuniu without obtaining our prior consent, we could effectively prevent such unauthorized
voluntary liquidation by exercising our right to request Nanjing Tuniu’s shareholders to transfer all of their equity interests
to a PRC entity or individual designated by us in accordance with the purchase option agreement with the shareholders of Nanjing
Tuniu, to the extent permitted by PRC laws. In the event that the shareholders of Nanjing Tuniu initiate a voluntary liquidation
proceeding without our authorization or attempt to distribute the retained earnings or assets of Nanjing Tuniu without our prior
consent, we may need to resort to legal proceedings to enforce the terms of the contractual agreements. Any such legal proceeding
may be costly and may divert our management’s time and attention away from the operation of our business, and the outcome
of such legal proceeding would be uncertain.
Risks Related to Doing Business in China
Uncertainties in the interpretation
and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written
statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the
PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall
effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign
or private-sector investment in China. Our PRC subsidiaries and consolidated affiliated entities are subject to various PRC laws
and regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and 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.
From time to time, we may have to resort
to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have
significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.
Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in
a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies
and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual,
property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment
in China could materially and adversely affect our business and impede our ability to continue our operations.
Changes in China’s economic,
political or social conditions or government policies could have a material adverse effect on our business and operations.
Our business operations are based in China.
Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by
economic, political and social conditions or government policies in China generally and by continued economic growth in China as
a whole.
China’s economy differs from the economies
of most developed countries in many respects, including the level of government involvement, level of development, growth rate,
control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970s
emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the
establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is
still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry
development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth
through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies.
While China’s economy has experienced
significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy,
and in the recent years, the growth has been slowing down. Some of the government measures may benefit the overall Chinese economy,
but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected
by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese
economy may contribute to higher inflation, which could adversely affect our financial condition and results of operations. For
example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result
of higher inflation.
The PRC government regulates travel
and other related industries. If we fail to obtain or maintain all pertinent permits and approvals or if the PRC government imposes
more restrictions on these industries, our business may be adversely affected.
We are required to obtain applicable permits
or approvals from regulatory authorities to conduct our business activities. See “Item 4.B. Information on the Company—Business
Overview—PRC Regulation.” If we fail to obtain or maintain any of the required permits or approvals in the future,
we may be subject to various penalties, such as fines or suspension of operations in these regulated businesses, which could severely
disrupt our business operations. As a result, our financial condition and results of operations may be adversely affected.
Under the PRC Enterprise Income
Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification would likely
result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material adverse effect on our results
of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law,
or the EIT Law, that became effective on January 1, 2008, an enterprise established outside the PRC with a “de facto management
body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject
to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, or the Implementation
Rules, a “de facto management body” is defined as a body that has material and overall management and control over
the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition,
SAT Circular 82, which was issued in April 2009 by the State Administration of Taxation, or the SAT, specifies that certain offshore
incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises
if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily
operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject
to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises,
and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more
of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to
SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect on September 1, 2011, to provide more guidance on the implementation
of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore-incorporated resident
enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise
status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals
like us, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position
on how the “de facto management body” test should be applied in determining the PRC resident enterprise status of offshore
enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
We do not believe that Tuniu Corporation
meets all of the conditions above and thus we do not believe that it is a PRC resident enterprise for PRC enterprise income tax
purposes, despite the fact that all of the members of our management team as well as the management team of Tuniu (HK) Limited
are located in China. However, if the PRC tax authorities determine that it is a PRC resident enterprise for PRC enterprise income
tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise
income tax on our worldwide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise
income tax reporting obligations. Second, although dividends paid by one PRC tax resident to another PRC tax resident should qualify
as “tax-exempt income” under the EIT Law, we cannot assure you that such dividends will not be subject to a 10% withholding
tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities
have not yet issued guidance with respect to the processing of outbound remittances to entities that are not controlled by any
PRC enterprise or PRC enterprise group and treated as PRC resident enterprises for PRC enterprise income tax purposes.
Under the EIT Law and its Implementation
Rules, subject to any applicable tax treaty or similar arrangement between the PRC and our investors’ jurisdiction of residence
that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends
from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business
in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the
establishment or place of business. Any gain realized on the transfer of American depositary shares or shares by such non-PRC resident
enterprise investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC
unless a tax treaty or similar arrangement otherwise provides. Under the PRC Individual Income Tax Law and its implementation rules,
dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a
PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of American depositary
shares or shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in
applicable tax treaties and PRC laws. It is also unclear whether dividends we pay with respect to our ordinary shares or ADSs,
or the gain realized from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the
PRC and as a result be subject to PRC income tax if we were considered a PRC resident enterprise, as described above. If PRC income
tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our non-PRC resident
investors, the value of the investment in our ADSs or ordinary shares may be materially and adversely affected. Furthermore, our
ADS holders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such
tax treaties or arrangements.
We face uncertainty regarding
the PRC tax reporting obligations and consequences for certain indirect transfers of our operating company’s equity interests.
Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions
we may pursue in the future.
In connection with the EIT Law, the PRC
Ministry of Finance and the SAT jointly issued SAT Circular 59 in April 2009, and the SAT issued SAT Circular 698 in December 2009.
Both SAT Circular 59 and Circular 698 became effective retroactively on January 1, 2008.
According to SAT Circular 698, where a non-PRC
resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests
of an overseas holding company, or an Indirect Transfer, and the overseas holding company is located in a tax jurisdiction that:
(1) has an effective tax rate of less than 12.5% or (2) does not impose tax on foreign income of its residents, the non-PRC resident
enterprise, being the transferor, must report this Indirect Transfer to the relevant tax authority of the PRC resident enterprise.
Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding
company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC
tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular
698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its
related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment
to the taxable income resulting from the transaction. In addition, the PRC resident enterprise is supposed to provide necessary
assistance to support the enforcement of SAT Circular 698.
On March 28, 2011, the SAT released SAT
Public Notice (2011) No. 24, or SAT Public Notice 24, to clarify several issues related to SAT Circular 698. SAT Public Notice
24 became effective on April 1, 2011. According to SAT Public Notice 24, the term “effective tax rate” refers to the
effective tax rate on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does
not impose income tax” refers to the cases where the gain derived from disposition of the equity interests of an overseas
holding company is not subject to income tax in the country/region where the overseas holding company is a resident.
There is little guidance as to the application
of SAT Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that
the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having
no direct contact with China. In addition, there are no formal declarations with regard to how to determine whether a foreign investor
has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. If any of the previous investments by non-PRC resident
investors in our company were determined by the tax authorities to lack reasonable commercial purpose, it is possible that the
PRC tax authorities would pursue our offshore shareholders to conduct a filing regarding our offshore restructuring transactions
where non-PRC resident investors were involved and would request our PRC subsidiaries to assist in providing such disclosures.
In addition, if our offshore subsidiaries are deemed to lack substance, they could be disregarded by the PRC tax authorities. As
a result, we and our non-PRC resident investors may become at risk of being taxed under SAT Circular 698 and may be required to
expend valuable resources to comply with SAT Circular 698 or to establish that we and our non-PRC resident investors should not
be taxed under SAT Circular 698, which may have a material adverse effect on our financial condition and results of operations
or the non-PRC resident investors’ investments in us.
By promulgating and implementing these circulars,
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-PRC resident enterprise. The PRC tax authorities have the discretion under SAT Circular 59 and SAT Circular
698 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. Although we currently have no confirmed plans to pursue any acquisitions in China or elsewhere in the
world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-PRC resident
enterprise under the EIT Law and if the PRC tax authorities make adjustments under SAT Circular 59 or SAT Circular 698, our income
tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition
and results of operations.
The SAT further released its Bulletin on
Several Issues Concerning Enterprise Income Taxation on Income Arising from the Indirect Transfers of Property by Non-resident
Enterprises (“SAT Bulletin 2015 No. 7” or “Bulletin 7”), which became effective on February 3, 2015. Bulletin
7 repealed the relevant Indirect Transfer provisions contained in Circular 698 and set forth more detailed rules for the tax treatment
of Indirect Transfers of equity interests in PRC resident enterprises and other assets situated in China. Bulletin 7 abolished
the previous mandatory reporting requirement for Indirect Transfers under Circular 698, and provides that the parties to an Indirect
Transfer transaction have the option to decide whether to report the Indirect Transfer to the competent tax authorities. Applying
a “substance over form” principle, when a non-resident enterprise structures an Indirect Transfer of an equity interest
in a PRC resident enterprise or other assets situated in China to avoid taxation under the EIT through arrangements lacking reasonable
commercial purposes, the Indirect Transfer will be re-characterized as a direct transfer. As a result, any gains derived from the
Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. Bulletin 7 provides de facto safe harbor treatment
for situations in which a non-resident enterprise buys and then sells shares, in the public securities markets, of an overseas-listed
company that holds an equity interest in a PRC resident enterprise, and thereby realizes a capital gain. However, in order for
the safe harbor treatment to apply, both the purchase and sale must be conducted on the public securities markets so as to preclude
market manipulation, and the equity interests purchased and sold must be those in the same enterprise. When shares sold in the
public securities markets were obtained before such shares were listed on a public securities market or were not purchased through
a public securities market, or when shares were purchased on a public market but are to be sold through non-public markets, the
safe harbor would not apply. There is uncertainty as to the interpretation and application of SAT Circular 698 and Bulletin 7.
If an Indirect Transfer occurs for us, we and our non-PRC resident investors may be at risk of being taxed under SAT Circular 698
and Bulletin 7, and we may be required to expend valuable resources to comply with SAT Circular 698 and Bulletin 7 or to establish
that we should not be taxed under SAT Circular 698 and Bulletin 7.
PRC regulations establish complex
procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth
through acquisitions in China.
Six PRC regulatory agencies promulgated
regulations effective in September 2006 that are commonly referred to as the M&A Rules, which were amended on June 22, 2009,
with such amendments becoming effective as of the same date. See “Item 4.B. Information on the Company—Business Overview—PRC
Regulation.” The M&A Rules establish procedures and requirements that could make some acquisitions of PRC companies by
foreign investors more time-consuming and complex, including requirements in some instances that the MOC be notified in advance
of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, national
security review rules issued by the PRC governmental authorities in 2011 require acquisitions by foreign investors of domestic
companies engaged in military-related or certain other industries that are crucial to national security to be subject to prior
security review. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking
if certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses. Complying with the
requirements of the M&A Rules, security review rules and other PRC regulations to complete such transactions could be time-consuming,
and any required approval processes, including obtaining approval from the MOC, may delay or inhibit our ability to complete such
transactions, which could affect our ability to expand our business or maintain our market share.
PRC regulations relating to offshore
investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute
profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liabilities and penalties
under PRC laws.
The PRC State Administration of Foreign
Exchange, or the SAFE, promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’
Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014,
which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE in October, 2005. SAFE
Circular 37 requires PRC residents to register with 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, with assets or equity interests of onshore
companies or offshore assets or interests held by the PRC residents, referred to in SAFE Circular 37 as a “special purpose
vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect
to the special purpose vehicle, such as increases or decreases in capital contributed by PRC residents, transfers or exchanges
of shares, mergers, divisions, or other material changes. The term “control” under SAFE Circular 37 is broadly defined
as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in special purpose vehicles
or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements.
If our shareholders or beneficial owners
who are PRC citizens or residents do not complete their registration with the local SAFE branches, our PRC subsidiaries may be
prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and
we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with
the various SAFE registration requirements described above could result in liabilities for our PRC subsidiaries under PRC laws
for evasion of applicable foreign exchange restrictions, including (1) the requirement by SAFE to return the foreign exchange remitted
overseas within a period specified by SAFE, with a fine of up to 30% of the total amount of foreign exchange remitted overseas
and deemed to have been evasive and (2) in circumstances involving serious violations, a fine of no less than 30% of and up to
the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries
who are held directly liable for the violations may be subject to criminal sanctions.
SAFE Circular 37 provides that PRC residents
include both PRC citizens, meaning any individual who holds a PRC passport or resident identification card, and individuals who
are non-PRC citizens but primarily reside in the PRC due to their economic ties to the PRC. We have requested all of our known
current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the
ambit of SAFE Circular 37 and other related rules, and urged relevant shareholders and beneficial owners, upon learning they are
PRC residents, to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related
rules. However, we cannot assure you that they did successfully amend their foreign exchange registrations with the local SAFE
branch in compliance with applicable laws after our initial public offering. In addition, we may not be informed of the identities
of all the PRC residents holding direct or indirect interests in our company, and we cannot compel our beneficial owners to comply
with the requirements of SAFE Circular 37. As a result, we cannot assure you that all of our shareholders or beneficial owners
who are PRC residents have complied with and will in the future comply with our requests to make or obtain any applicable registrations
or comply with other requirements required by SAFE Circular 37 or other related rules. A failure by any of our current or future
shareholders or beneficial owners who are PRC residents to comply with the SAFE regulations may subject us to fines or other legal
sanctions, restrict our cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or
pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, SAFE Circular 37 was recently
promulgated and it is unclear how this circular and any future regulation concerning offshore or cross-border transactions will
be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect
our business operations or future strategy. 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,
either we or the owners of such company, as the case may be, may not be able to obtain the necessary approvals or complete the
necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our
acquisition strategy and could adversely affect our business and prospects.
Failure to comply with PRC regulations
regarding the registration requirements for share option plans may subject the PRC plan participants or us to fines and other legal
or administrative sanctions.
In February 2012, SAFE promulgated the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas
Publicly-Listed Companies, or the Stock Option Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC
residents who participate in stock incentive plans in an overseas publicly-listed company are required to register with SAFE or
its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain
a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution
selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan
on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection
with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition,
the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change
to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. See “Item 4.B.
Information on the Company—Business Overview—PRC Regulation—Regulations on Employee Stock Option Plans.”
We and our PRC employees who have been granted
share options are subject to these regulations and Beijing Tuniu as an agent has registered with the Beijing Branch of SAFE in
connection with the 2008 Plan and the 2014 Plan. We have advised our employees and directors participating in our share incentive
plans to handle foreign exchange matters in accordance with the Stock Option Rules. However, we cannot assure you that the share
option holders can successfully register with SAFE in full compliance with the Stock Option Rules for material changes of the granted
share options. Failure of our PRC share option holders or restricted shareholders to complete their SAFE registrations 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.
PRC regulation of direct investment
and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from
using the proceeds of our financing activities, including our initial public offering, to make additional capital contributions
or loans to our PRC subsidiaries.
Any capital contributions or loans that
we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of our earlier initial public offering and
concurrent private placement as well as our subsequent private placements, are subject to PRC laws and regulations. Under PRC laws
and regulations, we are permitted to utilize such proceeds to fund our existing PRC subsidiaries only through loans or capital
contributions or to establish new PRC subsidiaries, subject to applicable government registration and approval requirements. None
of our loans to a PRC subsidiary can exceed the difference between its total amount of investment and its registered capital approved
under relevant PRC laws, and the loans must be registered with the local branch of SAFE. Our capital contributions to our PRC subsidiaries
or establishment of new PRC subsidiaries should be filed with the MOC or its local counterpart. We cannot assure you that we will
be able to complete the necessary registration or filing on a timely basis, or at all. If we fail to complete the necessary registration
or filing, our ability to make loans or capital contributions to our PRC subsidiaries may be negatively affected, which could adversely
affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion projects and meet their
obligations and commitments.
In August 2008, SAFE promulgated a SAFE
Circular 142 regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by
restricting how the converted Renminbi may be used. SAFE Circular 142 provides that the Renminbi capital converted from foreign
currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by
the applicable government authority and unless otherwise provided by law, such Renminbi capital may not be used for equity investments
in the PRC. Although on July 4, 2014, the SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in
Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE
Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested
enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not apply
to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designate areas and
such enterprises are allowed to use its Renminbi capital converted from foreign exchange capitals to make equity investment, our
PRC subsidiary is not established within the designated areas. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform
nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested
enterprises to make equity investments by using Renminbi fund converted from foreign exchange capital. However, Circular 19 continues
to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitals
for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In addition,
SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital
of a foreign-invested company. The business scopes of Beijing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd., or Tuniu
NJ Information Technology, include research and development of computer software, network information technology products, computer
application systems, e-commerce systems, network security systems and computer system integration; technology services, consulting
and transfers; sales of self-developed products; investment consulting; business information consulting; and conference services
and public relations advice. Beijing Tuniu and Tuniu NJ Information Technology may only use Renminbi converted from foreign exchange
capital contribution for activities within their respective approved business scope. In addition, the use of such Renminbi capital
may not be altered without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the
proceeds of such loans have not been used. Violations of these Circulars could result in severe monetary or other penalties. If
we convert the net proceeds we receive from our earlier initial public offering and the concurrent private placement as well as
our subsequent private placement into Renminbi pursuant to these Circulars, our use of Renminbi funds for general corporate purposes
will be within the business scopes of our PRC subsidiaries. However, we may not be able to use such Renminbi funds to make equity
investments in the PRC through our PRC subsidiaries.
Furthermore, SAFE promulgated a SAFE Circular
45 in November 2011, which, among other things, restricts a foreign-invested enterprise from using Renminbi converted from its
registered capital to provide entrusted loans or repay loans between non-financial enterprises. Circular 45 was abolished on March
19, 2015. These SAFE Circulars may significantly limit our ability to use Renminbi converted from the net proceeds of our earlier
financing activities to fund establishment of new PRC subsidiaries by Beijing Tuniu or Tuniu NJ Information Technology to invest
in or acquire any other PRC companies, or to establish new PRC consolidated affiliated entities.
Our PRC subsidiaries are subject
to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.
We are a holding company incorporated in
the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity
requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits,
if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required
to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total
amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax
profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable
as cash dividends. Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require
us to adjust our taxable income under the contractual arrangements among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing
Tuniu in a manner that would materially and adversely affect Beijing Tuniu’s ability to pay dividends and other distributions
to us. Any limitation on the ability of our subsidiaries to distribute dividends to us or on the ability of Nanjing Tuniu to make
payments to us may restrict our ability to satisfy our liquidity requirements.
We may not be able to obtain certain
treaty benefits on dividends paid to us by our PRC subsidiaries through our Hong Kong subsidiary.
Under the EIT Law, dividends generated from
retained earnings after January 1, 2008 from a PRC company and distributed to a foreign parent company are subject to a withholding
tax rate of 10% unless the foreign parent’s jurisdiction of incorporation has a tax treaty with China that provides for a
preferential withholding arrangement. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative
Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong
Tax Treaty, which became effective on December 8, 2006, a company incorporated in Hong Kong, such as Tuniu (HK) Limited, will be
subject to withholding income tax at a rate of 5% on dividends it receives from its PRC subsidiaries, if it holds a 25% or more
interest in that particular PRC subsidiary, or 10% if it holds less than a 25% interest in that subsidiary. However, the SAT promulgated
SAT Circular 601 on October 27, 2009, which provides that tax treaty benefits will be denied to “conduit” or shell
companies without business substance, and that “substance over form” principles will be used to determine beneficial
ownership for purposes of receiving tax treaty benefits. On June 29, 2012, the SAT further issued the Announcement of the SAT regarding
Recognition of “Beneficial Owner” under Tax Treaties, or Announcement 30, which provides that a comprehensive analysis
should be made when determining the beneficial owner status based on various factors supported by various types of documents including
the articles of association, financial statements, records of cash movements, board meeting minutes, board resolutions, staffing
and materials, relevant expenditures, functions and risk assumption as well as relevant contracts and other information. As a result,
although our PRC subsidiaries, Beijing Tuniu and Tuniu NJ Information Technology, are currently wholly owned by our Hong Kong subsidiary,
Tuniu (HK) Limited, we cannot assure you that we would be entitled to the tax treaty benefits and enjoy the favorable 5% rate applicable
under the Hong Kong Tax Treaty. If Tuniu (HK) Limited is not recognized as the beneficial owner of the dividends paid to it by
Beijing Tuniu or Tuniu NJ Information Technology, such dividends will be subject to a normal withholding tax of 10% as provided
by the EIT Law.
Discontinuation or revocation
of any of the preferential tax treatments and government subsidies or imposition of any additional taxes or surcharges could adversely
affect our financial condition and results of operations.
Our PRC subsidiaries are incorporated in
the PRC and governed by applicable PRC tax laws and regulations. The EIT Law and its Implementation Rules have adopted a uniform
statutory enterprise income tax rate of 25% to all enterprises in China, including foreign-invested enterprises. The EIT Law and
its Implementation Rules also permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a preferential
enterprise income tax rate of 15% upon filing with the relevant tax authorities. The qualification as a HNTE is generally effective
for a term of three years and the renewal of such qualification is subject to review by the relevant authorities in China. Nanjing
Tuniu obtained its HNTE certificate in 2010 with a valid period of three years and successfully renewed such certificate in December
2013 for additional three years and December 2016 for another three years. Therefore, Nanjing Tuniu is eligible to enjoy a preferential
tax rate of 15% from 2014 to 2016 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification
and duly conducts relevant EIT filing procedures with the relevant tax authority. If Nanjing Tuniu fails to maintain its HNTE qualification
or renew its qualification when its current term expires, its applicable enterprise income tax rate may increase to 25%, which
could have an adverse effect on our financial condition and results of operations.
In addition, our PRC subsidiaries have received
various financial subsidies from PRC local government authorities. Preferential tax treatments and financial subsidies are subject
to review and may be adjusted or revoked at any time in the future. The discontinuation of any preferential tax treatments or financial
subsidies or imposition of any additional taxes or surcharges could adversely affect our financial condition and results of operations.
Fluctuations in exchange rates
could have a material adverse effect on our results of operations and the value of your investment.
We generate all of our revenues and incur
substantially all of our expenses in Renminbi, and substantially all of our sales and supply contracts are denominated in Renminbi.
As a result, fluctuations in the exchange rates between the U.S. dollar and Renminbi will affect the relative purchasing power
in Renminbi terms of our U.S. dollar assets and the proceeds received from our earlier initial public offering, related concurrent
private placement and our subsequent private placements which took place in December 2014 and May 2015. As the functional currency
for our PRC subsidiaries and affiliated PRC entities is Renminbi, fluctuations in the exchange rates may also cause us to incur
foreign exchange losses on any foreign currency holdings they may have. In addition, appreciation or depreciation in the value
of Renminbi relative to the U.S. dollar would affect our financial results in U.S. dollar terms without giving effect to any underlying
change in our business or results of operations. If we decide to convert our Renminbi into U.S. dollars for the purpose of making
payments for dividends on our ordinary shares or for other business purposes, appreciation of U.S. dollar against Renminbi would
have a negative effect on the U.S. dollar amount available to us.
The value of the Renminbi 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 Renminbi to the U.S. dollar, and the Renminbi 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 Renminbi and the U.S. dollar remained
within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably.
The Renminbi has been weakening against U.S. dollar since the beginning of 2016. It is difficult to predict when a reversion will
occur and how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar
in the future. Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our revenues, earnings
and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that
we need to convert the U.S. dollars we received from our initial public offering into Renminbi to pay our operating expenses, any
appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from
the conversion. Conversely, a significant depreciation of the Renminbi against the U.S. dollar may significantly reduce the amount
of the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.
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 Renminbi into foreign currencies. As a result, fluctuations in exchange rates may have a material adverse effect on
your investment.
The approval of the China Securities
Regulatory Commission may have been required in connection with our earlier initial public offering under a regulation adopted
in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval.
Six PRC regulatory agencies, including the
China Securities Regulatory Commission, or 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 subsequently amended. The M&A
Rules, among other things, require offshore special purpose vehicles controlled by PRC companies or individuals formed for the
purpose of an overseas listing of such PRC companies’ or individuals’ interests in PRC domestic companies to obtain
the CSRC’s approval prior to listing their securities on an overseas stock exchange. The application of this regulation remains
unclear. Our PRC counsel, Fangda Partners, has advised us that, based on its understanding of the current PRC laws, rules and regulations,
we are not required to submit an application to the CSRC for its approval of the listing and trading of our ADSs on the NASDAQ
Global Market, because:
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the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like our initial public
offering are subject to this regulation;
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our wholly owned PRC subsidiaries were established by means of foreign direct investment, rather than through a merger or acquisition
of domestic companies, as defined under the M&A Rules; and
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there is no provision in the M&A Rules that explicitly classifies contractual arrangements as a type of transaction subject
to the M&A Rules.
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There is uncertainty as to how this regulation
will be interpreted or implemented. If it is determined that the CSRC approval was required for our initial public offering, we
may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC’s approval for our initial public
offering. These sanctions may include fines and penalties on our operations in the PRC, delays or restrictions on the repatriation
of the proceeds from our initial public offering into the PRC, restrictions on or prohibition of the payments or remittance of
dividends by our PRC subsidiaries, or other actions that could have a material adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the trading price of our ADSs.
Online payment systems in China
are at an early stage of development and may restrict our ability to expand our online business.
Online payment systems in China are at an
early stage of development. Although major Chinese banks are instituting online payment systems, these systems are not as widely
acceptable to consumers in China as in the United States and other developed countries. The lack of wide acceptance of online payment
systems and concerns regarding the adequacy of system security may limit the number of online commercial transactions that we can
service. If online payment services and their security capabilities are not significantly enhanced, our ability to grow our online
business may be limited.
The Internet market has not been proven
as an effective commercial medium in China. The Internet penetration rate in China is lower than those in the United States and
other developed countries. Our future results of operations from online business will depend substantially upon the increased use
and acceptance of the Internet for distribution of products and services and facilitation of commerce in China.
The Internet may not become a viable commercial
medium in China for various reasons in the foreseeable future. More salient impediments to Internet development in China include:
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consumer dependence on traditional means of commerce;
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inexperience with the Internet as a sales and distribution channel;
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inadequate development of the necessary infrastructure;
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concerns about security, reliability, cost, ease of deployment, administration and quality of service associated with conducting
business and settling payment over the Internet;
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inexperience with credit card usage or with other means of electronic payment; and
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limited use of personal computers.
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If the Internet is not widely accepted as
a medium for online commerce in China, our ability to grow our online business would be impeded.
Implementation of laws and regulations
relating to data privacy in China could adversely affect our business.
Certain data and services collected, provided
or used by us or provided to and used by us are currently subject to regulation in certain jurisdictions, including China. The
PRC Constitution states that PRC laws protect the freedom and privacy of communications of citizens and prohibit infringement of
such basic rights, and the PRC Contract Law prohibits contracting parties from disclosing or misusing the trade secrets of the
other party. Further, companies or their employees who illegally trade or disclose customer data may face criminal charges. Although
the definition and scope of “privacy” and “trade secret” remain relatively ambiguous under PRC laws, growing
concerns about individual privacy and the collection, distribution and use of information about individuals have led to national
and local regulations that could increase our expenses.
In December 2012, the Standing Committee
of the National People’s Congress enacted the Decision to Enhance the Protection of Network Information, or the Information
Protection Decision, to further enhance the protection of users’ personal information in electronic form. The Information
Protection Decision provides that Internet information services providers must expressly inform their users of the purpose, manner
and scope of the collection and use of users’ personal information by Internet information services providers, publish the
Internet information services providers standards for their collection and use of users’ personal information, and collect
and use users’ personal information only with the consent of the users and only within the scope of such consent. The Information
Protection Decision also mandates that Internet information services providers and their employees keep users’ personal information
that they collect strictly confidential, and that they must take such technical and other measures as are necessary to safeguard
the information against disclosure, damages and loss. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing
Committee of the National People’s Congress in August 2015 and becoming effective in November 2015, any internet service
provider that fails to fulfill the obligations related to internet information security administration as required by applicable
laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (i) any dissemination of illegal
information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss
of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information
to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information, shall be subject
to criminal penalty in severe situation. Compliance with current regulations and regulations that may come into effect in these
areas may increase our expenses related to regulatory compliance, which could have an adverse effect on our financial condition
and results of operations.
Regulation and censorship of information
distribution 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 website.
The PRC government has adopted regulations
governing Internet access and the distribution of information over the Internet. Under these regulations, 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 the public interest, or is reactionary, obscene, superstitious,
fraudulent or defamatory. Failure to comply with these regulations may result in the revocation of licenses to provide Internet
content and other licenses, the closure of the concerned websites. A website operator may also be held liable for such censored
information displayed on or linked to its website. For a detailed discussion, see “Item 4.B. Information on the Company—Business
Overview—PRC Regulation—Regulations on Information Security and Censorship.” We have a team dedicated to screening
and monitoring content published on our online platform and removing prohibited content. However, we may have difficulty identifying
and removing all illegal content displayed on or linked to our website, which could expose us to the penalties described above.
Increases in labor costs in the
PRC may adversely affect our business and results of operations.
The economy of China has been experiencing
increases in inflation and labor costs in recent years. As a result, the average wage in the PRC is expected to continue to grow.
In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing
fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government
agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments
of the requisite statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment
fees, fines and/or other penalties. If the relevant PRC authorities determine that we shall make supplemental social insurance
and housing fund contributions and that we are subject to fines and legal sanctions, our business, financial condition and results
of operations may be adversely affected. 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 our customers by increasing the prices of our products and
services, our financial condition and results of operations may be materially and adversely affected.
We face certain risks relating
to the real properties that we lease.
We lease real properties from third parties
primarily for our office use in the PRC. Our leasehold interests in a number of these leased properties may be defective as a result
of the lessors’ lack of proper title or right to lease. As a result, we cannot assure you that our leasehold interests will
not be challenged. In addition, we have not registered the vast majority of our lease agreements with the relevant PRC governmental
authorities as required by PRC law, and although failure to do so does not in itself invalidate the leases, we may not be able
to defend these leases against bona fide third parties. As of the date of this annual report, we are not subject to any actions,
claims or investigations pending or threatened in writing by government authorities or third parties with respect to defects in
our leased properties. However, if third parties who purport to be property owners or beneficiaries of the mortgaged properties
challenge our right to lease these properties, we may not be able to protect our leasehold interests and may be ordered to vacate
the affected premises, which could materially and adversely affect our business and results of operations.
The audit report included in this
annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you
are deprived of the benefits of such inspection.
Auditors of companies that are registered
with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered
with the Public Company Accounting Oversight Board (United States), or PCAOB, and are required by the laws of the United States
to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards.
Because our auditor is located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct
inspections without the approval of the PRC authorities, our auditor is not currently 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 PRC 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 CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively.
PCAOB continues to be in discussions with the CSRC and the PRC 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.
This lack of PCAOB inspections in China
prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including
our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct
inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures
or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose
confidence in our reported financial information and procedures and the quality of our financial statements.
Additional remedial measures could
be imposed on certain PRC-based accounting firms, including our independent registered public accounting firm, in administrative
proceedings instituted by the SEC, as a result of which our financial statements may be determined to not be in compliance with
the requirements of the Exchange Act, if at all.
In December 2012, the SEC brought administrative
proceedings against the PRC-based affiliates of the Big Four accounting firms, including our independent registered public accounting
firm, alleging that they had violated U.S. securities laws by failing to provide audit work papers and other documents related
to certain other PRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision
was issued, censuring and suspending these accounting firms from practicing before the SEC for a period of six months. The decision
was neither final nor legally effective until reviewed and approved by the SEC, and on February 12, 2014, the 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 such firms’ audit documents via
the CSRC. If the firms do not follow these procedures or if there is a failure in the process between the SEC and the CSRC, the
SEC could impose tentative administrative measures such as suspension of practice, 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 PRC-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 delisting
of our ordinary shares from the Nasdaq Global Market or deregistration from the SEC, or both, which would substantially reduce
or effectively terminate the trading of our ADSs in the United States.
Risks Related to Our ADSs
The trading prices of our ADSs
have fluctuated and may continue to be volatile.
The trading prices of our ADSs have fluctuated
since we first listed our ADSs. From the time our ADSs became listed on NASDAQ on May 9, 2014 through April 13, 2017, the trading
price of our ADSs has ranged from US$7.62 to US$24.99 per ADS, and the last reported trading price on April 13, 2017 was US$8.01
per ADS. The prices of our ADSs may continue to fluctuate because of broad market and industry factors, like the performance and
fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities
in the United States. The widespread negative publicity of alleged fraudulent accounting practices and poor corporate governance
of certain U.S. public companies with operations in China in recent years were believed to have negatively affected investors’
perception and sentiment towards companies with connection with China, which significantly and negatively affected the trading
prices of some companies’ securities listed in the U.S. Any similar negative publicity or sentiment may affect the performances
of our ADSs. The securities of some PRC companies that have listed their securities on U.S. stock markets have experienced significant
volatility. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of
investors toward PRC companies listed in the United States in general and consequently may impact the trading performance of our
ADSs, regardless of our actual operating performance. The trading prices of our ADSs may also be affected by changes in the U.S.
stock markets in general.
In addition to market and industry factors,
the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:
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the financial projections that we may choose to provide to the public, any changes in those projections or our failure for
any reason to meet those projections;
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variations in our revenues, net income and cash flow;
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announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
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announcements of new products, services and expansions by us or our competitors;
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changes in financial estimates by securities analysts;
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additions or departures of key personnel;
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release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
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potential litigation or regulatory investigations; and
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fluctuations in market prices for our products or services.
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Any of these factors may result in large
and sudden changes in the volume and price at which our ADSs trade.
If securities or industry analysts
do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the
market price for our ADSs and trading volume could decline.
The trading market for our ADSs will be
influenced by research or reports that securities or industry analysts publish about our business. If one or more analysts who
cover us downgrade our ADSs, or publish unfavorable research about us, the market price for our ADSs would likely decline. Failure
to meet expectations driven by analyst research or reports, even by aggressive research or reports, may cause the market price
of our ADSs to decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.
Our dual class share structure
with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any
change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our ordinary shares are divided into Class
A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders
of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one
class on all matters subject to a shareholders’ vote. Due to the disparate voting powers attached to these two classes of
ordinary shares, holders of our Class B ordinary shares collectively beneficially owned approximately 4.58% of our outstanding
ordinary shares as of March 31, 2017, representing 32.41% of our total voting power. Currently, our directors and officers beneficially
own an aggregate of 78.55% of our outstanding shares representing 84.66% of our total voting power.
As a result of the dual class share structure
and the concentration of ownership, holders of our Class B ordinary shares have substantial influence over our business, including
decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other
significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration
of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity
to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated
control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger,
takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial. For more
information regarding our principal shareholders and their affiliated entities, see “Item 7.A. Major Shareholders and Related
Party Transactions—Major Shareholders.”
The sale or availability for sale
of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs
in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could
materially impair our ability to raise capital through equity offerings in the future. As of March 31, 2017, we had 379,637,335
ordinary shares outstanding, comprising of (i) 362,263,835 Class A ordinary shares (excluding the 1,594,209 Class A ordinary shares,
represented by ADSs, issued and reserved for the future exercise of options or the vesting of other awards under the 2008 Plan
and the 2014 Plan), and (ii) 17,373,500 Class B ordinary shares. Among these shares, 94,138,998 Class A ordinary shares are in
the form of ADSs, which are freely transferable by persons other than our affiliates without restriction or additional registration
under the Securities Act. The remaining Class A ordinary shares outstanding will be available for sale, subject to volume and other
restrictions as applicable under Rules 144 and 701 under the Securities Act. We cannot predict what effect, if any, market sales
of securities held by our significant shareholders or any other shareholder or the availability of these securities for future
sale will have on the market price of our ADSs. In addition, certain holders of our Class B ordinary shares are entitled to certain
registration rights in the event that specified conditions are met, including demand registration rights, piggyback registration
rights, and Form F-3 or Form S-3 registration rights. Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration.
Sales of these registered shares in the public market, or the perception that such sales could occur, could cause the price of
our ADSs to decline.
We may be classified as a passive
foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income
tax consequences to United States investors in the ADSs or ordinary shares.
Under United States federal income tax law,
we will be classified as a “passive foreign investment company,” or PFIC, for any taxable year, if either (a) 75% or
more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value
of our assets (as determined on the basis of a quarterly average) during such year produce or are held for the production of passive
income (the “asset test”). Although the law in this regard is unclear, we treat Nanjing Tuniu and its subsidiaries
as being owned by us for United States federal income tax purposes, not only because we exercise effective control over their operations,
but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating
results in our consolidated financial statements. If it were determined that we are not the owner of our consolidated affiliated
entities for United States federal income tax purposes, we would likely be treated as a PFIC for the current year or any future
taxable year. Assuming that we are the owner of Nanjing Tuniu and its subsidiaries for United States federal income tax purposes,
and based upon our income and assets and the value of our ADSs and ordinary shares, we do not believe that we were a PFIC for the
taxable year ended December 31, 2016.
While we do not believe we were a PFIC for
the taxable year ended December 31, 2016, no assurance can be given with respect to our PFIC status for the current taxable year
or any future taxable year because the determination of whether we will be or become a PFIC is a fact-intensive inquiry made on
an annual basis that depends, in part, on the composition of our income and assets. Fluctuations in the market price of our ADSs
may cause us to become a PFIC for the current or subsequent taxable years because the value of assets for the purpose of the asset
test may be determined by reference to the market price of our ADSs from time to time (which may be volatile). The composition
of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our
revenue from activities that produce passive income significantly increase relative to our revenue from activities that produce
non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified
as a PFIC may substantially increase. In addition, because there are uncertainties in the application of the relevant rules, it
is possible that the Internal Revenue Service may challenge our classification of certain income and assets as non-passive or our
valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent
taxable years.
If we are classified as a PFIC in any taxable
year, a U.S. Holder (as defined in “Item 10.E. Additional Information—Taxation—United States Federal Income Tax
Considerations”) may incur significantly increased United States 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
gain or distribution is treated as an “excess distribution” under the United States federal income tax rules, and such
U.S. Holders may be subject to burdensome reporting requirements. 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. For more information, see “Item 10.E. Additional Information—Taxation—United
States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
You may face difficulties in protecting
your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman
Islands law.
We are an exempted company incorporated
under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies
Law of the Cayman Islands (2016 Revision) and the common law of the Cayman Islands. The rights of shareholders to take actions
against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman
Islands law 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 the common law of England, the decisions
of whose courts are of persuasive authority, but are not binding, 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 precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed
body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted
bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
The Cayman Islands courts are also unlikely:
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to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of
U.S. securities laws; and
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to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions
of U.S. securities laws that are penal in nature.
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There is no statutory recognition in the
Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances
recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
As a result of all of the above, public
shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the
board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands (2016 Revision) and
the laws applicable to companies incorporated in the United States and their shareholders, see “Item 10.B. Additional Information—Memorandum
and Articles of Association—Differences in Corporate Law.”
Judgments obtained against us
by our shareholders may not be enforceable.
We are a Cayman Islands company and all
of our assets are located outside of the United States. Our current operations are based in China. In addition, some of our current
directors and executive officers are nationals and residents of countries other than the United States. Substantially all of the
assets of these persons are located outside 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 United States in the event that you believe that your rights have been
infringed under the United States federal 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.
The voting rights of holders of
ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary
shares.
Holders of our ADSs are only able to exercise
the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement.
Under the deposit agreement, holders of our ADSs must vote by giving voting instructions to the depositary. Upon receipt of those
voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with those instructions. Holders
of our ADSs are not able to directly exercise their right to vote with respect to the underlying shares unless they withdraw the
shares. Under our amended and restated memorandum and articles of association, the minimum notice period required for convening
a general meeting is 14 calendar days. When a general meeting is convened, holders of our ADSs may not receive sufficient advance
notice to withdraw the shares underlying their ADSs to allow them to vote with respect to any specific matter. If we ask for instructions
from the holders of our ADSs, the depositary will notify the holders of our ADSs of the upcoming vote and will arrange to deliver
our voting materials to them. We cannot assure holders of our ADSs that they will receive the voting materials in time to ensure
that they can instruct the depositary to vote their shares. In addition, the depositary and its agents are not responsible for
failing to carry out voting instructions or for their manner of carrying out voting instructions. This means that holders of our
ADSs may not be able to exercise their right to vote and may have no legal remedy if the shares underlying their ADSs are not voted
as requested.
We are a foreign private issuer
within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United
States domestic public companies.
Because we qualify as a foreign private
issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to U.S. domestic issuers, including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on
Form 8-K;
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the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security
registered under the Exchange Act;
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the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities
and liability for insiders who profit from trades made in a short period of time; and
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the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
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We are required to file an annual report
on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basis as press
releases, distributed pursuant to the rules and regulations of the NASDAQ Global Market. Press releases relating to financial results
and material events are also furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish
to the SEC is less extensive and less timely as compared to that required to be filed with the SEC by United States domestic issuers.
As a Cayman Islands company listed on the NASDAQ Global Market, we are subject to the NASDAQ Global Market corporate governance
listing standards. However, NASDAQ Global Market rules permit a foreign private issuer like us to follow the corporate governance
practices of its home country. Certain corporate governance practices in the Cayman Islands, our home country, may differ significantly
from the NASDAQ Global Market corporate governance listing standards. See “Item 16G. Corporate Governance.” Although
we do not currently plan to further utilize the home country exemption for corporate governance matters, to the extent that we
choose to do so in the future, our shareholders may be afforded less protection than they otherwise would under the NASDAQ Global
Market corporate governance listing standards applicable to U.S. domestic issuers. As a result, you may not be afforded the same
protections or information, which would be made available to you, were you investing in a United States domestic issuer.
Because we do not expect to pay
dividends in the foreseeable future, ADS holders must rely on price appreciation of our ADSs for return on their investment.
We do not anticipate that we will pay any
cash dividends on our ordinary shares, or indirectly on our ADSs, for the foreseeable future. Any determination to pay dividends
in the future will be at the discretion of our board of directors and will depend upon our results of operations, financial condition,
contractual restrictions relating to indebtedness we may incur, restrictions imposed by applicable law and other factors our board
of directors deem relevant. Accordingly, for holders of our ADSs, realization of a gain on their investment will depend on the
appreciation of the price of our ADSs, which may never occur. Investors seeking cash dividends in the foreseeable future should
not purchase our ADSs.
Holders of our ADSs may not receive
dividends or other distributions on our Class A ordinary shares and may not receive any value for them, if it is illegal or impractical
to make them available.
The depositary of our ADSs has agreed to
pay to holders of our ADSs the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or
other deposited securities underlying our ADSs, after deducting its fees and expenses. Holders of our ADSs will receive these distributions
in proportion to the number of Class A ordinary shares their ADSs represent. However, the depositary is not responsible if it decides
that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to
make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that
are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that
it is not feasible to distribute certain property through the mail. Additionally, 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. We have no obligation
to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else
to holders of ADSs. This means that holders of our ADSs may not receive distributions we make on our Class A ordinary shares or
any value for them if it is illegal or impractical for us to make them available. These restrictions may cause a material decline
in the value of our ADSs.
Holders of our ADSs may not be
able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights
to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights
to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt
from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities
Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the
rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation
to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement
declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution
of their holdings as a result.
Holders of our ADSs may be subject
to limitations on transfer of our ADSs.
Our ADSs are transferable on the books of
the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection
with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in
connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number
of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and
public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register
or the books of the depositary are closed, or at any time if we or the depositary thinks it is 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.
We incur increased costs as a
result of being a public company.
As a public company, we incur significant
accounting, legal and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently
implemented by the SEC and NASDAQ, have detailed requirements concerning corporate governance practices of public companies, including
Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect these rules and regulations
applicable to public companies to increase our accounting, legal and financial compliance costs and to make certain corporate activities
more time-consuming and costly. Our management will be required to devote substantial time and attention to our public company
reporting obligations and other compliance matters. We are currently evaluating and monitoring developments with respect to these
rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Our reporting and other compliance obligations as a public company may place a strain on our management, operational and financial
resources and systems for the foreseeable future.
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 and adverse effect on our financial condition and results of operations.
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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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We began our operation in China through
Nanjing Tuniu, a PRC company formed in December 2006. Nanjing Tuniu acquired 100% of the equity interests in Shanghai Tuniu International
Travel Service Co., Ltd., Nanjing Tuniu International Travel Service Co., Ltd. and Beijing Tuniu International Travel Service Co.,
Ltd. in August 2008, December 2008 and November 2009, respectively. Nanjing Tuniu established Nanjing Tuzhilv Tickets Sales Co.,
Ltd. in April 2011.
In June 2008, we incorporated Tuniu Corporation
under the laws of the Cayman Islands as our offshore holding company in order to facilitate international financing. In May 2011,
we established our wholly owned Hong Kong subsidiary, Tuniu (HK) Limited.
We completed our initial public offering
and listed our ADSs on the NASDAQ under the symbol “TOUR” in May 2014. At the time of our initial public offering,
we also entered into a concurrent private placement with three investors.
In December 2014, we entered into a share
subscription agreement with Unicorn Riches Limited, a special purpose vehicle of Hony Capital, JD.com E-commerce (Investment) Hong
Kong Corporation Limited, a special purpose vehicle of JD.com, Inc. (Nasdaq: JD), Ctrip Investment Holding Ltd., a subsidiary of
Ctrip.com International, Ltd. (Nasdaq: CTRP) and the respective personal holding companies of Tuniu’s chief executive officer
and chief operating officer, pursuant to which we sold a total of 36,812,868 newly issued Class A ordinary shares for US$148 million.
In May 2015, we entered into a share subscription
agreement with each of Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., Unicorn Riches Limited, a special purpose vehicle
of Hony Capital, DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., both affiliates of DCM
V, L.P., Ctrip Investment Holding Ltd., a subsidiary of Ctrip.com International, Ltd., Esta Investments Pte Ltd, an affiliate of
Temasek Holdings and Sequoia Capital 2010 CV Holdco, Ltd, an affiliate of Sequoia Capital, pursuant to which we sold a total of
93,750,000 newly issued Class A ordinary shares for US$500 million.
In November 2015, we entered into a share
subscription agreement with HNA Tourism Group, or HNA Tourism, pursuant to which an affiliate of HNA Tourism purchased 90,909,091
newly issued Class A ordinary shares from us for US$500 million in January 2016.
During the year ended December 31, 2015,
we acquired 100%, 100%, 75% and 80% of equity interests of four offline travel agencies, respectively. We gained access to the
expanding Taiwan tourism market and improved the capability in the direct procurement of products with these acquisitions. The
total purchase price was RMB115.5 million, which included cash consideration of RMB100.2 million and RMB15.3 million, the fair
value of contingent cash consideration to be made based on the achievement of certain revenue and profit target over the next three
to four years.
During the year ended December 31, 2016,
we acquired 100% of equity interests of one offline travel agency, to further expand our oversea tourism market and promote our
destination service. The total purchase price was RMB28.1 million (US$4.0 million), which included cash consideration of RMB16.5
million (US$2.4 million) and RMB11.6 million (US$1.6 million), the fair value of contingent cash consideration to be made based
on the achievement of certain revenue and profit target over the next four years.
Tuniu Corporation established a wholly owned
PRC subsidiary, Beijing Tuniu, in September 2008. Tuniu (HK) Limited established another wholly owned PRC subsidiary, Tuniu (Nanjing)
Information Technology Co., Ltd., in August 2011, and acquired 100% of the equity interests in Beijing Tuniu in September 2011.
Through Beijing Tuniu, we obtained control over Nanjing Tuniu by entering into a series of contractual arrangements, including
purchase option agreement, equity interest pledge agreement, shareholders’ voting rights agreement, powers of attorney and
cooperation agreement, with Nanjing Tuniu and its shareholders. Nanjing Tuniu holds our ICP licenses as an Internet content provider
and operates our website. Beijing Tuniu International Travel Service Co., Ltd. and Nanjing Tuniu International Travel Service Co.
Ltd., both of which are Nanjing Tuniu’s subsidiaries, hold our operation permits for overseas travel business.
These contractual arrangements allow us
to:
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exercise effective control over Nanjing Tuniu;
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receive substantially all of the economic benefits of Nanjing Tuniu; and
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have an option to purchase all or part of the equity interests in Nanjing Tuniu when and to the extent permitted by PRC law.
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As a result of these contractual arrangements,
we are the primary beneficiary of Nanjing Tuniu, and we treat it and its subsidiaries as consolidated affiliated entities under
U.S. GAAP. We have consolidated the financial results of Nanjing Tuniu and its subsidiaries in our consolidated financial statements
in accordance with U.S. GAAP.
Our principal executive offices are located
at Tuniu Building No. 699-32 Xuanwudadao, Xuanwu District, Nanjing, Jiangsu Province 210042, the People’s Republic of China.
Our telephone number at this address is +86 (25) 8685-3969. Our registered office in the Cayman Islands is located at International
Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1106,
Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400
Madison Avenue, 4th Floor, New York, New York 10017.
See “Item 5.B. Operating and Financial
Review and Prospects—Liquidity and Capital Resources—Capital Expenditures” for a discussion of our capital expenditures.
We offer a large selection of packaged tours,
including organized tours and self-guided tours, as well as travel-related services for leisure travelers. Our online platform,
which comprises our
tuniu.com
website and mobile platform, provides comprehensive product and travel information through
user-friendly interfaces to enable leisure travelers to plan their travels and search for itineraries that best suit their needs.
Our online platform contains travel guides featuring photos, information and recommendations for all destinations we cover, as
well as user-generated content that serves as valuable references for other travelers.
Our recognized brand in leisure travel and
growing customer base enable us to source a broad range of products from high-quality travel suppliers at competitive prices. We
rigorously select our travel suppliers to ensure quality and reliability. We have developed our proprietary supply chain management
system—N-Booking system—to streamline our interactions with travel suppliers, allowing them to receive booking information
real-time, through the web or mobile devices to more efficiently manage travel products and better understand customer preferences.
In 2016, we upgraded our supplier management system and data analytics system in order to better facilitate the cooperation between
our suppliers and us. In addition, to further broaden the range of our products and better serve our customers, we enter into strategic
agreements with various industry partners from time to time. For example, in December 2014, we entered into a strategic cooperation
agreement with Ctrip.com International, Ltd., a leading travel service provider in China, in order to expand our collaboration
on shared travel resources. In November 2015, we formed a strategic partnership with HNA Tourism, under which HNA Tourism undertook
to provide us with its premium airline and hotel resources at a preferential rate, under fair competition market rules. In 2016,
we introduced an installment payment option to our customers for both air tickets and hotels in order to allow the younger generation
and the more price sensitive customers to travel more conveniently, which reflects our continuous implementation of our core principle
in optimizing customer experience.
Our Products and Services
We offer a wide array of packaged tours
and other travel-related services to meet the diverse travel needs and preferences of leisure travelers in China. Our packaged
tours consist of organized tours and self-guided tours. Our core strength is in overseas leisure travel products and services,
which contributed over 63.8% of our packaged tour gross bookings in 2016.
Organized Tours
Our organized tours offer the benefits of
pre-arranged itineraries, transportation, accommodations, entertainment, meals and tour guide services. By booking an organized
tour with us, our customers can achieve cost savings compared to booking each component separately and enjoy a pleasant and hassle-free
travel experience.
Our organized tours cover over 150 countries
and regions worldwide, including nearly all of the popular tourist destinations among Chinese travelers, such as Europe, Thailand,
Japan, Middle East, Africa and the United States, as well as all of the popular tourist attractions in China. Organized tours are
particularly popular for overseas destinations with language or cultural barriers.
Our organized tour product portfolio also
includes local tours, which mainly consist of weekend getaways and themed tours, such as water-village tours, historical-town tours,
ski tours and hot spring tours, and mainly target customers who want to spend one to three days away from their departing cities.
Typically, local tours have a lower average gross bookings per trip as compared to other types of organized tours.
In addition, to address the needs of group
travelers who cannot be satisfied with off-the-shelf standard packaged travel products, such as companies planning travel retreats
and families planning group tours, we provide customized tours to cater to such specific travel needs. Our group travel tour advisors
work closely with our travel suppliers and our customers to design travel products and itineraries that meet such customers’
unique needs.
Self-guided Tours
Our self-guided tours consist of combinations
of flights and hotel bookings and other optional add-ons, such as airport pick-ups. These products are offered at attractive prices
compared to booking each travel product separately. Our self-guided tours target leisure travelers who prefer greater flexibility
during their vacations and who do not need tour guide services. Due to the breadth of our travel suppliers, we are able to provide
a wide selection of self-guided tours, covering a large number of hotels and airlines, and have developed the most comprehensive
product offerings for selected popular destinations.
Other Travel-Related Services
Our other travel-related services comprise
mainly sales of tourist attraction tickets, visa processing services, financial services, hotel booking services and air ticketing
services. We earn a commission or service fee on these services. In addition, we provide advertising services to domestic and foreign
tourism boards and bureaus on our online platform.
Our Online Platform and Offline Service
Network
We reach and serve customers through multiple
online and offline channels, including our
tuniu.com
website, mobile platform, a primary call center in Nanjing, a regional
call center in Guangzhou and our other regional service centers across China.
Our online platform provides our customers
with the tools and information to conveniently plan, book and purchase travel products and services. In addition, our online platform
presents comprehensive product information and travel requirements through user-friendly interfaces for leisure travelers to easily
search for, compare and place orders for product offerings that best suit their needs. We have well-trained tour advisors and customer
service representatives located at our centralized call center to supplement our online transaction infrastructure by providing
our customers with professional advice and guidance throughout their travel planning and bookings process as well as timely support
before and during their travels. The inclusion of a customer-focused, service network is particularly important to customers of
our travel products with high selling prices as these customers usually demand more assistance and attention in their travel planning.
Our Website
Our website,
tuniu.com
, provides
a one-stop travel platform for our customers to do everything from researching travel destinations to booking travel products.
In addition to our product information such as tour duration, departure time and destination descriptions, our website features
comprehensive travel advice ranging from basic information to professional and user recommendations and travelers’ reviews
for the destinations we cover. Users can post questions regarding specific products and receive timely responses online from our
well-trained tour advisors and customer service representatives, which facilitates their travel planning, product selection, reservations
and payments. Our user-friendly interface enables users to quickly and easily evaluate and compare a wide array of travel products.
Customers can also raise complaints about our travel products and services through the online-messaging function on our website.
We encourage our customers to share photos,
stories and other travel-related information on our website. We have built a large and fast-growing collection of customer reviews
and travel stories which we believe are attractive and useful to our current and prospective customers. As of December 31, 2016,
we had more than 3.4 million customer reviews and over 44,000 travel stories and destination guides on our website. The Travelogue
forum on our website, which is organized based on destinations, provides our customers with an easy and intuitive way to access
various topics of interest. Registered members can share their travel experiences and interact with other members by posting questions
and receiving answers from fellow forum members. We have a comprehensive collection of descriptions and photos of different destinations.
Our website also provides other useful travel-related information, such as weather forecasts, exchange rates, train schedules and
subway maps to further enhance user experience.
A transaction on our website generally involves
the following steps:
Browse
. A customer typically enters
one of our over 290 city webpages by selecting his location or departing city. The customer can easily browse our product selection
by travel destination. In order to allow customers to locate the products they are interested in, our website also arranges our
travel product offerings into different categories, such as organized tours, self-guided tours, corporate tours, cruises, tickets
for tourist attractions, self-drive tours and visa applications. The customer can also choose to browse through our best-sellers
for each of local tours, domestic tours, overseas tours, self-guided tours and tickets for tourist attractions.
Search and Select
. A customer conducts
a search for a particular product on our website by defining desired parameters, such as destinations, departing cities, departure
time, product types, tour duration, number of travelers, prices and itineraries. We provide the customer with information regarding
each travel product in detail together with photographs of the destinations and hotels as well as customer reviews and ratings.
Our website displays various possible selections and provides additional information about the products. The customer can sort,
refine or rank search results by further defining certain search parameters such as price range, customer ratings, popularity and
keywords. Our online Q&A feature enables the customer to raise inquiries and receive timely responses to facilitate their research.
In addition, the comparison tool on our website displays details of different travel products side-by-side, enabling the customer
to evaluate different travel products easily.
Order Placement
. After a customer
has selected a particular option, our website will provide the customer with an opportunity to review details of the travel products
and services being purchased and the terms and conditions of such purchase. The customer can also request assistance and professional
advice from our tour advisors who will promptly follow up and interact with the customer online or by phone.
Contract Confirmation
. At this stage,
a customer is required to confirm that he agrees to the terms and conditions of his purchase. The customer can submit his confirmation
online or sign the contract related to his purchase in one of our regional service centers or send us the signed contract. Contracts
are entered between us and the customer directly.
Payment
. After confirming the terms
of a contract, a customer will be directed to the payment webpage. We offer our customers the flexibility to choose a number of
payment options, which include bank transfers, credit cards, debit cards and online payment through third-party online payment
platforms. In addition, the customer can pay at one of our regional service centers. If available, the customer can also discount
the purchase price of our travel products by using our coupons and travel vouchers. Electronic confirmations are sent to the customer’s
e-mail address or mobile phone and the customer can use the itinerary management function on our website to check his booking details
as well as amend or cancel his bookings.
Review
. After completing his or her
trips, a customer is provided with incentives such as coupons to return to our website to write reviews and travel stories and
share his or her experience on our Travelogue forum. This increases transparency regarding our travel product quality and increases
customer stickiness. We regard customer reviews and travel stories, which provide valuable information to potential customers,
as important criteria in assessing the quality and performance of our travel suppliers and travel products.
We offer customized services via a sophisticated
account management system accessible on our online platform. After logging on with a unique identification, a customer can track
order status, manage itineraries and check membership points, coupons and travel vouchers.
Our Mobile Platform
Our Android- and Apple iOS-based mobile
applications, such as
Tuniu Travel
, and the mobile version of our website,
m.tuniu.com
, allow customers to search
for travel products and services and place orders on mobile devices. Our mobile platform also enables customers to track their
order status and provides other location-based services to allow users to quickly locate a variety of nearby scenic spots.
Through
Tuniu Travel
, our customers
can search for travel products and services and complete a booking within minutes.
Tuniu Travel
also serves as an important
and integral part of customers’ research on travel-related information. Customers often use our in-house developed and user-generated
travel guides and other user generated content, such as customer reviews, travel stories, tips and recommendations, on our
Tuniu
Travel
to plan their travels. In addition, we offer discounted travel products that are exclusive to users of
Tuniu Travel
for limited periods to enhance our mobile user engagement and increase monetization.
Our Customer Services
When selecting a travel company or platform,
leisure travelers often look beyond factors such as prices and selection and focus on enjoyable experiences, in which our customer
services play a crucial part. We believe that the quality customer services provided by our well-trained tour advisors and customer
service representatives gravitate our customers towards our online platform.
Offline nationwide service network
.
Our primary call center is located in our headquarter in Nanjing, and we have a regional call center in Guangzhou dedicated to
serving Cantonese-speaking clients, designed to better serve the heightened demand in the region for leisure travel. Our call centers
provide 24-hour-a-day, seven-day-a-week customer services before, during and after travels, from answering customers’ initial
inquiries on their travel-related needs to assisting them in making and amending their travel bookings. For inquiries on detailed
product information and itinerary management, our customer service representatives allocate them according to destinations to our
in-house tour advisors, who follow up with our customers within half an hour to address their concerns and needs. We have implemented
comprehensive performance measures to monitor our calls to ensure our customers receive quality services. In October 2013 and 2015,
we obtained the Best Call Center Award in the CCM Awards that was jointly organized by CCM World Group and CC-CMM Organization,
and we were rewarded the Golden Tone Award from 51CallCenter for three consecutive years in October of 2014, 2015 and 2016, a call
center and business process outsourcing industry group, for offering outstanding call center and customer service experiences.
Tour Advisors
. Tour advisors are
well-trained through in-house training workshops as well as training sessions provided by our travel suppliers to closely assist
our customers throughout their travel planning and booking process from pre-sale consultation to final order confirmation. Our
tour advisors are equipped with product expertise to guide customers through the details of available packaged tours on our online
platform and provide insightful advice on customers’ desired travel destinations. Our tour advisors provide professional
guidance on product selection, price, travel requirements and payment to ensure an efficient and informed shopping experience.
To create a better travel experience for
our customers, we are committed to sharing part of their losses due to certain unexpected events. For example, if our customers
cannot travel due to death, pregnancy, serious injury, hospitalization or rejection of visa applications after entering into contracts
with us, we will provide them with travel vouchers equivalent to a portion of the amounts paid which are redeemable towards the
purchase of our travel products at a later time.
Supply Chain Management
As of December 31, 2016, we had over 16,000
travel suppliers, which primarily include tour operators, travel services providers and wholesalers of travel products and services
in China. We believe that our ability to enable our travel suppliers to extend their reach to potentially millions of Internet
users in China and fulfill their needs for inventory management, attracts new quality travel suppliers and builds stronger ties
with our existing travel suppliers. We have a product procurement team who is dedicated to developing and enhancing our relationships
with existing and prospective travel suppliers.
We source a broad range of products from
travel suppliers who have significant advantages in the destinations we cover and who offer travel products at competitive prices,
which enhances our ability to attract more customers to our online platform. Our growing customer base in turn attracts more travel
suppliers, creating a virtuous cycle that strengthens our leading market position.
We generally enter into contracts with our
travel suppliers based on our standard form. Our travel suppliers often pay us rebates based on our business volume. In addition,
some of our travel suppliers require prepayments for reserving tour availabilities. Typically, we settle payment with our travel
suppliers on a monthly basis, although our travel suppliers can also request for an early settlement on a discounted basis. To
date, substantially all of our travel suppliers have sought to pursue continuing cooperation opportunities with us. In order to
support and retain suppliers, in November 2014, we entered into framework cooperation agreements with four PRC-based banks under
which the banks intend to make available loan facilities to us or our suppliers. See “—Financial Services” and
“Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
We conduct a rigorous process in qualifying
travel suppliers and in selecting their travel products and services. In qualifying a potential travel supplier, we focus on its
reputation, product quality, track record, credibility and price competitiveness.
In addition, our travel suppliers can participate
in biddings for priority listings, prominent placements for biddings and advertising displays on our website for the travel products
they supply.
Product Selection
We adopt an open-source procurement strategy
to source quality travel products in the destinations we cover. Our product procurement team works closely with our travel suppliers
to ensure that customers are provided with high-quality travel products. In addition, we conduct regular price comparisons for
our travel products to assess the competitiveness of our pricing.
Supply Management
We host one major procurement event each
year and present our major travel suppliers with our estimated volume demand. We also constantly communicate with our travel suppliers,
mainly through our product procurement team and our proprietary N-Booking system, to keep them informed of any changes to the supply
outlook so that they can respond to customer demand in a timely manner. This helps us and our travel suppliers make timely adjustments
to procurement plans.
Supplier Quality Control
We have developed product and service provision
protocols for travel suppliers to follow. Given that we have regional service centers throughout China, which help us to closely
track the performance of travel suppliers in each locale through our service centers. We have a dedicated team in charge of monitoring
travel suppliers based on customer feedback; which also provides recommendations for travel suppliers to improve their service
quality and the products they supply. We impose penalties on our travel suppliers or cease selling their travel products if their
products fail to meet our quality standards or if we receive valid complaints from our customers. We also prepare regular assessment
reports on our travel suppliers based on the popularity, quality and price competitiveness of their travel products. To monitor
and further improve the quality of our travel suppliers and the products and services we offer, we proactively collect feedback
from our customers after their travels.
N-Booking System
We have developed a proprietary N-Booking
system, accessible via web and mobile, that offers our travel suppliers the following features:
Product Management
. Travel suppliers
can submit details of their travel products via an easy-to-navigate online interface. After our review and approval, we will post
the details provided by the travel suppliers and the prices determined by us on our online platform. In addition, our N-Booking
system provides travel suppliers with an option to use descriptions and photos of destinations and tourist attractions in our database.
Just-In-Time Management
. Our N-Booking
system provides travel suppliers with access to real-time inventory data and gives them a wide range of inventory management tools.
Our N-Booking system also notifies travel suppliers of any changes in the inventory level of the travel products we source from
them, which enables them to timely adjust their procurement and sales plans. As such, we are able to deliver real-time information
on product availability and provide our customers with prompt booking and order confirmations.
Account Management
. Our travel suppliers
can review transaction history details on our N-Booking system. They can also submit requests for early settlement of their account
balance with us on a discount basis.
Data Analysis
. Supported by our big
data platform, travel suppliers can analyze and understand user behavior based on their browsing history. Travel suppliers can
keep track of traffic brought to the travel products supplied by them on our online platform and are able to evaluate the competitiveness
of different travel products. We believe the user information gathered from our online platform reflects current leisure travel
market trends in China and provides excellent market insights to our travel suppliers for their procurement planning and product
design. By leveraging our data mining and analytics capabilities, travel suppliers are able to develop a more in-depth understanding
of customers’ behaviors and preferences, potentially unlocking significant value.
Financial Services
We currently offer a range of financial
services, which complement our core leisure travel business, to both our customers and suppliers. Our financial services are designed
to systematically support the overall development of the leisure travel market in China by funding customers’ travels and
supporting suppliers’ growth. For our customers, we provide travel financing products enabling customers to travel with an
initial down payment, which has been particularly popular among the young generation of travelers who are more price-sensitive.
In addition, we also offer yield enhancement products and insurance products to our customers. For our suppliers, we provide various
types of loans that optimize working capital for our selected suppliers, allowing them to provide high-quality travel products
on a larger scale.
Technology
We have built our technology infrastructure
with high levels of performance, reliability, scalability and security to ensure superior customer and supplier experiences. We
rely on internally developed proprietary technologies and licensed technologies to manage and improve our website, mobile platform
and management systems. We have a team of engineers dedicated to research and development in the areas of website operations, mobile
platform, search engine, data analytics and supply chain management system.
We believe that an advanced technology platform
is vital to our growth and success. In 2012, we obtained ISO 9001:2008 certification for our quality management system and ISO
27001:2005 certification for our information security management system in the design, development and maintenance of our online
platform, indicating our compliance with internationally recognized standards for quality control.
Product Search
We strive to present relevant and useful
search results in a timely fashion to ensure the accuracy, efficiency and synchronism of our search results. Despite the difficulties
in analyzing leisure travel products data, we have developed search technologies that allow us to retrieve, index, filter and rank
real-time product information. We are able to prioritize the search results and display information most suited to our customers’
requirements in a simple and intuitive interface in real-time. Our core search technologies include the following:
Real-time Indexing
. Our search infrastructure
enables changes in product data to be indexed, processed and reflected in search results on a real-time basis.
Smart Caching
. We maintain a database
with massive product information on packaged tours, hotels, flights and other travel-related services. We have designed an auto-prioritizing
method to update the database by ranking popular products based on different criteria, such as popular cities, most-visited attractions,
top-rated products and most-viewed products. Different refreshing frequencies are applied to different products.
Accuracy Checking
. Our accuracy checking
software complements our smart caching system and is implemented to display the latest product information such as prices and product
descriptions. When a user clicks on the interested search result, an accuracy checker is triggered to retrieve the updated product
information and present it to the user.
Fuzzy Query Processing
. We maintain
a dictionary for travel-related keywords in Chinese, where keywords are classified and linked to each other based on their meanings.
We have also developed a query search algorithm based on user inputs to enhance our ability to dissect natural language queries.
Such technologies help us better understand the meanings of queries and to produce the most relevant and useful search results.
We also provide additional search features such as query spelling correction, query suggestion and search by Chinese phonetics
(Pinyin).
Big Data Analysis
We gather and analyze customer behavior
and data for our procurement, inventory management and marketing purposes. We also provide selected data to our travel suppliers,
enabling them to optimize their product designs and marketing strategies.
Big Data Platform
. We have developed
our big data platform based on a distributed computing system. Such data analytics capabilities help us to gain a deeper understanding
of existing and prospective customers and market trends, make customized recommendations to customers and improve our applications
and products accordingly.
Streaming Data Analysis
. We have
also built a streaming data processing pipeline based on our big data platform to view the browsing history of the users of our
online platform and to allow our travel suppliers to review their performance data near real-time.
Web Content Mining
. Our web content
processing system links user generated content which includes customer reviews, travel stories and tips as well as destination
guides such as locations, hotels and tourist attractions. This allows users of our online platform to obtain information of different
destinations and travel products and services in a user-friendly manner.
N-Booking System
Our N-Booking system streamlines the interactions
between us and our travel suppliers. Our N-Booking system also allows our travel suppliers to receive booking information real-time
through the web or mobile devices to more efficiently manage travel products and better understand customer preferences. See “—Supply
Chain Management—N-Booking System.”
CRM System
Through a customer relationship management
system, or CRM system, we gather, analyze and make use of internally-generated customer behavior and transaction data based on
customers’ historical purchase and browsing records. We regularly use this information in budgeting and procurement planning
as well as in planning our marketing initiatives and promotional campaigns.
Data Security
Our system servers are housed in Nanjing
and Beijing, and have secure and dedicated communication links among them. All data are backed up on an hourly basis. Our system
servers utilize digital certificates to help us conduct secure communications and transactions. The performance of our system servers
is monitored and maintained by an internal team that operates 24 hours a day, seven days a week. Customer sensitive information,
such as password and payment information, is stored with encryption, and our data servers are secured with firewalls.
Dynamic Packaging System
We have leveraged our data analytics capabilities
to develop a dynamic packaging system that enables our users to customize their own travel packages tailored to individual travelers’
needs. This system is able to combine trip components from different suppliers to provide truly customized trips, automating and
placing in the hands of our customers a function that was previously performed manually. It uses algorithms and past customer data
to filter out unnatural choices and provide customers with relevant choices based on their ascertainable behavior. We believe this
is one of the first systems of its type in China.
Seasonality
Our business experiences fluctuations, reflecting
seasonal variations in demand for leisure travel services. Sales of leisure travel products and services will increase in respect
of holiday periods and decrease in respect of off-peak times, while prices of leisure travel products and services are subject
to fluctuation between peak seasons and low seasons. For example, the third quarter of each year generally contributes the highest
percentage of our annual revenues, because many of our customers tend to travel during summer holidays in July and August.
Marketing and Brand Building
We have been making continuing efforts in
building and maintaining a strong Tuniu brand through both traditional offline marketing media and online marketing channels. We
conduct offline advertising primarily via television and outdoor advertisements. For our television marketing, we place a number
of commercials on various television channels across China, and we also sponsor a few of the most popular television programs in
China to strengthen our brand awareness. Our outdoor marketing includes advertisements on buses and subways. In addition, we also
organize targeted campaigns, make promotional and seasonal offers and cooperate with domestic and foreign tourism boards and bureaus
in holding promotional events and marketing campaigns.
While our offline advertising plays an important
role in promoting our brand image, we complement our branding campaigns through mobile and online channels. We promote our mobile
app through advertisements in the mobile app store and various display advertisements. We have also entered into agreements with
a number of search engines, pursuant to which we have purchased travel-related keywords or directory links that direct users to
our website. In addition, we have a strong presence in online social media such as Tencent’s WeChat and Sina’s Weibo.
We believe that our presence in online social media helps us maintain engagement with our targeted customers. In May 2015, in connection
with the investment that JD.com, Inc. made in our company, we entered into a business cooperation agreement with JD.com, Inc.,
under which we gain the exclusive rights to operate, for five years without paying any fees, the leisure travel channel on both
JD.com, Inc.’s website and mobile application, and become JD.com, Inc.’s preferred partner for hotel and air tickets
booking services. The business cooperation with JD.com, Inc. has contributed to the increased traffic on our website since its
implementation.
As part of our cross-marketing effort, we
have agreements with financial institutions to recommend our products and services to their debit or credit card holders, and we
allow these cardholders to settle their payments for travel products purchased from us using these cards with discounts. For instance,
we cooperated with Bank of Jiangsu, China Construction Bank and China Citic Bank and launched co-branded credit cards, through
which cardholders may book with us and are entitled to discounts, bonus points and certain other privileges.
Furthermore, our customer reward program
allows our customers to accumulate membership points and coupons as they purchase travel products and services. Our membership
points have a fixed validity term and, before expiry, customers may redeem these points for future purchases. Our customer reward
program is designed to encourage repeat purchases. Currently, our membership has seven levels. For customers who meet certain spending
thresholds, we upgrade their membership status to the next level, entitling them to further discounts and more points for their
spending. For customers who have achieved membership status of level three and above, we provide them with designated customer
service representatives to handle their travel needs.
Competition
We compete primarily with all other types
of online travel companies. In addition, we compete with traditional travel service providers and tour operators. In our self-guided
tour business, as we sell packaged tours which include flights and hotels, we also compete with airlines and hotels, which in recent
years have made efforts to improve their direct sales. Large, established Internet search engines have also launched applications
offering travel products in various destinations around the world. Factors affecting our competitiveness include, among other things,
price, availability and breadth of choice of travel products and services, brand recognition, customer services, and ease of use,
accessibility, security and reliability of our transaction and service infrastructure.
Some of our current and potential competitors
may have greater financial, marketing and other resources than we do. In addition, some of our competitors may be acquired by,
receive investment from or enter into strategic relationships with larger, well-established and well-financed companies or investors.
They may be able to devote greater resources to marketing and promotional campaigns and devote substantially more resources to
website and system development than us. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business
and Industry—We face intense competition and may not be able to compete successfully against existing and new competitors.”
Intellectual Property
Our success and ability to compete depend,
in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard, we rely primarily
on a combination of copyright, software registration, trademark, trade secret and unfair competition laws and contractual rights,
such as confidentiality agreements with our employees and others. As of December 31, 2016, we had 41 registered computer software
copyrights, 4 registered patent and 17 registered artwork copyrights in China, and were in the process of applying for 29 patents
in China. In addition, as of December 31, 2016, we had 81 registered domain names that were material to our business, including
tuniu.com
, and 282 registered trademarks, including 途牛 (the Chinese characters of Tuniu),
and
, in China.
Insurance
We maintain various insurance policies to
safeguard against risks and unexpected events. We have purchased travel companies’ liability insurance covering expenses
related to accidents caused by us. We have also maintained property insurance policies for our fixed assets covering losses due
to fire, explosion, lightning, storm, landslide, subsidence and aircraft damage.
PRC Regulation
This section sets forth 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 Telecommunication
Services
The PRC government extensively regulates
the telecommunications industry, including the Internet sector. The PRC State Council, the MIIT, the MOC, the State Administration
for Industry and Commerce, or the SAIC, the State Administration of Press, Publication, Radio, Film and Television (formerly the
General Administration of Press and Publication) and other relevant government authorities have promulgated an extensive regulatory
scheme governing telecommunications, Internet-related services and e-commerce. However, since China’s telecommunications
industry and Internet-related industry are at an early stage of development, new laws and regulations may be adopted from time
to time that will require us to obtain additional licenses and permits in addition to those that we currently have, and will require
us to address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation
and implementation of current and any future Chinese laws and regulations applicable to the telecommunications, Internet-related
services and e-commerce. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
Licenses for Value-Added Telecommunication
Services
The Telecommunications Regulations issued
by the PRC State Council in September 2000 are the primary regulations governing telecommunication services. The Telecommunications
Regulations set out the general framework for the provision of telecommunication services by PRC companies. Under the Telecommunications
Regulations, it is a requirement that telecommunications service providers procure operating licenses prior to commencement of
their operations. The Telecommunications Regulations draw a distinction between “basic telecommunications services”
and “value-added telecommunications services.” Internet content provision services, or ICP services, is a subcategory
of value-added telecommunications services.
Pursuant to the Administrative Measures
for Telecommunications Business Operating Permit promulgated by the MIIT in March 2009, there are two types of telecommunication
operating license for operators in China, namely, licenses for basic telecommunications services and licenses for value-added telecommunications
services. The operation scope of the license will specify the permitted activities of the enterprise to which it is granted. An
approved telecommunication services operator must conduct its business in accordance with such specifications.
Pursuant to the Administrative Measures
on Internet Information Services, promulgated by the PRC State Council in September 2000, as amended in January 2011, commercial
Internet information services operators must obtain an ICP license, from the relevant government authorities before engaging in
any commercial Internet information services operations within the PRC. Nanjing Tuniu, our consolidated affiliated entity, obtained
ICP licenses issued by the Jiangsu Administration of Telecommunication which will expire in March 2019.
The Internet Electronic Bulletin Service
Administrative Measures promulgated by the MIIT in November 2000 require Internet information services operators to obtain specific
approvals before providing BBS services, which include electronic bulletin boards, electronic forums, message boards and chat rooms.
In September 2014, the Internet Electronic Bulletin Service Administrative Measures was repealed by Repealing and Revising Certain
Rules of MIIT. However, in practice, the relevant authorities still require obtaining such approval for the operation of BBS services.
We have applied to the Jiangsu Administration of Telecommunication for and have obtained an approval for the operation of BBS services
on our website.
Foreign Investment in Value-Added
Telecommunications Services
The Catalog for the Guidance of Foreign
Investment Industries, or the Catalog, as promulgated and amended from time to time by the MOC and the National Development and
Reform Commission, is the principal guide to foreign investors’ investment activities in the PRC. The most updated version
of the Catalog, which was promulgated in 2015, divides the industries into three categories: encouraged, restricted and prohibited.
Industries not listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRC laws
and regulations. A wholly foreign-owned enterprise is generally permitted for encouraged industries, while for restricted industries,
such as value-added telecommunications service industry, there are some limitations to the ownership and/or corporate structure
of the foreign-invested companies that operate in such industries. Industries in the prohibited category are not open to foreign
investors.
Pursuant to the Provisions on Administration
of Foreign-Invested Telecommunications Enterprises, promulgated by the PRC State Council in December 2001 and amended in February
2016, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%. Moreover,
for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a number
of stringent performance and operational experience requirements, including demonstrating good track records and experience in
operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approvals
from the MIIT and the MOC or their authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant
to publicly available information, the PRC government has issued telecommunications business operating licenses to only a limited
number of foreign-invested companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication
business.
The MIIT Circular issued in July 2006 reiterated
the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested
enterprises and obtain a business operating license for Internet content provision to conduct any value-added telecommunications
business in China. Pursuant to the MIIT Circular, a domestic company that holds an ICP license is prohibited from leasing, transferring
or selling the license to foreign investors in any form, and from providing any assistance, including providing 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 must be owned by the domestic ICP license
holder or its shareholders. The MIIT Circular further requires each ICP license holder to have the necessary facilities for its
approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added
telecommunications service providers are required to maintain network and information security in accordance with the standards
set forth under relevant PRC regulations.
In light of the aforesaid restrictions,
we rely on Nanjing Tuniu, our consolidated affiliated entity, to hold and maintain the licenses necessary to provide online marketing
services and other value-added telecommunications services in China. For a detailed discussion of our contractual arrangements,
please refer to “—C. Organizational Structure.” To comply with these PRC regulations, we operate our website
and value-added telecommunications services through Nanjing Tuniu. Nanjing Tuniu holds our ICP licenses and owns all domain names
used in our value-added telecommunications businesses. Nanjing Tuniu is also the owner of all registered trademarks used in our
value-added telecommunications businesses and is the applicant of all registered trademark applications we are currently making.
Regulations on Information Security
and Censorship
The PRC government regulates and restricts
Internet content in China to protect state security and ensure the legality of the Internet content. The National People’s
Congress, China’s national legislative body, enacted a Decision on the Safeguarding of Internet Security in December 2000,
as subsequently amended in August 2009, among other things, makes it unlawful to: (1) gain improper entry into a computer or system
of strategic importance; (2) disseminate politically disruptive information; (3) leak state secrets; (4) spread false commercial
information; or (5) infringe intellectual property rights. Pursuant to the Administrative Measures on Internet Information Services
and other applicable laws, Internet content providers and Internet publishers are prohibited from posting or displaying over the
Internet content which violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious,
fraudulent or defamatory. Internet service providers are required to monitor their websites, including electronic bulletin boards.
They may not post or disseminate any content that falls within these prohibited categories and must remove any such content from
their websites. The PRC government may shut down the websites of ICP license holders that violate any of the above-mentioned content
restrictions and revoke their ICP licenses. In addition, the MIIT has published regulations that subject ICP 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 promulgated
the Administrative Measures for the Security Protection of International Connections to Computer Information Network in December
1997, as amended in January 2011, that 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. Socially destabilizing content includes any content that
incites defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads
socially disruptive rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence. Under PRC
law, state secrets are defined broadly to include information concerning PRC national defense, state affairs and other matters
as determined by the PRC authorities.
In December 2005, the Ministry of Public
Security promulgated Provisions on Technological Measures for Internet Security Protection. These measures and the Administrative
Measures on Internet Information Services require all ICP operators to keep records of certain information about their users (including
user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60 days
and submit the above information as required by laws and regulations. The ICP operators must regularly update information security
and censorship systems for their websites with local public security authorities, and must also report any public dissemination
of prohibited content. If an ICP operator violates these measures, the PRC government may revoke its ICP license and shut down
its websites. Pursuant to the Decision on Strengthening Network Information Protection issued by the Standing Committee of the
PRC National People’s Congress in December 2012, ICP operators must request identity information from users when ICP operators
provide information publication services to the users. If ICP operators come across prohibited information, they must immediately
cease the transmission of such information, delete the information, keep relevant records, and report to relevant government authorities.
In July 2013, the MIIT promulgated the Regulation on Protection of Personal Information of Telecommunications and Internet Users
to provide for more detailed rules in this respect.
In addition, the State Secrecy Bureau has
issued provisions authorizing the blocking access to any website it deems to be leaking state secrets or failing to comply with
the relevant legislation regarding the protection of state secrets. As Nanjing Tuniu is an ICP operator, it is subject to the laws
and regulations relating to information security. To comply with these laws and regulations, it has completed the mandatory security
filing procedures with the local public security authorities, regularly update their information security and content-filtering
systems with newly issued content restrictions, and maintains records of users’ information as required by the relevant laws
and regulations. Nanjing Tuniu has also taken measures to delete or remove links to content that to its knowledge contains information
violating PRC laws and regulations. Majority of the content posted on our online platform is first screened by our filtering systems.
Content containing prohibited words or images is then manually screened by employees who are dedicated to screening and monitoring
content published on our platform and removing prohibited content. We believe that with these measures in place, no prohibited
content under PRC information security laws and regulations should have been publicly disseminated through our online platform
in the past. However, there is significant amount of content posted on our online platform by our users on a daily basis. If any
prohibited content is publicly disseminated in the future and we become aware of it, we will report it to the relevant government
authority. We believe these measures taken by us are generally in compliance with the relevant laws and regulations.
If, despite the precautions, we fail to
identify and prevent illegal or inappropriate content from being displayed on or through our online platform, we may be subject
to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not
be possible for us to determine in all cases the types of content that could result in liability. To the extent that PRC regulatory
authorities find any content displayed on or through our online platform objectionable, they may require us to limit or eliminate
the dissemination or availability of such content or impose penalties, including the revocation of our operating licenses or the
suspension or shutdown of our online operations. In addition, the costs of compliance with these regulations may increase as the
volume of content and the number of users on our online platform increases.
Regulations on Internet Privacy
The PRC Constitution states that PRC law
protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent years, PRC
government authorities have promulgated laws and regulations on Internet use to protect personal information from any unauthorized
disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal Information
of Telecommunication and Internet Users provide that information that identifies a citizen, the time or location for his use of
telecommunication and Internet services, or involves privacy of any citizen such as his birth date, ID card number, and address
is protected by law and must not be unlawfully collected or provided to others. ICP operators collecting or using personal electronic
information of citizens must specify the purposes, manners and scopes of information collection and uses, obtain consent of the
relevant citizens, and keep the collected personal information confidential. ICP operators are prohibited from disclosing, tampering
with, damaging, selling or illegally providing others with, collected personal information. ICP operators are also prohibited from
collection and use of personal information after a user has stopped using the services. ICP operators are required to take technical
and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss as well as conducting
a self-examination of their protection of personal information at least once a year. The Administrative Measures on Internet Information
Services prohibit an ICP operator from insulting or slandering a third party or infringing upon the lawful rights and interests
of a third party. The relevant telecommunications authorities are further authorized to order ICP operators to rectify unauthorized
disclosure. ICP operators are subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation
of licenses or filings, closing of the relevant websites, administrative punishment, criminal liabilities, or civil liabilities,
if they violate relevant provisions on Internet privacy. Such requirements are reiterated by the Regulation on Protection of Personal
Information of Telecommunications and Internet Users. If an ICP operator appoints an agent to undertake any marketing and technical
services that involve the collection or use of personal information, the ICP operator is required to supervise and manage the protection
of such information. Any violation may subject the ICP operators to warnings, fines, disclosure to the public and, in the most
severe cases, criminal liability. The PRC government, however, has the power and authority to order ICP operators to turn over
personal information if an Internet user posts any prohibited content or engages in illegal activities on the Internet.
Regulations on Air-ticketing
Air-ticketing business is subject to the
supervision of the China Aviation Transportation Association, or CATA, and its regional branches. Currently the principal regulation
governing air-ticketing agencies in China is the Rules on Certification of Qualification for Civil Aviation Transport Sales Agencies,
or the Air Ticketing Rules, issued by the CATA, which became effective on March 31, 2006. Under the Air Ticketing Rules and relevant
foreign investment regulations, any company acting as an air-ticketing sale agency must obtain approval from the CATA, and a foreign
investor currently cannot own 100% of an air-ticketing agency in China, except for qualified Hong Kong and Macau aviation marketing
agencies. In addition, foreign-invested air-ticketing agencies are not permitted to sell passenger airline tickets for domestic
flights in China, except for Hong Kong and Macau aviation marketing agencies. In addition, CATA issued the Supplementary Rules
Regarding Sales via the Internet in 2008. These Supplementary Rules provide that, effective as of June 1, 2008, if an air-ticketing
sales agency would like to engage in sales via the Internet, it must obtain an ICP license from the local counterpart of the MIIT
and must complete a commercial website registration with the local counterpart of the SAIC. Although we request that our travel
suppliers provide their licenses or permits to us before entering into agreements with them, we cannot ensure that all of our travel
suppliers engaged in the air ticketing sales agency service obtained, and maintained, all necessary permits. See “Item 3.D.
Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able to adequately control
and ensure the quality of travel products and services sourced from our travel suppliers. If there is any deterioration in the
quality of their performance, our customers may not continue using our online platform.”
Regulations on Hotel Operation
In November 1987, the Ministry of Public
Security issued the Measures for the Control of Security in the Hotel Industry, which has been amended in January 2011, and in
June 2004, the PRC State Council promulgated the Decision of the PRC State Council on Establishing Administrative License for the
Administrative Examination and Approval Items Really Necessary To Be Retained. Under these two regulations, anyone who applies
to operate a hotel is subject to examination and approval by the local public security authority and must obtain a special industry
license. The Measures for the Control of Security in the Hotel Industry impose certain security control obligations on the operators.
For example, the hotel must examine the identification card of any guest to whom accommodation is provided and make an accurate
registration. The hotel must also report to the local public security authority if it discovers anyone violating the law or behaving
suspiciously, or an offender wanted by the public security authority.
In April 1987, the PRC State Council promulgated
the Public Area Hygiene Administration Regulation, which has been amended in February 2016, requiring hotels to obtain a public
area hygiene license before opening for business. In March 2011, the Ministry of Health promulgated the Implementation Rules of
the Public Area Hygiene Administration Regulation, which has been amended in February 2016, requiring, starting from May 1, 2011,
hotel operators to establish hygiene administration system and keep records of hygiene administration. In February 2009, the Standing
Committee of the National People’s Congress, or the SCNPC, enacted the PRC Law on Food Safety, which has been amended in
February 2016, requiring any hotel that provides food to obtain a food service license.
The Fire Prevention Law, as amended by the
SCNPC in October 2008, and the Provisions on Supervision and Inspection on Fire Prevention and Control, as amended by the Ministry
of Public Security in July 2012, require that public gathering places such as hotels submit a fire prevention design plan in order
to apply for completion acceptance of fire prevention facilities for their construction projects and to pass a fire prevention
safety inspection by the local public security fire department, which is a prerequisite for opening business.
In January 2006, the PRC State Council promulgated
the Regulations for Administration of Entertainment Places which has been amended in February 2016. In March 2006, the Ministry
of Culture issued the Circular on Carrying Out the Regulations for Administration of Entertainment Places. Under these regulations,
hotels that provide entertainment facilities, such as discos or ballrooms, are required to obtain a license for entertainment business
operations.
We cannot ensure that all of the hotels
that we offer to our customers have obtained, and maintained, all necessary permits and licenses. See “Item 3. D. Key Information—Risk
Factors—Risks Related to Our Business and Industry—We may not be able to adequately control and ensure the quality
of travel products and services sourced from our travel suppliers. If there is any deterioration in the quality of their performance,
our customers may not continue using our online platform.”
Regulations on Travel Companies
The travel industry is subject to the supervision
of the China National Tourism Administration, or CNTA, and local tourism administrations. The principal regulations governing travel
companies in China include: (i) the Regulation on Travel Companies, or the Travel Company Regulations, issued by the PRC State
Council in February 2009, and amended in February 2016 and July 2016, which replaced the Administration of Travel Companies Regulations
(1996), (ii) the Implementation Rules for the Regulation on Travel Companies (the “Travel Company Implementation Rules”),
promulgated by the CNTA in April 2009 and amended in December 2016, and (iii) the Tourism Law issued by the Standing Committee
of the National People’s Congress on April 25, 2013, and amended in November 2016. Under these regulations, a travel company
must obtain a license from the CNTA to conduct cross-border travel business and a license from the provincial-level tourism administration
to conduct domestic travel company business.
The Travel Company Regulations permit foreign
investors to establish wholly foreign-owned travel companies, as well as joint ventures and cooperative travel companies. Foreign-owned
travel companies are allowed to open branches nationwide, but are restricted from engaging in overseas travel business in China,
unless otherwise determined by the PRC State Council, or provided under a bilateral free trade agreement between the country and
China, or the closer economic partnership agreements between China, Hong Kong and Macau. On July 1, 2016, the State Council issued
the Decision of the State Council on Temporally Adjusting Relevant Provisions of Administrative Regulations, Documents of the State
Council and Departmental Rules approved by the State Council in the Pilot Free Trade Zones, or Decision 41, pursuant to which qualified
foreign-invested travel companies, registered in the Pilot Free Trade Zones of Shanghai, Guangdong, Tianjin and Fujian, may engage
in overseas travel business, excepted in Taiwan area. The Travel Company Implementation Rules define certain terms used in the
Travel Company Regulations, for example, the definition of “domestic tourism business,” “inbound travel business”
and “overseas travel business”, and set out detailed application requirements to establish a travel company. The Travel
Company Implementation Rules also clarify certain aspects of legal liability for travel companies as prescribed in the Travel Company
Regulations.
Pursuant to the Tourism Law, travel companies
are prohibited from arranging for compulsory shopping or other activities which charge additional fees on top of the contract prices
that tourists have already paid, unless it is agreed upon by both parties through consultation or requested by the tourists and
does not affect the itinerary of other tourists. Travel companies are required to pay quality deposits for compensation for damage
to tourists’ rights and advance payment of expenses for emergency assistance when the tourists’ personal safety is
in danger. Travel companies are required to engage tour guides, who are required to strictly follow the itineraries and are prohibited
from altering arrangement without the consent of customers, suspending to provide services, requesting tips from tourists, and
arranging for compulsory shopping or other activities which charge additional fees on top of the contract prices that tourists
have already paid by way of induction, deception, coercion or in other illegal forms. The information that travel companies release
to attract or organize tourists is required to be authentic and accurate, and no false publicity can be made to mislead tourists.
In addition, travel companies conducting business via the Internet are required to present information of their travel company
licenses on their websites, and ensure the truthfulness and accuracy of the travel-related information they release on their websites.
Generally, travel companies soliciting tourists are required to take primary liabilities for any breach of travel contracts, including
personal injury or property loss suffered by the tourists attributable to travel service providers and tour operators at destinations
and their suppliers.
In 2010, CNTA released the Measures for
Dealing with Tourism Complaints, which took effect as of July 1, 2010. Under these Measures, authorities which are responsible
for dealing with tourist complaints are required to render a decision on the complaints within 60 days after the date of receipt
thereof.
Although we take measures, such as requesting
travel suppliers to provide their relevant permits and/or licenses, we cannot make sure that all of our travel suppliers maintained
all necessary permits. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We
may not be able to adequately control and ensure the quality of travel products and services sourced from our travel suppliers.
If there is any deterioration in the quality of their performance, our customers may not continue using our online platform.”
In November 2010, CNTA and China Insurance
Regulatory Commission jointly promulgated the Measures for the Administration of the Liability Insurance of Travel Companies, or
the Liability Insurance Measures, which became effective as of February 1, 2011. Travel companies are required to procure travel
company liability insurance pursuant to the Liability Insurance Measures. The insurance companies are required to, subject to the
liability limits provided under the insurance agreement, reimburse the travel companies for the compensations made by the travel
companies for the personal injury or death and the loss of properties of tourists and the relevant tour guides or tour leaders.
Pursuant to the Liability Insurance Measures, the liability limit for the personal injury or death of each person cannot be less
than RMB200,000 (US$30,875). Each of our relevant consolidated affiliated entities engaged in travel agent business has procured
and is covered by valid travel company liability insurance.
Regulations on Online Transaction
Platform Operators
In May 2014, the SAIC issued the Guidelines
for the Performance of Social Responsibilities by Online Transaction Platform Operators, or the Online Transaction Platform Operators
Guidelines. The Online Transaction Platform Operators Guidelines stipulate the qualification requirements for operators of online
transaction platform, and certain other obligations, such as examination and registration of any business operator using online
transaction platform, online transaction operator’s contracts with suppliers and customers, data protection for consumers,
among others. Pursuant to Online Transaction Platform Operators Guidelines, online transaction platform operators must (i) establish
a consumer protection and consumer dispute settlement system, and (ii) ensure that their complaint and customer support channels
are smooth.
In addition, online transaction platform
operators must also preserve all relevant online transaction data for at least two years from the date of the transaction. Operators
of online transaction platform must obey the Consumer Protection Law, the Product Quality Law, the Anti-unfair Competition Law
and other relevant laws and regulations. Furthermore, as required by Jiangsu Administration of Telecommunication, Nanjing Tuniu,
our consolidated affiliated entity, has obtained a license of online data processing and transaction which will expire in March
2019. Subject to any clarifications or interpretations that may be issued in future as to the Online Transaction Platform Operators
Guidelines, we might need to adjust our operational or contracting practices.
Regulations on Consumer Rights
Protection
According to the PRC Consumer Protection
Law, as amended on October 25, 2013 and became effective as of March 15, 2014, the rights and interests of consumers that purchase
or use commodities or that receive services for consumption purposes in daily life is required to be protected, which includes
the right to personal safety and the safety of property, the right to be informed about goods and services offered for sale, the
right to free choice when selecting goods or services and the right to enjoy fair dealings, respect for their personal dignity
and ethnic customs, and compensation for damages suffered.
Correspondingly, a business operator providing
a commodity or service to a consumer is subject to a number of requirements, which includes to ensure that commodities and services
meet with certain safety requirements, to disclose serious defects of a commodity or a service and to adopt preventive measures
against damage occurring, to provide consumers with accurate information and to refrain from conducting false advertising, and
not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the lawful
rights and interests of consumers by means of standard contracts, circulars, announcements, shop notices or other means. A business
operator may be subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include
restoring the consumer’s reputation, eliminating the adverse effects suffered by the consumer, offering an apology and compensating
for any losses incurred. The following penalties may also be imposed upon business operators for any infraction: issuance of a
warning, confiscation of any illegal income, imposition of a fine, an order to cease business operation, revocation of its business
license or imposition of criminal liabilities under circumstances that are specified in laws and statutory regulations.
The amended Consumer Protection Law further
strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators, especially
on the business operators through the internet. The consumers whose interests are harmed due to their purchase of goods or acceptance
of services on online marketplace platforms may claim damages from sellers or service providers. As to legal liabilities of the
online marketplace platform provider, the Consumer Protection Law set forth that, where a consumer purchases products or accepts
services via an online trading platform and his or her interests are prejudiced, if the online trading platform provider fails
to provide the name, address and valid contact information of the seller, the manufacturer or the service provider, the consumer
is entitled to demand compensation from the online trading platform provider. If the online trading platform provider gives an
undertaking that is more favorable to consumers, it shall perform such undertaking. Once the online trading platform provider has
paid compensation, it shall have a right of recourse against the seller, the manufacturer or the service provider. If an online
trading platform provider is aware or ought to have been aware that a seller, manufacturer or service provider is using the online
platform to infringe upon the lawful rights and interests of consumers and it fails to take necessary measures, it shall bear joint
and several liabilities with the seller, the manufacturer or service provider for such infringement. The Tort Liability Law of
the PRC, which was enacted by the Standing Committee of the National People’s Congress on December 26, 2009, also provides
that if an online service provider is aware that an online user is committing infringing activities, such as selling counterfeit
products, through its internet services and fails to take necessary measures, it shall be jointly and severally liable with the
said online user for such infringement. If the online service provider receives any notice from the infringed party on any infringing
activities, the online service provider shall take necessary measures, including deleting, blocking and unlinking the infringing
content, in a timely manner. Otherwise, it will be jointly and severally liable with the relevant online user for the extended
damages.
In December 2003, the Supreme People’s
Court in China enacted the Interpretation of Some Issues Concerning the Application of Law for the Trial of Cases on Compensation
for Personal Injury, which further increases the liabilities of business operators engaged in the operation of hotels, restaurants,
or entertainment facilities and subjects such operators to compensatory liabilities for failing to fulfill their statutory obligations
to a reasonable extent or to guarantee the personal safety of others.
In October 2010, the Supreme People’s
Court of China issued the Provisions on Issues Concerning the Application of Law for the Trial of Cases on Tourism-related Disputes,
which establish liabilities for tour operators and tourism support service providers in the event of contract disputes, personal
injury and property damage involving tourists.
Although we take certain measures to monitor
the qualities of the travel products and services provided by our travel suppliers and handle customer complaints, we cannot ensure
that these measures are sufficient to protect consumer rights, or customer dispute can be handled and resolved in a timely fashion.
See “Item 3. D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able
to adequately control and ensure the quality of travel products and services sourced from our travel suppliers. If there is any
deterioration in the quality of their performance, our customers may seek damages from us and not continue using our online platform.”
Regulations on Advertising Business
The SAIC is the primary governmental authority
regulating advertising activities, including online advertising, in China. Regulations that apply to advertising business primarily
include:
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·
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Advertisement Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s
Congress as amended on April 24, 2015 and effective since September 1, 2015;
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Administrative Regulations for Advertising, promulgated by the PRC State Council on October 26, 1987 and effective since December
1, 1987.
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According to the above regulations, companies
that engage in advertising activities must each obtain, from the SAIC or its local branches, a business license which specifically
includes operating an advertising business in its business scope. An enterprise engaging in advertising business within the specifications
in its business scope does not need to apply for the registration for advertisement publication, provided that such enterprise
is not a radio station, television station, newspaper and periodical publishers.
Under the Rules for Administration of Foreign
Invested Advertising Enterprises, which were jointly promulgated by the SAIC and the MOC on March 2, 2004 and amended on August
22, 2008, certain foreign investors are permitted to hold direct equity interests in PRC advertising companies. A foreign investor
in a Chinese advertising company is required to have prior direct advertising operations as its main business outside China for
two years if the Chinese advertising company is a joint venture, or three years if the Chinese advertising company is a wholly
foreign-owned enterprise. Since we have not been involved in the advertising industry outside of China for the required number
of years, we are not permitted to hold direct equity interests in PRC companies engaging in the advertising business. Therefore,
we conduct our advertising business through Nanjing Tuniu, which holds a business license that covers advertising in its business
scope. The Rules for Administration of Foreign Invested Advertising Enterprises has been abolished on June 29, 2015.
PRC advertising laws and regulations set
certain content requirements for advertisements in China, including, among other things, prohibitions on false or misleading content,
superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or
infringement of the public interest. Advertisers, advertising agencies, and advertising distributors are required to ensure that
the content of the advertisements they prepare or distribute is true and in full compliance with applicable laws. In providing
advertising services, advertising operators and advertising distributors must review the supporting documents provided by advertisers
for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. Prior to
distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to verify
that such censorship has been performed and approval has been obtained. 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. Where serious violations occur, the SAIC or its local branches may revoke
such offenders’ licenses or permits for their advertising business operations.
Regulations on Intellectual Property
Rights
The PRC has adopted legislation governing
intellectual property rights, including trademarks, domain names and copyrights.
Trademark
The PRC Trademark Law and its implementation
rules protect registered trademarks. The PRC Trademark Office of the SAIC is responsible for the registration and administration
of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark
registration. As of December 31, 2016, we had 282 registered trademarks in different applicable trademark categories and were in
the process of applying to register 163 trademarks in China.
In addition, pursuant to the PRC Trademark
Law, counterfeit or unauthorized production of the label of another person’s registered trademark, or sale of any label that
is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registered
trademark. The infringing party will be ordered to stop the infringement immediately, a fine may be imposed and the counterfeit
goods will be confiscated. The infringing party may also be held liable for the right holder’s damages, which will be equal
to the gains obtained by the infringing party or the losses suffered by the right holder as a result of the infringement, including
reasonable expenses incurred by the right holder for stopping the infringement. If the gains or losses, or royalties are difficult
to determine, the court may render a judgment awarding damages of up to RMB3,000,000 (US$432,090).
Domain Name
Domain names are protected under the Administrative
Measures on the Internet Domain Names promulgated by the MIIT in November 2004. The MIIT is the major regulatory body responsible
for the administration of the PRC Internet domain names, under supervision of which the China Internet Network Information Center,
or CNNIC, is responsible for the daily administration of .cn domain names and Chinese domain names. In September 2002, the CNNIC
issued the Implementation Rules for Domain Name Registration setting forth rules for registration of domain names, as amended in
June 2009 and May 2012. CNNIC adopts the “first to file” principle with respect to the registration of domain names.
As of December 31, 2016, we had 81 registered domain names, including
www.tuniu.com
.
Copyright
Works are protected under the PRC Copyright
Law adopted by the National People’s Congress in 1990, as amended in 2001 and 2010, as well as its implementation rules adopted
by the State Council in 1991, as amended in 2002, 2011 and 2013. Whether such protected works are published or not, copyrights
duly obtained and enjoyed by the author or other copyright owner remain unaffected. Copyright owners, however, could register such
protected works on a voluntary basis with National Copyright Administration or its local counterparts. We have registered 17 artwork
copyrights in China.
Pursuant to the PRC Copyright Law and its
implementation rules, creators of protected works enjoy personal and property rights, including, among others, the right of disseminating
the works through information network. Pursuant to the relevant PRC regulations, rules and interpretations, Internet service providers
will be jointly liable with the infringer if they (i) participate in, assist in or abet infringing activities committed by any
other person through the Internet, (ii) are or should be aware of the infringing activities committed by their website users through
the Internet, or (iii) fail to remove infringing content or take other action to eliminate infringing consequences after receiving
a warning with evidence of such infringing activities from the copyright holder. In addition, where an ICP service operator is
clearly aware of the infringement of certain content against another’s copyright through the Internet, or fails to take measures
to remove relevant contents upon receipt of the copyright owner’s notice, and as a result, it damages the public interest,
the ICP service operator could be ordered to stop the tortious act and be subject to other administrative penalties such as confiscation
of illegal income and fines. To comply with these laws and regulations, we have implemented internal procedures to monitor and
review the content we have licensed from content providers before they are released on our website and remove any infringing content
promptly after we receive notice of infringement from the legitimate rights holder.
Software Copyrights
Computer Software Protection Regulations
promulgated by the PRC State Council in December 2001, amended in 2011 and 2013, provide that the rights and interests of computer
software copyright owners are protected. A Chinese citizen, legal person, or other organization shall be entitled to the copyright
in software developed thereby regardless of whether the software has been published or not. A foreigner’s or stateless person’s
software shall enjoy copyright if it is first distributed in China.
In order to further implement the Computer
Software Protection Regulations, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures in February
2002, amended in 2004, which apply to software copyright registration, license contract registration and transfer contract registration.
As of December 31, 2016, we had 41 registered computer software copyrights in China.
Patents
Patents are protected under the PRC Patent
Law adopted by the National People’s Congress in 1984, as amended in 1992, 2000 and 2008, as well as its implementation rules
adopted by the State Council in 1985, as amended in 1992, 2001, 2002 and 2010. The Patent Office under the State Intellectual Property
Office is responsible for receiving, examining and approving patent application. A patent is valid for a term of 20 years in the
case of an invention and a term of 10 years in the case of utility models and designs. A third-party user must obtain consent or
a proper license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of patent rights. As of
December 31, 2016, we had 4 registered patent, and were in the process of applying to register 29 patents in China.
Tort Liability Law
In accordance with the Tort Liability Law
promulgated by the Standing Committee of the National People’s Congress in December 2009, which became effective as of July
1, 2010, Internet users and Internet service providers bear tortious liabilities in the event they infringe other persons’
rights and interests through the Internet. Where an Internet user conducts tortious acts through Internet services, the infringed
person has the right to request the Internet service provider to take necessary actions such as deleting contents, screening and
delinking. The Internet service provider, failing to take necessary actions after being informed, will be subject to joint and
several liabilities with the Internet user with regard to the additional damages incurred. If an Internet service provider knows
an Internet user is infringing other persons’ rights and interests through its Internet service but fails to take necessary
action, it shall be jointly and severally liable with the Internet user. We have internal policies designed to reduce the likelihood
that user content may be used without proper licenses or third-party consents. When we are approached and requested to remove content
uploaded by users on the grounds of infringement, we investigate the claims and remove any uploads that appear to infringe the
rights of a third party after our reasonable investigation and determination. However, such policy may not be effective in preventing
the unauthorized listing of copyrighted materials or materials infringing other rights of third parties. See “Item 3.D. Key
Information—Risk Factors—Risks Related to Our Business and Industry—Claims by third parties that we infringe
on their intellectual property rights could lead to government administrative actions and result in significant costs and have
a material adverse effect on our business, financial condition and results of operations.”
Regulations on Foreign Currency
Exchange
Pursuant to the Foreign Exchange Administration
Regulations, as amended in August 2008, if documents certifying the purpose of the conversion of Renminbi into foreign currency
are submitted to the relevant foreign exchange conversion bank, the Renminbi is convertible for current account items, including
the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital
account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless
SAFE’ s prior approval is obtained and prior registration with SAFE is made. In May 2013, SAFE promulgated SAFE Circular
21 which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment
by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement
and sales of foreign exchange. We generally follow the regulations and apply to obtain the approval of SAFE and other relevant
PRC government authorities. However, we may not be able to obtain these government registrations or approvals on a timely basis,
if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to our
PRC subsidiaries and our consolidated affiliated entities may be negatively affected, which could adversely affect our liquidity
and our ability to fund and expand our business.
In August 2008, SAFE promulgated a SAFE
Circular 142 regulating the conversion, by a foreign-invested enterprise, of foreign currency into Renminbi by restricting how
the converted Renminbi may be used. The SAFE Circular 142 requires that the registered capital of a foreign-invested enterprise
settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable
government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of
the flow and use of the registered capital of a foreign-invested enterprise settled in Renminbi converted from foreign currencies.
The use of such Renminbi capital may not be changed without SAFE’ s approval, and may not in any case be used to repay Renminbi
loans if the proceeds of such loans have not been used. Violations of the SAFE Circular 142 will result in penalties, such as fines.
SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and capital
operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial
of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on August
4, 2014, or Circular 36. This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested
enterprise registered in such areas with a business scope including “investment” to use the Renminbi capital converted
from foreign currency registered capital for equity investments within the PRC. On March 30, 2015, SAFE promulgated Circular 19,
to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular
19 allows foreign-invested enterprises to make equity investments by using Renminbi fund converted from foreign exchange capital.
However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted
from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between
non-financial enterprises. In June 2016, SAFE promulgated Notice on Reforming and Standardizing the Administrative Provisions on
Capital Account Foreign Exchange Settlement which further stipulates that foreign-invested enterprises shall not use Renminbi fund
converted from foreign exchange capital for disbursing loans to non-affiliated enterprises, except for expressly permitted by its
business scope. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from foreign
currency registered capital of a foreign-invested company. SAFE also promulgated a SAFE Circular 45 in November 2011, which, among
other things, restricts a foreign-invested enterprise from using Renminbi converted from its registered capital to provide entrusted
loans or repay loans between non-financial enterprises. Circular 45 was abolished on March 19, 2015. These circulars may significantly
limit our ability to use Renminbi converted from net proceeds of our initial public offering and the concurrent private placement
and our subsequent private placement in December 2014, May 2015 and November 2015 to fund establishment of new PRC subsidiaries,
to invest in or acquire any other PRC companies, or establish new consolidated affiliated entities in the PRC.
Regulations on Dividend Distribution
The principal regulations governing distribution
of dividends of wholly foreign-owned enterprises include the PRC Company Law, as amended in December 2013, the Wholly Foreign-Owned
Enterprise Law, as amended in October 2000 and 2016, and the Implementation Rules of the Wholly Foreign-Owned Enterprise Law, as
amended in February 2014. Pursuant to these laws and regulations, foreign-invested enterprises in China may pay dividends only
out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition,
wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective accumulated profits each year,
if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. In addition,
these companies may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus
funds at their discretion. These reserves are not distributable as cash dividends.
Regulations on Offshore Financing
Pursuant to a SAFE Circular 37 issued by
SAFE on July 4, 2014, which replaced the former circular commonly known as “Safe Circular 75” issued by SAFE in October
2005, prior registration with the local SAFE branch is required for PRC residents in connection with their direct establish or
indirect control of an offshore entity, for the purposes of overseas investment and financing, with assets or equity interests
of onshore companies or offshore assets or interests held by such PRC residents, referred to in SAFE Circular 37 as a “special
purpose vehicle.” The PRC residents are also required to amend the registration or filing with the local SAFE branch in the
event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed
by PRC residents, share transfer or exchange, merger, division or other material event.
Failure to comply with the registration
procedures set forth in the SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the
relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to
its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents
to penalties under PRC foreign exchange administration regulations. PRC residents who control our company from time to time are
required to register with SAFE in connection with their investments in us. We requested PRC residents holding direct or indirect
interests in our company to our knowledge to make the necessary applications, filings and amendments as required under SAFE Circular
75 and other related rules prior to our initial public offering. However, we might not be fully informed of the identities of all
of our beneficial owners who are PRC citizens or residents, and we cannot compel our beneficial owners to comply with the requirements
of SAFE Circular 37. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or
residents have complied with and will in the future make or obtain any applicable registrations or approvals required by SAFE Circular
37 or other related regulations. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business
in China—PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’
ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries,
or otherwise expose us to liability and penalties under PRC laws.”
Regulations on Employee Stock
Option Plans
In February 2012, SAFE promulgated the Stock
Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules
and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company, which includes employee
stock ownership plans, stock option plans and other incentive plans permitted by relevant laws and regulations, are required to
register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan in an overseas
publicly listed company who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas
publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other
procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas
entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding
stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the
stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution
or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share
options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC
residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale
of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into
the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.
We adopted the 2008 Plan, pursuant to which
we may issue options or restricted shares to our qualified employees and consultants on a regular basis. We also adopted the 2014
Plan, which permits the granting of options to purchase our ordinary shares, restricted shares and restricted share units. The
failure of the share options holders to complete their registration pursuant to the Stock Option Rules and other foreign exchange
requirements may subject these PRC individuals to fines and legal sanctions, and may also limit our ability to contribute additional
capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially
adversely affect our business. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in
China—Failure to comply with PRC regulations regarding the registration requirements for share option plans may subject the
PRC plan participants or us to fines and other legal or administrative sanctions.”
In addition, the State Administration for
Taxation has issued circulars concerning employee share options, under which our employees working in the PRC who exercise share
options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee
share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share
options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations,
we may face sanctions imposed by the PRC tax authorities or other PRC government authorities.
Regulations on Overseas Listing
Six PRC regulatory agencies, including the
CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A
Rules, which became effective on September 8, 2006 and which were amended on June 22, 2009, with such amendments becoming effective
as of the same date. The M&A Rules, among other things, require offshore SPVs formed for overseas listing purposes through
acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior
to publicly listing their securities on an overseas stock exchange.
While the application of this new regulation
remains unclear, we believe, based on the advice of our PRC counsel, Fangda Partners, that CSRC approval was not required in the
context of our initial public offering because (1) CSRC currently has not issued any definitive rule or interpretation concerning
whether offerings like initial public offerings are subject to this regulation and (2) we established our PRC subsidiaries by means
of direct investment other than by merger or acquisition of PRC domestic companies and no explicit provision in the M&A Rules
classifies the contractual arrangements between Beijing Tuniu, our PRC subsidiary, Nanjing Tuniu, our consolidated affiliated entity,
and its shareholders as a type of acquisition transaction falling under the M&A Rules. See “Item 3.D. Key Information—Risk
Factors—Risks Related to Doing Business in China—The approval of the China Securities Regulatory Commission may have
been required in connection with our earlier initial public offering under a regulation adopted in August 2006, and, if required,
we cannot assure you that we will be able to obtain such approval.”
Regulations on Employment
The PRC Labor Law, the PRC Labor Contract
Law and its implementation rules provide requirements concerning employment contracts between an employer and its employees. If
an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment
relationship is established, the employer would be deemed to have entered into a labor contract without a fixed term with such
employee. In addition, the employer must rectify the situation by entering into a written employment contract with the employee
and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date
of establishment of the employment relationship to the day prior to the execution of the written employment contract. The Labor
Contract Law and its implementation rules also require compensation to be paid upon certain terminations. In addition, if an employer
intends to enforce a non-compete provision with an employee in an employment contract or non-competition agreement, it has to compensate
the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract.
Employers in most cases are also required to provide a severance payment to their employees after their employment relationships
are terminated.
Enterprises in China are required by PRC
laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan,
a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan,
and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including
bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate
their businesses or where they are located.
Regulations on Taxation
For a discussion of applicable PRC tax regulations,
see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Taxation.”
|
C.
|
Organizational Structure
|
The following diagram illustrates our corporate
structure, including our principal subsidiaries and consolidated affiliated entities, as of the date of this annual report on Form
20-F:
|
(1)
|
Messrs. Dunde Yu, Haifeng Yan, Tong Wang, Jiping Wang, Xin Wen, Yongquan Tan and Haifeng Wang hold 28.66%, 19.11%, 7.71%, 4.82%,
0.96%, 0.96% and 37.78% equity interests in Nanjing Tuniu, respectively. Among the shareholders of Nanjing Tuniu, Messrs. Dunde
Yu and Haifeng Yan are founders, directors and ultimate shareholders of Tuniu Corporation. Messrs. Tong Wang, Jiping Wang, Xin
Wen and Yongquan Tan are ultimate shareholders of Tuniu Corporation. Mr. Haifeng Wang is an employee of one of our shareholders.
|
Agreements that Provide us with Effective
Control over Nanjing Tuniu
Purchase Option Agreement
.
Pursuant to the purchase option agreement entered into on September 17, 2008, restated and amended on January 24, 2014 and further
restated and amended on March 19, 2014, each of the shareholders of Nanjing Tuniu irrevocably and exclusively grants Beijing Tuniu
an option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC
law, all or part of such shareholder’s equity interests in Nanjing Tuniu. The aggregate purchase price is RMB2.4 million
(US$0.3 million). The shareholders of Nanjing Tuniu agree, without the prior written consent of Beijing Tuniu, not to transfer
or otherwise dispose of their equity interests in Nanjing Tuniu, pledge their equity interests or create any encumbrance on their
equity interests. The agreement remains effective until all equity interests held in Nanjing Tuniu by the shareholders of Nanjing
Tuniu are transferred or assigned to Beijing Tuniu or its designated person or persons. The purchase price has been prepaid by
Beijing Tuniu to the shareholders of Nanjing Tuniu.
Equity Interest Pledge Agreement
.
Pursuant to the equity interest pledge agreement entered into on September 17, 2008 and supplemented on March 19, 2014, each of
the shareholders of Nanjing Tuniu pledges all of such shareholder’s equity interests in Nanjing Tuniu to guarantee the performance
of the obligations under the purchase option agreement. If the shareholders of Nanjing Tuniu breach their contractual obligations
under the purchase option agreement, Beijing Tuniu, as the pledgee, will have the right to either conclude an agreement with the
pledgor to obtain the pledged equity or seek payments from the proceeds of the auction or sell-off of the pledged equity to any
person pursuant to the PRC law. The shareholders of Nanjing Tuniu agree that, during the term of the equity interest pledge agreement,
they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. During
the equity pledge period, Beijing Tuniu is entitled to all dividends and other distributions made by Nanjing Tuniu. The equity
interest pledge became effective on the date when the equity interest pledge was registered with the relevant local administration
for industry and commerce, and remains effective until the shareholders of Nanjing Tuniu discharge all their obligations under
the purchase option agreement, or Beijing Tuniu enforces the equity interest pledge, whichever is earlier. We have completed the
registration of the equity interest pledge with Xuanwu Branch of Nanjing Administration for Industry and Commerce.
Shareholders’ Voting Rights
Agreement
. Pursuant to the shareholders’ voting rights agreement entered into on September 17, 2008, the shareholders
of Nanjing Tuniu appointed Beijing Tuniu or its designated person as their attorney-in-fact to exercise all of their voting and
related rights with respect to their equity interests in Nanjing Tuniu, including attending shareholders’ meetings, voting
on all matters of Nanjing Tuniu requiring shareholder approval, nominating and appointing directors, convening extraordinary shareholders’
meetings, and other voting rights pursuant to the then-effective articles of association of Nanjing Tuniu. The shareholders’
voting rights agreement will remain in force until all the parties to the agreement mutually agree to terminate the agreement in
writing or cease to be shareholders of Nanjing Tuniu.
Irrevocable Powers of Attorney
.
Pursuant to the powers of attorney dated January 24, 2014, the shareholders of Nanjing Tuniu each irrevocably appointed Beijing
Tuniu as the attorney-in-fact to exercise all of such shareholder’s voting and related rights with respect to such shareholder’s
equity interests in Nanjing Tuniu, including but not limited to attending shareholders’ meetings, voting on all matters of
Nanjing Tuniu requiring shareholder approval, nominating and appointing directors, convening extraordinary shareholders’
meetings, and other voting rights pursuant to the then-effective articles of association of Nanjing Tuniu. Each power of attorney
will remain in force until the shareholders’ voting rights agreement expires or is terminated. These powers of attorney replaced
the powers of attorney previously granted to a person designated by Beijing Tuniu on September 17, 2008.
Agreement that Allows us to Receive Economic
Benefits from Nanjing Tuniu
Cooperation Agreement
. Under
the cooperation agreement entered into on September 17, 2008 and restated and amended on January 24, 2014, Beijing Tuniu has the
exclusive and irrevocable right to provide to Nanjing Tuniu business consulting, technical consulting and technical services related
to the businesses of Nanjing Tuniu and its subsidiaries. Beijing Tuniu owns the exclusive intellectual property rights created
by Nanjing Tuniu or its employees as a result of the performance of this agreement. Beijing Tuniu has the right to receive, or
designate a person or persons to receive, a quarterly service fee, which equals the profits of each of Nanjing Tuniu and its subsidiaries,
to which it provides such business consulting, technical consulting and technical services, provided that such amount of service
fees can be adjusted by Beijing Tuniu at its sole discretion. This agreement will remain effective until expiration of Beijing
Tuniu’s business term, unless Beijing Tuniu exercises its unilateral right to terminate the agreement, one of the parties
is declared bankrupt or Beijing Tuniu is not able to provide consulting and services as agreed for more than three consecutive
years because of force majeure. Nanjing Tuniu is not permitted to terminate the agreement in any other event.
In 2014, 2015 and 2016, we received
service fees of RMB20.5 million, RMB42.4 million and RMB109.6 million (US$15.8 million), respectively, from our consolidated
affiliated entities, which were eliminated on consolidated financial statements.
|
D.
|
Property, Plant and Equipment
|
Our principal executive offices, consisting
of our administrative center, sales and marketing division, technical services department, and call center, are located on leased
premises in Nanjing comprising approximately 35,576 square meters. We lease these premises under lease agreements from unrelated
third parties, and we plan to renew these leases from time to time as needed. We believe that the facilities we currently lease
for our executive offices are adequate to meet our administrative needs for the foreseeable future, and we believe that we will
be able to obtain adequate facilities, principally through the leasing of additional properties, to accommodate our strategic regional
expansion plans of adding more service centers in different parts of China.
|
Item 4A.
|
Unresolved Staff Comments
|
Not applicable.
|
Item 5.
|
Operating and Financial Review and Prospects
|
The following discussion of our financial
condition and results of operations is based upon, and should be read in conjunction with, our audited consolidated financial statements
and the related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See “Forward-Looking
Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item
3.D. Key Information—Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial
performance are subject to substantial risks and uncertainties.
Overview
We are a leading online leisure travel company
in China. We offer a large selection of packaged tours, including organized tours and self-guided tours, as well as travel-related
services for leisure travelers. We started offering packaged tours online in 2007, and have sold approximately 17 million packaged
tours since our inception. As of December 31, 2016, we offered packaged tours sourced from over 16,000 travel suppliers, covering
over 150 countries as well as all popular tourist attractions in China. Our product portfolio consists of over 700,000 stock keeping
units, or SKUs, of organized tours, over 1,000,000 SKUs of self-guided tours, and tickets for over 1,000 domestic and overseas
tourist attractions. Our core strength is in overseas leisure travel products and services, which contributed over 63.8% of our
packaged tour gross bookings in 2016. In 2016, the number of orders placed through our mobile platform accounted for approximately
80% of total orders placed through our online platform and average daily unique visitors to our mobile platform accounted for approximately
70% of the average daily unique visitors to our online platform.
We have achieved significant growth in recent
years. Our net revenues increased from RMB3,534.9 million in 2014 to RMB7,645.3 million and further to RMB10,548.3 million (US$1,519.3
million) in 2016, representing a CAGR of 72.7%. We had a net loss of RMB447.9 million, RMB1,462.4 million, and RMB2,442.6 million
(US$351.8 million) in 2014, 2015 and 2016 respectively. We generally collect payments from our customers upon contract confirmation
before we pay our travel suppliers. Our net cash used in operating activities was RMB271.1 million, RMB514.7 million and RMB2,239.4
million (US$322.6 million) in 2014, 2015 and 2016, respectively.
Our ability to achieve and maintain profitability
depends on our ability to effectively reduce our costs and expenses as a percentage of our net revenues. Our cost of revenues as
a percentage of our net revenues increased from 93.6% in 2014 to 95.2% in 2015, and decreased to 94.1% in 2016. Our operating expenses
as a percentage of our net revenues increased from 19.8% in 2014 to 23.9% in 2015 and further to 29.8% in 2016. Such increase was
primarily due to higher levels of spending associated with our rapidly expanding business operations, including expenses related
to regional expansion, branding and advertising campaigns, mobile related initiatives and expenses related to technology, product
development and administrative personnel such as share-based compensation. Our past results of operations should not be taken as
indicative of our future performance. We plan to continue our sales and marketing efforts using offline and online media to further
increase our brand recognition and market share. Our sales and marketing expenses increased from RMB434.2 million in 2014 to RMB1,154.2
million in 2015 and further to RMB1,908.4 million (US$274.9 million) in 2016. We also expect our share-based compensation expenses
to continue to increase. As a result, we expect our operating expenses to continue to increase in the absolute amount. If we fail
to effectively reduce our costs and expenses as a percentage of our net revenues, we may not be able to achieve and maintain profitability.
Selected Income Statement Items
Revenues
We generate revenues primarily from sales
of packaged tours, which consist of organized tours and self-guided tours. Substantially all of our revenues from organized tours
are recognized on a gross basis, which represents amounts received from customers, as we act as the principal in these transactions.
Revenues from self-guided tours are recognized on a net basis, representing the difference between the amount received from customers
and the amount due to our travel suppliers, as we act as an agent for travel suppliers. See also “—Critical Accounting
Policies and Estimates.”
The following table sets forth the components
of our revenues in absolute amounts and as percentages of our net revenues for the periods presented:
|
|
For the Year Ended December 31,
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organized tours
|
|
|
3,432,825
|
|
|
|
97.1
|
%
|
|
|
7,358,879
|
|
|
|
96.3
|
%
|
|
|
9,926,628
|
|
|
|
1,429,732
|
|
|
|
94.1
|
%
|
Self-guided tours
|
|
|
93,126
|
|
|
|
2.6
|
|
|
|
194,162
|
|
|
|
2.5
|
|
|
|
253,349
|
|
|
|
36,490
|
|
|
|
2.4
|
|
Others
|
|
|
28,756
|
|
|
|
0.8
|
|
|
|
127,745
|
|
|
|
1.7
|
|
|
|
385,603
|
|
|
|
55,538
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,554,707
|
|
|
|
100.6
|
|
|
|
7,680,786
|
|
|
|
100.5
|
|
|
|
10,565,580
|
|
|
|
1,521,760
|
|
|
|
100.2
|
|
Less: Business and related taxes
|
|
|
(19,768
|
)
|
|
|
(0.6
|
)
|
|
|
(35,526
|
)
|
|
|
(0.5
|
)
|
|
|
(17,307
|
)
|
|
|
(2,493
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
3,534,939
|
|
|
|
100.0
|
%
|
|
|
7,645,260
|
|
|
|
100.0
|
%
|
|
|
10,548,273
|
|
|
|
1,519,267
|
|
|
|
100.0
|
%
|
The following table sets forth the number
of trips of our organized tours and self-guided tours for the periods presented:
|
|
For the Year Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Number of trips:
|
|
|
|
|
|
|
|
|
|
|
|
|
Organized tours (excluding local tours)
|
|
|
712
|
|
|
|
1,633
|
|
|
|
2,773
|
|
Local tours
|
|
|
1,074
|
|
|
|
1,702
|
|
|
|
2,207
|
|
Self-guided tours
|
|
|
396
|
|
|
|
1,114
|
|
|
|
1,759
|
|
Organized tours
. Substantially all
of our revenues from organized tours are recognized on a gross basis, which represent amounts received from customers. From 2015
to 2016, our revenues from organized tours increased by 34.9% from RMB7,358.9 million to RMB9,926.6 million (US$1,429.7 million).
From 2014 to 2015, our revenues from organized tours increased by 114.4% from RMB3,432.8 million to RMB7,358.9 million. The increase
was primarily due to the rapid growth in demand for travel to certain international destinations, such as Japan, South Korea, Middle
East, Africa, and North America. Revenues from organized tours accounted for 97.1%, 96.3% and 94.1% of our net revenues in 2014,
2015 and 2016, respectively. We expect that revenues from organized tours will continue to constitute a large majority of our net
revenues in the foreseeable future.
Self-guided tours
. Revenues from
self-guided tours represent the difference between amounts received from our customers and amounts due to our travel suppliers.
From 2015 to 2016, our revenues from self-guided tours increased by 30.5% from RMB194.2 million to RMB253.3 million (US$36.5 million).
From 2014 to 2015, our revenues from self-guided tours increased by 108.5% from RMB93.1 million to RMB194.2 million. The increase
in revenues from self-guided tours was primarily due to the growth in travel to Japan, South Korea, Southeast Asia, Middle East,
Africa, North America and domestic destinations. Primarily due to the fact that our revenues from self-guided tours are recognized
on a net basis, we expect that revenues from self-guided tours will continue to constitute a relatively small percentage of our
net revenues in the near future.
Others
. Other revenues accounted
for 0.8%, 1.7% and 3.7% of our net revenues in 2014, 2015 and 2016 respectively. Our other revenues primarily comprise revenues
generated from (i) service fees received from insurance companies, (ii) other travel-related services, such as sales of tourist
attraction tickets and visa processing services, which are recognized on a net basis, (iii) fees for advertising services that
we provide primarily to domestic and foreign tourism boards and bureaus, (iv) commission fees for hotel reservation and air-ticketing,
and (v) service fees for financial services and interest income for yield enhancement products.
Cost of Revenues
Our cost of revenues accounted for 93.6%,
95.2% and 94.1% of our net revenues in 2014, 2015 and 2016, respectively. A substantial majority of our cost of revenues is cost
to suppliers of our organized tours, which were attributed solely to revenues from organized tours.
Cost to suppliers of our organized tours
represents amounts paid to our travel suppliers for the sale of the relevant organized tour products to customers, net of supplier
rebates. See also “Item 4.B. Information on the Company—Business Overview—Supply Chain Management.” Cost
to suppliers of our organized tours generally increases along with the increase in our revenues from organized tours. We expect
that cost to suppliers of our organized tours will continue to increase as revenues from our organized tours continue to grow.
As revenues from self-guided tours are recognized on net basis, the amounts we pay to our travel suppliers for self-guided tours
are recorded as a reduction to revenues, rather than cost of revenues, and hence have no impact on our cost of revenues.
Our cost of revenues also includes salaries,
commissions, employee welfare expenses, bonuses and contributions to mandatory retirement provident funds and other headcount-related
expenses for our tour advisors, customer service representatives and other personnel directly related to providing products and
services. Other components of our cost of revenues include (i) charges and other direct expenses related to tour transactions such
as credit card processing fees, (ii) office rental expenses, depreciation expenses, interest expenses for yield enhancement products
and other office related expenses and (iii) network maintenance costs such as bandwidth costs and data center costs. Components
of our cost of revenues, other than cost to suppliers of our organized tours, are common to all of our travel products and services
which consist of organized tours, self-guided tours and other travel-related services. As a result, these components cannot be
reasonably allocated among different travel products and services.
Adoption of ASC topic 606, Revenue from
Contracts with Customers, effective January 1, 2017
In May 2014, the FASB issued a new standard
related to revenue recognition, and recently issued several amendments to the standard. The new revenue standard will be effective
beginning January 1, 2018, and adoption as of the original effective date of January 1, 2017 is permitted. The guidance permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up
transition method). We will adopt this new revenue standard effective January 1, 2017 by applying the full retrospective method.
Also since the beginning of fiscal year 2017, we have implemented certain changes with our tour operators and our role in the organized
tour arrangements has changed from a principal into an agent. As a result of adopting the new accounting standard and the change
of our role, revenue from the organized tours will be mainly recognized on a net basis. Also the revenue standard is mainly expected
to change the timing of revenue recognition for packaged-tour services from the tours end to the departure day of the tour. Under
ASC 606
Revenue from Contracts with Customers
, substantially all revenues from our organized tours for the year ended December
31, 2016 will continue to be recognized on a gross basis because of our principal role for these organized tours up to the end
of 2016. To provide investors with meaningful year-over-year comparison, we have provided the below financial information of each
quarter and full year in 2016 which were adjusted to reflect the net basis of revenue recognition for packaged tours and timing
for packaged tours and other revenues as in 2017. There was no impact on operating expenses and other income or expenses in 2016
by adopting the new accounting standard.
|
|
For the Quarter Ended March 31, 2016
|
|
|
|
GAAP
Result
|
|
|
Adjustment on net basis and timing of
revenue recognition as in 2017
|
|
|
Non-GAAP
Result
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaged tours
|
|
|
1,977,259
|
|
|
|
(1,745,314
|
)
|
|
|
231,945
|
|
Others
|
|
|
67,949
|
|
|
|
(2,036
|
)
|
|
|
65,913
|
|
Total revenues
|
|
|
2,045,208
|
|
|
|
(1,747,350
|
)
|
|
|
297,858
|
|
Less: Business and related taxes
|
|
|
(13,552
|
)
|
|
|
—
|
|
|
|
(13,552
|
)
|
Net revenues
|
|
|
2,031,656
|
|
|
|
(1,747,350
|
)
|
|
|
284,306
|
|
Cost of revenues
|
|
|
(1,944,787
|
)
|
|
|
1,753,328
|
|
|
|
(191,459
|
)
|
Gross Profit
|
|
|
86,869
|
|
|
|
5,978
|
|
|
|
92,847
|
|
|
|
For the Quarter Ended June 30, 2016
|
|
|
|
GAAP
Result
|
|
|
Adjustment on net basis and timing of
revenue recognition as in 2017
|
|
|
Non-GAAP
Result
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaged tours
|
|
|
2,280,387
|
|
|
|
(2,065,282
|
)
|
|
|
215,105
|
|
Others
|
|
|
85,657
|
|
|
|
2,090
|
|
|
|
87,747
|
|
Total revenues
|
|
|
2,366,044
|
|
|
|
(2,063,192
|
)
|
|
|
302,852
|
|
Less: Business and related taxes
|
|
|
(3,755
|
)
|
|
|
—
|
|
|
|
(3,755
|
)
|
Net revenues
|
|
|
2,362,289
|
|
|
|
(2,063,192
|
)
|
|
|
299,097
|
|
Cost of revenues
|
|
|
(2,241,641
|
)
|
|
|
2,072,780
|
|
|
|
(168,861
|
)
|
Gross Profit
|
|
|
120,648
|
|
|
|
9,588
|
|
|
|
130,236
|
|
|
|
For the Quarter Ended September 30, 2016
|
|
|
|
GAAP
Result
|
|
|
Adjustment on net basis and timing of
revenue recognition as in 2017
|
|
|
Non-GAAP
Result
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaged tours
|
|
|
3,917,628
|
|
|
|
(3,522,839
|
)
|
|
|
394,789
|
|
Others
|
|
|
130,045
|
|
|
|
315
|
|
|
|
130,360
|
|
Total revenues
|
|
|
4,047,673
|
|
|
|
(3,522,524
|
)
|
|
|
525,149
|
|
Less: Business and related taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net revenues
|
|
|
4,047,673
|
|
|
|
(3,522,524
|
)
|
|
|
525,149
|
|
Cost of revenues
|
|
|
(3,812,124
|
)
|
|
|
3,540,842
|
|
|
|
(271,282
|
)
|
Gross Profit
|
|
|
235,549
|
|
|
|
18,318
|
|
|
|
253,867
|
|
|
|
For the Quarter Ended December 31, 2016
|
|
|
|
GAAP
Result
|
|
|
Adjustment on net basis and timing of
revenue recognition as in 2017
|
|
|
Non-GAAP
Result
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaged tours
|
|
|
2,004,703
|
|
|
|
(1,785,243
|
)
|
|
|
219,460
|
|
Others
|
|
|
101,952
|
|
|
|
311
|
|
|
|
102,263
|
|
Total revenues
|
|
|
2,106,655
|
|
|
|
(1,784,932
|
)
|
|
|
321,723
|
|
Less: Business and related taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net revenues
|
|
|
2,106,655
|
|
|
|
(1,784,932
|
)
|
|
|
321,723
|
|
Cost of revenues
|
|
|
(1,922,752
|
)
|
|
|
1,769,215
|
|
|
|
(153,537
|
)
|
Gross Profit
|
|
|
183,903
|
|
|
|
(15,717
|
)
|
|
|
168,186
|
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
GAAP
Result
|
|
|
Adjustment on net basis and timing of
revenue recognition as in 2017
|
|
|
Non-GAAP
Result
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaged tours
|
|
|
10,179,977
|
|
|
|
(9,118,678
|
)
|
|
|
1,061,299
|
|
Others
|
|
|
385,603
|
|
|
|
680
|
|
|
|
386,283
|
|
Total revenues
|
|
|
10,565,580
|
|
|
|
(9,117,998
|
)
|
|
|
1,447,582
|
|
Less: Business and related taxes
|
|
|
(17,307
|
)
|
|
|
—
|
|
|
|
(17,307
|
)
|
Net revenues
|
|
|
10,548,273
|
|
|
|
(9,117,998
|
)
|
|
|
1,430,275
|
|
Cost of revenues
|
|
|
(9,921,304
|
)
|
|
|
9,136,165
|
|
|
|
(785,139
|
)
|
Gross Profit
|
|
|
626,969
|
|
|
|
18,167
|
|
|
|
645,136
|
|
Operating Expenses
Our operating expenses accounted for 19.8%,
23.9% and 29.8% of our net revenues in 2014, 2015 and 2016, respectively. The following table sets forth the components of our
operating expenses in absolute amounts and as percentages of our net revenues for the periods presented:
|
|
For the Year Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and product development
|
|
|
(104,881
|
)
|
|
|
(3.0
|
)%
|
|
|
(298,199
|
)
|
|
|
(3.9
|
)%
|
|
|
(601,402
|
)
|
|
|
(86,620
|
)
|
|
|
(5.7
|
)%
|
Sales and marketing
|
|
|
(434,191
|
)
|
|
|
(12.3
|
)
|
|
|
(1,154,155
|
)
|
|
|
(15.1
|
)
|
|
|
(1,908,424
|
)
|
|
|
(274,870
|
)
|
|
|
(18.1
|
)
|
General and administrative
|
|
|
(166,988
|
)
|
|
|
(4.7
|
)
|
|
|
(385,442
|
)
|
|
|
(5.0
|
)
|
|
|
(658,790
|
)
|
|
|
(94,885
|
)
|
|
|
(6.2
|
)
|
Other operating income
|
|
|
6,902
|
|
|
|
0.2
|
|
|
|
12,175
|
|
|
|
0.1
|
|
|
|
22,323
|
|
|
|
3,215
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(699,158
|
)
|
|
|
(19.8
|
)%
|
|
|
(1,825,621
|
)
|
|
|
(23.9
|
)%
|
|
|
(3,146,293
|
)
|
|
|
(453,160
|
)
|
|
|
(29.8
|
)%
|
Research and product development expenses
.
Research and product development expenses primarily comprise salaries and other compensation expenses for our research and product
development personnel as well as office rental, depreciation and other expenses related to our research and product development
function. Research and product development expenses also include expenses that are incurred in connection with the planning and
implementation phases of development and costs that are associated with the maintenance of our online platform or software for
internal use. Research and product development expenses accounted for 3.0%, 3.9% and 5.7% of our net revenues in 2014, 2015 and
2016, respectively. During the same period, our research and product development expenses increased primarily due to investments
for the implementation of additional product categories such as transportation ticketing, accommodation reservation and financial
services, improvement of online technology, and the rise in technology and product development personnel related expenses.
Sales and marketing expenses
. Sales
and marketing expenses primarily comprise marketing and promotional expenses, salaries and other compensation expenses for our
sales and marketing personnel and office rental, depreciation and other expenses related to our sales and marketing function. Our
sales and marketing expenses accounted for 12.3%, 15.1% and 18.1% of our net revenues in 2014, 2015 and 2016, respectively. During
the same period, our sales and marketing expenses increased primarily due to advertisements for our mobile channels, expansion
of our VIP customer service team, and amortization of acquired intangible assets from the previously announced transaction with
JD.com.
General and administrative
expenses.
General and administrative expenses primarily comprise salaries and other compensation expenses for our administrative personnel,
professional service fees, office rental, depreciation and other expenses related to our administrative function. General and administrative
expenses accounted for 4.7%, 5.0% and 6.2% of our net revenues in 2014, 2015 and 2016 respectively.
Other operating income
. Other operating
income relates primarily to government subsidies that we receive from provincial and local governments. Government subsidies are
granted from time to time at the discretion of the relevant government authorities. These subsidies are granted for general corporate
purposes and to support our ongoing operations in the region. Other operating income accounted for 0.2%, 0.1% and 0.2% of our net
revenues in 2014, 2015 and 2016, respectively.
Taxation
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
Companies registered in Hong Kong are subject
to Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance
with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. Under the Hong Kong tax law, Our Hong Kong subsidiaries
are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Our PRC subsidiaries and consolidated affiliated
entities are subject to PRC enterprise income tax, or EIT, on the taxable income in accordance with the relevant PRC income tax
laws.
Under the EIT Law, an enterprise established
outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise
income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the Implementation
Rules, a “de facto management body” is defined as a body that has material and overall management and control over
the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition,
SAT Circular 82, which was issued in April 2009 by the SAT and amended in 2013, specifies that certain offshore incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions
are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises have
their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by
persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of
their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’
directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued
SAT Bulletin 45, which took effect on September 1, 2011 and was amended in 2015 and 2016, to provide more guidance on the implementation
of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore-incorporated resident
enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise
status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals
like us, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position
on how the “de facto management body” test should be applied in determining the PRC resident enterprise status of offshore
enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
Nanjing Tuniu was qualified for an HNTE
since 2010 and was able to renew its HNTE certificate upon expiration of the 3-year period. In 2016, Nanjing Tuniu obtained a new
HNTE certificate, which will expire on November 30, 2019.
Therefore, Nanjing Tuniu is eligible to enjoy a preferential
tax rate of 15% from 2014 to 2016 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification
and duly conducts relevant EIT filing procedures with the relevant tax authority. Nanjing Tuniu also obtained a software company
certificate in 2012. Pursuant to such certificate, Nanjing Tuniu qualifies for a tax holiday during which it is entitled to an
exemption from enterprise income tax for two years commencing from its first profit-making year of operation, which occurred in
2014, and a 50% reduction of enterprise income tax for the following three years. However, if we are considered a PRC resident
enterprise and earn income other than dividends from our PRC subsidiary, a 25% enterprise income tax on our global income could
significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
Under the EIT Law and its Implementation
Rules, subject to any applicable tax treaty or similar arrangement between the PRC and our investors’ jurisdiction of residence
that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends
from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business
in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the
establishment or place of business. Any gain realized on the transfer of American depositary shares or shares by such non-PRC resident
enterprise investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC
unless a tax treaty or similar arrangement provides otherwise. Under the PRC Individual Income Tax Law and its implementation rules,
dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a
PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of American depositary
shares or shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in
applicable tax treaties and PRC laws. Although substantially all of our business operations are based in China, it is unclear whether
dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the transfer of our ordinary shares or
ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we were considered
a PRC resident enterprise, as described above. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing
Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise
income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders
and would have a material adverse effect on our results of operations and the value of your investment.”
Pursuant to the applicable PRC tax regulations,
any entity or individual conducting business in the service industry is generally required to pay business taxes at the rate of
5% on the revenues generated from providing such services. Entities engaging in the travel business can deduct certain approved
costs from their revenues in calculating business taxes. However, if the services provided are related to technology development
and transfer, such entities may be exempted from business and related taxes arising from such services subject to approval by the
relevant tax authorities. We are subject to business and related taxes on services provided in the PRC, and the applicable business
tax rate is 5%. In our consolidated financial statements included elsewhere in this annual report, business and related taxes are
deducted from gross revenues to arrive at net revenues.
In November 2011, the PRC Ministry of Finance
released Circular Caishui 2011 No. 111 which has been repealed currently, mandating Shanghai to be the first city to carry out
a pilot program of tax reform. Effective January 1, 2012, any entity that carries out selected modern services in Shanghai is required
to pay value-added tax, or VAT instead of business tax. These entities are permitted to offset input VAT incurred with the output
VAT. The pilot program has been expanded to other regions, including Beijing from September 1, 2012 and Nanjing from October 1,
2012. Beijing Tuniu, Nanjing Tuniu and Tuniu NJ Information Technology have been subject to VAT at a rate of 6% and have since
stopped paying the 5% business tax from the respective effective dates of the tax reform. This change did not have a significant
financial statement impact on our consolidated results of operations, and we do not expect it to have any significant impact in
the future.
On March 23, 2016, the PRC Ministry of Finance
and the SAT jointly issued the Circular on the Nationwide Implementation of Pilot Program for the Collection of Value Added-Tax
Instead of Business Tax, or Circular 36, pursuant to which the VAT reforms will be implemented comprehensively across the country
and extended to the construction, real estate, financial and consumer services industries. Circular 36 became effective on May
1, 2016. As a result, majority of our business will be subject to VAT at a rate of 6%, which is higher than the business tax rate
previously applied to us. We would be permitted to offset input VAT by providing valid VAT invoices received from vendors against
our VAT liability. Alternatively, the taxable income of tourism business could be calculated on net basis by deducting relevant
expenses (including expenses for accommodation, catering, transportation, visa, ticket and tourism fee paid to other entities/
individuals) if valid invoices could be obtained.
Results of Operations
The following table sets forth a summary
of our consolidated results of operations in absolute amounts and as percentages of our net revenues for the periods indicated.
The period-to-period comparisons of results of operations should not be relied upon as indicative of future performance.
|
|
For the Year Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organized tours
|
|
|
3,432,825
|
|
|
|
97.1
|
%
|
|
|
7,358,879
|
|
|
|
96.3
|
%
|
|
|
9,926,628
|
|
|
|
1,429,732
|
|
|
|
94.1
|
%
|
Self-guided tours
|
|
|
93,126
|
|
|
|
2.6
|
|
|
|
194,162
|
|
|
|
2.5
|
|
|
|
253,349
|
|
|
|
36,490
|
|
|
|
2.4
|
|
Others
|
|
|
28,756
|
|
|
|
0.8
|
|
|
|
127,745
|
|
|
|
1.7
|
|
|
|
385,603
|
|
|
|
55,538
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,554,707
|
|
|
|
100.6
|
|
|
|
7,680,786
|
|
|
|
100.5
|
|
|
|
10,565,580
|
|
|
|
1,521,760
|
|
|
|
100.2
|
|
Less: Business and related taxes
|
|
|
(19,768
|
)
|
|
|
(0.6
|
)
|
|
|
(35,526
|
)
|
|
|
(0.5
|
)
|
|
|
(17,307
|
)
|
|
|
(2,493
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
3,534,939
|
|
|
|
100.0
|
|
|
|
7,645,260
|
|
|
|
100.0
|
|
|
|
10,548,273
|
|
|
|
1,519,267
|
|
|
|
100.0
|
|
Cost of revenues
|
|
|
(3,308,801
|
)
|
|
|
(93.6
|
)
|
|
|
(7,274,675
|
)
|
|
|
(95.2
|
)
|
|
|
(9,921,304
|
)
|
|
|
(1,428,965
|
)
|
|
|
(94.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
226,138
|
|
|
|
6.4
|
|
|
|
370,585
|
|
|
|
4.8
|
|
|
|
626,969
|
|
|
|
90,302
|
|
|
|
5.9
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and product development
|
|
|
(104,881
|
)
|
|
|
(3.0
|
)
|
|
|
(298,199
|
)
|
|
|
(3.9
|
)
|
|
|
(601,402
|
)
|
|
|
(86,620
|
)
|
|
|
(5.7
|
)
|
Sales and marketing
|
|
|
(434,191
|
)
|
|
|
(12.3
|
)
|
|
|
(1,154,155
|
)
|
|
|
(15.1
|
)
|
|
|
(1,908,424
|
)
|
|
|
(274,870
|
)
|
|
|
(18.1
|
)
|
General and administrative
|
|
|
(166,988
|
)
|
|
|
(4.7
|
)
|
|
|
(385,442
|
)
|
|
|
(5.0
|
)
|
|
|
(658,790
|
)
|
|
|
(94,885
|
)
|
|
|
(6.2
|
)
|
Other operating income
|
|
|
6,902
|
|
|
|
0.2
|
|
|
|
12,175
|
|
|
|
0.1
|
|
|
|
22,323
|
|
|
|
3,215
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(473,020
|
)
|
|
|
(13.4
|
)
|
|
|
(1,455,036
|
)
|
|
|
(19.1
|
)
|
|
|
(2,519,324
|
)
|
|
|
(362,858
|
)
|
|
|
(23.9
|
)
|
Other income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
31,284
|
|
|
|
0.9
|
|
|
|
76,516
|
|
|
|
1.0
|
|
|
|
87,305
|
|
|
|
12,575
|
|
|
|
0.8
|
|
Foreign exchange losses, net
|
|
|
(5,334
|
)
|
|
|
(0.2
|
)
|
|
|
(83,118
|
)
|
|
|
(1.1
|
)
|
|
|
(9,734
|
)
|
|
|
(1,402
|
)
|
|
|
(0.1
|
)
|
Other loss, net
|
|
|
(788
|
)
|
|
|
(0.0
|
)
|
|
|
(1,336
|
)
|
|
|
(0.0
|
)
|
|
|
(2,553
|
)
|
|
|
(368
|
)
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(447,858
|
)
|
|
|
(12.7
|
)
|
|
|
(1,462,974
|
)
|
|
|
(19.2
|
)
|
|
|
(2,444,306
|
)
|
|
|
(352,053
|
)
|
|
|
(23.2
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
589
|
|
|
|
0.0
|
|
|
|
1,711
|
|
|
|
246
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(447,858
|
)
|
|
|
(12.7
|
)%
|
|
|
(1,462,385
|
)
|
|
|
(19.2
|
)%
|
|
|
(2,442,595
|
)
|
|
|
(351,807
|
)
|
|
|
(23.2
|
)%
|
Year Ended December 31, 2016 Compared
to Year Ended December 31, 2015
Revenues
. Total revenues increased
by 37.6% from RMB7,680.8 million (US$1,185.7 million) in 2015 to RMB10,565.6 million (US$1,521.8 million) in 2016. This increase
was primarily due to an increase in our revenues from both organized tours and self-guided tours.
|
·
|
Revenues from organized tours.
Revenues from organized tours, substantially all of which are recognized on a gross basis,
increased by 34.9% from RMB7,358.9 million (US$1,136.0 million) in 2015 to RMB9,926.6 million (US$1,429.7 million) in 2016, primarily
due to the growth in the number of trips of our organized tours. This was a result of the rapid growth in demand for travel to
certain international destinations, such as Japan, South Korea, Middle East, Africa and North America.
During the
same period, the number of trips of our organized tours (excluding local tours) increased by 69.8% from 1,632,955 to 2,773,234
and the number of trips of our local tours increased by 29.7% from 1,701,821 to 2,206,925.
|
|
·
|
Revenues from self-guided tours.
Revenues from self-guided tours, which are recognized on a net basis, increased by
30.5% from RMB194.2 million (US$30.0 million) in 2015 to RMB253.3 million (US$36.5 million) in 2016. The increase in revenues from
self-guided tours generally reflected the growth in travel to Japan, South Korea, Southeast Asia, Middle East, Africa, North America
and domestic destinations.
The number of trips for our self-guided tours increased by 57.9% from 1,114,277 in 2015
to 1,759,177 in 2016.
|
|
·
|
Other revenues.
Other revenues increased by 201.9% from RMB127.7 million (US$19.7 million) in 2015 to RMB385.6 million
(US$55.5 million) in 2016, primarily due to a rise in service fees received from insurance companies, revenues from tourist attraction
tickets and other travel-related products, which are recognized on a net basis.
|
Net Revenues
.
Net revenues
increased by 38.0% from RMB7,645.3 million in 2015 to RMB10,548.3 million (US$1,519.3 million) in 2016, as a result of our increased
total revenues, partially offset by the resulting increase in business and related taxes over the same periods.
Cost of Revenues
.
Cost
of revenues increased by 36.4% from RMB7,274.7 million in 2015 to RMB9,921.3 million (US$1,429.0 million) in 2016, primarily due
to the increase in the cost to suppliers of our organized tours. Cost to suppliers of our organized tours increased mainly as a
result of the increase in the sales of our organized tours (excluding local tours) from 1,632,955 trips in 2015 to 2,773,234 trips
in 2016 and the sales of our local tours from 1,701,821 trips in 2015 to 2,206,925 trips in 2016. As a percentage of our net revenues,
our cost of revenues was 95.2% in 2015 compared to 94.1% in 2016.
Operating Expenses
.
Operating
expenses increased by 72.3% from RMB1,825.6 million in 2015 to RMB3,146.3 million (US$453.2 million) in 2016, due to increases
in sales and marketing expenses, research and product development expenses and general and administrative expenses, partially offset
by the increase in our other operating income.
|
·
|
Research and product development.
Research and product development expenses increased by 101.7% from RMB298.2 in 2015
to RMB601.4 million (US$86.6 million) in 2016, primarily due to investments for the implementation of additional product categories
such as transportation ticketing, accommodation reservation and financial services, improvement of online technology, and the rise
in technology and product development personnel related expenses.
|
|
·
|
Sales and marketing.
Sales and marketing expenses increased by 65.4% from RMB1,154.2 million in 2015 to RMB1,908.4 million
(US$274.9 million) in 2016. The increase was primarily attributable to advertisements for our mobile channels, expansion of our
VIP customer service team, and amortization of acquired intangible assets from the previously announced transaction with JD.com.
|
|
·
|
General and administrative.
General and administrative expenses increased by 70.9% from RMB385.4 million in 2015 to
RMB658.8 million (US$94.9 million) in 2016, primarily due to an increase in headcount as a result of our product category expansion
and expenses associated with our regional centers.
|
|
·
|
Other operating income.
Other operating income increased from RMB12.2 million in 2015 to RMB22.3 million (US$3.2 million)
in 2016.
|
Net Loss
.
As a result
of the foregoing, net loss increased from RMB1,462.4 million in 2015 to RMB2442.6 million (US$351.8 million) in 2016.
Year Ended December 31, 2015 Compared
to Year Ended December 31, 2014
Revenues
. Total revenues increased
by 116.1% from RMB3,554.7 million in 2014 to RMB7,680.8 million in 2015. This increase was primarily due to an increase in our
revenues from both organized tours and self-guided tours.
|
·
|
Revenues from organized tours.
Revenues from organized tours, substantially all of which are recognized on a gross basis,
increased by 114.4% from RMB3,432.8 million in 2014 to RMB7,358.9 million in 2015, primarily due to the growth in the number of
trips of our organized tours. This was a result of the rapid growth in demand for travel to certain international destinations,
such as Europe, Southeast Asia, Japan, and North America, and for domestic tours. During the same period, the number of trips of
our organized tours (excluding local tours) increased by 129.4% from 711,847 to 1,632,955 and the number of trips of our local
tours increased by 58.4% from 1,074,335 to 1,701,821.
|
|
·
|
Revenues from self-guided tours.
Revenues from self-guided tours, which are recognized on a net basis, increased by
108.5% from RMB93.1 million in 2014 to RMB194.2 million in 2015. The increase in revenues from self-guided tours generally reflected
the growth in travel to domestic destinations, certain islands and Japan. The number of trips for our self-guided tours increased
by 181.6% from 395,652 in 2014 to 1,114,277 in 2015.
|
|
·
|
Other revenues.
Other revenues increased by 344.2% from RMB28.8 million in the 2014 to RMB127.7 million in 2015, primarily
due to a rise in service fees received from insurance companies, revenues from tourist attraction tickets and other travel-related
products, which are recognized on a net basis.
|
Net Revenues
.
Net revenues
increased by 116.3% from RMB3,534.9 million in 2014 to RMB7,645.3 million in 2015, as a result of our increased total revenues,
partially offset by the resulting increase in business and related taxes over the same periods.
Cost of Revenues
.
Cost
of revenues increased by 119.9% from RMB3,308.8 million in 2014 to RMB7,274.7 million in 2015, primarily due to the increase in
the cost to suppliers of our organized tours. Cost to suppliers of our organized tours increased mainly as a result of the increase
in the sales of our organized tours (excluding local tours) from 711,847 trips in 2014 to 1,632,955 trips in 2015 and the sales
of our local tours from 1,074,335 trips in 2014 to 1,701,821 trips in 2015. As a percentage of our net revenues, our cost of revenues
was 93.6% in 2014 compared to 95.2% in 2015.
Operating Expenses
.
Operating
expenses increased by 161.1% from RMB699.2 million in 2014 to RMB1,825.6 million in 2015, due to increases in sales and marketing
expenses, research and product development expenses and general and administrative expenses, partially offset by the increase in
our other operating income.
|
·
|
Research and product development.
Research and product development expenses increased by 184.3% from RMB104.9 million
in 2014 to RMB298.2 million in 2015, primarily due to investments for the implementation of additional product categories and initiatives,
the increase in direct procurement related personnel at regional service centers, improvement of online technology, and the rise
in technology and product development personnel related expenses.
|
|
·
|
Sales and marketing.
Sales and marketing expenses increased by 165.8% from RMB434.2 million in 2014 to RMB1,154.2 million
in 2015. The increase was primarily attributable to branding and advertising campaigns, advertisements for our mobile business
development, and amortization of acquired intangible assets from our investment in resources on JD.com, Inc. in 2015.
|
|
·
|
General and administrative.
General and administrative expenses increased by 130.8% from RMB167.0 million in 2014 to
RMB385.4 million in 2015, primarily due to an increase in the headcount of our administrative personnel as a result of our business
expansion, such as regional service center expansion and product category expansion, and an increase in the professional service
fees associated with being a public company.
|
|
·
|
Other operating income.
Other operating income increased from RMB6.9 million in 2014 to RMB12.2 million in 2015.
|
Net Loss
.
As a result
of the foregoing, net loss increased from RMB447.9 million in 2014 to RMB1,462.4 million in 2015.
Inflation
Since our inception, inflation in China
has not had a material adverse impact on 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 December 2014, 2015 and 2016 were increases of 1.5%, 1.6% and 2.1%,
respectively. Although we have not been materially affected by inflation in the past, we may be materially affected if China experiences
higher rates of inflation in the future. For example, certain operating costs and expenses, such as employee compensation and office
operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consist
of cash and cash equivalents and short-term investments, high inflation could significantly reduce the value and purchasing power
of these assets. We are not able to hedge our exposure to higher inflation in China.
Foreign Currency
The average exchange rate between U.S. dollar
and Renminbi has declined from RMB8.2264 per U.S. dollar in July 2005 to RMB6.9430 per U.S. dollar as of December 31, 2016. As
of December 31, 2016, we recorded RMB233.9 million (US$33.7 million) of net foreign currency translation gain in accumulated other
comprehensive income as a component of shareholders’ equity. We have not hedged exposures to exchange fluctuations using
any hedging instruments. See also “Item 3.D. Key Information—Risk Factors—Fluctuations in exchange rates could
have a material adverse effect on our results of operations and the value of your investment” and “Item 11. Quantitative
and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements
in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets,
liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there
are material differences between these estimates and actual results, our financial condition or operating results and margins would
be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances,
and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies
and estimates, which we discuss further below.
Business combination
U.S. GAAP requires that all business combinations
not involving entities or businesses under common control be accounted for under the purchase method. We have adopted ASC 805 “Business
Combinations”, and the cost of 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. The transaction costs directly attributable to the acquisition
are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately
at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of the (i)
the total of cost 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 subsidiary acquired, the difference is recognized
directly in the consolidated statements of operations and comprehensive income.
The determination and allocation of fair
values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies
requiring considerable management judgment. The most significant variables in these valuations are discount rates, the number of
years on which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows
and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current
business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and
forecasted cash flows over that period. Although management believes that the assumptions applied in the determination are reasonable
based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference
could be material.
A noncontrolling interest is recognized
to reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the Company. Consolidated
net income on the consolidated statements of operations and comprehensive income includes the net income (loss) attributable to
noncontrolling interests when applicable. The cumulative results of operations attributable to noncontrolling interests are also
recorded as noncontrolling interests in our consolidated balance sheets. Cash flows related to transactions with noncontrolling
interests are presented under financing activities in the consolidated statements of cash flows when applicable.
Intangible assets
Intangible assets purchased are recognized
and measured at cost upon acquisition and intangible assets arising from acquisitions of subsidiaries are recognized and measured
at fair value upon acquisition. Our intangible assets are amortized on a straight-line basis over their estimated useful lives,
ranging from 3 to 20 years. The estimated life of intangible assets subject to amortization is reassessed if circumstances occur
that indicate the life has changed. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. No impairment of intangible assets was recognized for the years
ended December 31, 2014, 2015 and 2016.
Goodwill
Goodwill represents the excess of the purchase
price over the fair value of identifiable assets and liabilities acquired in business combinations. Goodwill is not amortized,
but tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
We adopted Accounting Standards Update (“ASU”)
2011-08, Intangibles—Goodwill and Other (Topic 350). This accounting standard gives us an option to first assess qualitative
factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is then tested following a two-step
process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair
value of each 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 fair value of each reporting unit is determined by
us using the expected present value of future cash flows. The key assumptions used in the calculation include the long-term growth
rates of revenue and gross margin, working-capital requirements and discount rates. 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 purposes
of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment
loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.
Our management performs its annual goodwill
impairment test on October 1. No impairment loss was recognized for the year ended December 31, 2015 and 2016.
Revenue Recognition
We generate revenues primarily from selling
packaged tours and travel-related services. Our main product and service offerings include (i) organized tours, (ii) self-guided
tours and (iii) other travel-related services. Organized tours offer pre-arranged itineraries, transportation, accommodations,
entertainment, meals and tour guide services and customers pay one lump-sum fee in exchange for such a package. Self-guided tours
consist of a combination of flights and hotel bookings or cruise trips, which are often offered to customers at a more favorable
price as compared to customers purchasing these travel-related products and services on a stand-alone basis. Other revenues derived
from travel-related services primarily include the sales of tourist attraction tickets and fees for visa processing services, fees
for advertising services that the Group provide primarily to domestic and foreign tourism boards and bureaus, commission fees for
hotel reservation and air-ticketing, service fees for financial services and interest income for yield enhancement products.
Revenues are recognized in accordance with
ASC 605, “Revenue Recognition,” when the following criteria are met: persuasive evidence of an arrangement exists,
the sales price is fixed or determinable, delivery has occurred or service has been provided and collectability is reasonably assured.
Organized tours
Substantially all of our revenues from organized
tours are recognized on gross basis, which represent amounts charged to and received from customers, as we are the primary obligor
in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered.
While we do not generally assume the inventory risk of purchasing travel services before customers place an order, we assess the
facts and circumstances and conclude that we are the principal in organized tour arrangements. Factors that support our conclusion
mainly include the following:
|
·
|
We are the primary obligor in the arrangement as we are responsible for the ultimate customer acceptance for all products and
services rendered. Such commitment is also made in the contracts we enter into with our customers. We are the party retained by
and paid by our customers. In situations of customer disputes, where the customer files a complaint or demands a refund, we assume
risks and responsibilities for the delivery of organized tours and we, rather than the travel suppliers, are responsible for (and
solely authorized to grant) refunding the customers their payments.
|
|
·
|
We independently determine the prices charged to customers for organized tours, as well as the prices paid to travel suppliers
and subcontractors.
|
|
·
|
We conduct a rigorous process in qualifying our travel suppliers and selecting travel products and services at our discretion
before selling these products to our customers, and participate in the design of organized tours.
|
Revenues from organized tours are recognized
when customers return from the tour as delivery is only considered completed upon conclusion of the entire organized tour.
Self-guided tours
Revenues from self-guided tours are recognized
on a net basis, representing the difference between the amount the customer pays us, and the amount we pay our travel suppliers.
We generally do not assume inventory risk and have limited involvement in determining the product or service specifications in
the self-guided tour arrangements. Customers purchase self-guided tours based on the desired products specified, and we provide
limited additional services to customers. Suppliers are responsible for all aspects of providing the air transportation and hotel
accommodation. Therefore, we are an agent for the travel suppliers in the self-guided tour transactions and revenues from self-guided
tours are reported on net basis. Revenues from self-guided tours are recognized when the tours end, as commissions are not earned
until this time according to the contractual arrangements entered into with travel suppliers.
Other revenues
Our other revenues primarily comprise revenues
generated from (i) service fees received from insurance companies, (ii) other travel-related services, such as sales of tourist
attraction tickets and visa processing services, which are recognized on a net basis, (iii) fees for advertising services that
we provide primarily to domestic and foreign tourism boards and bureaus, (iv) commission fees for hotel reservation and air-ticketing,
(v) service fees for financial services, and (vi) interest income for yield enhancement products. Revenue is recognized when the
services are rendered or when the tickets are issued.
We do not recognize revenue if customer
refunds are warranted due to customer satisfaction issues or other reasons, which is generally known at the end of each tour when
revenues are recognized. In the event of tour cancellation by customers, the liability associated with prepayments received from
customers remains on our consolidated balance sheets until refunds are issued.
We commenced our financial services in 2015.
Certain domestic financial assets exchanges, or the Exchanges, and trust companies offered the yield enhancement products through
our online platform and we charged these companies for the commission fees which were recorded as other revenue upon the delivery
of service. In addition, we purchased the yield enhancement products with maturities ranging from three months to two years from
the Exchanges and trust companies and split all of the products into new yield enhancement products with lower yield rate and shorter
maturities within one year, which were offered to the individual investors through our online platform. The split of the products
were arranged by the Equity Exchange Center started from March 2016. The interest revenue was recorded as other revenue and the
relevant interest cost was recorded as cost of revenue.
We will adopt ASC 2014-09 “Revenue
from Contracts with Customers” (ASU No. 2014-09 and the related amendments are collectively “ASC 606”) effective
on January 1, 2017. See Note 2(ae) to our consolidated financial statements included elsewhere in this annual report for further
discussion on the adoption of ASC 606.
Customer incentives
We have a customer loyalty program that
offers customers coupons, travel vouchers, membership points or cash rewards. We account for these customer incentives in accordance
with ASC 605-50,
“Customer Payments and Incentives.”
For coupons and travel vouchers offered where prior purchase
is not required, we account for them as a reduction of revenues when revenues are recognized. We also assess coupons and vouchers
offered to customers as part of a current purchase that give customers a right but not an obligation to make future purchases,
and concluded that the discounts offered are insignificant; as such, no deferral of revenues are considered necessary.
For membership points earned by customers
which provide travel awards upon point redemption, we use the incremental cost method to estimate our future obligation to our
customers, and record the incremental costs as sales and marketing expenses in the consolidated statements of comprehensive loss.
Unredeemed membership points are recorded in other current liabilities in the consolidated balance sheets. Cash rewards earned
by customers are recorded as a reduction to revenues, with corresponding unclaimed amount recorded in other current liabilities.
We estimate liabilities under the customer loyalty program based on accumulated membership points and cash rewards, and the estimate
of probability of redemption in accordance with the historical redemption pattern. The actual expenditure may differ from the estimated
liability recorded. Prior to April 2015, we recorded estimated liabilities for all points earned by customers as we did not have
sufficient historical information to determine point forfeitures or breakage. We, with accumulated knowledge on membership points
and cash rewards redemption and expiration, began to apply historical redemption rates in estimating the costs of points earned
from May 2015 onwards.
Research and Product Development
Research and product development expenses
include salaries and other compensation-related expenses for our research and product development personnel, as well as office
rental, depreciation and other related expenses for our research and product development function. We recognize software development
costs in accordance with ASC 350-40 “
Software—internal use
software
.
” We expense all costs that
are incurred in connection with the planning and implementation phases of development, and costs that are associated with repair
or maintenance of the existing websites or software for internal use. Certain costs associated with developing internal use software
are capitalized when such costs are incurred within the application development stage of software development.
Income Taxes
Current income taxes are provided on the
basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible
for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset
or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the statement of comprehensive
loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered
more likely than not that some portion of, or all of the deferred tax assets will not be realized.
The guidance 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.
Guidance also provides for 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. Significant judgment is required in evaluating our uncertain tax positions and determining
our provision for income taxes. We recognize interest and penalties, if any, under accrued expenses and other current liabilities
on our balance sheet and under other expenses in our statement of comprehensive loss. As of December 31, 2015 and 2016, we did
not have any significant unrecognized uncertain tax positions or any interest or penalties associated with tax positions.
In order to assess uncertain tax positions,
we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition.
Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
to be realized upon settlement.
Share-based Compensation
We account for share options granted to
employees in accordance with ASC 718,
“Stock Compensation.”
The 2014 Share Incentive Plan, or the 2014 Plan,
allows the plan administrator to grant options, restricted shares and restricted share units. The 2008 Plan allows the plan administrator
to grant options and restricted shares to our employees, directors, and consultants. The plan administrator under both plans is
our board of directors or a committee appointed and determined by the board. The board may also authorize one or more of our officers
to grant awards under the plan. In accordance with the guidance, we determine whether a stock-based award should be classified
and accounted for as a liability award or equity award. Under the 2008 Plan and the 2014 Plan, we only granted options to employees
and directors, and such stock-based compensation is considered to be equity classified awards, and is recognized in the financial
statements based on their grant date fair values which are calculated using the binomial option pricing model. Share-based compensation
expense is recorded net of an estimated forfeiture rate at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from initial estimates. Share-based compensation expense is recorded net of estimated forfeitures such
that expenses are recorded only for those share-based awards that are expected to ultimately vest.
Under the 2008 Plan and the 2014 Plan, options
granted to employees vest upon satisfaction of a service condition, which is generally satisfied over four years. Additionally,
the 2008 Plan includes an exercisability clause where employees can only exercise vested options upon the occurrence of the following
events: (i) after our ordinary shares become listed securities, (ii) in connection with or after a triggering event (defined as
a sale, transfer, or disposition of all or substantially all of our assets, or a merger, consolidation, or other business combination
transaction), or (iii) if the optionee obtains all necessary governmental approvals and consents required. Options for which the
service condition has been satisfied are forfeited should employment terminate three months prior to the occurrence of an exercisable
event, which substantially creates a performance condition. Therefore, since the adoption of the 2008 Plan through the date of
the completion of our initial public offering, we did not recognize any stock-based compensation expense for options granted, because
an exercisable event as described above did not occur. The satisfaction of the performance condition became probable upon completion
of our initial public offering, and we recorded a significant cumulative expense for share-based awards granted for which the service
condition has been satisfied as of that date. Accordingly, we recognized a significant share-based compensation expense of RMB39.2
million and RMB65.1 million in 2014 and 2015. In 2016, we recognized a share-based compensation expense of RMB92.4 million (US$13.3
million). The estimates we used to determine the fair value of these options in computing our share-based compensation expense
are determined on the respective grant dates, and will not change when the underlying shares begin trading because our options
are equity classified awards.
The following table sets forth the options
granted under the 2008 Plan and the 2014 Plan in 2014, 2015 and 2016:
|
|
Number
of
Options
|
|
|
Exercise
Price
|
|
|
Fair
Value
of
Option
as
of the
Grant
Date
|
|
|
Fair
Value of
the
Underlying
Ordinary
Shares
as of the
Grant
Date
|
|
|
Intrinsic
Value
as
of the Grant
Date
|
|
|
|
|
|
Granted
|
|
|
US$
|
|
|
RMB
(2)
|
|
|
US$
|
|
|
RMB
(2)
|
|
|
US$
|
|
|
RMB
(2)
|
|
|
US$
|
|
|
RMB
(2)
|
|
|
Type
of Valuation
|
April 1, 2014
(1)(3)(5)
|
|
|
150,000
|
|
|
|
5.00
|
|
|
|
31.02
|
|
|
|
1.23
|
|
|
|
7.64
|
|
|
|
3.33
|
|
|
|
20.66
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporaneous
|
April 1, 2014
(1)(3)(5)
|
|
|
426,000
|
|
|
|
5.00
|
|
|
|
31.02
|
|
|
|
0.93
|
|
|
|
5.78
|
|
|
|
3.33
|
|
|
|
20.66
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporaneous
|
June 13, 2014
(5)
|
|
|
2,700,000
|
|
|
|
3.00
|
|
|
|
18.61
|
|
|
|
3.73
|
|
|
|
23.14
|
|
|
|
5.61
|
|
|
|
34.79
|
|
|
|
2.61
|
|
|
|
16.19
|
|
|
Contemporaneous
|
August 15, 2014
(1)(5)
|
|
|
800,000
|
|
|
|
3.00
|
|
|
|
18.61
|
|
|
|
4.89
|
|
|
|
30.34
|
|
|
|
6.98
|
|
|
|
43.31
|
|
|
|
3.98
|
|
|
|
24.69
|
|
|
Contemporaneous
|
August 15, 2014
(1)(5)
|
|
|
1,575,000
|
|
|
|
3.00
|
|
|
|
18.61
|
|
|
|
4.60
|
|
|
|
28.54
|
|
|
|
6.98
|
|
|
|
43.31
|
|
|
|
3.98
|
|
|
|
24.69
|
|
|
Contemporaneous
|
December 8, 2014
(1)(4)(5)
|
|
|
60,000
|
|
|
|
3.59
|
|
|
|
22.27
|
|
|
|
2.04
|
|
|
|
12.66
|
|
|
|
3.59
|
|
|
|
22.27
|
|
|
|
—
|
|
|
|
—
|
|
|
Contemporaneous
|
December 8, 2014
(1)(4)(5)
|
|
|
766,000
|
|
|
|
3.59
|
|
|
|
22.27
|
|
|
|
1.58
|
|
|
|
9.80
|
|
|
|
3.59
|
|
|
|
22.27
|
|
|
|
—
|
|
|
|
—
|
|
|
Contemporaneous
|
March 6. 2015
(1)(4)(5)
|
|
|
2,428,200
|
|
|
|
4.21
|
|
|
|
27.27
|
|
|
|
2.39
|
|
|
|
15.48
|
|
|
|
4.21
|
|
|
|
27.27
|
|
|
|
—
|
|
|
|
—
|
|
|
Contemporaneous
|
March 6. 2015
(1)(4)(5)
|
|
|
2,027,800
|
|
|
|
4.21
|
|
|
|
27.27
|
|
|
|
2.14
|
|
|
|
13.86
|
|
|
|
4.21
|
|
|
|
27.27
|
|
|
|
—
|
|
|
|
—
|
|
|
Contemporaneous
|
August 20, 2015
(1)(4)(5)
|
|
|
7,743,000
|
|
|
|
5.02
|
|
|
|
32.54
|
|
|
|
2.46
|
|
|
|
15.94
|
|
|
|
4.54
|
|
|
|
29.43
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporaneous
|
August 20, 2015
(1)(4)(5)
|
|
|
1,350,000
|
|
|
|
5.02
|
|
|
|
32.54
|
|
|
|
2.25
|
|
|
|
14.58
|
|
|
|
4.54
|
|
|
|
29.43
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporaneous
|
November 25, 2015
(4)(5)
|
|
|
820,000
|
|
|
|
5.17
|
|
|
|
33.47
|
|
|
|
2.74
|
|
|
|
17.75
|
|
|
|
5.26
|
|
|
|
34.07
|
|
|
|
0.09
|
|
|
|
0.58
|
|
|
Contemporaneous
|
May 27, 2016
(1)
|
|
|
320,000
|
|
|
|
0.0001
|
|
|
|
0.0007
|
|
|
|
2.97
|
|
|
|
20.60
|
|
|
|
2.97
|
|
|
|
20.62
|
|
|
|
2.92
|
|
|
|
20.27
|
|
|
Contemporaneous
|
May 27, 2016
(1)
|
|
|
70,000
|
|
|
|
2.97
|
|
|
|
20.62
|
|
|
|
1.57
|
|
|
|
10.90
|
|
|
|
2.97
|
|
|
|
20.62
|
|
|
|
—
|
|
|
|
—
|
|
|
Contemporaneous
|
December 2, 2016
(1)
|
|
|
7,813,575
|
|
|
|
2.68
|
|
|
|
18.61
|
|
|
|
1.44
|
|
|
|
10.00
|
|
|
|
2.68
|
|
|
|
18.61
|
|
|
|
0.23
|
|
|
|
1.60
|
|
|
Contemporaneous
|
|
(1)
|
Options granted to officers and non-officer employees result in different fair value on the same grant date.
|
|
(2)
|
The translations from U.S. dollars to Renminbi were made at a rate of RMB6.2046 to US$1.00, the exchange rate in effect as
of December 31, 2014 for the options granted before December 31, 2014, a rate of RMB6.4778 to US$1.00, the exchange rate in effect
as of December 31, 2015 for the options granted before December 31, 2015, and a rate of RMB6.9430 to US$1.00, the exchange rate
in effect as of December 30, 2016 for the options granted after January 1, 2016, solely for the convenience of the readers.
|
|
(3)
|
We modified the exercise price from $5.00 to $3.00 on May 15, 2014.
|
|
(4)
|
We modified these exercise prices to US$3.09 on March 4, 2016.
|
|
(5)
|
We modified the exercise price of 7,260,242 share options to US$0.0001 and the number of share options was reduced to 3,630,121
on May 31, 2016.
|
Significant Factors, Assumptions, and
Methodologies Used in Determining Fair Value of Options
We estimated the fair value of share options
using the binomial option-pricing model with the assistance from an independent valuation firm before the completion of our initial
public offering on May 9, 2014. As part of our valuation process for share-based awards granted in 2012, 2013 and April 2014, we
have also taken into consideration the transaction value of independent third parties’ private equity investments in us that
are closest to the respective valuation dates. Our management is ultimately responsible for all assumptions and valuation methodologies
used in such determination. The fair value of each option grant is estimated on the date of grant with the following assumptions:
|
·
|
Expected volatility
. We estimated expected volatility based on the annualized standard deviation of the daily return
embedded in historical share prices of comparable companies with a time horizon close to the expected expiry of the term.
|
|
·
|
Risk-free interest rate (per annum)
. We estimated risk-free interest rate based on the yield to maturity of US Treasury
Bonds with a maturity similar to the expected expiry of the term.
|
|
·
|
Exercise multiple
. The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise
price at the time the option is exercised, based on a consideration of empirical studies on the actual exercise behavior of employees.
|
|
·
|
Expected dividend yield
. We have never declared or paid any cash dividends on our capital stock, and we do not anticipate
any dividend payments on our ordinary shares in the foreseeable future.
|
|
·
|
Expected term (in years)
. Expected term is the contract life of the option.
|
|
·
|
Expected forfeiture rate (post-vesting)
. Estimated based on historical employee turnover rate after each option grant.
|
Changes in the estimates used to determine
the fair value of awards
After the completion of our initial public
offering, in addition to the significant estimates and assumptions disclosed above, we take the following factors into consideration,
which affect the estimates we use to determine the fair value of awards on their respective grant dates:
|
·
|
Expected volatility
. We determine if there is sufficient history for us to calculate volatility using trading prices
of our own ADSs. Additionally, we may update the list of comparable companies from time to time.
|
|
·
|
Risk-free interest rate (per annum)
. We update this estimate each time a new stock award is granted.
|
|
·
|
Exercise multiple
. The exercise multiple is estimated based on a consideration of empirical studies on the actual exercise
behavior of employees of comparable companies as we currently do not have a sufficiently long history of employee exercise patterns.
Based on our employees’ exercise behavior and pattern, we continue to update this estimate when stock awards are granted.
|
|
·
|
Expected dividend yield
. This estimate remained unchanged since our initial public offering and is unlikely to change
in the foreseeable future, as we do not anticipate any dividend payments on our ordinary shares in the foreseeable future.
|
|
·
|
Expected term (in years)
. This estimate did not change upon completion of our initial public offering.
|
|
·
|
Expected forfeiture rate (post-vesting)
. We update this estimate each time a new stock award is granted based on the
turnover rate of our employees.
|
|
·
|
Fair value of our ordinary shares
. The fair value of our ordinary shares on the grant date is determined based on the
trading price of our ADSs on such date, as opposed to applying the income approach valuation method.
|
Significant Factors, Assumptions, and
Methodologies Used in Determining Fair Value of Ordinary Shares before the completion of our initial public offering on May 9,
2014
As part of our valuation of share-based
awards granted before the completion of our initial public offering, determining the fair value of our ordinary shares required
us to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had our management
used different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-based compensation
expenses could have been different.
In determining the grant date fair value
of our ordinary shares for purposes of recording share-based compensation in connection with employee stock options for share-based
awards granted before the completion of our initial public offering, we, with the assistance of independent appraisers, performed
retrospective valuations instead of contemporaneous valuations because, at the time of the valuation dates, our financial and limited
human resources were principally focused on business development efforts. This approach is consistent with the guidance prescribed
by the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or
the Practice Aid. Specifically, the “Level B” recommendation in paragraph 16 of the Practice Aid sets forth the preferred
types of valuation that should be used.
For all share-based awards granted before
the completion of our initial public offering, we, with the assistance of an independent valuation firm, evaluated the use of three
generally accepted valuation approaches: market, cost and income approaches to estimate our enterprise value. We and our appraisers
considered the market and cost approaches as inappropriate for valuing our ordinary shares because no exactly comparable market
transaction could be found for the market valuation approach and the cost approach does not directly incorporate information about
the economic benefits contributed by our business operations. Consequently, we and our appraisers relied solely on the income approach
in determining the fair value of our ordinary shares. This method eliminates the discrepancy in the time value of money by using
a discount rate to reflect all business risks including intrinsic and extrinsic uncertainties in relation to our company.
The income approach involves applying discounted
cash flow analysis based on our projected cash flow using management’s best estimate as of the valuation dates. Estimating
future cash flow requires us to analyze projected revenue growth, gross margins, operating expense levels, effective tax rates,
capital expenditures, working capital requirements, and discount rates. Our projected revenues were based on expected annual growth
rates derived from a combination of our historical experience and the general trend in online leisure travel market. The revenue
and cost assumptions we used are consistent with our long-term business plan and market conditions in the online leisure travel
market. We also have to make complex and subjective judgments regarding our unique business risks, our limited operating history,
and future prospects at the time of grant. Other assumptions we used in deriving the fair value of our equity include:
|
·
|
no material changes will occur in the applicable future periods in the existing political, legal, fiscal or economic conditions
in China;
|
|
·
|
no material changes will occur in the current taxation law in China and the applicable tax rates will remain consistent;
|
|
·
|
we have the ability to retain competent management and key personnel to support our ongoing operations; and
|
|
·
|
industry trends and market conditions for the online leisure travel market will not deviate significantly from current forecasts.
|
The option-pricing method was used to allocate
equity value of our company to preferred and ordinary shares, taking into account the guidance prescribed by the Practice Aid.
This method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or
an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans
of our board and management.
The other major assumptions used in calculating
the fair value of ordinary shares include:
|
·
|
Weighted average cost of capital, or WACC
. Our cash flows were discounted to present value using discount rates that
reflect the risks the management perceived as being associated with achieving the forecasts and are based on the estimate of our
weighted average cost of capital, or WACC, on the grant date. The WACCs were determined considering the risk-free rate, industry-average
correlated relative volatility coefficient, or beta, equity risk premium, country risk premium, size of our company, scale of our
business and our ability in achieving forecast projections. WACCs of 25%, 23%, 22% and 22%, were used for dates as of January 7,
2013, August 1, 2013, October 30, 2013 and November 30, 2013, respectively.
|
|
·
|
Comparable companies
. In deriving the WACCs, which are used as the discount rates under the income approach, six to
eight publicly traded companies in the U.S. (varied by valuation time points), two publicly traded companies in Australia, and
one publicly traded company in China online travel industry were selected for reference as our guideline companies.
|
|
·
|
Discount for lack of marketability, or DLOM
. At the time of above grants, we were a closely-held company and there was
no public market for our equity securities. To determine the discount for lack of marketability, we and the independent appraisers
used the Finnerty’s average-strike put option model. Pursuant to that model, we used the cost of a put option, which can
be used to hedge the price change before a privately held share can be sold, as the basis to determine the discount for lack of
marketability. A put option was used because it incorporates certain company-specific factors, including timing of the expected
initial public offering and the volatility of the share price of the guideline companies engaged in the same industry. Based on
the analysis, DLOM of 16%, 13%, 11% and 11% were used for the valuation of our ordinary shares as of January 7, 2013, August 1,
2013, October 30, 2013 and November 30, 2013, respectively.
|
Significant Factors Contributing to
the Difference in Fair Value Determined
The determined fair value of our ordinary
shares increased from US$0.91 (RMB5.51) per share as of December 16, 2012 to US$1.20 (RMB7.26) per share as of August 1, 2013.
We believe the increase in the fair value of our ordinary shares was primarily attributable to the following factors:
|
·
|
continued adoption and increased penetration of online leisure travel and the consistent strong growth seen in the overall
industry;
|
|
·
|
improvement of our financial and operating performance in 2013 which was primarily attributable to increased economies of scale,
greater bargaining power with travel suppliers, and hence improved gross margin in 2013; and
|
|
·
|
management’s adjustment of our financial forecasts to reflect the anticipated higher revenue growth rate and long-term
profitability in the future due to the abovementioned developments.
|
The determined fair value of our ordinary
shares increased from US$1.20 (RMB7.26) per share as of August 1, 2013 to US$1.82 (RMB11.02) per share as of October 30, 2013 and
further to US$1.98 (RMB11.99) per share as of November 30, 2013. We believe the increase in the fair value of our ordinary shares
was primarily attributable to the following factors:
|
·
|
the improvement of our financial and operating performance in 2013, which was primarily attributable to increased economies
of scale, including greater pricing power with travel suppliers;
|
|
·
|
the issuance of Series D convertible preferred shares in August 2013, which provided us with additional capital for our business
expansion;
|
|
·
|
management’s adjustment of our financial forecast to reflect the anticipated higher revenue growth rate and better financial
performance in the future due to the abovementioned developments; and
|
|
·
|
the commencement of our initial public offering preparation process in November 2013 and the completion of our initial public
offering in 2014, resulting in a decrease in the expected time period leading to a liquidity event. As we progressed towards our
initial public offering, the lead time to an expected liquidity event decreased, resulting in a decrease in the DLOM.
|
The determined fair value of our ordinary
shares increased from US$1.98 (RMB11.99) per share as of November 30, 2013 to US$3.33 (RMB20.18) per share, the mid-point of the
estimated price range identified on the front cover of our preliminary prospectus for our initial public offering dated April 28,
2014. We believe the increase in the fair value of our ordinary shares was primarily attributable to the following factors:
|
·
|
the improvement of our financial and operating performance in the first quarter of 2014, which was primarily attributable to
increased economies of scale, including greater bargaining power with travel suppliers and increased customer base;
|
|
·
|
the short-term negative impact resulted from the promulgation of the Tourism Law in October 2013 has been fading, and we saw
a steady and sustainable increase in the number of customers purchasing the more expensive organized tours in the first quarter
of 2014, which resulted in higher average gross booking per trip; and we confidentially submitted the registration statement relating
to our initial public offering to the SEC in the first quarter of 2014 and completed our initial public offering in May 2014, resulting
in a decrease in the expected time period leading to a liquidity event. As we progressed towards our initial public offering, the
lead time to an expected liquidity event decreased, resulting in a decrease in the DLOM.
|
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends the existing accounting
standards for revenue recognition. Subsequently, the FASB issued several amendments which amends certain aspects of the guidance
in ASC 2014-09 (ASU No. 2014-09 and the related amendments are collectively “ASC 606”).
We will adopt this new revenue standard
effective on January 1, 2017 by applying the full retrospective method. We have reached conclusions on all key accounting assessments
related to the new standard. However, we are still assessing impacts from guidance issued by the FASB Transition Resource Group
as part of their November 2016 meeting and will continue to monitor and assess the impact of changes to the standard and interpretations
as they become available. Also since the beginning of fiscal year 2017, we have made certain changes in our arrangements with the
tour operators and our role in the organized tour arrangements has changed from a principal into an agent. As a result of adopting
the new accounting standard and the change of our role, revenue from the organized tours will be mainly recognized on a net basis
starting from January 1, 2017. Also the revenue standard is expected to change the timing of revenue recognition for packaged-tour
services from the tours end to the departure day of the tour.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842)”(“ASU 2016-02”), which requires lessees to recognize assets and liabilities
for all leases with lease terms of more than 12 months on the balance sheet. Under the new guidance, the recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or
operating lease. The ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 and early adoption
is permitted on a modified retrospective basis. We are in the process of evaluating the impact of adopting this guidance.
In March 2016, the FASB issued ASU No. 2016-09,
“Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU
2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public
and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. The ASU 2016-09 is effective for annual periods beginning after December
15, 2016 and early adoption is permitted. We are in the process of evaluating the impact of adopting this guidance.
In June 2016, the FASB issued Accounting
Standards Update No. 2016-13 (ASU 2016-13), “Financial Instruments – Credit Losses”, which introduces new guidance
for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate
credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity
debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale
debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale
debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in
an unrealized loss position as a factor in concluding whether a credit loss exists. The ASU 2016-13 is effective for public companies
for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted
for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are
in the process of evaluating the impact of adopting this guidance.
In August 2016, the FASB issued ASU No.
2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of
the Emerging Issues Task Force)” (“ASU 2016-15”), which amends the guidance in ASC 230 on the classification
of certain cash receipts and payments in the statement of cash flows. The ASU 2016-15 is effective for annual and interim periods
beginning after December 15, 2017 and early adoption is permitted. We are is in the process of evaluating the impact of adopting
this guidance.
In November 2016, the FASB issued ASU No.
2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)”
(“ASU 2016-18”), which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted
cash in the statement of cash flows. The ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017
and early adoption is permitted. We are in the process of evaluating the impact of adopting this guidance.
In January 2017, the FASB issued Accounting
Standards Update 2017-01 (ASU 2017-01), “Business Combinations (Topic 805): Clarifying the Definition of a Business”,
which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not
a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output
to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods
within that reporting period. We are in the process of evaluating the impact of adopting this guidance and believe the adoption
of this ASU will not have a material effect on the Company’s financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU
2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of
step 2 of the goodwill impairment test. As a result, under the ASU 2017-04, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should
not exceed the total amount of goodwill allocated to that reporting unit. The ASU 2017-04 is effective for fiscal years beginning
after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. We are in the process of evaluating the impact of adopting this guidance.
|
B.
|
Liquidity and Capital Resources
|
Our primary sources of liquidity have been
proceeds from operating activities, private issuances of ordinary and preferred shares, and our initial public offering.
Prior to the completion of our initial public
offering in May 2014, we financed our operations primarily through cash generated from our operating activities, private issuances
and sales of preferred shares. In May 2014, we completed our initial public offering in which we issued and sold 8,580,000 ADSs
representing 25,740,000 Class A ordinary shares. Concurrently with our initial public offering, we issued and sold 5,000,000, 5,000,000
and 1,666,666 Class A ordinary shares to each of DCM Hybrid RMB Fund, L.P., Ctrip Investment Holding Ltd. and Qihoo 360 Technology
Co. Ltd., respectively. As a result of our initial public offering and such concurrent private placements, we raised an aggregate
of approximately US$106.3 million (RMB659.5 million) in proceeds, net of underwriting commissions.
In December 2014 we entered into a share
subscription agreement with Unicorn Riches Limited, JD.com E-commerce (Investment) Hong Kong Corporation Limited, Ctrip Investment
Holding Ltd. and the respective personal holding companies of Tuniu’s chief executive officer and chief operating officer,
pursuant to which we sold a total of 36,812,868 newly issued class A ordinary shares. As a result of this sale, we raised an aggregate
of approximately US$148.0 million (RMB918.3 million) in proceeds.
In May 2015, we entered into share subscription
agreements with each of Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., Unicorn Riches Limited, a special purpose vehicle
of Hony Capital, DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., both affiliates of DCM
V, L.P., Ctrip Investment Holding Ltd., a subsidiary of Ctrip.com International, Ltd., Esta Investments Pte Ltd, an affiliate of
Temasek Holdings and Sequoia Capital 2010 CV Holdco, Ltd, an affiliate of Sequoia Capital, pursuant to which we sold a total of
93,750,000 newly issued Class A ordinary shares. As a result of this sale, we raised an aggregate of approximately US$400.0 million
in proceeds and JD.com, Inc.’s business resources.
In November 2015, we entered into a strategic
partnership with HNA Tourism, as part of which an affiliate of HNA Tourism purchased 90,909,091 newly issued Class A ordinary shares
from us for an aggregate of approximately US$500 million in January 2016.
Generally, our customers pay us upon contract
confirmation, which is usually more than one month before the departure dates, and we pay our travel suppliers at a later date,
such as at the end of each month. The timing difference between when the cash is collected from our customers and when payments
are made to our travel suppliers increases our operating cash inflow and provides us with a source of liquidity to fund our settlement
of outstanding accounts payable to travel suppliers and our prepayment to our travel suppliers to secure organized tours and self-guided
tours during peak seasons.
In connection with the increase in the sales
of our travel products and services, advances from customer increased from RMB638.8 million as of December 31, 2014 to RMB1,223.3
million as of December 31, 2015 and further to RMB1,951.8 million (US$281.1 million) as of December 31, 2016. In addition, primarily
due to timing differences between when cash is collected from our customers and when payments are made to our travel suppliers
and the expansion of our business, accounts payable increased from RMB382.7 million as of December 31, 2014 to RMB767.3 million
as of December 31, 2015 and further to RMB879.4 million (US$126.7 million) as of December 31, 2016. Furthermore, primarily due
to the increase in our prepayment to travel suppliers as a result of our business expansion, prepayments and other current assets
increased from RMB575.3 million as of December 31, 2014 to RMB1,285.6 million as of December 31, 2015 and further to RMB1,632.3
million (US$235.1 million) as of December 31, 2016. Moreover, due to investments in branding and advertising campaigns, advertisements
for our mobile business development, expansion of our VIP customer service center and amortization of acquired intangible asset
in 2016, our sales and marketing expenses increased from RMB434.2 million in 2014, to RMB1,154.2 million in 2015 and further to
RMB1,908.4 million (US$274.9 million) in 2016. As a result, our net cash provided by operating activities was RMB271.1 million
in 2014 and our net cash used in operating activities was RMB514.7 million and RMB2,239.4 million (US$322.6 million) in 2015 and
2016, respectively.
Our principal uses of cash for the years
ended December 31, 2014, 2015 and 2016 were for operating activities, primarily marketing and brand promotion expenses, salaries
and other compensation expenses as well as office rental and professional service fees. Our cash and cash equivalents consist of
cash on hand and cash in bank, including demand bank deposits. Our short-term investments comprise financial products issued by
banks or other financial institutions. As of December 31, 2014, 2015 and 2016, we had RMB1,970.3 million, RMB3,666.6 million and
RMB4,813.3 million (US$693.3 million) in cash and cash equivalents, restricted cash and short-term investments, respectively. We
did not have any short-term or long-term bank borrowings outstanding as of December 31, 2016.
In November 2014, we entered into framework
cooperation agreements with four PRC-based banks under which the banks intend to make available loan facilities up to an aggregate
of RMB4.0 billion with terms ranging from two to five years to us or our suppliers. The actual borrowings under the framework agreements
are subject to execution of definitive agreements and final approvals by the respective banks. In the definitive financing agreements
executed among banks, our suppliers and us pursuant to the framework agreements, we did not provide guarantee for our suppliers’
borrowings nor bear the banks’ credit risks.
We believe that our current cash and anticipated
cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for at least the next
12 months. We may require additional cash due to unanticipated business conditions or other future developments. If our existing
cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or secure debt
funding from financial institutions.
The following table sets forth a summary
of our cash flows for the periods presented:
|
|
For the Year Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except percentages)
|
|
Net cash used in operating activities
|
|
|
(271,102
|
)
|
|
|
(514,735
|
)
|
|
|
(2,239,444
|
)
|
|
|
(322,550
|
)
|
Net cash used in investing activities
|
|
|
(227,923
|
)
|
|
|
(1,915,168
|
)
|
|
|
(2,514,247
|
)
|
|
|
(362,127
|
)
|
Net cash provided by financing activities
|
|
|
1,540,397
|
|
|
|
3,005,838
|
|
|
|
3,627,058
|
|
|
|
522,405
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(3,053
|
)
|
|
|
67,560
|
|
|
|
110,652
|
|
|
|
15,940
|
|
Net increase/ (decrease) in cash and cash equivalents
|
|
|
1,038,319
|
|
|
|
643,495
|
|
|
|
(1,015,981
|
)
|
|
|
(146,332
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
419,403
|
|
|
|
1,457,722
|
|
|
|
2,101,217
|
|
|
|
302,638
|
|
Cash and cash equivalents at the end of the period
|
|
|
1,457,722
|
|
|
|
2,101,217
|
|
|
|
1,085,236
|
|
|
|
156,306
|
|
Operating Activities
Our net cash used in operating activities
was RMB2,239.4 million (US$322.6 million) in 2016, primarily attributable to cash inflows from sales of our travel products and
services of RMB20,276.5 million (US$2,920.5 million) and cash inflows from other operating activities such as deposits, interest
income and government subsidies of RMB105.1 million (US$15.1 million), that were offset by cash outflows due to payments to our
travel suppliers of RMB19,512.4 million (US$2,810.4 million), payments relating to other operating activities, which include payments
for marketing and promotional activities, office rental and utilities and professional services, of RMB1,733.2 million (US$249.6
million), payments to employees and for employees’ benefits of RMB1,337.2 million (US$192.7 million) and payments of taxes
and levies of RMB38.2 million (US$5.5 million).
Our net cash used in operating activities
was RMB514.7 million in 2015, primarily attributable to cash inflows from sales of our travel products and services of RMB12,468.0
million and cash inflows from other operating activities such as deposits, interest income and government subsidies of RMB715.2
million, that were offset by cash outflows due to payments to our travel suppliers of RMB11,948.4 million, payments relating to
other operating activities, which include payments for marketing and promotional activities, office rental and utilities and professional
services, of RMB1,022.4 million, payments to employees and for employees’ benefits of RMB691.0 million and payments of taxes
and levies of RMB36.1 million.
Our net cash used in operating activities
was RMB271.1 million in 2014, primarily attributable to cash inflows from sales of our travel products and services of RMB5,289.1
million and cash inflows from interest income and government subsidies of RMB35.1 million, that were offset by cash outflows due
to payments to our travel suppliers of RMB4,796.3 million, payments relating to other operating activities, which include payments
for marketing and promotional activities, office rental and utilities and professional services, of RMB524.3 million, payments
to employees and for employees’ benefits of RMB257.4 million and payments of taxes and levies of RMB17.2 million.
Investing Activities
Our net cash used in investing activities
was RMB2,514.2 million (US$362.1 million) in 2016, primarily attributable to the purchase of short-term investments of RMB5.097.3
million (US$734.1 million), the purchase of financial products of RMB807.2 million (US$116.3 million), the business acquisition
of RMB16.5 million (US$2.4 million), the purchase of property and equipment and intangible assets of RMB117.9 million (US$17.0
million), the cash paid for loans of RMB18.0 million (US$2.6 million) and the cash paid for long-term investment of RMB57.5 million
(US$8.3 million), partially offset by the proceeds from the maturity of short-term investments of RMB2,847.3 million (US$410.1
million), the proceeds from maturity of financial products of RMB538.5 million (US$77.6 million) and the decrease in our balance
of restricted cash of RMB214.4 million (US$30.9).
Our net cash used in investing activities
was RMB1,915.2 million in 2015, primarily attributable to the purchase of short-term investments of RMB1,139.7 million, the purchase
of financial products of RMB718.6 million, the business acquisition of RMB60.1 million, the purchase of property and equipment
and intangible assets of RMB155.5 million and the increase in our balance of restricted cash of RMB294.4 million, partially offset
by the proceeds from the maturity of short-term investments of RMB442.1 million and the proceeds from maturity of financial products
of RMB10.8 million.
Our net cash used in investing activities
was RMB227.9 million in 2014, primarily attributable to the purchase of short-term investments of RMB547.6 million, the purchase
of property and equipment and intangible assets of RMB50.6 million and the increase in our balance of restricted cash of RMB34.8
million, offset by the proceeds from the disposal of short-term investments of RMB405.0 million.
Financing Activities
Our net cash provided by financing activities
in 2016 was RMB3,627.1 million (US$522.4 million) primarily attributable to the net proceeds from our private placement of RMB3,275.9
million (US$471.8 million) (net of issuance cost of RMB3.4 million (US$0.5 million)), funds of RMB274.7 million (US$39.6 million)
collected from the sales financial products to individual investors on our website, RMB8.5 million (US$1.2 million) proceeds from
employees exercising stock options and proceeds contribution from noncontrolling interests shareholders of RMB90 million (US$13.0
million), partially offset by payment of share repurchase of RMB19.7 million (US$2.8 million) and the deferred and contingent consideration
paid for prior year business acquisitions of RMB2.3 million (US$0.3 million).
Our net cash provided by financing activities
in 2015 was RMB3,005.8 million net proceeds from our private placement of RMB2,430.2 million (net of issuance cost of RMB15.2 million),
funds of RMB579.5 million collected from the purchases of financial products by individual investors on our website, RMB12.6 million
proceeds from employees exercising stock options, partially offset by repayment of short-term borrowing of RMB15.0 million and
the acquisition of the remaining non-controlling interest of a subsidiary of RMB1.5 million.
Our net cash provided by financing activities
in 2014 was RMB1,540.4 million, attributable to the net proceeds of our initial public offering and the concurrent private placements
as well as the private placement in December 2014.
Capital Expenditures
Cash outflow in connection with capital
expenditures amounted to RMB50.6 million, RMB155.5 million and RMB117.9 million (US$17.0 million) in 2014, 2015 and 2016, respectively.
Our capital expenditures were primarily used to purchase equipment and intangible assets for our business. As of December 31, 2016,
capital commitments relating to leasehold improvement and installation of equipment were approximately RMB9.7 million (US$1.4 million).
Holding Company Structure
We are a holding company with no material
operations of our own. We conduct our operations primarily through our wholly owned subsidiaries and consolidated affiliated entities
in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries. If
our PRC subsidiaries or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the instruments governing
their debt may restrict their ability to pay dividends to us. In addition, our PRC subsidiaries are permitted to pay dividends
to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under
PRC law, each of our subsidiaries and our consolidated affiliated entities in China is required to set aside at least 10% of its
after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered
capital. In addition, each of our subsidiaries and consolidated affiliated entities in China may allocate a portion of its after-tax
profits based on PRC accounting standards to staff welfare and bonus funds at its discretion. These reserve funds and staff welfare
and bonus funds are not distributable as cash dividends. As our PRC subsidiaries and consolidated affiliated entities have incurred
losses, they have not started to contribute to the staff welfare and bonus funds. Our PRC subsidiaries have never paid dividends
and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
|
C.
|
Research and Development
|
We have built our technology infrastructure
with high levels of performance, reliability, scalability and security. We rely on internally developed proprietary technologies
and licensed technologies to manage and improve our website, mobile platform and management systems. We have a team of engineers
dedicated to research and development in the areas of website operations, mobile platform, search engine, data analytics and supply
chain management system.
Research and product development expenses
primarily comprise salaries and other compensation expenses for our research and product development personnel as well as office
rental, depreciation and other expenses related to our research and product development function. Research and product development
expenses also include expenses that are incurred in connection with the planning and implementation phases of development and costs
that are associated with the maintenance of our online platform or software for internal use. In 2014, 2015 and 2016 our research
and product development expenses accounted for 3.0%, 3.9% and 5.7% of our net revenues, respectively. During the same period, our
research and product development expenses increased in order to support our business expansion, primarily attributable to investments
for the implementation of additional product categories such as Internet finance, accommodation reservation and transportation
ticketing, the increase in direct procurement-related personnel at regional service centers, improvement of online technology,
and the rise in technology and product development personnel-related expenses. We expect research and product development expenses
to increase in absolute amounts as the results of our continual research and product development efforts and the increase in share-based
compensation expenses.
Other than as disclosed elsewhere in this
annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2016
that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations
or financial conditions.
|
E.
|
Off-Balance Sheet Arrangements
|
We have not entered into any financial guarantees
or other commitments to guarantee the payment obligations of any third parties. We have not entered into any off-balance sheet
derivative instruments. 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. 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.
|
Contractual Obligations
|
The following table sets forth our contractual
obligations by specified categories as of December 31, 2016.
|
|
Payment Due by Period
|
|
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than
5 Years
|
|
|
|
(In RMB thousands)
|
|
Operating Lease Obligations
(1)
|
|
|
218,596
|
|
|
|
67,381
|
|
|
|
98,440
|
|
|
|
52,775
|
|
|
|
—
|
|
Purchase Obligations
(2)
|
|
|
9,741
|
|
|
|
9,741
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
228,37
|
|
|
|
77,122
|
|
|
|
98,440
|
|
|
|
52,775
|
|
|
|
—
|
|
|
(1)
|
Operating lease obligations represent our obligations for the leased premises of our headquarter and regional service centers.
|
|
(2)
|
Purchase obligations consist primarily of contractual commitments in connection with leasehold improvements and the installation
of equipment for our headquarter and regional service centers.
|
Other than the contractual obligations set
forth above, we do not have any contractual obligations that are long-term debt obligations, capital (finance) lease obligations,
purchase obligations or other long-term liabilities reflected on our balance sheet.
|
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
|
Dunde Yu
|
|
36
|
|
Co-founder, chairman and chief executive officer
|
Haifeng Yan
|
|
35
|
|
Co-founder, director, president and chief operating officer
|
Tie Li
|
|
40
|
|
Director
|
Jie Zhu
|
|
36
|
|
Director
|
Haoyu Shen
|
|
46
|
|
Director
|
Cindy Chen
|
|
41
|
|
Director
|
Frank Lin
|
|
52
|
|
Director
|
Steve Yue Ji
|
|
44
|
|
Director
|
James Jianzhang Liang
|
|
47
|
|
Director
|
Onward Choi
|
|
46
|
|
Director
|
Jack Xu
|
|
49
|
|
Director
|
Conor Chia-hung Yang
|
|
54
|
|
Chief financial officer
|
Wei Zhang
|
|
51
|
|
Senior vice president
|
Enjie Wu
|
|
45
|
|
Senior vice president of human resources center
|
Mr. Dunde Yu
is our co-founder and
has served as chairman of our board of directors and chief executive officer since our inception. Prior to founding our company,
Mr. Yu was the chief technology officer of
ci123.com
in 2006, where he helped
ci123.com
become a leading Chinese
childcare website. From 2004 to 2006, Mr. Yu served as the technical director of
Bokee.com
. Mr. Yu received a bachelor’s
degree in mathematics from Southeast University in China in 2003.
Mr. Haifeng Yan
is our co-founder,
president and chief operation officer and has served as our director since our inception. Prior to founding our company, Mr. Yan
was one of the founding members and the chief operating officer of
ci123.com
, from 2005 to 2006, where he was responsible
for daily operations and helped
ci123.com
become a leading Chinese childcare website. Mr. Yan served as an analyst of iTech
Holdings Limited in 2004.
Mr. Tie Li
has served as our director
since February 2016. Mr. Li currently serves as Chairman of China Civil Aviation Investment Group Limited. Mr. Li joined HNA Group
in 2002 and has headed various business divisions of HNA Group since then, serving as financial director, president and vice chairman
of HNA Aviation Group and chief investment officer and CEO of HNA Tourism Group, before being named Chairman of China Civil Aviation
Investment Group Limited in December 2016. Mr. Li has extensive experience in the fields of investment, finance and legal matters
in connection with the travel and tourism industry. Mr. Li holds a bachelor’s degree from Anhui University.
Mr. Jie Zhu
has served as our
director since February 2016. Currently, Mr. Zhu serves as a member of the board of directors and chief innovation officer of
HNA Tourism Group. Mr. Zhu also serves as the chairman of HNA Tourism Innovation Development Co., Ltd., and HNA Innovation
Investment Co., Ltd. which are subsidiaries of HNA Tourism. After joining HNA Tourism Group in 2011, Mr. Zhu headed the
investment and securities business divisions of HNA Tourism Group and its subsidiary Beijing Tourism Investment Fund. Mr. Zhu
holds an MBA from Glendon-York University.
Mr. Haoyu Shen
has served as our
director since May 2015. Mr. Shen serves as the chief executive officer of JD Mall from Apr. 2014 to Aug. 2016, the B2C business
group of JD.com, Inc., and the President of JD International from Aug. 2016 to Feb. 2017. Prior to assuming his role in April 2014,
Mr. Shen served as the chief operating officer of JD.com, Inc. from August 2011 to April 2014, and was in charge of JD.com, Inc.’s
entire supply chain management and customer service functions. Prior to joining JD.com, Inc., Mr. Shen worked at Baidu, Inc., the
leading Chinese language internet search provider, where he served as a senior vice president from January 2010 to July 2011 and
the vice president of business operations from July 2007 to July 2010. Mr. Shen holds a bachelor’s degree in international
finance from Renmin University of China in Beijing and an MBA degree from the University of Iowa. Mr. Shen is a CFA charter holder.
Ms. Cindy Chen
has served as our
director since May 2015. Ms. Chen is a managing director at Hony Capital specializing in the Internet, high-end manufacturing and
new energy sectors. Ms. Chen has a deep understanding of the commercial environment and enterprise management in China. Prior to
assuming her role at Hony Capital, Ms. Chen held key finance roles with the Lenovo Group. Ms. Chen holds a bachelor’s degree
in economics from Beijing Institute of Petrochemical Technology and an EMBA degree from China Europe International Business School.
Mr. Frank Lin
has served as our director
since December 2009. Mr. Lin is a general partner of DCM, a technology venture capital firm. Prior to joining DCM in 2006, Mr.
Lin was chief operating officer of Sina Corporation, a Nasdaq-listed company. He co-founded
SINA’s predecessor,
SinaNet,
in 1995 and later guided SINA through its listing on Nasdaq. Mr. Lin had also held various marketing, engineering and managerial
positions at Octel Communication Inc. and NYNEX. Mr. Lin currently serves on the board of directors of various DCM portfolio companies,
including Vipshop Holdings Limited, China Online Education Group (51 Talk.com), and 58.com Inc., which are NYSE-listed companies.
Mr. Lin received an MBA degree from Stanford University and a bachelor’s degree in engineering from Dartmouth College.
Mr. Steve Yue Ji
has served as our
director since March 2011. Mr. Ji is a partner of Sequoia Capital China. Prior to joining Sequoia Capital in 2005, Mr. Ji worked
at Walden International, Vertex Management and CIV Venture Capital, where he contributed to investments in numerous wireless, Internet
and semiconductor companies in China. Prior to that, Mr. Ji worked for Seagate Technology China, a Nasdaq-listed company, among
the first group of its employees in 1995. Mr. Ji received a master’s degree in business administration from China Europe
International Business School in 1999 and a bachelor’s degree in engineering from Nanjing University of Aeronautics and Astronautics
in Nanjing, China in 1995.
Mr. James Jianzhang Liang
has
served as our director since July 2014. Mr. Liang is the chairman of Ctrip.com International, Ltd., a leading travel service
provider for hotel accommodation reservation, transportation ticketing, packaged tours and corporate travel management in
China. Prior to co-founding Ctrip in 1999, Mr. Liang held a number of technical and managerial positions at Oracle
Corporation from 1991 to 1999 in the U.S. and China, including head of the ERP Consulting Division of Oracle China from 1997
to 1999. Mr. Liang currently serves on the boards of Home Inns, Qunar.com, MMYT and eHi Car Services Limited. Mr. Liang
received a Ph.D. in Economics from Stanford University in 2011 and a Master’s in Computer Science from the Georgia
Institute of Technology.
Mr. Onward Choi
has served as our
independent director since May 2014. Mr. Choi has been the acting chief financial officer of NetEase Inc., or NetEase, a Nasdaq-listed
company, since July 2007. He previously served as NetEase’s financial controller from January 2005 to June 2007 and as its
corporate finance director from November 2003 to December 2004. Prior to joining NetEase, Mr. Choi worked in the Beijing office
of Ernst & Young, the Hong Kong Trade Development Council and the Hong Kong office of KPMG for over ten years. Mr. Choi currently
serves as the chairman of the audit committee and an independent non-executive director of Beijing Jingkelong Company Limited and
China ITS (Holdings) Co., Ltd., both of which are listed on the Hong Kong Stock Exchange. Mr. Choi is a member of the Institute
of Chartered Accountants in England and Wales, a fellow member of the Association of Chartered Certified Accountants, a fellow
member of the CPA Australia, a fellow member of the Hong Kong Institute of Certified Public Accountants and a registered practicing
certified public accountant in Hong Kong. Mr. Choi received a bachelor’s degree in accountancy with honors from the Hong
Kong Polytechnic University.
Mr. Jack Xu
has served as Tuniu’s
independent director since May 2014. Mr. Xu is the managing partner at Seven Seas Venture Partners. Mr. Xu served as President
and Chief Technology Officer of Sina Corporation, a Nasdaq-listed company, from January 2013 to February 2015. Prior to joining
Sina Corporation, Mr. Xu worked at Cisco as the Corporate Vice President of the Communications and Collaboration business unit.
Previously, Mr. Xu served as Vice President of Engineering and Research at eBay from October 2002 to April 2008 and Chief Technology
Officer at NetEase from May 2000 to July 2002. He led Excite’s search engine development in 1996, while pursuing a Ph.D.
at the University of California at Berkeley. Mr. Xu received a bachelor’s degree and a master’s degree in information
management from Sun Yat-Sen University in China.
Mr. Conor Chia-hung Yang
has served
as our chief financial officer since January 2013. Prior to join us, Mr. Yang was the chief financial officer of E-Commerce China
Dangdang Inc., a NYSE-listed company, from March 2010 to July 2012 and the chief financial officer of AirMedia Group Inc., a Nasdaq-listed
company, from March 2007 to March 2010. Mr. Yang was the chief executive officer of Rock Mobile Corporation from 2004 to February
2007. From 1999 to 2004, Mr. Yang served as the chief financial officer of the Asia Pacific region for CellStar Asia Corporation.
Mr. Yang was an executive director of Goldman Sachs (Asia) L.L.C. from 1997 to 1999. Prior to that, Mr. Yang was a vice president
of Lehman Brothers Asia Limited from 1994 to 1996 and an associate at Morgan Stanley Asia Limited from 1992 to 1994. Mr. Yang currently
serves as an independent director and chairman of the audit committee of AirMedia Group Inc, and China Online Education Group.
Mr. Yang received a master’s degree of business administration from University of California, Los Angeles in 1992.
Mr. Wei Zhang
has served as our senior
vice president since May 2015. Prior to joining Tuniu, Mr. Zhang worked in Jiangsu Hiteker High-tech Co., Ltd. from 2000 to 2015
in various roles such as vice president and executive president. Mr. Zhang received a master’s degree of business administration
from a joint program between Renmin University of China and University of Wales in 2013.
Mr. Enjie Wu
has served as our senior
vice president of human resources center since May 2016. Mr. Wu joined Tuniu in January 2010 as the vice president of human resources
center. Prior to joining us, Mr. Wu was the human resources general manager of Hisap Corporation from 2005 to 2010. From 2003 to
2005, Mr. Wu was the general manager of Jianghai Group. From 2001 to 2002, Mr. Wu served as the director of human resources of
Beijing Yenova Decoration Co., Ltd. From 1993 to 2001, he was the human resource officer of Zindart Manufacturing Limited. Mr.
Wu received a bachelor’s degree in economics and management from Sun Yat-Sen University in China in 1993.
For the fiscal year ended December 31, 2016,
we paid an aggregate of approximately RMB8.7 million (US$1.3 million) in cash to our executive officers and RMB0.8 million (US$0.1
million) to our non-executive directors and officers. For share incentive grants to our directors and executive officers and the
vesting conditions of such share incentive grants, see “—Share Incentive Plans.”
Share Incentive Plans
2008 Incentive Compensation Plan
We adopted an incentive compensation plan,
or the 2008 Plan, in 2008. The purposes of the 2008 Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees and consultants, and to promote the success of our business
by offering these individuals an opportunity to acquire a proprietary interest in our company. In 2012, we increased the maximum
aggregate number of shares which may be issued under the 2008 Plan from 11,500,000 to 18,375,140. As of March 31, 2017, options
to purchase 9,336,745 ordinary shares were outstanding, and there were 901,468 ordinary shares available for future issuance upon
the exercise of future grants under the 2008 Plan.
The following paragraphs summarize the terms
of the 2008 Plan.
Types of Awards
. The 2008
Plan permits the awards of options and restricted shares.
Plan Administration
. Our board
of directors or a committee appointed by our board will administer the 2008 Plan. The committee or the full board of directors,
as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant,
and the terms and conditions of each award grant, among other things. Our board of directors may authorize one or more officers
of us to grant awards under the 2008 Plan, subject to parameters specified by the board of directors.
Award Agreement
. Awards granted
under the 2008 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which
may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates,
and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award, among other things. Pursuant
to the form award agreement under the 2008 Plan, 1/4 of the ordinary shares underlying the option shall vest on the first anniversary
of the date of grant, and 1/48 of the remaining ordinary shares underlying the option shall vest on a monthly basis in the following
three years. However, the option may be exercised, to the extent vested, only (a) in connection with or after certain triggering
events if the option is assumed by a company whose shares are listed on a securities exchange, or (b) unless otherwise allowed
by the plan administrator in its sole discretion, if the option holder obtains all the necessary governmental approvals and consents
required for the issuance of such shares.
Eligibility
. We may grant
awards to our employees and consultants of our company. However, we may grant options that are intended to qualify as incentive
options only to our employees.
Vesting Schedule
. In general,
the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options
. The plan
administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option
will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum
exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions
. Options
may not be transferred in any manner by the recipient other than by will or by the laws of descent or distribution, except as otherwise
provided by the plan administrator.
Termination of the 2008 Plan
.
Unless terminated earlier, the 2008 Plan will terminate automatically in 2018. Our board of directors has the authority to amend
or terminate the plan subject to shareholder approval if required by applicable law.
2014 Share Incentive Plan
We adopted the 2014 Share Incentive Plan,
or the 2014 Plan, in 2014. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2014 Plan
is initially 5,500,000 ordinary shares as of the date of its approval. The number of shares reserved for future issuances under
the 2014 Plan will be increased automatically if and whenever the ordinary shares reserved under the 2014 Plan account for less
than 1% of the total then-issued and outstanding ordinary shares on an as-converted basis. The ordinary shares reserved under the
2014 Plan immediately after each such increase shall equal to 5% of the then-issued and outstanding ordinary shares on an as-converted
basis. As of March 31, 2017, there were options to purchase 21,892,922 ordinary shares and 383,598 restricted shares outstanding
under the 2014 Plan.
The following paragraphs summarize the terms
of the 2014 Plan.
Types of Awards
. The 2014
Plan permits the awards of options, restricted shares and restricted share units.
Plan Administration
. Our board
of directors or a committee designated by our board administers the 2014 Plan. The committee or the full board of directors, as
applicable, determines the participants to receive awards, the type and number of awards to be granted to each participant, and
the terms and conditions of each award grant.
Award Agreement
. Awards granted
under the 2014 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which
may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates,
and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility
. We may grant
awards to our employees, directors and consultants of our company. However, we may grant options that are intended to qualify as
incentive share options only to our employees and employees of our parent companies and subsidiaries.
Acceleration of Awards upon Change
in Control
. If a change in control of our company occurs, the plan administrator may, in its sole discretion, provide for
(i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested
portion of such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount
that could have been attained upon the exercise of such award, or (iii) the replacement of such award with other rights or property
selected by the plan administrator in its sole discretion, or (iv) payment of award in cash based on the value of ordinary shares
on the date of the change-in-control transaction plus reasonable interest.
Vesting Schedule
. In general,
the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options
. The plan
administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option
will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum
exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions
. Awards
may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise
provided by the plan administrator.
Termination of the 2014 Plan
.
Unless terminated earlier, the 2014 Plan will terminate automatically in 2024. Our board of directors has the authority to amend
or terminate the plan subject to shareholder approval or home country practice.
The following table summarizes, as of March
31, 2017, the outstanding options and restricted shares granted to our directors and executive officers under the 2008 Plan and
2014 Plan.
|
|
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Ordinary
Shares
Underlying
Options
Awarded/
Restricted
Shares
|
|
|
(US$/
Share)
|
|
|
(RMB/
Share)
(3)
|
|
|
Date of Grant
|
|
|
Vesting
Schedule
|
|
|
Date of Expiration
|
|
Dunde Yu
|
|
|
630,814
|
|
|
|
0.100
|
|
|
|
0.694
|
|
|
|
November 5, 2009
|
|
|
|
4 years
(1)
|
|
|
|
November 4, 2019
|
|
|
|
|
1,100,000
|
|
|
|
0.226
|
|
|
|
1.569
|
|
|
|
March 11, 2011
|
|
|
|
4 years
(1)
|
|
|
|
March 10, 2017
|
|
|
|
|
1,269,995
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 1, 2013
|
|
|
|
4 years
(1)
|
|
|
|
July 31, 2019
|
|
|
|
|
900,000
|
|
|
|
3.000
|
|
|
|
20.829
|
|
|
|
June 13, 2014
|
|
|
|
4 years
(1)
|
|
|
|
June 12, 2024
|
|
|
|
|
760,000
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
March 6, 2015
|
|
|
|
4 years
(1)
|
|
|
|
March 5, 2025
|
|
|
|
|
1,981,000
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
1,420,000
|
|
|
|
2.683
|
|
|
|
18.628
|
|
|
|
December 2, 2016
|
|
|
|
4 years
(1)
|
|
|
|
December 1, 2026
|
|
|
|
|
25,902
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
January 1, 2017
|
|
|
|
1 years
(2)
|
|
|
|
December 31, 2026
|
|
Haifeng Yan
|
|
|
340,000
|
|
|
|
0.100
|
|
|
|
0.694
|
|
|
|
November 5, 2009
|
|
|
|
4 years
(1)
|
|
|
|
November 4, 2019
|
|
|
|
|
1,100,000
|
|
|
|
0.226
|
|
|
|
1.569
|
|
|
|
March 11, 2011
|
|
|
|
4 years
(1)
|
|
|
|
March 10, 2017
|
|
|
|
|
1,269,995
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 1, 2013
|
|
|
|
4 years
(1)
|
|
|
|
July 31, 2019
|
|
|
|
|
900,000
|
|
|
|
3.000
|
|
|
|
20.829
|
|
|
|
June 13,2014
|
|
|
|
4 years
(1)
|
|
|
|
June 12, 2024
|
|
|
|
|
660,000
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
March 6, 2015
|
|
|
|
4 years
(1)
|
|
|
|
March 5, 2025
|
|
|
|
|
1,981,000
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
1,420,000
|
|
|
|
2.683
|
|
|
|
18.628
|
|
|
|
December 2, 2016
|
|
|
|
4 years
(1)
|
|
|
|
December 1, 2026
|
|
|
|
|
25,902
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
January 1, 2017
|
|
|
|
1 years
(2)
|
|
|
|
December 31, 2026
|
|
Conor Chia- hung Yang
|
|
|
*
|
|
|
|
0.900
|
|
|
|
6.249
|
|
|
|
January 7, 2013
|
|
|
|
4 years
(1)
|
|
|
|
January 6, 2019
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 1, 2013
|
|
|
|
4 years
(1)
|
|
|
|
July 31, 2019
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
June 13,2014
|
|
|
|
4 years
(1)
|
|
|
|
June 12, 2024
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
March 6, 2015
|
|
|
|
4 years
(1)
|
|
|
|
March 5, 2025
|
|
|
|
|
*
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
*
|
|
|
|
2.683
|
|
|
|
18.628
|
|
|
|
December 2, 2016
|
|
|
|
4 years
(1)
|
|
|
|
December 1, 2026
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
January 1, 2017
|
|
|
|
1 years
(2)
|
|
|
|
December 31, 2026
|
|
Wei Zhang
|
|
|
*
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
*
|
|
|
|
2.683
|
|
|
|
18.628
|
|
|
|
December 2, 2016
|
|
|
|
4 years
(1)
|
|
|
|
December 1, 2026
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
January 1, 2017
|
|
|
|
1 years
(2)
|
|
|
|
December 31, 2026
|
|
Enjie Wu
|
|
|
*
|
|
|
|
1.790
|
|
|
|
12.428
|
|
|
|
August 15, 2013
|
|
|
|
4 years
(1)
|
|
|
|
August 14, 2019
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
August 15, 2014
|
|
|
|
4 years
(1)
|
|
|
|
August 14, 2024
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
March 6, 2015
|
|
|
|
4 years
(1)
|
|
|
|
March 5, 2025
|
|
|
|
|
*
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
March 6, 2015
|
|
|
|
4 years
(1)
|
|
|
|
March 5, 2025
|
|
|
|
|
*
|
|
|
|
3.090
|
|
|
|
21.454
|
|
|
|
August 20, 2015
|
|
|
|
4 years
(1)
|
|
|
|
August 19, 2025
|
|
|
|
|
*
|
|
|
|
2.683
|
|
|
|
18.628
|
|
|
|
December 2, 2016
|
|
|
|
4 years
(1)
|
|
|
|
December 1, 2026
|
|
|
|
|
*
|
|
|
|
0.0001
|
|
|
|
0.001
|
|
|
|
January 1, 2017
|
|
|
|
1 years
(2)
|
|
|
|
December 31, 2026
|
|
Jack Xu
|
|
|
*†
|
|
|
|
N/A
|
|
|
|
|
|
|
|
May 9, 2014
|
|
|
|
4 years
(1)
|
|
|
|
May 8, 2024
|
|
Onward Choi
|
|
|
*†
|
|
|
|
N/A
|
|
|
|
|
|
|
|
May 9, 2014
|
|
|
|
4 years
(1)
|
|
|
|
May 8, 2024
|
|
Directors and officers as a group
|
|
|
22,778,553
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
*
|
Shares underlying vested options less than 1% of our total outstanding shares.
|
|
†
|
Denotes restricted share award; all other awards in this table are option awards.
|
|
(1)
|
Pursuant to the relevant award agreement, 1/4 of the ordinary shares underlying the option or restricted shares shall vest
on the first anniversary of the date of grant, and 1/48 of the remaining ordinary shares underlying the option or restricted shares
shall vest on a monthly basis in the following three years. However, the option or restricted shares may be exercised, to the extent
vested, only (a) in connection with or after certain triggering events if the option is assumed by a company whose shares are listed
on a securities exchange, or (b) unless otherwise allowed by the plan administrator in its sole discretion, if the option holder
or holder of restricted shares obtains all the necessary governmental approvals and consents required for the issuance of such
shares.
|
|
(2)
|
Pursuant to the relevant award agreement, 1/12 of the ordinary shares underlying the option shall vest on a monthly basis in
the year 2017. However, the option may be exercised, to the extent vested, only (a) in connection with or after certain triggering
events if the option is assumed by a company whose shares are listed on a securities exchange, or (b) unless otherwise allowed
by the plan administrator in its sole discretion, if the option holder obtains all the necessary governmental approvals and consents
required for the issuance of such shares.
|
|
(3)
|
The prices in Renminbi were translated using the rate of US$1.00 = RMB6.9430, the exchange rate in effect as of December 31,
2016, solely for the convenience of the readers.
|
Board of Directors
Our board of directors currently consists
of eleven directors. A director is not required to hold any shares in our company. A director may vote with respect to any contract,
proposed contract, or arrangement in which he or she is interested provided (a) such director has declared the nature of his or
her interest, whether material or not, at the earliest meeting of the board at which it is practicable to do so, either specifically
or by way of a general notice, (b) such director has not been disqualified by the chairman of the relevant board meeting, and (c)
if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee
in accordance with the NASDAQ rules. The directors may exercise all the powers of the company to borrow money, mortgage its business,
property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation
of the company or of any third party.
Committees of the Board of Directors
We have three committees of the board of
directors: the audit committee, the compensation committee and the nominating and corporate governance committee under the board
of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are described
below.
Audit Committee
. Our audit
committee consists of Mr. Onward Choi, Mr. Jack Xu and Ms. Cindy Chen and is chaired by Mr. Choi. Each of Mr. Choi, Mr. Xu and
Ms. Chen satisfies the “independence” requirements of Rule 5605(a)(2) of the NASDAQ Stock Market Rules and meet the
independence standards under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Our board of directors has determined
that each of Mr. Choi and Mr. Xu qualifies as an “audit committee financial expert” within the meaning of Item 407(d)
of Regulation S-K under the Securities Act of 1933, as amended. 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 registered public accounting firm and pre-approving all auditing and non-auditing services permitted
to be performed by the independent registered public accounting firm;
|
|
·
|
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s
response;
|
|
·
|
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities
Act;
|
|
·
|
discussing the annual audited financial statements with management and the independent registered public accounting firm;
|
|
·
|
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material
control deficiencies;
|
|
·
|
reviewing and reassessing annually the adequacy of our audit committee charter;
|
|
·
|
meeting separately and periodically with management and the independent registered public accounting firm; and
|
|
·
|
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our
procedures to ensure proper compliance.
|
Compensation Committee
. Our
compensation committee consists of Mr. Onward Choi, Mr. Haoyu Shen and Mr. Jack Xu, and is chaired by Mr. Choi. Each of Mr. Choi,
Mr. Shen and Mr. Xu, satisfies the “independence” requirements of Rule 5605(a)(2) of the NASDAQ Stock Market Rules.
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 upon. 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;
|
|
·
|
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
|
|
·
|
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant
to that person’s independence from management.
|
Nominating and Corporate Governance
Committee
. Our nominating and corporate governance committee consists of Mr. Jack Xu, Mr. Onward Choi and Mr. Frank Lin,
and is chaired by Mr. Xu. Each of Mr. Xu, Mr. Choi and Mr. Lin satisfies the “independence” requirements of Rule 5605(a)(2)
of the NASDAQ Stock Market Rules. The nominating and corporate governance committee assists the board 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:
|
·
|
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the
board;
|
|
·
|
reviewing annually with the board the current composition of the board with regards to characteristics such as independence,
age, skills, experience and availability of service to us;
|
|
·
|
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation
committee, as well as of the nominating and corporate governance committee itself;
|
|
·
|
developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant
developments in the law and practice of corporate governance and our compliance with such laws and practices; and
|
|
·
|
evaluating the performance and effectiveness of the board as a whole.
|
Terms of Directors and Executive Officers
All directors hold office until they are
removed by ordinary resolution of the shareholders or become disqualified from being a director in accordance with the terms of
our articles of association. In addition, the service agreements between us, our subsidiaries, if applicable, and the directors
do not provide benefits upon termination of their service. Director nominations by the board of directors are subject to the approval
of our corporate governance and nominating committee. Our shareholders may remove any director by ordinary resolution and may in
like manner appoint another person in his stead. A valid ordinary resolution requires a majority of the votes cast at a shareholder
meeting that is duly constituted and meets the quorum requirement. Officers are elected by and serve at the discretion of the board
of directors. For the periods of service of our directors as of December 31, 2016, see “—A. Directors and Senior Management.”
Duties of Directors
Under Cayman Islands law, our directors
have a 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 may have the right to seek damages in our name if a duty owed by our directors is breached. You should refer to “Item
10.B. Additional Information—Memorandum and Articles of Association—Differences in Corporate Law
—
Directors’
Fiduciary Duties.”
We had a total of 2,799, 7,028, and 8,277
employees as of December 31, 2014, 2015 and 2016, respectively. The following table sets forth the numbers of our employees, categorized
by function, as of December 31, 2016:
Function
|
|
Number of
Employees
|
|
Management and administration
|
|
|
972
|
|
Customer service center
|
|
|
2,443
|
|
Sales and marketing
|
|
|
900
|
|
Research and product development
|
|
|
2,761
|
|
Regional service centers
|
|
|
1,201
|
|
Total
|
|
|
8,277
|
|
We enter into standard employment agreements
with all our employees. We also enter into confidentiality agreements with certain directors and executive officers that impose
confidentiality obligations until the relevant information becomes public or is no longer considered confidential by us. In addition
to salaries and benefits, we provide stock-based compensation and performance-based bonuses for our employees and commission-based
compensation for our sales personnel.
As required by regulations in China, we
participate in various employee social security plans that are organized by municipal and provincial governments, including pension
insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury insurance and a housing provident
fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of the salaries,
bonuses and certain allowances of our employees.
Our success depends on our ability to attract,
retain and motivate qualified personnel. We believe that we maintain a good working relationship with our employees, and we have
not experienced any significant labor disputes.
The following table sets forth information
with respect to the beneficial ownership of our shares as of March 31, 2017 by:
|
·
|
each of our current directors and executive officers; and
|
|
·
|
each person known to us to own beneficially more than 5% of our shares.
|
See “—B. Compensation—Share
Incentive Plans” for more details on options and restricted shares granted to our directors and executive officers.
The calculations in the table below are
based on (i) 379,637,335 ordinary shares outstanding as of March 31, 2017, including 17,373,500 Class B ordinary shares outstanding
and 362,263,835 Class A ordinary shares outstanding (excluding 1,594,209 Class A ordinary shares, represented by 531,403 American
depositary shares, issued and reserved for the future exercise of options or the vesting of other awards under the 2008 Plan and
the 2014 Plan).
Beneficial ownership is determined in accordance
with the rules and regulations of the SEC. 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 the conversion of any other security. These shares, however, are not included
in the computation of the percentage ownership of any other person.
|
|
Class A
Ordinary
Shares
|
|
|
Class B
Ordinary
Shares
|
|
|
Total
Ordinary
Shares
|
|
|
%†
|
|
|
Voting
Power††
|
|
Directors and Executive Officers:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dunde Yu
(1)
|
|
|
8,968,697
|
|
|
|
10,423,503
|
|
|
|
19,392,200
|
|
|
|
5.0
|
|
|
|
20.9
|
|
Haifeng Yan
(2)
|
|
|
8,623,736
|
|
|
|
6,949,997
|
|
|
|
15,573,733
|
|
|
|
4.1
|
|
|
|
14.5
|
|
Tie Li
(3)
|
|
|
100,786,465
|
|
|
|
—
|
|
|
|
100,786,465
|
|
|
|
26.5
|
|
|
|
18.8
|
|
Jie Zhu
(4)
|
|
|
100,786,465
|
|
|
|
—
|
|
|
|
100,786,465
|
|
|
|
26.5
|
|
|
|
18.8
|
|
Haoyu Shen
(5)
|
|
|
78,061,780
|
|
|
|
—
|
|
|
|
78,061,780
|
|
|
|
20.6
|
|
|
|
14.6
|
|
Cindy Chen
(6)
|
|
|
27,436,780
|
|
|
|
—
|
|
|
|
27,436,780
|
|
|
|
7.2
|
|
|
|
5.1
|
|
Frank Lin
(7)
|
|
|
34,829,512
|
|
|
|
—
|
|
|
|
34,829,512
|
|
|
|
9.2
|
|
|
|
6.5
|
|
Steve Yue Ji
(8)
|
|
|
16,198,364
|
|
|
|
—
|
|
|
|
16,198,364
|
|
|
|
4.3
|
|
|
|
3.0
|
|
James Jianzhang Liang
(9)
|
|
|
12,481,034
|
|
|
|
—
|
|
|
|
12,481,034
|
|
|
|
3.3
|
|
|
|
2.3
|
|
Onward Choi
(10)
|
|
|
**
|
|
|
|
—
|
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
Jack Xu
(11)
|
|
|
**
|
|
|
|
—
|
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
Conor Chia-hung Yang
|
|
|
**
|
|
|
|
—
|
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
Wei Zhang
|
|
|
**
|
|
|
|
—
|
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
Enjie Wu
|
|
|
**
|
|
|
|
—
|
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
All directors and executive officers as a group
|
|
|
291,122,691
|
|
|
|
17,373,500
|
|
|
|
308,496,191
|
|
|
|
78.6
|
|
|
|
84.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BHR Winwood Investment Management Limited
(12)
|
|
|
100,786,465
|
|
|
|
—
|
|
|
|
100,786,465
|
|
|
|
26.5
|
|
|
|
18.8
|
|
Affiliates of JD.com, Inc.
(13)
|
|
|
78,061,780
|
|
|
|
—
|
|
|
|
78,061,780
|
|
|
|
20.6
|
|
|
|
14.6
|
|
DCM V, L.P. and Affiliates
(14)
|
|
|
34,829,512
|
|
|
|
—
|
|
|
|
34,829,512
|
|
|
|
9.2
|
|
|
|
6.5
|
|
Unicorn Riches Limited
(15)
|
|
|
27,436,780
|
|
|
|
—
|
|
|
|
27,436,780
|
|
|
|
7.2
|
|
|
|
5.1
|
|
Dragon Rabbit Capital Limited
(16)
|
|
|
4,104,137
|
|
|
|
10,423,503
|
|
|
|
14,527,640
|
|
|
|
3.8
|
|
|
|
20.2
|
|
Verne Capital Limited
(17)
|
|
|
4,104,137
|
|
|
|
6,949,997
|
|
|
|
11,054,134
|
|
|
|
2.9
|
|
|
|
13.7
|
|
|
*
|
Except for Tie Li, Jie Zhu, Haoyu Shen, Cindy Chen, Frank Lin, Steve Yue Ji, James Jianzhang Liang, Onward Choi and Jack Xu,
the business address of our directors and executive officers is Tuniu Building, No. 699-32, Xuanwudadao, Xuanwu District, Nanjing,
Jiangsu Province 210042, PRC.
|
|
**
|
Shares underlying vested options of less than 1% of our total outstanding shares on an as-converted basis.
|
|
†
|
For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares
beneficially owned by such person or group by the sum of the total number of ordinary shares outstanding as of March 31, 2017,
which is 379,637,335 ordinary shares outstanding, including 17,373,500 Class B ordinary shares outstanding and 362,263,835 Class
A ordinary shares (excluding 1,594,209 Class A ordinary shares, represented by 531,403 American depositary shares, issued and reserved
for the future exercise of options or the vesting of other awards under the 2008 Plan and the 2014 Plan), plus the number of ordinary
shares such person or group has the right to acquire, including upon exercise of options and vesting of restricted shares and restricted
share units, within 60 days after March 31, 2016.
|
|
††
|
For each person and group included in this column, percentage ownership percentage of total voting power represents voting
power based on both Class A and Class B ordinary shares held by such person or group, and the ordinary shares such person or group
has the right to acquire upon exercise of the stock options or warrants within 60 days after March 31, 2017, with respect to all
outstanding shares of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled
to one vote per Class A ordinary share. Each holder of our Class B ordinary shares is entitled to ten votes per Class B ordinary
share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a share-for-share
basis.
|
|
(1)
|
Represents (i) 4,864,560 Class A ordinary shares underlying the options or restricted shares that have become fully vested
as of March 31, 2017 or will become fully vested within 60 days after March 31, 2017, and (ii) 4,104,137 Class A ordinary shares
and 10,423,503 Class B ordinary shares held by Dragon Rabbit Capital Limited, a British Virgin Islands company. Dragon Rabbit Capital
Limited is wholly owned by Longtu Holdings Limited, a British Virgin Islands company which is wholly owned by a trust, of which
Mr. Yu’s family is the beneficiary.
|
|
(2)
|
Represents (i) 4,519,599 Class A ordinary shares underlying the options or restricted shares that have become fully vested
as of March 31, 2017 or will become fully vested within 60 days after March 31, 2017, and (ii) 4,104,137 Class A ordinary shares
and 6,949,997 Class B ordinary shares held by Verne Capital Limited, a British Virgin Islands company. Verne Capital Limited is
wholly owned by Magic Worldwide Limited, a British Virgin Islands company which is wholly owned by a trust, of which Mr. Yan’s
family is the beneficiary.
|
|
(3)
|
Represents 100,786,465 Class A ordinary shares held by BHR Winwood Investment Management Limited. The business address of Mr.
Li is 20F, Tower A, Hainan Airlines Plaza, B-2, East 3
rd
Ring North Road, Chaoyang District, Beijing, PRC.
|
|
(4)
|
Represents 100,786,465 Class A ordinary shares held by BHR Winwood Investment Management Limited. The business address of Mr.
Zhu is 20F, Tower A, Hainan Airlines Plaza, B-2, East 3rd Ring North Road, Chaoyang District, Beijing, PRC.
|
|
(5)
|
Represents (i) 65,625,000 Class A ordinary shares held by Fabulous Jade Global Limited and (ii) 12,436,780 Class A ordinary
shares held by JD.com E-Commerce (Investment) Hong Kong Corporation Limited. The business address of Mr. Shen is 15F, Building
C, No. 18 Kechuang 11 Street, BDA, Beijing, PRC
|
|
(6)
|
Represents 27,436,780 Class A ordinary shares held by Unicorn Riches Limited. The business address of Ms. Chen is 6F, South
Tower C, Raycom Info Tech Park, No. 2 Kexueyuan Nanlu, Haidian District, Beijing, 100190, PRC.
|
|
(7)
|
Represents (i) 22,881,096 Class A ordinary shares held by DCM V, L.P., (ii) 558,324 Class A ordinary shares held by DCM Affiliates
Fund V, L.P., (iii) 7,640,092 Class A ordinary shares held by DCM Hybrid RMB Fund, L.P., (iv) 3,541,670 Class A ordinary shares
held by DCM Ventures China Turbo Fund, L.P., and (v) 208,330 Class A ordinary shares held by DCM Ventures China Turbo Affiliates
Fund, L.P. The business address of Mr. Lin is Unit 1, Level 10, Tower W2, Oriental Plaza, Dong Cheng District, Beijing, PRC.
|
|
(8)
|
Represents 16,198,364 Class A ordinary shares held by Sequoia Capital 2010 CV Holdco, Ltd. The business address of Mr. Ji is
2805, Plaza 66 Tower 2, 1366 Nanjing West Road, Shanghai, PRC.
|
|
(9)
|
Represents 12,481,034 Class A ordinary shares held by Ctrip Investment Holding Ltd. The business address of Mr. Liang is Building
16, Sky SOHO, No. 968 Jinzhong Road, Shanghai, PRC.
|
|
(10)
|
The business address of Mr. Choi is Building No. 7, West Zone, Zhongguancun Software Park (Phase II), No. 10 Xibeiwang East
Road, Haidian District, Beijing 100193, PRC.
|
|
(11)
|
The business address of Mr. Xu is 3000 Sand Hill Road, Building 4, Suite 100; Menlo Park, CA 94025.
|
|
(12)
|
BHR Winwood Investment Management Limited is a company incorporated in Hong Kong and wholly owned by an affiliated fund of
HNA Tourism. The business address of BHR Winwood Investment Management Limited is Unit 3101, 31/F, tower 2, China Central Place,
79 Jianguo Road, Chaoyang District, Beijing 100025, PRC.
|
|
(13)
|
Represents (i) 65,625,000 Class A ordinary shares held by Fabulous Jade Global Limited, and (ii) 12,436,780 Class A ordinary
shares held by JD.com E-commerce (Investment) Hong Kong Corporation Limited. The business address of Fabulous Jade Global Limited
is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Fabulous Jade is a wholly-owned subsidiary
of JD.com Investment Limited, which in turn is a wholly-owned subsidiary of JD.com, Inc., a NASDAQ listed company. The business
address of JD.com E-Commerce (Investment) Hong Kong Corporation Limited is Suite 1203, 12th Floor, Ruttonjee House, 11 Duddell
Street Central, Hong Kong. JD.com E-Commerce (Investment) Hong Kong Corporation Limited is a wholly-owned subsidiary of JD.com
E-Commerce (Technology) Hong Kong Corporation Limited, which in turn is a wholly-owned subsidiary of JD.com, Inc. We refer to Fabulous
Jade Global Limited and JD.com E-Commerce (Investment) Hong Kong Corporation Limited as “Affiliates of JD.com, Inc.”
|
|
(14)
|
Represents (i) 22,881,096 Class A ordinary shares held by DCM V, L.P., (ii) 558,324 Class A ordinary shares held by DCM Affiliates
Fund V, L.P., (iii) 7,640,092 Class A ordinary shares held by DCM Hybrid RMB Fund, L.P., (iv) 3,541,670 Class A ordinary shares
held by DCM Ventures China Turbo Fund, L.P., and (v) 208,330 Class A ordinary shares held by DCM Ventures China Turbo Affiliates
Fund, L.P. The general partner of DCM V, L.P. and DCM Affiliates Fund V, L.P. is DCM Investment Management V, L.P., whose general
partner is DCM International V, Ltd. DCM International V, Ltd., through DCM Investment Management V, L.P., has the sole voting
and investment power over these shares, and such voting and investment power is exercised by K. David Chao, Thomas Blaisdell and
Peter W. Moran, the directors of DCM International V, Ltd. The general partner of DCM Hybrid RMB Fund, L.P. is DCM Hybrid RMB Fund
Investment Management, L.P., whose general partner is DCM Hybrid RMB Fund International Ltd. DCM Hybrid RMB Fund International
Ltd., through DCM Hybrid RMB Fund Investment Management, L.P., has the sole voting and investment power over these shares, and
such voting and investment power is exercised by K. David Chao, Thomas Blaisdell, Jason Krikorian, and Peter W. Moran, the directors
of DCM Hybrid RMB Fund International Ltd. The general partner of DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo
Affiliates Fund, L.P. is DCM Turbo Fund Investment Management, L.P., whose general partner is DCM Turbo Fund International, Ltd.
DCM Turbo Fund International, Ltd., through DCM Turbo Fund Investment Management, L.P., has the sole voting and investment power
over these shares, and such voting and investment power is exercised by K. David Chao and Jason Krikorian, the directors of DCM
Turbo Fund International, Ltd. The business address of DCM V, L.P., DCM Affiliates Fund V, L.P., DCM Hybrid RMB Fund, L.P., DCM
Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P. is 2420 Sand Hill Road, Suite 200, Menlo Park,
CA 94025, the United States.
|
|
(15)
|
The business address of Unicorn Riches Limited is c/o Hony Capital Limited, Suite 2701, One Exchange Square, Central, Hong
Kong. Unicorn Riches Limited is a wholly-owned subsidiary of Hony Capital Fund V, L.P. Hony Capital Fund V. L.P.’s general
partner is Hony Capital Fund V GP, L.P. Hony Capital Fund V GP, L.P.’s general partner is Hony Capital Fund V GP Limited.
John Huan Zhao and Legend Holdings Corporation, have 80% and 20%, respectively, equity ownership of Hony Capital Fund V GP Limited.
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(16)
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Dragon Rabbit Capital Limited is wholly owned by Longtu Holdings Limited is a British Virgin Islands company which is wholly
owned by a trust, of which Mr. Yu’s family is the beneficiary. The business address of Dragon Rabbit Capital Limited is Quastisky
Building, P.O. Box 4389, Road Town, Tortola, British Virgin Islands.
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(17)
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Verne Capital Limited is a British Virgin Islands company. Verne Capital Limited is wholly owned by Magic Worldwide Limited,
a British Virgin Islands company which is wholly owned by a trust, of which Mr. Yan’s family is the beneficiary. The business
address of Verne Capital Limited is Quastisky Building, P.O. Box 4389, Road Town, Tortola, British Virgin Islands.
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To our knowledge, as of March 31, 2017,
121,328,418 of our outstanding ordinary shares are held by five record holders in the United States. The total number of shares
held by the five record holders in the United States represents 31.96% of our total outstanding shares. This includes 94,138,998
ordinary shares (excluding 1,594,209 Class A ordinary shares, represented by 531,403 American depositary shares, issued and reserved
for the future exercise of options or the vesting of other awards under the 2008 Plan and the 2014 Plan) held of record by JPMorgan
Chase Bank, N.A., the depositary of our ADS program. 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. 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.E Directors,
Senior Management and Employees—Share Ownership.”
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B.
|
Related Party Transactions
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Contractual Arrangements
For a description of the contractual arrangements
among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing Tuniu, see “Item 4.C. Information on the Company—Organizational
Structure.” See also “Item 3.D. Key Information—Risk Factors—Risks Related to Our Corporate Structure.”
Private Placements, Repurchase and Redesignation
See “Item 5.B. Operating and Financial
Review and Prospects—Liquidity and Capital Resources.”
Relationship with Ctrip
Ctrip Investment Holding Ltd. (“Ctrip”)
has one director in common with our company. Ctrip purchased 5,000,000 Class A ordinary shares in a private placement concurrent
with our initial public offering, an additional 3,731,034 Class A ordinary shares for a total of US$15,000,000 through a private
placement transaction in December 2014 as well as an additional 3,750,000 Class A ordinary shares for a total of US$20,000,000
through a private placement transaction in May 2015. We conduct transactions in the ordinary course of business with Ctrip on the
terms of arm-length transactions. We sell our packaged-tours through Ctrip’s online platform and the commission fees for
Ctrip’s service were immaterial. Revenue from Ctrip consist of, commission fees for selling the hotel rooms and air tickets
products through the Group’s online platform and packaged-tours sold to Ctrip, amounted of RMB3.5 million and RMB54.8 million
for the years ended December 31, 2015 and 2016, respectively.
Relationship with JD.com, Inc.
On May 8, 2015, we issued 65,625,000 Class
A ordinary shares to Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., for a consideration of RMB1,528.2 million (US$250
million) in cash and RMB660.2 million in the business resource contributed by JD.com, Inc., which included the exclusive right
to operate the leisure travel channel for both JD.com, Inc.’s website and mobile application, preferred partnership with
JD.com, Inc. for hotel and air ticket reservation service, its internet traffic support and marketing support for the leisure travel
channel for a period of five years starting from August 2015.
Relationship with HNA Tourism Group
In November 2015, we entered into a strategic
partnership with HNA Tourism through a share subscription agreement, pursuant to which (i) HNA Tourism invested US$500 million
in our company in January 2016 through the acquisition of 90,909,091 newly issued Class A ordinary shares of our company by one
of its affiliates, and (ii) HNA Tourism agreed to provide us with access to its premium airlines and hotels resources at a preferential
rate, in compliance with applicable fair competition market rules, and we undertook to acquire no less than US$100 million products
and services sourced from HNA Tourism over the next two years. The transaction contemplated by the share subscription agreement
was completed on in January 2016. In connection with the strategic partnership with HNA Tourism, we entered into an investor rights
agreement with HNA Tourism in November 2015, which was subsequently amended in December 2015 and February 2016, to govern certain
rights and obligations of us and HNA Tourism. As of December 31, 2016, we have acquired RMB 250 million (US$36.1 million) air tickets
from HNA Tourism.
Employment Agreements and Indemnification
Agreements
See “Item 6.B. Directors, Senior Management
and Employees—Compensation.”
Share Incentive Plans
See “Item 6.B. Directors, Senior Management
and Employees—Compensation.”
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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
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See “Item 18. Financial Statements.”
Legal Proceedings
From time to time, we may be involved in
legal proceedings in the ordinary course of our business. We are not currently a party to any material legal or administrative
proceedings.
Dividend Policy
Our board of directors has discretion as
to whether to distribute dividends, subject to applicable laws. 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 condition,
contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will pay
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. See “Item 12.D. Description of Securities Other than Equity Securities—American
Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
We have not previously declared or paid
cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend
to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in
the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment
of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See
“Item 4.B. Information on the Company—Business Overview—PRC Regulation—Regulations on Dividend Distribution”
and “Item 12.D. Description of Securities Other than Equity Securities— American Depositary Shares.” Cash dividends
on our common 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
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A.
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Offering and Listing Details
|
Our ADSs, each representing three of our
Class A ordinary shares, have been listed on NASDAQ since May 9, 2014. Our ADSs trade under the symbol “TOUR.” The
following table provides the high and low closing trading prices for our ADSs on NASDAQ since the date of our initial public offering:
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Trading Price Per ADS in US$
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High
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Low
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Annual Highs and Lows
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2014 (since May 9, 2014)
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24.00
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10.07
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2015
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20.74
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11.40
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2016
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16.00
|
|
|
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7.80
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Quarterly Highs and Lows
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First Quarter 2015
|
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15.58
|
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12.04
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Second Quarter 2015
|
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20.74
|
|
|
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12.59
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Third Quarter 2015
|
|
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17.62
|
|
|
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11.40
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Fourth Quarter 2015
|
|
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16.91
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|
|
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11.75
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First Quarter 2016
|
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16.00
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|
|
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8.99
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Second Quarter 2016
|
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12.10
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7.80
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Third Quarter 2016
|
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10.62
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|
|
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8.38
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Fourth Quarter 2016
|
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10.31
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8.05
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Monthly Highs and Lows
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|
|
|
|
|
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October 2016
|
|
|
10.31
|
|
|
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8.99
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November 2016
|
|
|
9.26
|
|
|
|
8.67
|
|
December 2016
|
|
|
8.79
|
|
|
|
8.05
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January 2017
|
|
|
9.40
|
|
|
|
8.78
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February 2017
|
|
|
9.13
|
|
|
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8.33
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March 2017
|
|
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8.76
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|
|
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7.79
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April 2017 (through April 13, 2017)
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8.51
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8.01
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Not applicable.
Our ADSs have been listed on NASDAQ since
May 9, 2014 under the symbol “TOUR.”
Not applicable.
Not applicable.
Not applicable.
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Item 10.
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Additional Information
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Not applicable.
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B.
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Memorandum and Articles of Association
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We are a Cayman Islands company and our
affairs are governed by our memorandum and articles of association and the Companies Law (2016 Revision) of the Cayman Islands,
which we refer to as the Companies Law below. The following are summaries of material provisions of our fifth amended and restated
memorandum and articles of association that became effective immediately prior to the completion of our initial public offering
in May 2014, 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 International Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place, 103 South Church Street, George
Town, Grand Cayman KY1-1106, 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 full power and authority to carry out any object not
prohibited by the Companies Law, as amended from time to time, or any other law of the Cayman Islands.
Board of Directors
See “Item 6.C. Directors, Senior Management
and Employees—Board Practices.”
Ordinary Shares
General
.
Our authorized
share capital is US$100,000 divided into 1,000,000,000 shares, with a par value of US$0.0001 each, which will be divided into 780,000,000
Class A ordinary shares with a par value of US$0.0001 each, 120,000,000 Class B ordinary shares with a par value of US$0.0001 each,
and 100,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as our board of directors
may determine. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion
rights. 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 transfer their
ordinary shares.
Dividends
. The holders of
our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our current articles of association
provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from
profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium
account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. Holders of
Class A ordinary shares and Class B ordinary shares are entitled to the same amount of dividends, if declared.
Voting Rights
. In respect
of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary
share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless
a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy. Each
holder of our ordinary shares are entitled to vote such ordinary shares as are registered in his or her name on our register of
members.
A quorum required for a meeting of shareholders
consists of at least two shareholders who hold at least one third in nominal value of our share capital in issue at the meeting
present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’
meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting.
Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders
holding at the date of deposit of the requisition not less than one-third of the aggregate voting power of our company. Advance
notice of at least 14 calendar days is required for the convening of our annual general meeting and other general meetings. All
holders of ordinary shares are permitted to attend general and extraordinary meetings.
An ordinary resolution to be passed at a
meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast
at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to
the outstanding ordinary shares at a meeting. A special resolution is required for important matters such as a change of name or
making changes to our current memorandum and articles of association.
Conversion
. Each Class B ordinary
share can be convertible into one Class A ordinary share at any time by the holder. Class A ordinary shares are not convertible
into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or
entity which is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into
the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares
.
Subject to the restrictions set out below, 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 absolute
discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board
of directors may also decline to register any transfer of any ordinary share unless:
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·
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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;
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·
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the instrument of transfer is in respect of only one class of ordinary shares;
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·
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the instrument of transfer is properly stamped, if required;
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·
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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;
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·
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the shares transferred are free of any lien in favor of the Company; and
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·
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a fee of such maximum sum as the NASDAQ Global Market may determine to be payable or such lesser sum as our directors may from
time to time require is paid to us in respect thereof.
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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 required of the NASDAQ Global Market, 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 calendar days in a year.
Liquidation
. On a return of
capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for
distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis.
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 our shareholders proportionately. Any distribution of assets or capital to a holder of a Class A ordinary
share and a holder of a Class B ordinary share will be the same in any liquidation event.
Calls on Ordinary Shares and Forfeiture
of Ordinary Shares
. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on
their ordinary shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment.
The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares
.
The Companies Law and our current articles of association permit us to purchase our own shares. In accordance with our current
articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms
that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner,
including out of capital, as may be determined by our 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 materially
adversely varied with the written consent of the holders of three-fourths of the issued shares of that class or 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 shall not, unless otherwise expressly provided by the terms of issue of the shares of that class,
be deemed to be materially adversely varied by the creation or issue of further shares ranking
pari passu
with such existing
class of shares, or by the creation or issue of shares with preferred or other rights including, without limitation, the creation
of shares with enhanced or weighted voting rights.
Inspection of Books and Records
.
Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders
or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “—H.
Documents on Display.”
Issuance of Additional Shares
.
Our current memorandum of association authorizes our board of directors to issue additional ordinary shares from time to time as
our board of directors shall determine, to the extent of available authorized but unissued shares.
Our current memorandum of association also
authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with
respect to any series of preferred shares, the terms and rights of that series, including:
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the designation of the series;
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·
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the number of shares of the series;
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·
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the dividend rights, dividend rates, conversion rights, voting rights; and
|
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·
|
the rights and terms of redemption and liquidation preferences.
|
Our board of directors may issue preferred
shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting
power of holders of ordinary shares.
Anti-Takeover Provisions
.
Some provisions of our current 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 authorize our board of directors to issue
preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred
shares without any further vote or action by our shareholders.
Exempted Company
. We are an
exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies
and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman
Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as
for an ordinary company except that an exempted company:
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does not have to file an annual return of its shareholders with the Registrar of Companies;
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·
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is not required to open its register of members for inspection;
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·
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does not have to hold an annual general meeting;
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·
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may issue negotiable or bearer shares or shares with no par value;
|
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·
|
may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in
the first instance);
|
|
·
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may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
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|
·
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may register as a limited duration company; and
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|
·
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may register as a segregated portfolio company.
|
“Limited liability” means that
the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.
Register of Members
.
Under the Companies Law, we must keep a register of members and there should be entered therein:
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the names and addresses of our members, a statement of the shares held by each member, and of the amount paid or agreed to
be considered as paid, on the shares of each member;
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·
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the date on which the name of any person was entered on the register as a member; and
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|
·
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the date on which any person ceased to be a member.
|
Under Cayman Islands law, the register of
members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise a presumption
of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter
of Cayman Islands law to have legal title to the shares as set against its name in the register of members.
If the name of any person is incorrectly
entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register
the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company
or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the
Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification
of the register.
Differences in Corporate Law
The Companies Law is modeled after that
of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws
applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between
the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
.
A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved
by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such other
authorization, if any, as may be specified in such constituent company’s articles of association.
A merger between a Cayman parent company
and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary
if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise.
For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned
by the parent company.
The consent of each holder of a fixed or
floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a dissentient
shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger
or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief
on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions
that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number
of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by
proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must
be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the
view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
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·
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the statutory provisions as to the required majority vote have been met;
|
|
·
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the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without
coercion of the minority to promote interests adverse to those of the class;
|
|
·
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the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of
his interest; and
|
|
·
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the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
|
When a takeover offer is made and accepted
by holders of 90.0% of the shares within four months, the offeror may, within a two-month period commencing on the expiration of
such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection
can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so
approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is
thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily
be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.
Shareholders’ Suits
.
In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority
shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands,
there are exceptions to the foregoing principle, including when:
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·
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a company acts or proposes to act illegally or ultra vires;
|
|
·
|
the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote
that has not been obtained; and
|
|
·
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those who control the company are perpetrating a “fraud on the minority.”
|
Indemnification of Directors and Executive
Officers and Limitation of Liability
. Cayman Islands law does not limit the extent to which a company’s memorandum
and articles of association may provide for indemnification of officers and directors, except to the extent any such provision
may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud
or the consequences of committing a crime. Our current memorandum and articles of association permit indemnification of officers
and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise
from dishonesty, willful default, or fraud of such directors or officers. This standard of conduct is generally the same as permitted
under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements
with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our
current memorandum and articles of association.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions,
we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
Directors’ Fiduciary Duties
.
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders.
This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith,
with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform
himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The
duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation.
He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates
that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer
or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have
been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.
However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented
concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction
was of fair value to the corporation.
As a matter of Cayman Islands law, a director
of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he
or she owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not
to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put
himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty
to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously
considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably
be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an
objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent
.
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by
amendment to its certificate of incorporation. Cayman Islands law and our current articles of association provide that shareholders
may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have
been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals
. Under
the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders,
provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors
or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders
any right to put proposals before a meeting or requisition a general meeting. However, these rights may be provided in articles
of association. Our current articles of association allow our shareholders holding not less than one-third of all voting power
of our share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’
meeting, our current articles of association do not provide our shareholders other right to put proposal before a meeting. As an
exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting
.
Under
the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s
certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority
shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is
entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There
are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our current articles of association
do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue
than shareholders of a Delaware corporation.
Removal of Directors
.
Under
the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the
approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
Under our current articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders
.
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless
the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it
is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following
the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or
which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect
of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be
treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested
shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming
an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors.
Cayman Islands law has no comparable statute.
As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However,
although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide
that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting
a fraud on the minority shareholders.
Dissolution; Winding up
.
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must
be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by
the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows
a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions
initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands
or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution
of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the
opinion of the court, just and equitable to do so. Under the Companies Law and our current articles of association, our company
may be dissolved, liquidated or wound up by a special resolution of our shareholders.
Variation of Rights of Shares
.
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority
of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and
our current articles of association, if our share capital is divided into more than one class of shares, we may vary the rights
attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction
of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents
.
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a
majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by
Cayman Islands law, our current memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign
Shareholders
.
There are no limitations imposed by our post-offering amended and restated memorandum and articles
of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition,
there are no provisions in our current memorandum and articles of association governing the ownership threshold above which shareholder
ownership must be disclosed.
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”
or elsewhere in this annual report on Form 20-F.
See “Item 4.B. Information on the
Company—Business Overview—PRC Regulation—Regulations on Foreign Currency Exchange.”
Cayman Islands Taxation
Travers Thorp Alberga, our Cayman Islands
counsel, has advised us that 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 levied
by the Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary shares. The Cayman Islands
is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
Under the EIT Law, an enterprise established
outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise
income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax
reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and
properties of an enterprise. In addition, SAT Circular 82 issued in April 2009 and amended in 2013 specifies that certain offshore-incorporated
enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the
following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations
of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination
or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes
and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’
directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued
SAT Bulletin 45, which took effect in September 2011 and was amended in 2015 and 2016, respectively, to provide more guidance on
the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC
resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that Tuniu Corporation
is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow.
For example, Tuniu Corporation may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income.
Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains
derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of withholding tax would
be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual
shareholders from transferring our shares or ADSs.
It is unclear whether, if we are considered
a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements
entered into between China and other countries or areas. See “Item 3.D. Key Information—Risk Factors—Risks Related
to Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for
PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC
shareholders and would have a material adverse effect on our results of operations and the value of your investment.”
The SAT issued SAT Circular 59 together
with the Ministry of Finance in April 2009 and SAT Circular 698 in December 2009 which has been amended in 2013 and 2015. Both
SAT Circular 59 and SAT Circular 698 became effective retroactively as of January 1, 2008. By promulgating and implementing these
two circulars, 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-PRC resident enterprise. The SAT further released its Bulletin on Several Issues Concerning
Enterprise Income Taxation on Income Arising from the Indirect Transfers of Property by Non-resident Enterprises (“SAT Bulletin
2015 No. 7” or “Bulletin 7”) which became effective on February 3, 2015. Bulletin 7 repealed the relevant Indirect
Transfer provisions contained in Circular 698 and set forth more detailed rules for the tax treatment of Indirect Transfers of
equity interests in PRC resident enterprises and other assets situated in China. Bulletin 7 abolished the previous mandatory reporting
requirement for Indirect Transfers under Circular 698, and provides that the parties to an Indirect Transfer transaction have the
option to decide whether to report the Indirect Transfer to the competent tax authorities. Applying a “substance over form”
principle, when a non-resident enterprise structures an Indirect Transfer of an equity interest in a PRC resident enterprise or
other assets situated in China to avoid taxation under the EIT through arrangements lacking reasonable commercial purposes, the
Indirect Transfer will be re-characterized as a direct transfer. As a result, any gains derived from the Indirect Transfer may
be subject to PRC withholding tax at a rate of up to 10%. Bulletin 7 provides de facto safe harbor treatment for situations in
which a non-resident enterprise buys and then sells shares, in the public securities markets, of a foreign listed company that
holds an equity interest in a PRC resident enterprise, and thereby realizes a capital gain. However, in order for the safe harbor
treatment to apply, both the purchase and sale must be conducted on the public securities markets so as to preclude market manipulation,
and the equity interests purchased and sold must be those in the same enterprise. When shares sold in the public securities markets
were obtained before such shares were listed on a public securities market or were not purchased through a public securities market,
or when shares were purchased on a public market but are to be sold through non-public markets, the safe harbor treatment would
not be applicable. There is uncertainty as to the interpretation and application of SAT Circular 698 and Bulletin 7 and we and
our non-PRC resident investors may be at risk of being taxed under SAT Circular 698 and Bulletin 7 and we may be required to expend
valuable resources to comply with SAT Circular 698 and Bulletin 7 or to establish that we should not be taxed under SAT Circular
698 and Bulletin 7. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—We
face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating company’s
equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential
acquisitions we may pursue in the future.”
United States Federal Income Tax Considerations
The following discussion is a summary of
United States 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 discussion is based
upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive
effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any United States 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 discussion does not address all aspects of United States federal income taxation that may be important to particular investors
in light of their individual circumstances, including investors subject to special tax rules that differ significantly from those
summarized below (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real
estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners,
tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that own (directly, indirectly,
or constructively) 10% or more of our voting stock, investors that hold their ADSs or ordinary shares as part of a straddle, hedge,
conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S.
dollar). In addition, this discussion does not address United States federal estate, gift, Medicare, and alternative minimum tax
considerations, or state, local, and non-United States tax considerations. Each U.S. Holder is urged to consult its tax advisor
regarding the United States federal, state, local, and non-United States tax considerations of an investment in our ADSs or ordinary
shares.
General
For purposes of this discussion, a “U.S.
Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States 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
United States federal income tax purposes) created in, or organized under the laws 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 United States 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 elected to be treated as a United States person under the Code.
If a partnership (or other entity treated
as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment
of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships
and partners of a partnership holding our ADSs or ordinary shares are urged to consult their tax advisors regarding an investment
in our ADSs or ordinary shares.
It is generally expected that a U.S. Holder
of ADSs will 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,” or PFIC, for United States federal income
tax purposes, if, in the case of any particular taxable year, 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 (as 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 is categorized as a passive asset and the company’s goodwill and unbooked intangibles associated with
active business activities may generally be classified as active assets. Passive income generally includes, among other things,
dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate
share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly,
more than 25% (by value) of the stock.
Although the law in this regard is unclear,
we treat Nanjing Tuniu and its subsidiaries (our “consolidated affiliated entities”) as being owned by us for United
States 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 operating results
in our consolidated financial statements. If it were determined that we are not the owner of our consolidated affiliated entities
for United States federal income tax purposes, we would likely be treated as a PFIC for the current taxable year or any future
taxable year. Assuming that we are the owner of our consolidated affiliated entities for United States federal income tax purposes
and based upon our income and assets and the market price of our ADSs, we do not believe that we were a PFIC for the taxable year
ended December 31, 2016.
While we do not believe that we were a PFIC
for the taxable year ended December 31, 2016, no assurance can be given with respect to our PFIC status for the current taxable
year or any future taxable year because the determination of whether we will be or become a PFIC is a factual determination made
annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs
may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of
the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price
of our ADSs from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles,
we have taken into account our current market capitalization. If our market capitalization subsequently declines, we may be or
become classified as a PFIC for the current taxable year or future taxable years.
Furthermore, the composition of our income
and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities
that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or
where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may
substantially increase. In addition, because there are uncertainties in the application of the relevant rules, it is possible that
the IRS may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible
assets, each of which may result in our becoming a PFIC for the current or subsequent taxable years. If we were classified as a
PFIC for any year during which a U.S. Holder held our ADSs or ordinary shares, we generally would continue to be treated as a PFIC
for all succeeding years during which such U.S. Holder held our ADSs or ordinary shares.
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 United States federal income tax purposes. The United States federal income tax rules that apply if we are classified
as a PFIC for the current taxable year or any subsequent taxable year are discussed below under “Passive Foreign Investment
Company Rules.”
Dividends
Subject to the PFIC rules described below,
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 United States 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 bank, in the case of ADSs. Because we do not intend to determine our earnings and
profits on the basis of United States federal income tax principles, a U.S. Holder should expect that any distribution paid on
our ADSs or ordinary shares will be treated as a “dividend” for United States federal income tax purposes. A non-corporate
recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation”
at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that
certain holding period and other 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) will
be considered to be a qualified foreign corporation (a) if 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 this provision and
which includes an exchange of information program, or (b) with respect to any dividend it pays on stock (or ADSs in respect of
such stock) which is readily tradable on an established securities market in the United States. Our ADSs are listed on the NASDAQ
Global Market, which is an established securities market in the United States, and will be considered readily tradable on an established
securities market for as long as the ADSs continue to be listed on the NASDAQ Global Market. Thus, we believe that we will be a
qualified foreign corporation with respect to dividends we pay on our ADSs, but there can be no assurance that our ADSs will continue
to be considered readily tradable on an established securities market in later years. 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 we are deemed to
be a PRC resident enterprise under the EIT Law (see “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 paid on our ADSs
or ordinary shares. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on
dividends with respect to our ADSs or ordinary shares in their particular circumstances. Dividends received on our ADSs or ordinary
shares will not be eligible for the dividends-received deduction allowed to corporations.
For United States foreign tax credit purposes,
dividends paid on our ADSs or ordinary shares will be treated as income from foreign sources and will generally constitute passive
category income. In the event that we are deemed to be a PRC resident enterprise under the EIT 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 United States federal income tax purposes in respect of such withholding, 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
Subject to the PFIC rules discussed below,
a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or ordinary shares
in an amount equal to the difference 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.
In the event that we are treated as a PRC resident enterprise under the EIT 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 foreign tax credit purposes under the United
States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult
their tax advisors regarding the tax consequences if a foreign 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
If we are classified as a PFIC for any taxable
year during which a U.S. Holder holds our ADSs or ordinary shares, unless the U.S. Holder makes a mark-to-market election (as described
below) with respect to the ADSs, the U.S. Holder will, except as discussed below, be subject to special 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:
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the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary
shares;
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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;
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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 individuals or corporations, as appropriate, for that year; and
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will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each prior taxable
year, other than a pre-PFIC year.
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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, such U.S. Holder
would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application
of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our
subsidiaries.
As an alternative to the foregoing rules,
a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to our ADSs, provided
that the ADSs are regularly traded on the NASDAQ Global Market. We anticipate that the ADSs should qualify as being regularly traded,
but no assurances may be given in this regard. If a mark-to-market election is made, 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 of 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
an effective mark-to-market election, in each year that we are a PFIC, any gain recognized upon the sale or other disposition of
the ADSs will be treated as ordinary income and 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.
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 mark-to-market gain or loss described above during any period that such corporation
is not classified as a PFIC.
Because a mark-to-market election cannot
be made for any lower-tier PFICs that we may own, a U.S. Holder who makes a mark-to-market election with respect to our ADSs may
continue to be subject to the general PFIC rules with respect to such U.S. Holder’s indirect interest in any of our non-United
States subsidiaries that is classified as a PFIC.
We do not intend to provide information
necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment different
from the general tax treatment for PFICs described above.
As discussed above under “Dividends,”
dividends that we pay on our ADSs or ordinary shares will not be eligible for the reduced tax rate that applies to qualified dividend
income if we are classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition,
if a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, such U.S. Holder must file an annual
report with the IRS, subject to certain limited exceptions. Each U.S. Holder is urged to consult its tax advisor concerning the
United States federal income tax consequences of owning and disposing our ADSs or ordinary shares if we are or become a PFIC, including
the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.
Information Reporting
Certain U.S. Holders are required to report
information to the Internal Revenue Service 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 $50,000 (or a higher dollar amount prescribed by the Internal Revenue Service), subject to certain exceptions. These
rules also impose penalties if a U.S. Holder is required to submit such information to the Internal Revenue Service 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
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Not applicable.
Not applicable.
We previously filed with the SEC our registration
statement on Form F-1 (Registration No. 333-195075), as amended, including the prospectus contained therein, to register the issuance
and sale of our ordinary shares represented by ADSs in relation to our initial public offering. We have also filed with the SEC
registration statements on Form F-6 (Registration No. 333-195515) to register our ADSs.
We are subject to periodic reporting and
other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports
and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months
after the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at
the SEC’s website at
www.sec.gov
or inspected and copied at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of documents, upon payment of a duplicating fee, by writing
to the SEC. 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 JPMorgan Chase Bank, 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.
In accordance with NASDAQ Stock Market Rule
5250(d), we will post this annual report on Form 20-F on our website at http://ir.tuniu.com. In addition, we will provide hardcopies
of our annual report free of charge to shareholders and ADS holders upon request.
|
I.
|
Subsidiary Information
|
Not applicable.
|
Item 11.
|
Quantitative and Qualitative Disclosures about Market Risk
|
Interest Rate Risk
Our exposure to interest rate risk primarily
relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. 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.
Foreign Exchange Risk
All of our revenues and substantially all
of our expenses 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 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 our ADSs will be traded
in U.S. dollars.
The value of the Renminbi 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 Renminbi to the U.S. dollar, and the Renminbi 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 Renminbi and the U.S. dollar remained
within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably.
In particular, the Renminbi has been depreciating against the U.S. dollar since August 2015, and it is difficult to predict how
market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S.
dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on
the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose
of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar
against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
As of December 31, 2016, we had Renminbi-denominated
cash and cash equivalents, restricted cash and short-term investments of RMB4,813.3 million, and U.S. dollar-denominated cash,
cash equivalents and short-term investments of US$693.3 million. Assuming we had converted RMB1.0 million into U.S. dollars at
the exchange rate of RMB6.9430 for US$1.00 as of December 30, 2016, our U.S. dollar cash balance would have been US$144,030. If
the Renminbi had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been US$130,936 instead. Assuming
we had converted US$1.0 million into Renminbi at the exchange rate of RMB6.9430 for US$1.00 as of December 30, 2016, our Renminbi
cash balance would have been RMB6.9 million. If the Renminbi had depreciated by 10% against the U.S. dollar, our Renminbi cash
balance would have been RMB7.6 million instead. We have not used any forward contracts or currency borrowings to hedge our exposure
to foreign currency exchange risk.
Inflation
Inflation in China has not materially affected
our results of operations in recent years. According to the National Bureau of Statistics of China, the year-over-year percent
changes in the consumer price index for December 2014, 2015 and 2016 were increases of 1.5%, 1.6% and 2.1%, respectively. Although
we have not been materially affected by inflation in the past, we may be materially affected if China experiences higher rates
of inflation in the future.
|
Item 12.
|
Description of Securities Other than Equity Securities
|
Not applicable.
Not applicable.
Not applicable.
|
D.
|
American Depositary Shares
|
Fees and Charges Our ADS holders May
Have to Pay
The depositary may charge each person to
whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions,
rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a
merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering
ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, US$5.00 for each 100 ADSs
(or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by
public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution
prior to such deposit to pay such charge.
The following additional charges shall be
incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADSs or to whom ADSs are
issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock
regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
|
·
|
a fee of US$1.50 per ADR for transfers of certificated or direct registration ADRs;
|
|
·
|
a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
|
|
·
|
a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering
the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs
as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described
in the next succeeding provision);
|
|
·
|
a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including,
without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange
control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or
other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited
securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule
or regulation (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates
set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such
charge from one or more cash dividends or other cash distributions);
|
|
·
|
a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an
amount equal to the US$0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result
of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds
from the sale thereof are instead distributed by the depositary to those holders entitled thereto;
|
|
·
|
stock transfer or other taxes and other governmental charges;
|
|
·
|
cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery
of shares;
|
|
·
|
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection
with the deposit or withdrawal of deposited securities;
|
|
·
|
the fees, expenses and other charges charged by JPMorgan Chase Bank, N.A. and/or its agent (which maybe a division, branch
or affiliate) in connection with the conversion of foreign currency into U.S. dollars; and
|
|
·
|
fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any
public and/or private sale of securities under the deposit agreement.
|
JPMorgan Chase Bank, N.A. and/or its agent
may act as principal for such conversion of foreign currency. We will pay all other charges and expenses of the depositary and
any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The
charges described above may be amended from time to time by agreement between us and the depositary.
Fees and Other Payments Made by the Depositary
to Us
The depositary has agreed to reimburse us
for certain expenses we incur that are related to establishment and maintenance of the ADR program upon such terms and conditions
as we and the depositary may agree from time to time. The depositary may make available to us a set amount or a portion of the
depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may
agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing
shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees
for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable
property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions,
or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary
will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment
owing is not timely received by the depositary, the depositary may refuse to provide any further services to holders that have
not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees
and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary. For the fiscal year
2016, we received a reimbursement of approximately US$0.4 million from the depositary net of US$0.1 million United States withholding
tax.
The fees and charges you may be required
to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of any increase in any
such fees and charges.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
1. Organization and Principal Activities
Tuniu Corporation (the “Company”)
is an exempted company with limited liability incorporated in the Cayman Islands. The Company, its subsidiaries, including the
consolidated variable interest entity (“VIE”) and its subsidiaries (collectively referred to as the “Affiliated
Entities”) are collectively referred to as the “Group”. The Group’s principal activity is the provision
of travel-related services in the People’s Republic of China (“PRC”).
As of December 31, 2016, the Company’s
significant consolidated subsidiaries and the consolidated Affiliated Entities are as follows:
Name of subsidiaries and
Affiliated entities
|
|
Date of establishment/acquisition
|
|
Place of
incorporation
|
|
Percentage of
direct or indirect
economic
ownership
|
|
Subsidiaries of the Company:
|
|
|
|
|
|
|
|
|
Tuniu (HK) Limited
|
|
Established on May 20, 2011
|
|
Hong Kong
|
|
|
100
|
%
|
Tuniu (Nanjing) Information Technology Co., Ltd.
|
|
Established on August 24, 2011
|
|
PRC
|
|
|
100
|
%
|
Beijing Tuniu Technology Co., Ltd. (“Beijing Tuniu”)
|
|
Established on September 8, 2008
|
|
PRC
|
|
|
100
|
%
|
Variable Interest Entity (“VIE”)
|
|
|
|
|
|
|
|
|
Nanjing Tuniu Technology Co., Ltd. (“Nanjing Tuniu”)
|
|
Established on December 18, 2006
|
|
PRC
|
|
|
100
|
%
|
Subsidiaries of VIE
|
|
|
|
|
|
|
|
|
Shanghai Tuniu International Travel Service Co., Ltd.
|
|
Acquired on August 22, 2008
|
|
PRC
|
|
|
100
|
%
|
Nanjing Tuniu International Travel Service Co., Ltd.
|
|
Acquired on December 22, 2008
|
|
PRC
|
|
|
100
|
%
|
Beijing Tuniu International Travel Service Co., Ltd.
|
|
Acquired on November 18, 2009
|
|
PRC
|
|
|
100
|
%
|
Nanjing Tuzhilv Tickets Sales Co., Ltd.
|
|
Established on April 19, 2011
|
|
PRC
|
|
|
100
|
%
|
Beijing Global Tour International Travel Service Co., Ltd.
|
|
Acquired on July 1, 2015
|
|
PRC
|
|
|
75.02
|
%
|
Tuniu Insurance Brokers Co., Ltd.
|
|
Acquired on August 11, 2015
|
|
PRC
|
|
|
100
|
%
|
2. Principal Accounting Policies
(a) Basis of Presentation
The consolidated financial statements of the
Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation
The consolidated financial statements include
the financial statements of the Company, its subsidiaries, the Affiliated Entities for which the Company is the primary beneficiary.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power,
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 board of directors, or has the power to govern the financial and operating policies of the investee under a statute
or agreement among the shareholders or equity holders.
A VIE is an entity in which the Company, or
its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership
of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. All significant transactions
and balances among the Company, its subsidiaries and the Affiliated Entities have been eliminated upon consolidation.
To comply with PRC laws and regulations that
restrict foreign equity ownership of companies that operate internet content, travel agency and air-ticketing services, the Company
operates its website and engaged in such restricted services through Nanjing Tuniu and its subsidiaries. Nanjing Tuniu’s
equity interests are held by Dunde Yu, the Company’s Chief Executive Officer, Haifeng Yan, the Company’s Chief Operating
Officer, and several other PRC citizens. On September 17, 2008, Beijing Tuniu, one of the Company’s wholly foreign owned
subsidiaries, entered into a series of agreements with Nanjing Tuniu and its shareholders. Pursuant to these agreements, Beijing
Tuniu has the ability to direct substantially all the activities of Nanjing Tuniu, and absorb substantially all of the risks and
rewards of the Affiliated Entities. As a result, the Company is the primary beneficiary of Nanjing Tuniu, and has consolidated
the Affiliated Entities.
Contractual arrangements
On September 17, 2008, Beijing Tuniu entered
into a series of contractual agreements with Nanjing Tuniu and its shareholders. The following is a summary of the agreements which
allow the Company to exercise effective control over Nanjing Tuniu:
(1) Purchase Option Agreement.
Under the purchase option agreement
entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, Beijing Tuniu has the irrevocable
exclusive right to purchase, or have its designated person or persons to purchase all or part of the shareholders’ equity
interests in Nanjing Tuniu at RMB1,800 which was increased to RMB2,430 in March 2014. The option term remains valid for a period
of 10 years and can be extended indefinitely at Beijing Tuniu’s discretion. The purchase consideration was paid by Beijing
Tuniu to the shareholders of Nanjing Tuniu shortly after the purchase option agreement was entered. On January 24, 2014, the Company
amended and restated the purchase option agreement, and the effective term of the purchase option agreement has been changed to
until all equity interests held in Nanjing Tuniu are transferred or assigned to Beijing Tuniu or its designated person or persons.
(2) Equity Interest Pledge
Agreement.
Under the equity interest pledge
agreement entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, the shareholders pledged all
of their equity interests in Nanjing Tuniu to guarantee their performance of their obligations under the purchase option agreement.
If the shareholders of Nanjing Tuniu breach their contractual obligations under the purchase option agreement, Beijing Tuniu, as
the pledgee, will have the right to either conclude an agreement with the pledgor to obtain the pledged equity or seek payments
from the proceeds of the auction or sell-off of the pledged equity to any person pursuant to the PRC law. The shareholders of Nanjing
Tuniu agreed that they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity
interests. During the equity pledge period, Beijing Tuniu is entitled to all dividends and other distributions made by Nanjing
Tuniu. The equity interest pledge agreement remains effective until the shareholders of Nanjing Tuniu discharge all their obligations
under the purchase option agreement, or Beijing Tuniu enforces the equity interest pledge, whichever is earlier.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation
- continued
(3) Shareholders’ Voting
Rights Agreement.
Under the shareholders’ voting
rights agreement entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, each of the shareholders
of Nanjing Tuniu appointed Beijing Tuniu’s designated person as their attorney-in-fact to exercise all of their voting and
related rights with respect to their equity interests in Nanjing Tuniu, including attending shareholders’ meetings, voting
on all matters of Nanjing Tuniu, nominating and appointing directors, convene extraordinary shareholders’ meetings, and other
voting rights pursuant to the then effective articles of association. The shareholders’ voting rights agreement will remain
in force for an unlimited term, unless all the parties to the agreement mutually agree to terminate the agreement in writing or
cease to be shareholders of Nanjing Tuniu.
(4) Irrevocable Powers of
Attorney.
Under the powers of attorney issued
by the shareholders of Nanjing Tuniu on September 17, 2008, the shareholders of Nanjing Tuniu each irrevocably appointed Mr. Tao
Jiang, a person designated by Beijing Tuniu, as the attorney-in-fact to exercise all of their voting and related rights with respect
to their equity interests in Nanjing Tuniu. Each power of attorney will remain in force until the shareholders’ voting rights
agreement expires or is terminated. On January 24, 2014, the shareholders of Nanjing Tuniu issued powers of attorney to irrevocably
appoint Beijing Tuniu as the attorney-in-fact to exercise all of their voting and related rights with respect to their equity interests
in Nanjing Tuniu. These powers of attorney replaced the powers of attorney previously granted to Mr. Tao Jiang on September 17,
2008.
(5) Cooperation Agreement.
Under the cooperation agreement
entered between Beijing Tuniu and Nanjing Tuniu, Beijing Tuniu has the exclusive right to provide Nanjing Tuniu technology consulting
and services related to Nanjing Tuniu’s operations, which require certain licenses. Beijing Tuniu owns the exclusive intellectual
property rights created as a result of the performance of this agreement. Nanjing Tuniu agrees to pay Beijing Tuniu a monthly service
fee for services performed, and the monthly service fee shall not be lower than 100% of Nanjing Tuniu’s profits generated
from such cooperation, which equal revenues generated from such cooperation, after deducting the expenses it incurred. This agreement
remains effective for an unlimited term, unless the parties mutually agree to terminate the agreement, one of the parties is declared
bankrupt or Beijing Tuniu is not able to provide consulting and services as agreed for more than three consecutive years because
of force majeure. On January 24, 2014, the Company amended and restated the Cooperation Agreement. In the amended and restated
agreement, the service fee has been changed to a quarterly payment which equals the profits of each of Nanjing Tuniu and its subsidiaries,
and that Beijing Tuniu can adjust the service fee at its own discretion. Also in the amended and restated Cooperation Agreement,
Beijing Tuniu has the unilateral right to terminate the agreement.
In the years ended December 31, 2014, 2015
and 2016, the Company and its subsidiaries received service fees of RMB20,535, RMB42,367 and RMB109,572, respectively, from its
consolidated Affiliated Entities, which were eliminated on the consolidated financial statement.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
Risks in relation to the VIE structure
The Group believes that each of the agreements
and the powers of attorney under the contractual arrangements among Beijing Tuniu, Nanjing Tuniu and its shareholders is valid,
binding and enforceable, and does not and will not result in any violation of PRC laws or regulations currently in effect. The
legal opinion of Fangda Partners, which was the Company’s PRC legal counsel, also supports this conclusion. The shareholders
of Nanjing Tuniu are also shareholders, nominees of shareholders, or designated representatives of shareholders of the Company
and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in the
PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders of Nanjing
Tuniu were to reduce their interest in the Company, their interests may diverge from that of the Company and that may potentially
increase the risk that they would seek to act contrary to the contractual terms.
The Company’s ability to control Nanjing
Tuniu also depends on the power of attorney Beijing Tuniu has to vote on all matters requiring shareholder approval in Nanjing
Tuniu. As noted above, the Company believes this power of attorney is legally enforceable but it may not be as effective as direct
equity ownership.
In addition, if the legal structure and contractual
arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government could:
|
·
|
levying fines or confiscate the Group’s income;
|
|
·
|
revoke the Group’s business or operating licenses;
|
|
·
|
require the Group to discontinue, restrict or restructure its operations;
|
|
·
|
shut down the Group’s servers or block the Group’s websites
and mobile platform;
|
|
·
|
restrict or prohibit the use of the Group’s financing proceeds
to finance its business and operations in China; or
|
|
·
|
take other regulatory or enforcement actions against the Group that
could be harmful to the Group’s business
|
The imposition of any of these penalties may
result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition, the imposition
of any of these penalties may cause the Group to lose the right to direct the activities of Nanjing Tuniu (through its equity interest
in its subsidiaries) or the right to receive economic benefits from the Affiliated Entities. Therefore, a risk exists in that the
Group would no longer be able to consolidate Nanjing Tuniu and its subsidiaries. On February 19, 2015, the PRC Ministry of Commerce
(“MOFCOM”) published the draft Foreign Investment Law. If enacted as proposed, the Foreign Investment Law may cause
the Group’s VIE to be deemed as entities with foreign investment and as a result the Group’s VIE and subsidiaries in
which the VIE has direct or indirect equity ownership could become explicitly subject to the current restrictions on foreign investment
that engaged in an industry on the negative list. If the enacted version of the foreign investment Law and the final negative list
mandate further actions, such as MOFCOM market entry clearance or certain restructuring of corporate structure and operations to
be completed by companies with existing VIE structure similar to the one described above, the Group will face substantial uncertainties
as to whether these actions can be timely completed, or at all. As a result, the Group’s operating result and financial condition
may be adversely affected.
Summary financial information of the Affiliated
Entities in the consolidated financial statements
As of December 31, 2016, the aggregate
accumulated deficit of the Affiliated Entities was RMB3,402 million prior elimination of transaction between the Affiliated Entities
and the Company or the Company’s subsidiaries.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
The following assets, liabilities, revenues
and loss of the Affiliated Entities were included in the consolidated financial statements as of December 31, 2015 and 2016 and
for the years ended December 31, 2014, 2015 and 2016:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
376,883
|
|
|
|
206,917
|
|
|
|
29,802
|
|
Restricted cash
|
|
|
138,997
|
|
|
|
123,748
|
|
|
|
17,823
|
|
Short-term investments
|
|
|
499,402
|
|
|
|
323,393
|
|
|
|
46,578
|
|
Accounts receivable, net
|
|
|
116,669
|
|
|
|
162,840
|
|
|
|
23,454
|
|
Intercompany receivables
|
|
|
130,945
|
|
|
|
7,039
|
|
|
|
1,014
|
|
Prepayments and other current assets
|
|
|
989,058
|
|
|
|
1,223,887
|
|
|
|
176,277
|
|
Yield enhancement products and accrued interest
|
|
|
413,861
|
|
|
|
449,528
|
|
|
|
64,745
|
|
Total current assets
|
|
|
2,665,815
|
|
|
|
2,497,352
|
|
|
|
359,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
—
|
|
|
|
75,000
|
|
|
|
10,802
|
|
Property and equipment, net
|
|
|
72,582
|
|
|
|
95,433
|
|
|
|
13,745
|
|
Intangible assets, net
|
|
|
100,125
|
|
|
|
100,286
|
|
|
|
14,444
|
|
Goodwill
|
|
|
136,569
|
|
|
|
137,074
|
|
|
|
19,743
|
|
Yield enhancement products over one year and accrued interest
|
|
|
300,267
|
|
|
|
562,643
|
|
|
|
81,037
|
|
Other non-current assets
|
|
|
23,136
|
|
|
|
35,551
|
|
|
|
5,121
|
|
Total non-current assets
|
|
|
632,679
|
|
|
|
1,005,987
|
|
|
|
144,892
|
|
Total assets
|
|
|
3,298,494
|
|
|
|
3,503,339
|
|
|
|
504,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
1,036,226
|
|
|
|
796,420
|
|
|
|
114,708
|
|
Salary and welfare payable
|
|
|
123,071
|
|
|
|
167,747
|
|
|
|
24,161
|
|
Taxes payable
|
|
|
6,668
|
|
|
|
8,206
|
|
|
|
1,182
|
|
Advances from customers
|
|
|
1,223,313
|
|
|
|
1,940,831
|
|
|
|
279,538
|
|
Intercompany payable
|
|
|
1,263,100
|
|
|
|
2,528,229
|
|
|
|
364,141
|
|
Accrued expenses and other current liabilities
|
|
|
347,375
|
|
|
|
557,226
|
|
|
|
80,257
|
|
Amount due to the individual investors of yield enhancement products
|
|
|
589,151
|
|
|
|
871,914
|
|
|
|
125,582
|
|
Total current liabilities
|
|
|
4,588,904
|
|
|
|
6,870,573
|
|
|
|
989,569
|
|
Non-current liabilities
|
|
|
39,750
|
|
|
|
31,460
|
|
|
|
4,531
|
|
Total liabilities
|
|
|
4,628,654
|
|
|
|
6,902,033
|
|
|
|
994,100
|
|
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Net revenues
|
|
|
3,736,473
|
|
|
|
7,755,914
|
|
|
|
10,579,601
|
|
|
|
1,523,780
|
|
Net loss
|
|
|
(128,299
|
)
|
|
|
(1,051,691
|
)
|
|
|
(2,054,471
|
)
|
|
|
(295,905
|
)
|
Net cash used in operating activities
|
|
|
(51,446
|
)
|
|
|
(87,299
|
)
|
|
|
(972,677
|
)
|
|
|
(140,095
|
)
|
Net cash provided by/(used in) investing activities
|
|
|
72,161
|
|
|
|
(1,374,894
|
)
|
|
|
(193,029
|
)
|
|
|
(27,802
|
)
|
Net cash provided by financing activities
|
|
|
700
|
|
|
|
1,736,720
|
|
|
|
995,740
|
|
|
|
143,416
|
|
There were no pledges or collateralization
of the Affiliated Entities’ assets. Currently there is no contractual arrangement that could require the Company to provide
additional financial support to the Affiliated Entities. As the Company is conducting its business mainly through the Affiliated
Entities, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
Under the contractual arrangements with
Nanjing Tuniu and through its equity interest in its subsidiaries, the Group has the power to direct the activities of the Affiliated
Entities and direct the transfer of assets out of the Affiliated Entities. As the consolidated Affiliated Entities are each incorporated
as a limited liability company under the PRC Company Law, the creditors do not have recourse to the general credit of the Company
for all of the liabilities of the consolidated Affiliated Entities.
Liquidity
The Group’s consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of
liabilities during the normal course of operations. The Group incurred net losses of approximately RMB447,858, RMB1,459,379
and RMB2,427,091 in the years ended December 31, 2014, 2015 and 2016, respectively. Net cash used in operating
activities was approximately RMB271,102 and RMB514,735 and RMB2,257,482 for the years ended December 31, 2014, 2015 and
2016, respectively. Accumulated deficit was RMB869,044, RMB2,328,423 and RMB4,755,514 as of December 31, 2014, 2015 and
2016, respectively. The Group has adopted ASU No. 2014-15, “Presentation of Financial Statements – Going
Concern” in 2016. As of December 31, 2016, the Group had net current assets and management believes that the
Group’s available cash, cash equivalents, short-term investments and cash generated from operations will be sufficient
to meet working capital requirements and capital expenditures in the ordinary course of business for the next twelve
months.
(c) Use of Estimates
The preparation of the Group’s consolidated
financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially from
those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include
revenue recognition, recoverability of receivables, estimating useful lives and impairment for property and equipment and intangible
assets, impairment for goodwill, the purchase price allocation in relation to business combination, fair value of contingent considerations
with respect to business combinations, losses due to committed tour reservations, the valuation allowance for deferred tax assets,
the determination of uncertain tax positions.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(d) Functional Currency and Foreign Currency
Translation
The Group uses Renminbi (“RMB”)
as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United
States dollar (“US$”), while the functional currency of the PRC entities in the Group is RMB as determined based on
ASC 830, Foreign Currency Matters.
Transactions denominated in other than the
functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction
dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date exchange rate. The
resulting exchange differences are included in the consolidated statements of comprehensive loss as foreign exchange gains / losses.
When preparing the consolidated financial
statements presented in RMB, assets and liabilities of the Company and its subsidiaries incorporated outside of PRC are translated
into RMB at fiscal year-end exchange rates, and equity accounts are translated into RMB at historical exchange rates. Income and
expense items are translated at average exchange rates prevailing during the respective fiscal years. Translation adjustments arising
from these are reported as foreign currency translation adjustments and are shown as a component of accumulated other comprehensive
income or loss in the consolidated statement of changes in shareholders’ equity/ (deficit).
The unaudited United States dollar amounts
disclosed in the accompanying financial statements are presented solely for the convenience of the readers. Translations of amounts
from RMB into US$ for the convenience of the reader were calculated at the rate of US$1.00 = RMB 6.9430 on December 31, 2016,
as set forth in H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at that rate on December 31, 2016, or at any other rate.
(e) Fair Value Measurement
The Group defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements 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 established fair value hierarchy 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. The three levels of inputs may be used to measure fair value include:
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the assets or liabilities.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(e) Fair Value Measurement - continued
The Group’s financial instruments
include cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable, amounts due
from and due to related parties, balance in relation to yield enhancement products, and certain accrued liabilities and other current
liabilities. The carrying values of these financial instruments approximated their fair values due to the short-term maturity of
these instruments.
(f) Cash and Cash Equivalents
Cash and cash equivalents represent cash on
hand and demand deposits placed with banks, other financial institutions and Alipay, a third party payment processor, which are
unrestricted as to withdrawal or use.
(g) Restricted Cash
Restricted cash represents cash that cannot
be withdrawn without the permission of third parties. The Group’s restricted cash mainly represents (i)
cash deposits required by tourism administration departments as a pledge to secure travelers’ rights and interests,
(ii) cash deposits required by China Insurance Regulatory Commission for engaging in insurance agency or brokering activities,
(iii) the deposits held in designated bank accounts for issuance of bank acceptance notes and letter of guarantee, and required
by the Group’s business partners.
(h) Short-term Investments
Short-term investments are comprised of investments
in financial products issued by banks or other financial institutions, which contain a fixed or variable interest rate and with
original maturities between three months and one year. Such investments are generally not permitted to be redeemed early or are
subject to penalties for redemption prior to maturity. Given the short-term nature, the carrying value of short-term investments
approximates their fair value. There was no other-than-temporary impairment of short-term investments for the years ended December 31,
2014, 2015 and 2016.
(i) Accounts Receivable, net
The Group’s accounts receivable mainly
consist of amounts due from the corporate customers, travel agents, insurance companies and travel boards or bureaus, which are
carried at the original invoice amount less an allowance for doubtful accounts. The Group reviews accounts receivable on a periodic
basis and makes allowances when there is doubt as to the collectability of individual balances. The Group evaluates the collectability
of accounts receivable considering many factors including reviewing accounts receivable balances, historical bad debt rates, payment
patterns, counterparties’ credit worthiness and financial conditions, and industry trend analysis. The Group recognized allowance
for doubtful accounts of nil, nil and RMB5,297 for the year ended December 31, 2014, 2015 and 2016, respectively.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(j) Long-term investments
Long-term investments include cost-method
investments and equity-method investments.
The Group accounts for the investment in
a private entity of which the Group owns less than 20% of the voting securities and does not have the ability to exercise significant
influence over operating and financial policies of the entity as cost-method investment. The Group’s cost-method investment
is carried at historical cost in its consolidated financial statements and measured at fair value on a nonrecurring basis when
there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the
consolidated statements of comprehensive loss equal to the excess of the investment's cost over its fair value when the impairment
is deemed other-than-temporary.
The Group accounts for the investments
in entities with significant influence under equity-method accounting. Under this method, the Group’s pro rata share of income
(loss) from an investment is recognized in the consolidated statements of comprehensive loss. Dividends received reduce the carrying
amount of the investment. Equity-method investment is reviewed for impairment by assessing if the decline in fair value of the
investment below the carrying value is other-than-temporary. In making this determination, factors are evaluated in determining
whether a loss in value should be recognized. These include consideration of the intent and ability of the Group to hold investment
and the ability of the investee to sustain an earnings capacity, justifying the carrying amount of the investment. Impairment losses
are recognized when a decline in value is deemed to be other-than-temporary.
No event had occurred that indicated that
an other-than-temporary impairment existed and therefore the Group did not record any impairment charges for its investments during
the year ended December 31, 2016.
(k) Property and Equipment
Property and equipment are stated at cost less
accumulated depreciation and impairment if applicable. Property and equipment are depreciated over the estimated useful lives on
a straight-line basis. The estimated useful lives are as follows:
Category
|
|
Estimated useful life
|
Computers and equipment
|
|
3 years
|
Buildings
|
|
16 - 20 years
|
Furniture and fixtures
|
|
3 - 5 years
|
Vehicles
|
|
3 - 5 years
|
Software
|
|
5 years
|
Leasehold improvements
|
|
Over the shorter of the lease term or
the estimated useful life of the asset
ranging from 1 – 9 years
|
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(k) Property and Equipment - continued
Construction in progress represents leasehold
improvements under construction or being installed and is stated at cost. Cost comprises original cost of property and equipment,
installation, construction and other direct costs. Construction in progress is transferred to leasehold improvements and depreciation
commences when the asset is ready for its intended use.
Gain or loss on the disposal of property and
equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in
the consolidated statements of comprehensive loss.
(l) Capitalized Software Development
Cost
The Group has capitalized certain direct development
costs associated with internal-used software in accordance with ASC 350-40, Internal-use software, which requires the capitalization
of costs relating to certain activities of developing internal-use software that occur during the application development stage.
Costs capitalized mainly include payroll and payroll-related costs for employees who devoted time to the internal-use software
projects during the application development stage. Capitalized internal-use software costs are stated at cost less accumulated
amortization and the amount is included in “property and equipment, net” on the consolidated balance sheets, with an
estimated useful life of five years. Software development cost capitalized amounted to RMB6,837, RMB7,572 and RMB8,516 for the
years ended December 31, 2014, 2015 and 2016, respectively. The amortization expense for capitalized software costs amounted to
RMB727, RMB2,212 and RMB3,768 for the years ended December 31, 2014, 2015 and 2016, respectively. The unamortized amount of capitalized
internal use software development costs was RMB17,124 as of December 31, 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(m) Business combination
U.S. GAAP requires that all business combinations
not involving entities or businesses under common control be accounted for under the purchase method. The Group has adopted ASC
805 “Business Combinations”, and the cost of 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. The transaction costs directly attributable
to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are
measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests.
The excess of the (i) the total of cost 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 subsidiary acquired, the
difference is recognized directly in the consolidated statements of operations and comprehensive income.
The determination and allocation of fair
values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies
requiring considerable management judgment. The most significant variables in these valuations are discount rates, the number of
years on which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows
and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current
business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and
forecasted cash flows over that period. Although management believes that the assumptions applied in the determination are reasonable
based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference
could be material. The Group recognized adjustments to provisional amounts that are identified during the measurement period in
the reporting period in which the adjustment amounts are determined.
A noncontrolling interest is recognized to
reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the Group. Consolidated
net income (loss) on the consolidated statements of comprehensive income (loss) includes the net income (loss) attributable to
noncontrolling interests when applicable. The cumulative results of operations attributable to noncontrolling interests are also
recorded as noncontrolling interests in the Group’s consolidated balance sheets. Cash flows related to transactions with
noncontrolling interests are presented under financing activities in the consolidated statements of cash flows when applicable.
(n) Intangible Assets
Intangible assets purchased are recognized
and measured at cost upon acquisition and intangible assets arising from acquisitions of subsidiaries are recognized and measured
at fair value upon acquisition. The Company’s purchased intangible assets include computer software, which are amortized
on a straight-line basis over their estimated useful lives 3 years. Separatable intangible assets arising from acquisitions consist
of trade names, customer relationship, software, non-compete agreements, travel licenses, insurance agency license and business
cooperation agreement with JD.com Inc., which are amortized on a straight-line basis over their estimated useful lives of 3.5 to
20 years. The estimated life of intangible assets subject to amortization is reassessed if circumstances occur that indicate the
life has changed. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. No impairment of intangible assets was recognized for the years ended December 31,
2014, 2015 and 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(o) Goodwill
Goodwill represents the excess of the purchase
price over the fair value of identifiable assets and liabilities acquired in business combinations. Goodwill is not amortized,
but tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
The Group adopted Accounting Standards Update
(“ASU”) 2011-08,
Intangibles—Goodwill and Other
(Topic 350). This accounting standard gives the Group
an option to first assess qualitative factors to determine whether it is “more likely than not” that the fair value
of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
goodwill is then tested following a two-step process. The first step compares the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of each 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 fair value of
each reporting unit is determined by the Group using the expected present value of future cash flows. The key assumptions used
in the calculation include the long-term growth rates of revenue and gross margin, working-capital requirements and discount rates.
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 purposes of evaluating goodwill impairment and does not result in an entry to adjust
the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over
the implied fair value of goodwill. Management performs its annual goodwill impairment test on October 1.
No impairment loss was recognized for the year
ended December 31, 2015 and 2016.
(p) Impairment of long-lived assets
The Group evaluates its long-lived assets and
finite lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets to
future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of
the expected undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss equal
to the difference between the carrying amount and fair value of these assets. No impairment of long-lived assets was recognized
during the years ended December 31, 2014, 2015 and 2016.
(q) Advances from Customers
Customers pay in advance to purchase travel
services. Cash proceeds received from customers are initially recorded as advances from customers and are recognized as revenues
when revenue recognition criteria are met.
(r) Revenue Recognition
The Group’s revenue is primarily derived
from sales of organized tours and self-guided tours, and other service fees. Revenue is recognized when the following criteria
are met: persuasive evidence of an arrangement exists, the sales price is fixed or determinable, service has been provided, and
collectability is reasonably assured in accordance with ASC 605,
Revenue Recognition
.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(r) Revenue Recognition - continued
Organized tours:
Substantially all of
revenue from organized tours is recognized on a gross basis, as the Group is the primary obligor in the arrangement and bears the
risks and rewards, including the customer’s acceptance of services delivered. Such commitments are made in the contract the
Group enters with its customers. Even though the Group does not generally assume the substantive inventory risk before customers
place an order, the Group is the party retained by and paid by its customers, and the Group is responsible for (and solely authorized
to) refunding customers their payments in situations of customer disputes. Further, the Group independently selects travel service
suppliers, and determines the prices charged to customers and paid to its travel suppliers. Revenue from organized tours is recognized
when the tours end as service rendering is only considered completed upon conclusion of the entire organized tour.
Self-guided tours:
Revenue from self-guided
tours is recognized on a net basis, representing the difference between what the Group receives from its customers and the amounts
due to its travel suppliers. In the self-guided tour arrangements, the Group generally does not assume substantive inventory risk,
has limited involvement in determining the service, and provides limited additional services to customers. Suppliers are responsible
for all aspects of providing the air transportation and hotel accommodation, and other travel-related services. As such, the Group
concludes that it is an agent for the travel service providers in these transactions and revenues are reported on a net basis.
Revenue from self-guided tours is recognized when the tours end as commissions are not earned until this time according to the
contractual arrangements the Group entered into with its travel suppliers.
Other revenues
: Other revenues primarily
comprise revenues generated from service fees received from insurance companies, other travel-related services, such as sales of
tourist attraction tickets and visa processing services, fees for advertising services that the Group provides primarily to domestic
and foreign tourism boards and bureaus, commission fees for hotel reservation and air-ticketing, service fees for financial services
and interest income for yield enhancement products. Revenue is recognized when the services are rendered or when the tickets are
issued.
The Group does not recognize revenue if customer
refunds are warranted due to customer satisfaction issues or other reasons, which is generally known at the end of each tour when
revenues are recognized. In the event of tour cancellation by customers, the liability associated with prepayments received from
customers remains on the Group’s consolidated balance sheets until refunds are issued.
The Group commenced the financial business
in 2015. Certain domestic financial assets exchanges (the "Exchange") and trust companies offered the yield enhancement
products through the Group’s online platform and the Group charged these companies for the commission fees which were recorded
as other revenue upon the delivery of service. The commission revenue were insignificant for the year ended December 31, 2015.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(r) Revenue Recognition - continued
Further, in certain cases, the Group purchased
the yield enhancement products with maturities ranged from three months to two years from the Exchanges and trust companies and
split all of the products into smaller amount yield enhancement products with lower yield rate and shorter maturities within one
year, which were offered to the individual investors through the Group’s online platform. The split of the products were
arranged by Exchanges started from March 2016. As of December 31, 2015 and 2016, RMB413,861 and RMB449,528 of yield enhancement
products purchased from the Exchanges and trust companies with maturities within one year and accrued interest were recorded in
current assets, and RMB300,267 and RMB562,643 with the maturities over one year were recorded in non-current assets. The interest
revenue of RMB8,740 and RMB78,666 was recorded as other revenue for the year ended December 31, 2015 and 2016, respectively. As
of December 31, 2015 and 2016, RMB589,151 and RMB871,914 of yield enhancement products held by the individual investors with maturities
within one year were recorded in current liabilities. The interest cost of RMB8,082 and RMB59,709 was recorded as cost of revenue
for the year ended December 31, 2015 and 2016, respectively.
Customer incentives
From time to time customers are offered coupons,
travel vouchers, membership points, or cash rewards as customer incentives. The Group accounts for these customer incentives in
accordance with ASC 605-50,
Customer Payments and Incentives
. For coupons and travel vouchers offered where prior purchase
is not required, the Group accounts for them as a reduction of revenue when revenue is recognized. The Group assessed coupons and
travel vouchers offered to customers as part of a current purchase that give customers a right, but do not obligate customers to
make future purchases, and concluded the discounts offered are insignificant; as such, no deferral of revenue is considered necessary.
For membership points earned by customers as
part of the customer reward program which provides travel awards upon point redemption, the Group estimates the incremental costs
associated with the Group’s future obligation to its customers, and records them as sales and marketing expense in the consolidated
statements of comprehensive loss. Unredeemed membership points are recorded in other current liabilities in the consolidated balance
sheets. Cash rewards earned by customers are recorded as a reduction to revenue, with corresponding unclaimed amount recorded in
other current liabilities. The Group estimate liabilities under the customer loyalty program based on accumulated membership points
and cash rewards, and the estimate of probability of redemption in accordance with the historical redemption pattern. The actual
expenditure may differ from the estimated liability recorded. Prior to April 2015, the Group recorded estimated liabilities for
all points earned by customers as the Group did not have sufficient historical information to determine point forfeitures or breakage.
The Group, with accumulated knowledge on membership points and cash rewards redemption and expiration, began to apply historical
redemption rates in estimating the costs of points earned from May 2015 onwards. As of December 31, 2015 and 2016, liabilities
recorded related to membership points and cash rewards are RMB34,633 and RMB46,594, respectively.
Business and related taxes, and value-added
tax
The Group is mainly subject to business
and related taxes on services provided in the PRC at applicable rates before May 1, 2016, which are deducted from revenues to arrive
at net revenue. On May 1, 2016, the transition from the imposition of PRC business tax to the imposition of value-added tax (“VAT”)
was expanded to all industries in China. The Group’s business is subject to VAT since that date, and are permitted to offset
input VAT supported by valid VAT invoices received from vendors against their VAT liability. VAT on the invoiced amount collected
by the Group on behalf of tax authorities in respect of services provided, net of VAT paid for purchases, is recorded as a liability
until it is paid to the tax authorities.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(s) Cost of Revenues
Cost of revenues mainly consists of costs
to suppliers of organized tours, and salaries and other compensation-related expenses related to the Group’s tour advisors,
customer services representatives, and other personnel related to tour transactions, and other expenses directly attributable to
the Group’s principal operations, primarily including payment processing fees, telecommunication expenses, rental expenses,
depreciation expenses and interest expenses for yield enhancement products.
Committed tour reservations
In order to secure availabilities of tours
during peak seasons such as holiday periods, the Group may enter into certain contractual commitments with suppliers to reserve
tours for selected destinations. The Group is required to pay a deposit to ensure tour availabilities, and such prepayment is record
in prepayments and other current assets on the consolidated balance sheets. Some of these contractual commitments are non-cancellable,
and to the extent the reserved tours are not sold to customers, the Group would be liable to pay suppliers a pre-defined or negotiated
penalty, thereby assuming inventory risks. Management estimates losses of the committed tour reservations on a periodic basis based
on contractual terms and historical experience, and record such losses in the period the loss is considered probable. For the years
ended December 31, 2014, 2015 and 2016, losses recorded in “cost of revenues” in the consolidated statements of
comprehensive loss amounted to RMB4,134, RMB17,780 and RMB45,494, respectively.
(t) Advertising Expenses
Advertising expenses, which primarily consist
of online marketing expense and brand marketing expenses through various forms of media, are recorded in sales and marketing expenses
as incurred. Advertising expenses were RMB379,205, RMB899,015 and RMB1,270,598 for the years ended December 31, 2014, 2015
and 2016, respectively.
(u) Research and Product Development
Expenses
Research and product development expenses include
salaries and other compensation-related expenses to the Group’s research and product development personnel, as well as office
rental, depreciation and related expenses and travel-related expenses for the Group’s research and product development team.
The Group recognizes software development costs in accordance with ASC 350-40 “Software—internal use software”.
The Group expenses all costs that are incurred in connection with the planning and implementation phases of development, and costs
that are associated with repair or maintenance of the existing websites or software for internal use. Certain costs associated
with developing internal-use software are capitalized when such costs are incurred within the application development stage of
software development (see Note 2(l)).
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(v) Leases
A lease for which substantially all the
benefits and risks incidental to ownership remain with the lessor is classified as an operating lease. All leases of the Group
are currently classified as operating leases. When a lease contains rent holidays or requires fixed escalations of the minimum
lease payments, the Group records the total rental expense on a straight-line basis over the lease term and the difference between
the straight-line rental expense and cash payment under the lease is recorded as deferred rent liabilities. As of December 31,
2015 and 2016, deferred rent of RMB16,741 and RMB10,674 were recorded as current liabilities and RMB18,035 and RMB13,791 were recorded
as non-current liabilities, respectively.
(w) Share-based Compensation
The Company
applies ASC 718, “Compensation — Stock Compensation” to account for its share-based compensation program. In
accordance with the guidance, the Company determines whether a share-based award should be classified and accounted for as a liability
award or equity award. All grants of share-based awards to employees classified as equity awards are recognized in the financial
statements based on their grant date fair values which are calculated using the binominal option pricing model. Share-based compensation
expenses are recorded net of an estimated forfeiture rate over the service period using the straight-line method.
The
modifications of the terms or conditions of the shared-based award are treated as an exchange of the original award for a new award.
The incremental compensation expense is equal to the excess of the fair value of the modified award immediately after the modification
over the fair value of the original award immediately before the modification. For options already vested as of the modification
date, the Company immediately recognized the incremental value as compensation expenses. For options still unvested as of the modification
date, the incremental compensation expenses are recognized over the remaining service period of these options.
The Company’s 2008 Incentive Compensation
Plan allows the plan administrator to grant options and restricted shares to the Company’s employees, directors, and consultants.
The plan administrator is the Company’s board of directors or a committee appointed and determined by the board. The board
may also authorize one or more officers of the Company to grant awards under the plan. Under the 2008 Incentive Compensation Plan,
options granted to employees vest upon satisfaction of a service condition, which is generally satisfied over four years. Additionally,
the incentive plan provides an exercisability clause where employees can only exercise vested options upon the occurrence of the
following events: (i) after the Company’s ordinary shares has become a listed security, (ii) in connection with
or after a triggering event (defined as a sale, transfer, or disposition of all or substantially all of the Company’s assets,
or a merger, consolidation, or other business combination transaction), or (iii) if the employee obtains all necessary governmental
approvals and consents required. Options for which the service condition has been satisfied are forfeited should employment terminate
three months prior to the occurrence of an exercisable event, which substantially creates a performance condition. This performance
condition was met upon completion of the Company’s initial public offering, and the associated share-based compensation expense
for awards vested as of that date were recognized on May 9, 2014.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(w) Share-based Compensation - continued
In April 2014, the Company adopted the 2014
Share Incentive Plan, which contains no such exercisability clause. For detail of the 2014 Share Incentive Plan, please refer to
Note 16 of the consolidated financial statements.
The Group recognized share-based compensation
expense of RMB39,173, RMB65,143 and RMB92,419 for the years ended December 31, 2014, 2015 and 2016, respectively, which was classified
as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Cost of revenue
|
|
|
800
|
|
|
|
784
|
|
|
|
891
|
|
|
|
128
|
|
Research and product development
|
|
|
1,972
|
|
|
|
3,538
|
|
|
|
5,702
|
|
|
|
821
|
|
Sales and marketing
|
|
|
857
|
|
|
|
1,136
|
|
|
|
1,390
|
|
|
|
200
|
|
General and administrative
|
|
|
35,544
|
|
|
|
59,685
|
|
|
|
84,436
|
|
|
|
12,161
|
|
Total
|
|
|
39,173
|
|
|
|
65,143
|
|
|
|
92,419
|
|
|
|
13,310
|
|
(x) Income Taxes
Current income taxes are provided on the basis
of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for
income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using
the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset
or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the interim condensed consolidated
statements of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax
assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
Uncertain tax positions
The guidance in ASC 740 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. The guidance also provides for the 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. Significant judgment is required in evaluating the Group’s
uncertain tax positions and determining its provision for income taxes. As of December 31, 2015 and 2016, the Group did not
have any significant unrecognized uncertain tax positions or any interest or penalties associated with tax positions.
In order to assess uncertain tax positions,
the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(y) Employee Benefits
Full-time employees of the Group in the PRC
are entitled to welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment
benefit and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor regulations require that
the Group makes contributions to the government for these benefits based on certain percentages of employees’ salaries, up
to a maximum amount specified by the local government. The Group has no legal obligation for the benefits beyond the contributions.
The Group recorded employee benefit expenses of RMB50,617, RMB131,291 and RMB256,801 for the years ended December 31, 2014,
2015 and 2016, respectively.
(z) Government Subsidies
Government subsidies are cash subsidies
received by the Group’s entities in the PRC from provincial and local government authorities. The government subsidies are
granted from time to time at the discretion of the relevant government authorities. These subsidies are granted for general corporate
purposes and to support the Group’s ongoing operations in the region. Cash subsidies are recorded in other operating income
on the consolidated statements of comprehensive loss when received and when all conditions for their receipt have been satisfied.
The Group recognized government subsidies of RMB6,902, RMB12,175 and RMB21,098 in the years ended December 31, 2014, 2015
and 2016, respectively.
(aa) Earnings (Loss) Per Share
Basic earnings (loss) per share is computed
by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding
during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other
participating securities based on their participating rights. Net loss is not allocated to other participating securities if based
on their contractual terms they are not obligated to share in the losses. Accretion of the redeemable noncontrolling interests
is deducted from the net income (loss) to arrive at net income (loss) attributable to the Company’s ordinary shareholders.
Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders by the weighted
average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist
of shares issuable upon the conversion of the preferred shares using the if-converted method, and shares issuable upon the exercise
of share options using the treasury stock method. Ordinary equivalent shares are not included in the denominator of the diluted
loss per share calculation when inclusion of such shares would be anti-dilutive. The preferred shares have been converted into
ordinary shares upon the completion of the Group’s initial public offering (“IPO”) in May 2014. Except for voting
rights, Class A and Class B shares have all the same rights and therefore the Group has elected not to use the two-class method.
(ab) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions
resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported in the consolidated
statements of comprehensive loss. Accumulated other comprehensive income (loss), as presented on the accompanying consolidated
balance sheets, consists of accumulated foreign currency translation adjustments.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(ac) Treasury stock
On August 23, 2016, the Company’s
board of directors authorized a share repurchase program under which the Company may repurchase up to US$150 million worth of
its ADS over the next 12 months. The repurchased shares were presented as “treasury stock” in equity on the Group’s
consolidated balance sheets. Treasury stock is accounted for under the cost method.
(ad) Segment Reporting
In accordance with ASC 280, Segment Reporting,
the Group’s chief operating decision maker, the Chief Executive Officer, reviews the consolidated results when making decisions
about allocating resources and assessing performance of the Group as a whole and hence, the Group has only one reportable segment.
The Group does not distinguish between markets
or segments for the purpose of internal reporting. The Group’s long-lived assets are substantially all located in the PRC
and substantially all the Group’s revenues are derived from within the PRC, therefore, no geographical segments are presented.
(ae) Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends the existing accounting
standards for revenue recognition. Subsequently, the FASB issued several amendments which amends certain aspects of the guidance
in ASC 2014-09 (ASU No. 2014-09 and the related amendments are collectively “ASC 606”).
The Group will adopt this new revenue standard
effective on January 1, 2017 by applying the full retrospective method. The Group has reached conclusions on all key accounting
assessments related to the new standard. However, the Group is still assessing impacts from guidance issued by the FASB Transition
Resource Group as part of their November 2016 meeting and will continue to monitor and assess the impact of changes to the standard
and interpretations as they become available. Also since the beginning of fiscal year 2017, the Group has made certain changes
in our arrangements with the tour operators and our role in the organized tour arrangements has changed from a principal into an
agent. As a result of adopting the new accounting standard and the change of the Group’s role, revenue from the organized
tours will be mainly recognized on a net basis starting from January 1, 2017. Also the revenue standard is expected to change the
timing of revenue recognition for packaged-tour services from the tours end to the departure day of the tour.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(ae) Recently Issued Accounting Pronouncements
- continued
In February 2016, the FASB issued ASU
No. 2016-02, “Leases (Topic 842)”(“ASU 2016-02”), which requires lessees to recognize assets and liabilities
for all leases with lease terms of more than 12 months on the balance sheet. Under the new guidance, the recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or
operating lease. The ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 and early adoption
is permitted on a modified retrospective basis. The Group is in the process of evaluating the impact of adopting this guidance.
In March 2016, the FASB issued ASU No.
2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for
both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. The ASU 2016-09 is effective for annual periods beginning after December
15, 2016 and early adoption is permitted. The Group is in the process of evaluating the impact of adopting this guidance.
In June 2016, the FASB issued Accounting
Standards Update No. 2016-13 (ASU 2016-13), “Financial Instruments – Credit Losses”, which introduces new guidance
for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate
credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity
debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale
debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale
debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in
an unrealized loss position as a factor in concluding whether a credit loss exists. The ASU 2016-13 is effective for public companies
for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted
for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Group
is in the process of evaluating the impact of adopting this guidance.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”),
which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows.
The ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted.
The Group is in the process of evaluating the impact of adopting this guidance.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share
and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(ae) Recently Issued Accounting Pronouncements
- continued
In November
2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging
Issues Task Force)” (“ASU 2016-18”), which amends ASC 230 to add or clarify guidance on the classification and
presentation of restricted cash in the statement of cash flows. The ASU 2016-18 is effective for annual and interim periods beginning
after December 15, 2017 and early adoption is permitted. The Group is in the process of evaluating the impact of adopting this
guidance.
In January 2017, the FASB issued Accounting
Standards Update 2017-01 (ASU 2017-01), “Business Combinations (Topic 805): Clarifying the Definition of a Business”,
which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not
a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output
to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods
within that reporting period. The Group is in the process of evaluating the impact of adopting this guidance and believes the adoption of this ASU will not have a material effect on the Company’s financial
statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU
2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of
step 2 of the goodwill impairment test. As a result, under the ASU 2017-04, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge
for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should
not exceed the total amount of goodwill allocated to that reporting unit. The ASU 2017-04 is effective for fiscal years beginning
after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. The Group is in the process of evaluating the impact of adopting this guidance.
3. Risks and Concentration
(a) Credit and Concentration Risks
The Group’s credit risk arises from
cash and cash equivalents, restricted cash, short-term investments, prepayments and other current assets, accounts receivables
and yield enhancement products. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance
sheet dates.
The Group expects that there is no significant
credit risk associated with the cash and cash equivalents and short-term investments which are held by reputable financial institutions
in the jurisdictions where the Company, its subsidiaries and the Affiliated Entities are located. The Group believes that it is
not exposed to unusual risks as these financial institutions have high credit quality.
The Group has no significant concentrations
of credit risk with respect to its customers, as customers usually prepay for travel services. Accounts receivable are typically
unsecured and are primarily derived from revenue earned from corporate customers, travel agents, insurance companies and travel
boards or bureaus. The risk with respect to accounts receivable is mitigated by credit evaluations performed on the corporate
customers, travel agents and insurance companies and ongoing monitoring processes on outstanding balances. No individual customer
accounted for more than 10% of net revenues in the years ended December 31, 2014, 2015 and 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
3. Risks and Concentration
(a) Credit and Concentration Risks
- continued
The following table summarized customers
with greater than 10% of the accounts receivables:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
Customer A
|
|
|
13.3
|
%
|
|
|
—
|
|
The Group has purchased financial products
which include yield enhancement products issued by domestic Financial Assets Exchanges and Trust companies. The Group has set up
a risk evaluation system on the issuers of credit quality, ultimate borrowers of asset management schemes, and conducts collectability
assessment of the financial assets on timely basis. As of December 31, 2016, the Group believes the financial assets are financially
sound based on publicly available information and management’s assessment does not foresee substantial credit risk with respect
to these yield enhancement products.
(b) Foreign Currency Risk
The Group’s operating transactions
and its assets and liabilities are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value
of RMB is subject to changes influenced by central government policies, and international economic and political developments.
In the PRC, certain 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 China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting
documentation in order to effect the remittance.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
4. Business acquisition
Travel agencies
During the year ended December 31, 2016,
the Group acquired 100% of equity interests of one offline travel agency to further expand the Group’s oversea tourism market
and promote the Group’s destination service. The total purchase price of RMB28,077 included cash consideration of RMB16,507
and RMB11,570 representing the fair value of contingent consideration to be made based on the achievement of certain revenue and
profit target over the next four years. The fair value of the contingent cash consideration was estimated using a probability-weighted
scenario analysis method. Key assumption included probabilities assigned to each scenario and a discount rate. As of December
31, 2016, the total unpaid consideration was amounted to RMB12,250. This business acquisition was accounted for using purchase
accounting. The following is the summary of the fair values of the assets acquired and liabilities assumed:
|
|
Amount
|
|
|
Estimated useful lives
|
Net
assets (including acquired
cash of RMB8.3 million)
|
|
|
12,907
|
|
|
|
Trade names
|
|
|
2,464
|
|
|
9.5 years
|
Non-compete agreement
|
|
|
3,676
|
|
|
6 years
|
Goodwill
|
|
|
10,565
|
|
|
|
Deferred tax liability
|
|
|
(1,535
|
)
|
|
|
Total
purchase price
|
|
|
28,077
|
|
|
|
A preliminary allocation of the purchase
price of above offline travel agency to the assets acquired and liabilities assumed was made based on available information and
management’s current estimates, and is subject to revision as additional information about the fair value of individual assets
and liabilities becomes available. The Group is in the process of finalizing the fair value of the current assets and current liabilities,
and the amount of purchase price allocable to goodwill will be updated accordingly.
During the year ended December 31, 2015,
the Group acquired the 90%, 100%, 75.02% and 80% of equity interests in four offline travel agencies, respectively. The Group gained
access to the expanding Taiwan tours market and improved its capability of direct procurement of travel related products by means
of these acquisitions. The total purchase price of RMB115,498 included cash consideration of RMB100,163 and RMB15,335 representing
the fair value of contingent consideration to be made based on the achievement of certain revenue and profit target over the next
three to four years. The fair value of the contingent cash consideration was estimated using a probability-weighted scenario analysis
method. Key assumption included probabilities assigned to each scenario and a discount rate. During the year ended December 31,
2016, the Group finalized the purchase price allocation of acquisitions during the measurement period and obtained new fair value
information related to certain assets acquired and liabilities assumed. The final purchase price allocation did not have material
difference from the preliminary estimates made in 2015. The Group adjusted the purchase price allocation by increasing net liabilities
by RMB2,891, decreasing customer relationships by RMB138, decreasing trade names by RMB449, decreasing non-compete agreement by
RMB99, decreasing non-controlling interests by RMB401, increasing goodwill by RMB505, and decreasing deferred liabilities by RMB172.
During the year ended December 31, 2016, the Group paid RMB7,973 of the cash consideration, and reversed RMB1,905 of contingent
consideration based on the revaluation of the fair value. As of December 31, 2016, the total unpaid consideration was amounted
to RMB27,094.
The business acquisitions were accounted
for using purchase accounting. The following is the summary of the fair values of the assets acquired and liabilities assumed:
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
4. Business acquisition - continued
Travel agencies - continued
|
|
Amount
|
|
|
Estimated useful lives
|
Net liabilities (including the cash acquired of RMB24 million)
|
|
|
(59,923
|
)
|
|
|
Travel licenses
|
|
|
25,100
|
|
|
20 years
|
Customer relationship
|
|
|
13,458
|
|
|
14.25-14.5 years
|
Trade names
|
|
|
39,170
|
|
|
7-14 years
|
Software
|
|
|
3,013
|
|
|
5 years
|
Non-compete agreement
|
|
|
1,683
|
|
|
3.5-5.25 years
|
Goodwill
|
|
|
133,324
|
|
|
|
Deferred tax liability
|
|
|
(20,606
|
)
|
|
|
Noncontrolling interest
|
|
|
(19,721
|
)
|
|
|
Total considerations
|
|
|
115,498
|
|
|
|
During the year ended December 31, 2015,
subsequent to the acquisition, the Group acquired the remaining 10% equity interest of one of travel agencies with cash consideration
of RMB1,496, which was treated as equity acquisition and the difference between the purchase consideration and the related carrying
value of the noncontrolling interests of RMB683 was recorded as a reduction of additional paid-in capital during the year ended
December 31, 2015.
Other acquisition
During the year ended December 31, 2015,
the Group acquired 100% equity interests in a technology company which focuses on air ticketing platform development. The total
consideration was RMB8,645. The business acquisitions were accounted for using purchase accounting. The following is the summary
of the fair values of the assets acquired and liabilities assumed:
|
|
Amount
|
|
|
Estimated useful lives
|
Net liabilities
|
|
|
(355
|
)
|
|
|
Software
|
|
|
5,960
|
|
|
6 years
|
Non-compete agreement
|
|
|
1,040
|
|
|
6 years
|
Goodwill
|
|
|
3,750
|
|
|
|
Deferred tax liability
|
|
|
(1,750
|
)
|
|
|
Total considerations
|
|
|
8,645
|
|
|
|
The Group measured the fair value of the
trade names and travel licenses under the relief-from-royalty method. Under the methodology, fair value is calculated as the discounted
cash flow savings accruing to the owner for not having to pay the royalty. Key assumptions included expected revenue attributable
to the assets, royalty rates, discount rate and estimated asset lives. Customer relationships were valued using the excess-earnings
method, which measures the present value of the projected cash flows that are expected to be generated by the existing intangible
asset after deduction of cash flows attributable to other contributory assets to realize the projected earnings attributable to
the intangible asset. Key assumptions included discounted cash flow analyses, for other contributory assets, discount rate, remaining
useful life, tax amortization benefit and customer attrition rates. The Group measured the fair value of non-compete agreements
based on incremental discounted cash flow analyses computed with and without the non-compete terms as described in share purchase
agreement and the probability that such competition exists. The Group measured the fair value of the software under the replacement
cost method.
Pro forma results of operations for the
acquisitions described above have not been presented because they are not material to the consolidated income statements, either
individually or in aggregate.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
5. Transaction with JD.com, Inc.
On May 8, 2015, the Company entered into
a share subscription agreement with Fabulous Jade Global Limited, an affiliate of JD.com, Inc., and a Business Cooperation Agreement
(“BCA”) with JD. Com, Inc. (“JD”) for a period of five years. Pursuant to these agreements, the Company
issued 65,625,000 Class A ordinary shares for a cash consideration of RMB1,528.2 million (US$250 million) and the business resource
contributed by JD. According to BCA, the business resource includes the exclusive rights to operate the leisure travel channel
for both JD’s website and mobile application and JD's preferred partnership for hotel and air ticket reservation service,
the internet traffic support and marketing support for the leisure travel channel for a period of five years started from August
2015.
The acquisition of BCA is considered as
assets acquisition and the intangible assets acquired include the exclusive operation right of leisure travel channel, preferred
partnership of hotel and air tickets reservation service, traffic and marketing supports. The Group estimated the fair value of
exclusive operation right and preferred partnership using a form of the income approach known as excess earning method. The key
assumption includes expected revenue attributable to assets, margin discount rate and the remaining useful life. The Group estimated
the fair value of internet traffic support and marketing support using a form of income approach known as operating cost saving
method. Key assumption includes the market price of the services to be provided, the volume of the services to be provided, discount
rate and the remaining useful life. The Group made estimates and judgments in determining the fair value of the assets with assistance
from an independent valuation firm.
The summary of the fair value
of
acquired intangible assets is as follows:
|
|
Amount
|
|
|
Estimated useful lives
|
Exclusive operation right of leisure travel channel
|
|
|
405,406
|
|
|
5 years
|
Preferred partnership of hotel and air ticket reservation service
|
|
|
1,431
|
|
|
5 years
|
Internet traffic support
|
|
|
139,358
|
|
|
5 years
|
Marketing support
|
|
|
114,020
|
|
|
5 years
|
Total consideration
|
|
|
660,215
|
|
|
|
6. Prepayments and other current assets
The following is a summary of prepayments
and other current assets:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Prepayments to suppliers
|
|
|
1,095,918
|
|
|
|
1,368,964
|
|
|
|
197,172
|
|
Interest income receivable
|
|
|
20,002
|
|
|
|
33,545
|
|
|
|
4,831
|
|
Prepayment for advertising expenses
|
|
|
92,339
|
|
|
|
36,736
|
|
|
|
5,291
|
|
Others
|
|
|
77,348
|
|
|
|
193,084
|
|
|
|
27,810
|
|
Total
|
|
|
1,285,607
|
|
|
|
1,632,329
|
|
|
|
235,104
|
|
The Group recognized a provision for other
current assets of nil, nil and RMB25,622 for the year ended December 31, 2014, 2015 and 2016, respectively.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
7. Long-term investments
The Group’s long-term investments
consist of equity method investments and cost method investments.
Equity method investments
In December 2016, Nanjing Zhongshan Financial
Leasing Co., Ltd. (“Zhongshan”) was established and the Group invested RMB42.5 million for 25% of equity interest in
Zhongshan. This investment was accounted for as an equity-method investment due to the significant influence the Group has over
the operating and financial policies of Zhongshan as the Group has one of the five board seats of Zhongshan. No gain or loss was
recognized for the year ended December 31, 2016, from this investment as Zhongshan had not started significant operation during
the year.
Cost method investments
Cost method is used for investments where
the Company does not have the ability to exercise significant influence over the investees. The carrying value of cost method investments
was nil and RMB16,264 as of December 31, 2015 and 2016, respectively.
No impairment loss was recognized for long-term
investments for the year ended December 31, 2015 and 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
8. Property and equipment, net
The following is a summary of property
and equipment, net:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Computers and equipment
|
|
|
89,127
|
|
|
|
145,962
|
|
|
|
21,023
|
|
Leasehold improvements
|
|
|
71,800
|
|
|
|
92,962
|
|
|
|
13,389
|
|
Buildings
|
|
|
2,578
|
|
|
|
5,604
|
|
|
|
807
|
|
Furniture and fixtures
|
|
|
15,479
|
|
|
|
17,709
|
|
|
|
2,551
|
|
Vehicles
|
|
|
156
|
|
|
|
864
|
|
|
|
124
|
|
Software
|
|
|
23,850
|
|
|
|
32,366
|
|
|
|
4,662
|
|
Subtotal
|
|
|
202,990
|
|
|
|
295,467
|
|
|
|
42,556
|
|
Less: Accumulated depreciation
|
|
|
(63,287
|
)
|
|
|
(127,579
|
)
|
|
|
(18,375
|
)
|
Property and equipment subject to depreciation
|
|
|
139,703
|
|
|
|
167,888
|
|
|
|
24,181
|
|
Construction in progress
|
|
|
5,487
|
|
|
|
9,929
|
|
|
|
1,430
|
|
Total
|
|
|
145,190
|
|
|
|
177,817
|
|
|
|
25,611
|
|
Depreciation expenses for the years ended
December 31, 2014, 2015 and 2016 were RMB10,869, RMB28,041 and RMB66,510, respectively.
9. Intangible assets, net
Intangible assets, net, consist of the
following:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Travel license
|
|
|
29,206
|
|
|
|
30,490
|
|
|
|
4,391
|
|
Insurance agency license
|
|
|
11,711
|
|
|
|
11,711
|
|
|
|
1,687
|
|
Software
|
|
|
19,164
|
|
|
|
34,208
|
|
|
|
4,927
|
|
Trade names
|
|
|
39,619
|
|
|
|
41,634
|
|
|
|
5,997
|
|
Business Cooperation Agreements
|
|
|
660,215
|
|
|
|
660,215
|
|
|
|
95,091
|
|
Customer relationship
|
|
|
13,596
|
|
|
|
13,458
|
|
|
|
1,938
|
|
Non-compete agreements
|
|
|
2,822
|
|
|
|
6,399
|
|
|
|
922
|
|
Subtotal
|
|
|
776,333
|
|
|
|
798,115
|
|
|
|
114,953
|
|
Less: Accumulated amortization
|
|
|
(60,785
|
)
|
|
|
(205,848
|
)
|
|
|
(29,649
|
)
|
Total
|
|
|
715,548
|
|
|
|
592,267
|
|
|
|
85,304
|
|
During the year 2015, the Group acquired
an insurance agency for the total consideration of RMB58,720 to acquire the insurance agency license. The insurance agency was
a dormant company and was not qualified as a business as it had no input or process to create output. The Group accounted this
transactions as assets acquisition and the difference between the cash consideration and net assets of the insurance agency is
recorded as insurance agency license which is amortized over 20 years on a straight line basis.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
9. Intangible assets, net - continued
Amortization expenses for intangible assets
were RMB984, RMB57,810 and RMB145,063 for the years ended December 31, 2014, 2015 and 2016.
The annual estimated amortization expense
for the above intangible assets for the following years is as follows:
|
|
Amortization for Intangible Assets
|
|
Years Ending December 31,
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
2017
|
|
|
146,291
|
|
|
|
21,070
|
|
2018
|
|
|
146,006
|
|
|
|
21,029
|
|
2019
|
|
|
145,597
|
|
|
|
20,970
|
|
2020
|
|
|
92,174
|
|
|
|
13,276
|
|
2021
|
|
|
10,408
|
|
|
|
1,499
|
|
Thereafter
|
|
|
51,791
|
|
|
|
7,460
|
|
Total
|
|
|
592,267
|
|
|
|
85,304
|
|
10. Goodwill
The changes in the carrying amount of goodwill
for the years ended December 2015 and 2016 were as follows:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Balance at the beginning of year
|
|
|
—
|
|
|
|
136,569
|
|
|
|
19,670
|
|
Increase in goodwill related to acquisitions during the year
|
|
|
136,569
|
|
|
|
10,565
|
|
|
|
1,521
|
|
Remeasurement of prior year acquisitions
|
|
|
—
|
|
|
|
505
|
|
|
|
73
|
|
Accumulated impairment loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at the end of year
|
|
|
136,569
|
|
|
|
147,639
|
|
|
|
21,264
|
|
11. Other non-current assets
Other non-current assets consist of the
following:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Prepayments to suppliers - HNA
|
|
|
324,680
|
|
|
|
—
|
|
|
|
—
|
|
Other long
-term assets
|
|
|
24,534
|
|
|
|
46,468
|
|
|
|
6,693
|
|
Balance at the end of year
|
|
|
349,214
|
|
|
|
46,468
|
|
|
|
6,693
|
|
The Group prepaid US$100 million for air
tickets and hotels resources to HNA Tourism Holdings Group Co., Ltd. (“HNA”) during the year ended December 31, 2015.
As of December 31, 2015, the prepayments to suppliers were disclosed as prepayments and other current assets US$50 million and
other non-current assets US$50 million according to the service period. The prepayment was reclassified as amounts due from related
parties since January 2016, when the transaction of HNA’s investment in the Company was completed.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
12. Accrued expenses and other current liabilities
The following is a summary of accrued expenses
and other current liabilities:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Deposits from packaged-tour users
|
|
|
31,269
|
|
|
|
56,793
|
|
|
|
8,180
|
|
Deposit from HNA
|
|
|
649,360
|
|
|
|
—
|
|
|
|
—
|
|
Payable for business acquisition
|
|
|
26,781
|
|
|
|
21,664
|
|
|
|
3,121
|
|
Accrued liabilities related to customers incentive program
|
|
|
34,633
|
|
|
|
46,594
|
|
|
|
6,711
|
|
Accrued professional service fees
|
|
|
12,373
|
|
|
|
25,156
|
|
|
|
3,623
|
|
Accrued advertising expenses
|
|
|
56,293
|
|
|
|
315,651
|
|
|
|
45,463
|
|
Notes payable
|
|
|
70,000
|
|
|
|
—
|
|
|
|
—
|
|
Advanced payment from banks
|
|
|
21,575
|
|
|
|
11,006
|
|
|
|
1,585
|
|
Others
|
|
|
123,998
|
|
|
|
112,424
|
|
|
|
16,193
|
|
Total
|
|
|
1,026,282
|
|
|
|
589,288
|
|
|
|
84,876
|
|
Deposits from packaged-tour users represent
cash paid to the Group as a deposit for overseas tours, and such amount is refundable upon completion of the tours.
HNA Tourism Holdings Group Co., Ltd. (“HNA”)
provided RMB649 million (US$100 million) as the guarantee to fulfil of the ordinary shares subscription agreement signed on November
20, 2015. The amount was refunded in January 2016 upon the closing of the transaction.
Advanced payment from banks represent cash
received by the Group for promotional and marking campaigns. Banks participating in these campaigns would reimburse the Group for
tours sold to their credit card holders at a specified discount.
13. Income Taxes
The Company is registered in the Cayman
Islands. The Company generates substantially all of its income (loss) from its PRC operations for the years ended December 31,
2014, 2015 and 2016.
Cayman Islands (“Cayman”)
Under the current laws of the Cayman Islands,
the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to shareholders, no Cayman
Islands withholding tax will be imposed.
Hong Kong
Entities incorporated in Hong Kong are
subject to Hong Kong profits tax at a rate of 16.5% since January 1, 2010. The operations in Hong Kong have incurred net accumulated
operating losses for income tax purposes.
PRC
On March 16, 2007, the National People’s
Congress of the PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which Foreign Investment Enterprises (“FIEs”)
and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
13. Income Taxes – continued
The EIT Law also provides that an enterprise
established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC
be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for
its global income. The implementing Rules of the EIT Law merely define the location of the “de facto management body”
as “the place where the exercising, in substance, of the overall management and control of the production and business operation,
personnel, accounting, properties, etc., of a non-PRC company is located.”
The EIT Law also imposes a withholding
income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China, if such immediate holding
company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends
have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between
Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion
in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax
at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of the shares of the FIE
and could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.
Nanjing Tuniu obtained in 2010 its HNTE
certificate with a valid period of three years and successfully renewed such certificate in December 2013 and December 2016 for
additional three years, respectively. Therefore, Nanjing Tuniu is eligible to enjoy a preferential tax rate of 15% from 2016 to
2018 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant
EIT filing procedures with the relevant tax authority. Nanjing Tuniu also obtained a software company certificate in 2012. Pursuant
to such certificate, Nanjing Tuniu qualifies for a tax holiday during which it is entitled to an exemption from enterprise income
tax for two years commencing from its first profit-making year of operation and a 50% reduction of enterprise income tax for the
following three years. Nanjing Tuniu entered into the first tax profitable year for the year ended December 31, 2014.
A reconciliation between the effective
income tax rate and the PRC statutory income tax rate is as follows:
|
|
For Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
PRC Statutory income tax rates
|
|
|
25.0
|
|
|
|
25.0
|
|
|
|
25.0
|
|
Change in valuation allowance
|
|
|
(22.4
|
)
|
|
|
(22.5
|
)
|
|
|
(23.2
|
)
|
Permanent book – tax difference
|
|
|
(12.1
|
)
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
Difference in EIT rates of certain subsidiaries
|
|
|
0.0
|
|
|
|
(3.1
|
)
|
|
|
(2.0
|
)
|
Effect of tax holiday
|
|
|
9.5
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
Total
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.
1
|
|
The aggregate amount and per share effect
of the tax holidays are as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Aggregate amount
|
|
|
(42,567
|
)
|
|
|
(9,974
|
)
|
|
|
—
|
|
|
|
—
|
|
Basic net loss per share effect
|
|
|
(0.40
|
)
|
|
|
(0.04
|
)
|
|
|
—
|
|
|
|
—
|
|
Diluted net loss per share effect
|
|
|
(0.40
|
)
|
|
|
(0.04
|
)
|
|
|
—
|
|
|
|
—
|
|
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
13. Income Taxes - continued
The following table sets forth the significant
components of deferred tax assets and liabilities:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals and others
|
|
|
21,765
|
|
|
|
112,946
|
|
|
|
16,268
|
|
Net operating loss carry forwards
|
|
|
459,109
|
|
|
|
944,772
|
|
|
|
136,076
|
|
Carryforwards of un-deducted advertising expenses
|
|
|
31
|
|
|
|
2,634
|
|
|
|
379
|
|
Allowance for doubtful accounts
|
|
|
—
|
|
|
|
7,730
|
|
|
|
1,113
|
|
Subtotal
|
|
|
480,905
|
|
|
|
1,068,082
|
|
|
|
153,836
|
|
Less: valuation allowance
|
|
|
(480,905
|
)
|
|
|
(1,068,082
|
)
|
|
|
(153,836
|
)
|
Total non-current deferred tax assets, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of intangible assets arisen from business combination
|
|
|
(24,415
|
)
|
|
|
(23,456
|
)
|
|
|
(3,378
|
)
|
Total non-current deferred tax assets, net
|
|
|
(24,415
|
)
|
|
|
(23,456
|
)
|
|
|
(3,378
|
)
|
As of December 31, 2016, the Group had
net operating loss carryforwards of RMB3,779,088 which can be carried forward to offset taxable income. The carryforwards period
for net operating losses under the EIT Law is five years. The net operating loss carry forward of the Group will start to expire
in 2017 for the amount of RMB65,684 if not utilized. The remaining net operating loss carryforwards will expire in varying amounts
between 2018 and 2021. Other than the expiration, there are no other limitations or restrictions upon the Group’s ability
to use these operating loss carryforwards. There is no expiration for the advertising expenses carryforwards.
A valuation allowance is provided against
deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not be utilized
in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating history,
accumulated deficit, existence of taxable temporary differences and reversal periods.
As of December 31, 2015 and 2016, valuation
allowances of RMB480,905 and RMB1,068,082 were provided because it was more likely than not that the Group will not be able to
utilize certain tax losses carry forwards and other deferred tax assets generated by its subsidiaries and Affiliated Entities.
If events occur in the future that allow the Group to realize more of its deferred tax assets than the presently recorded amount,
an adjustment to the valuation allowances will increase income when those events occur.
Movement of valuation allowance
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Balance as the beginning of the year
|
|
|
46,121
|
|
|
|
150,817
|
|
|
|
480,905
|
|
|
|
69,265
|
|
Additions
|
|
|
112,421
|
|
|
|
332,086
|
|
|
|
596,944
|
|
|
|
85,978
|
|
Written off for expiration of net operating losses
|
|
|
—
|
|
|
|
(1,998
|
)
|
|
|
(9,767
|
)
|
|
|
(1,407
|
)
|
Utilization of previously unrecognized tax losses and un-deductible advertising expenses
|
|
|
(7,725
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance as the end of the year
|
|
|
150,817
|
|
|
|
480,905
|
|
|
|
1,068,082
|
|
|
|
153,836
|
|
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
14. Redeemable noncontrolling interests
In December 2016, the Group entered into
an investment agreement with certain investors (“noncontrolling shareholders”) to establish a subsidiary. The noncontrolling
shareholders contributed RMB90,000 and held 30% equity interest. Pursuant to the investment agreement, the noncontrolling shareholders
have the option to request the Group to redeem their equity interests at an agreed price after three years of the investment.
The Group recorded the noncontrolling interests
as redeemable noncontrolling interests, outside of permanent equity in the Group’s consolidated balance sheets in accordance
with ASC 480. 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. The accretion, which increases the carrying value
of the redeemable noncontrolling interests, is recorded against additional paid-in capital.
The change in the carrying amount of redeemable
noncontrolling interests for the years ended December 31, 2015 and 2016 is as follows:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Balance as of January 1
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Capital contribution from redeemable noncontrolling interests
|
|
|
—
|
|
|
|
90,000
|
|
|
|
12,963
|
|
Net losses attributable to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
(5
|
)
|
Accretion on redeemable noncontrolling interests
|
|
|
—
|
|
|
|
106
|
|
|
|
15
|
|
Balance as of December 31
|
|
|
—
|
|
|
|
90,072
|
|
|
|
12,973
|
|
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
15. Ordinary Shares
On February 13, 2014, the Board has approved
that all of the Company’s existing ordinary shares would be redesignated as Class B ordinary shares and all of the Company’s
outstanding preferred shares would be redesignated or automatically converted into Class B ordinary shares immediately prior to
the completion of the Company’s initial public offering (“IPO”). All options, regardless of grant dates, will
entitle holders to the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-based
compensation awards are met. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class
B ordinary shares will be entitled to ten votes per share on all matters subject to shareholders’ vote. Each Class B ordinary
share is convertible into one Class A ordinary share at any time by the holder. Class A ordinary shares are not convertible into
Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity
which is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into the
equivalent number of Class A ordinary shares.
On May 9, 2014, concurrently with the completion
of the Company’s IPO, the Company issued 5,000,000, 1,666,666 and 5,000,000 shares of Class A ordinary shares at a price
per share equal to the IPO price to DCM Hybrid RMB Fund, L.P., the Company’s existing shareholder, Qihoo 360 Technology Co.
Ltd. and Ctrip Investment Holding Ltd., respectively.
On December 15, 2014, the Company entered
into share subscription agreements with Unicorn Riches Limited, JD.com E-commerce (Investment) Hong Kong Corporation Limited, Ctrip
Investment Holding Ltd. and the respective personal holding companies of the Group’s chief executive officer and chief operating
officer, pursuant to which the Company issued 36,812,868 numbers of Class A ordinary shares for a total proceeds of RMB905,792
(US$148 million), net of issuance cost of RMB14,279. The transaction was closed on December 31, 2014.
On May 8, 2015, the Company entered into
share subscription agreements with Fabulous Jade Global Limited, Unicorn Riches Limited, Ctrip Investment Holding Ltd., Esta Investments
Pte. Ltd., DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., and Sequoia Capital 2010 CV
Holdco, Ltd., pursuant to which the Company issued 93,750,000 Class A ordinary shares for the cash consideration of US$400 million
(RMB2,445 million) and certain business resource contributed by JD as part of Business Cooperation Agreement with the Company.
The total consideration was RMB3,104,457, including fair value of acquired Business Cooperation Agreement of RMB660,215(see Note
5), net of issuance cost of RMB1,078. The transaction was closed on May 22, 2015.
On November 20, 2015, the Company entered
into a share subscription agreement with HNA Tourism Holdings Group Co., Ltd. (“HNA”), pursuant to which the Company
issued 90,909,091 Class A ordinary shares for a total proceeds of RMB3,279 million (US$500 million). The transaction was closed
on January 21, 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
16. Share-based Compensation Expenses
The Company’s 2008 Incentive Compensation
Plan (the “2008 Plan”) allows the plan administrator to grant share options and restricted shares to the Company’s
employees, directors, and consultants, up to a maximum of 11,500,000 ordinary shares. In December 2012, the Board of Directors
approved an increase in the number of shares available for issuance under the plan to 18,375,140 ordinary shares. In April 2014
the Company adopted the 2014 Share Incentive Plan (the “2014 Plan”). The maximum aggregate number of shares which may
be issued pursuant to all awards under the 2014 Plan was initially 5,500,000 ordinary shares as of the date of its approval. The
number of shares reserved for future issuances under the 2014 Plan will be increased automatically if and whenever the ordinary
shares reserved under the 2014 Plan account for less than1% of the total then-issued and outstanding ordinary shares on an as-converted
basis, as a result of which increase the ordinary shares reserved under the2014 Plan immediately after each such increase shall
equal 5% of the then-issued and outstanding ordinary shares on an as-converted basis. In December 2016, the Board of Directors
approved an increase in the number of shares available for issuance under the 2014 Plan to 7,942, 675 ordinary shares.
The share options granted under the 2008
plan have a contractual term of six years, and ones under 2014 plan have a contractual term of ten years. The incentive awards
under both 2008 plan and 2014 plan vest over a period of four years of continuous service, one fourth (1/4) of which vest upon
the first anniversary of the stated vesting commencement date and the remaining vest ratably over the following 36 months. Under
the 2008 plan, incentive awards are only exercisable upon occurrence of certain defined exercisable events. The Group did not recognize
any share-based compensation expense for the awards granted until the completion of the Company’s IPO on May 9, 2014 upon
which the performance condition was satisfied.
Share-based compensation expense of RMB39,173,
RMB65,143 and RMB92,419 was recognized for the years ended December 31, 2014, 2015 and 2016, respectively.
Share options
The following table summarizes the Company’s
option activities:
|
|
Number of
share
options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
US$
|
|
|
In Years
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
30,081,811
|
|
|
|
2.94
|
|
|
|
7.01
|
|
|
|
71,711
|
|
Granted
|
|
|
8,203,575
|
|
|
|
2.58
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(1,510,968
|
)
|
|
|
0.51
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(1,813,853
|
)
|
|
|
2.62
|
|
|
|
—
|
|
|
|
—
|
|
Modified
|
|
|
(3,630,121
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2016
|
|
|
31,330,444
|
|
|
|
1.86
|
|
|
|
6.81
|
|
|
|
34,999
|
|
Vested and expected to vest at December 31, 2016
|
|
|
30,229,780
|
|
|
|
1.83
|
|
|
|
6.73
|
|
|
|
34,403
|
|
Exercisable at December 31, 2016
|
|
|
14,147,380
|
|
|
|
1.15
|
|
|
|
4.33
|
|
|
|
25,697
|
|
On May 15, 2014, the Company modified the
exercise price of 576,000 share options granted on April 1, 2014 from US$5.00 to US$3.00. The incremental compensation expense
of RMB1,698 was equal to the excess of the fair value of the modified award immediately after the modification over the fair value
of the original award immediately before the modification. The incremental compensation expenses are recognized over the remaining
service period of these options.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
16. Share-based Compensation Expenses - continued
On December 8, 2014, the Company extended
the contract life of 2,159,812 share options granted under 2008 plan from six years to ten years. The incremental compensation
expense was insignificant and was recognized immediately since the share options were fully vested.
On March 4, 2016, the Company modified
the exercise price of 14,478,293 share options granted under 2014 Plan to US$3.09. The incremental compensation expense of RMB23,197
(US$3,341) was equal to the excess of the fair value of the modified award immediately after the modification over the fair value
of the original award immediately before the modification. For options already vested as of the modification date, the Company
immediately recognized the incremental value as compensation expenses. For options still unvested as of the modification date,
the incremental compensation expenses are recognized over the remaining service period of these options.
On May 31, 2016, the Company modified the
exercise price of 7,260,242 share options to US$0.0001 and the number of share options was reduced to 3,630,121. The incremental
compensation expense was insignificant and are recognized over the remaining service period.
The total intrinsic value of options exercised
for the years ended December 31, 2014, 2015 and 2016 were RMB68,094, RMB150,325 and RMB26,587(US$3,829), respectively.
The weighted-average grant date fair value
for options granted during the years ended December 31, 2014, 2015 and 2016 was US$3.57, US$2.40and US$1.47, respectively, computed
using the binomial option pricing model.
The total fair value of share options vested
during the years ended December 31, 2014, 2015, and 2016 was RMB23,849, RMB50,089 and RMB67,727(US$9,755), respectively.
The Company estimated the
expected volatility at the date of grant date and each option valuation date based on the annualized standard deviation of
the daily return embedded in historical share prices of comparable companies. Risk free interest rate was estimated based on
the yield to maturity of US treasury bonds denominated in US$ at the option valuation date. The exercise multiple is
estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised,
based on a consideration of research study regarding exercise pattern based on empirical studies on the actual exercise
behavior of employees. The Company has never declared or paid any cash dividends on its capital stock, and the Company does
not anticipate any dividend payments on its ordinary shares in the foreseeable future. Time to maturity is the contract
life of the option, and estimated forfeiture rates are determined based on historical employee turnover rate.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
16. Share-based Compensation Expenses - continued
The grant date fair value of each option
is calculated using a binomial option pricing model with the following assumptions:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
50%-51.1
|
%
|
|
|
50.9%-51.7
|
%
|
|
|
55.86%-57.49
|
%
|
Risk-free interest rate
|
|
|
1.99-2.6
|
%
|
|
|
2.09%-2.24
|
%
|
|
|
1.85%-2.4
|
%
|
Exercise multiple
|
|
|
2.2-2.8
|
|
|
|
2.2-2.8
|
|
|
|
2.2-2.8
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Time to maturity (in years)
|
|
|
6-10
|
|
|
|
10
|
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
|
|
|
0-20
|
%
|
|
|
0-20
|
%
|
|
|
0-20
|
%
|
Fair value of the common share on the date of option grant
|
|
|
US$3.33-6.98
RMB20.66-43.31
|
|
|
|
US$4.21-5.26
RMB27.27-34.07
|
|
|
|
US$2.68-2.97
RMB18.6-20.60
|
|
As of December 31, 2016, there was RMB239,158
in total unrecognized compensation expense related to unvested options, which is expected to be recognized over a weighted-average
period of 2.85 years.
Restricted shares
The total intrinsic value of restricted
shares vested for the years ended December 31, 2015 and 2016 were RMB1,694 and RMB1,777, respectively.
The fair value of restricted shares with
service conditions or performance conditions is based on the fair market value of the underlying ordinary shares on the date of
grant.
The following table summarizes the Company’s
restricted shares activity under the plans:
|
|
Numbers of
restricted shares
|
|
|
Weighted average
grant date fair value
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2016
|
|
|
227,808
|
|
|
|
4.00
|
|
Grant
|
|
|
255,000
|
|
|
|
2.80
|
|
Vested
|
|
|
(79,806
|
)
|
|
|
3.86
|
|
Outstanding as of December 31, 2016
|
|
|
403,002
|
|
|
|
3.27
|
|
Vested and expected to vest at December 31, 2016
|
|
|
403,002
|
|
|
|
3.27
|
|
As of December 31, 2016, there was RMB8,610
in total unrecognized compensation expense related to restricted shares, which is expected to be recognized over a weighted-average
period of 3.00years.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
17. Loss Per Share
The following table sets forth the computation
of basic and diluted loss per share for the periods indicated:
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Tuniu Corporation
|
|
|
(447,858
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,091
|
)
|
|
|
(349,574
|
)
|
Accretion on redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(15
|
)
|
Deemed dividends upon redesignation of Series D Preferred Shares
|
|
|
(15,606
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Numerator for basic and diluted net loss per share
|
|
|
(463,464
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,197
|
)
|
|
|
(349,589
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding-basic and diluted
|
|
|
105,746,313
|
|
|
|
248,362,837
|
|
|
|
373,347,855
|
|
|
|
373,347,855
|
|
Loss per share-basic and diluted
|
|
|
(4.38
|
)
|
|
|
(5.88
|
)
|
|
|
(6.50
|
)
|
|
|
(0.94
|
)
|
For the years ended December 31, 2014,
2015 and 2016, the Company had securities which could potentially dilute basic loss per share in the future, which were excluded
from the computation of diluted loss per share as their effects would have been anti-dilutive. Such outstanding securities consist
of the share options and restricted shares with the number of 21,445,228, 30,309,619 and 31,733,446, respectively.
18. Restricted Net Assets
Pursuant to laws applicable to entities
incorporated in the PRC, the Group’s subsidiaries and Affiliated Entities in the PRC must make appropriations from after-tax
profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve,
(ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the
general reserve fund requires an annual appropriation of 10% of after tax profit (as determined under accounting principles generally
accepted in the PRC at each year-end) until the accumulative amount of such reserve fund reaches 50% of a company’s registered
capital; the other fund appropriations are at the subsidiaries’ discretion. These reserve funds can only be used for specific
purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. In addition, due to restrictions
on the distribution of share capital from the Group’s PRC subsidiaries and Affiliated Entities and also as a result of these
entities’ unreserved accumulated losses, total restrictions placed on the distribution of the Group’s PRC subsidiaries
and Affiliated Entities’ net assets was RMB3,500 million, or 78% of the Group’s total consolidated net assets as of
December 31, 2016.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
19. Commitments and Contingencies
(a) Operating Lease Agreement
The Group leases its offices under non-cancelable
operating lease agreements. Certain of these arrangements contain free or escalating rent clauses. The Group recognizes rental
expense under such arrangements on a straight-line basis over the lease term. Rental expenses amounting to RMB15,969, RMB36,445
and RMB86,830 during the years ended December 31, 2014, 2015 and 2016, respectively, were charged to the consolidated statements
of comprehensive loss when incurred.
As of December 31, 2016, future minimum
commitments under non-cancelable agreements were as follows:
Years Ending December 31,
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
2017
|
|
|
67,381
|
|
|
|
9,705
|
|
2018
|
|
|
55,506
|
|
|
|
7,995
|
|
2019
|
|
|
42,934
|
|
|
|
6,184
|
|
2020
|
|
|
37,166
|
|
|
|
5,353
|
|
2021 and thereafter
|
|
|
15,609
|
|
|
|
2,248
|
|
Total
|
|
|
218,596
|
|
|
|
31,485
|
|
(b) Capital Commitments
As of December 31, 2016, capital commitments
relating to leasehold improvement and purchase of equipment were approximately RMB9,741.
(c) Contingencies
From time to time, the Group is involved
in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management
does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely to have a
material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject
to inherent uncertainties and the Group’s view of these matters may change in the future. If an unfavorable outcome were
to occur, there exists the possibility of a material adverse impact on the Group’s financial position and results of operations
for the periods in which the unfavorable outcome occurs.
(d) Other commitment
Deposit or guarantees are required
by the Group’s business partners for air ticketing and tourist attraction tickets. Letters of guarantee are issued by banks
to the Group’s business partners with total amount of RMB199 million as of December 31, 2016, which occupies the Group’s
credit facilities granted by banks.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
20. Related party transactions and balances
Parties are considered to be related if
one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other
party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control
or common significant influence. Related parties may be individuals or corporate entities.
The following entities are considered to
be related parties to the Group:
Name of related parties
|
|
Relationship with the Group
|
Ctrip Investment Holding Co., Ltd. (“Ctrip”)
|
|
one board director of the Group
|
JD.com, Inc. (“JD”)
|
|
one board director of the Group
|
HNA Tourism Holdings Group Co., Ltd. (“HNA”)
|
|
two board directors of the Group
|
|
a)
|
Transactions with related parties:
|
Ctrip purchased 5,000,000
Class A ordinary shares in a private placement concurrent with the Company’s initial public offering, an additional 3,731,034
Class A ordinary shares for a total of US$15 million through a private placement transaction in December 2014 as well as an additional
3,750,000 Class A ordinary shares for a total of US$20 million through a private placement transaction in May 2015.
The Group sells the packaged-tours
through Ctrip’s online platform and the commission fees for Ctrip’s service were insignificant. Revenue from Ctrip
consist of, commission fees for selling the hotel rooms and air tickets products through the Group’s online platform and
packaged-tours sold to Ctrip, amounted of RMB3.5 million and RMB54.8 million for the years ended December 31, 2015 and 2016, respectively.
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
20. Related party transactions and balances - continued
|
a)
|
Transactions with related parties: - continued
|
On May 8, 2015, the Company
issued 65,625,000 Class A ordinary shares to Fabulous Jade Global Limited, a subsidiary of JD, for cash consideration of RMB1,528.2
million (US$250 million) and RMB660.2 million of the business resource contributed by JD, which including the exclusive rights
to operate the leisure travel channel for both JD’s website and mobile application, JD's preferred partnership for hotel
and air ticket reservation service, the internet traffic support and marketing support for the leisure travel channel for a period
of five years started from August 2015.
On January 21, 2016, the Company
issued 90,909,091 Class A ordinary shares to HNA Tourism Holdings Group Co., Ltd., for total consideration of RMB3,279 million
(US$500 million).
HNA agreed to provide the Group
with access to its premium airlines and hotels resources at a preferential rate, under fair competition market rules, and the Group
undertook to acquire no less than US$100 million products and services sourced from HNA over the next two years. During the year
ended December 31, 2016, the Group purchased RMB250.5 million (US$36.1 million) air tickets from HNA.
|
b)
|
Balances with related parties:
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from Ctrip
|
|
|
59,142
|
|
|
|
30,668
|
|
|
|
4,417
|
|
Due from JD
|
|
|
862
|
|
|
|
3,374
|
|
|
|
486
|
|
Prepayment to HNA
|
|
|
—
|
|
|
|
356,288
|
|
|
|
51,316
|
|
Total
|
|
|
60,004
|
|
|
|
390,330
|
|
|
|
56,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment to HNA
|
|
|
—
|
|
|
|
64,902
|
|
|
|
9,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Ctrip
|
|
|
28,669
|
|
|
|
32,526
|
|
|
|
4,685
|
|
Due to JD
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
28,762
|
|
|
|
32,526
|
|
|
|
4,685
|
|
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
CONDENSED BALANCE
SHEETS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,090,097
|
|
|
|
3,428
|
|
|
|
494
|
|
Amounts due from subsidiaries
|
|
|
3,468,022
|
|
|
|
7,436,798
|
|
|
|
1,071,122
|
|
Prepayments and other current assets
|
|
|
4,888
|
|
|
|
1,007
|
|
|
|
145
|
|
Total current assets
|
|
|
4,563,007
|
|
|
|
7,441,233
|
|
|
|
1,071,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
607,669
|
|
|
|
475,626
|
|
|
|
68,504
|
|
Total assets
|
|
|
5,170,676
|
|
|
|
7,916,859
|
|
|
|
1,140,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
664,420
|
|
|
|
8,662
|
|
|
|
1,248
|
|
Total current liabilities
|
|
|
664,420
|
|
|
|
8,662
|
|
|
|
1,248
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments deficit in subsidiaries and VIE
|
|
|
1,185,106
|
|
|
|
3,426,261
|
|
|
|
493,484
|
|
Total non-current liabilities
|
|
|
1,185,106
|
|
|
|
3,426,261
|
|
|
|
493,484
|
|
Total liabilities
|
|
|
1,849,526
|
|
|
|
3,434,923
|
|
|
|
494,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (US$0.0001 par value; 1,000,000,000 shares (including 780,000,000 Class A shares, 120,000,000 Class B shares and 100,000,000 shares to be designated by the Board of Directors) authorized as of December 31, 2015 and 2016; 286,970,892 shares (including 269,597,392 Class A shares and 17,373,500 Class B shares) and 379,470,757 shares (including 362,097,257 Class A shares and 17,373,500 Class B shares) issued and outstanding as of December 31, 2015 and 2016, respectively)
|
|
|
181
|
|
|
|
242
|
|
|
|
35
|
|
Less: Treasury stock
|
|
|
—
|
|
|
|
(19,708
|
)
|
|
|
(2,839
|
)
|
Additional paid-in capital
|
|
|
5,482,367
|
|
|
|
8,855,991
|
|
|
|
1,275,528
|
|
Accumulated other comprehensive income
|
|
|
167,025
|
|
|
|
400,925
|
|
|
|
57,745
|
|
Accumulated deficit
|
|
|
(2,328,423
|
)
|
|
|
(4,755,514
|
)
|
|
|
(684,936
|
)
|
Total Tuniu Corporation shareholders’ equity
|
|
|
3,321,150
|
|
|
|
4,481,936
|
|
|
|
645,533
|
|
Total liabilities and equity
|
|
|
5,170,676
|
|
|
|
7,916,859
|
|
|
|
1,140,265
|
|
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
CONDENSED STATEMENTS
OF COMPREHENSIVE LOSS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and product development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Sales and marketing
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
General and administrative
|
|
|
(5,617
|
)
|
|
|
(19,016
|
)
|
|
|
(11,657
|
)
|
|
|
(1,679
|
)
|
Share of loss of subsidiaries and affiliated entities
|
|
|
(446,159
|
)
|
|
|
(1,341,212
|
)
|
|
|
(2,250,534
|
)
|
|
|
(324,144
|
)
|
Other operating income
|
|
|
415
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total operating expenses
|
|
|
(451,361
|
)
|
|
|
(1,360,228
|
)
|
|
|
(2,262,191
|
)
|
|
|
(325,823
|
)
|
Loss from operations
|
|
|
(451,361
|
)
|
|
|
(1,360,228
|
)
|
|
|
(2,262,191
|
)
|
|
|
(325,823
|
)
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,619
|
|
|
|
19,183
|
|
|
|
1,418
|
|
|
|
204
|
|
Foreign exchange losses, net
|
|
|
(3,116
|
)
|
|
|
(119,161
|
)
|
|
|
(167,405
|
)
|
|
|
(24,112
|
)
|
Other income, net
|
|
|
—
|
|
|
|
827
|
|
|
|
1,087
|
|
|
|
157
|
|
Loss before income tax expense
|
|
|
(447,858
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,091
|
)
|
|
|
(349,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(447,858
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,091
|
)
|
|
|
(349,574
|
)
|
Accretion on redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(106
|
)
|
|
|
(15
|
)
|
Deemed dividends to preferred shareholders
|
|
|
(15,606
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable to ordinary shareholders
|
|
|
(463,464
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,197
|
)
|
|
|
(349,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(447,858
|
)
|
|
|
(1,459,379
|
)
|
|
|
(2,427,091
|
)
|
|
|
(349,574
|
)
|
Other comprehensive income/( loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil tax
|
|
|
(1,358
|
)
|
|
|
188,106
|
|
|
|
233,900
|
|
|
|
33,689
|
|
Comprehensive loss
|
|
|
(449,216
|
)
|
|
|
(1,271,273
|
)
|
|
|
(2,193,191
|
)
|
|
|
(315,885
|
)
|
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(All amounts in thousands, except for
share and per share data, or otherwise noted)
|
|
For the Years Ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$ (Note 2(d))
|
|
Cash (used in) provided by operating activities
|
|
|
2,636
|
|
|
|
645,364
|
|
|
|
(661,029
|
)
|
|
|
(95,208
|
)
|
Cash used in investing activities
|
|
|
(518,690
|
)
|
|
|
(3,434,719
|
)
|
|
|
(3,972,014
|
)
|
|
|
(572,089
|
)
|
Cash provided by financing activities
|
|
|
1,540,397
|
|
|
|
2,442,860
|
|
|
|
3,264,610
|
|
|
|
470,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(3,040
|
)
|
|
|
113,312
|
|
|
|
281,764
|
|
|
|
40,582
|
|
Net increase /(decrease) in cash and cash equivalents
|
|
|
1,021,303
|
|
|
|
(233,183
|
)
|
|
|
(1,086,669
|
)
|
|
|
(156,513
|
)
|
Cash and cash equivalents at the beginning of year
|
|
|
301,977
|
|
|
|
1,323,280
|
|
|
|
1,090,097
|
|
|
|
157,007
|
|
Cash and cash equivalents at the end of year
|
|
|
1,323,280
|
|
|
|
1,090,097
|
|
|
|
3,428
|
|
|
|
494
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividends to preferred shareholders
|
|
|
15,606
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accrued issuance cost related to private placement
|
|
|
14,076
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Receivables related to exercise of stock option
|
|
|
(1,020
|
)
|
|
|
(3,379
|
)
|
|
|
(163
|
)
|
|
|
(24
|
)
|
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE
PARENT COMPANY
Note to Financial Statements Schedule I
Schedule I has been provided pursuant to
the requirements of Rule 12-04(a) and 5-04-(c) of Regulation S-X, which require condensed financial information as to the financial
position, change in financial position and results of operations of a parent company as of the same dates and for the same periods
for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year.
The condensed financial information has
been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the
equity method has been used to account for investments in its subsidiaries and VIE. Such investments in subsidiaries are presented
on the balance sheets as investment (income)/ deficit in subsidiaries and VIE and the loss of the subsidiaries is presented as
share of loss of subsidiaries and VIE.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations
of the Company and, as such, these statements should be read in conjunction with the notes to the accompanying consolidated financial
statements.
As of December 31, 2016, the Company had
no significant capital and other commitments, long-term obligations, or guarantee, except for those which have separately disclosed
in the consolidated financial statements.