Indicate the number of outstanding shares of each of the Issuers classes of capital or common stock as of the close of the period covered
by the annual report.
117,140,856 Class
A ordinary shares, par value US$0.01 per share, and 0 Class
B ordinary shares, par value US$0.01 per share, were outstanding as of December
31,
2017.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth
company. See definition of large accelerated filer, accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
If a 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. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form
20-F
to:
This annual report contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking
statements are contained principally in the sections entitled Item 3. Key InformationD. Risk Factors, Item 4. Information on the CompanyB. Business Overview and Item 5. Operating and Financial Review and
Prospects. These forward-looking statements are made under the safe-harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Known and unknown risks, uncertainties and other factors, including those listed
under Item 3. Key InformationD. Risk Factors, may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as may, will, expect,
anticipate, aim, estimate, intend, plan, believe, is/are likely to, potential, continue or other similar expressions. We have based these
forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements
include statements relating to:
These forward-looking statements involve various risks and uncertainties. Although we believe
that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this annual report
include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to
predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of our
forward-looking statements by these cautionary statements.
This annual report contains certain data and information that we obtained from
various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The online automotive advertising industry may not grow at the rate projected by market data, or at all.
The failure of this market to grow at the projected rate may have a material adverse effect on our business and the market price of our ADSs. In addition, the rapidly changing nature of the online automotive advertising industry and the online
automobile transaction industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data
are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made
in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are
made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future
results may be materially different from what we expect.
PART I.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.
|
Selected Financial Data
|
The following tables present the selected consolidated
financial information for our company. Our selected consolidated statements of operations data presented below for the years ended December 31, 2015, 2016 and 2017 and our selected consolidated balance sheet data as of December 31, 2016
and 2017 have been derived from our consolidated financial statements, which are included in this annual report beginning on page
F-1.
Our selected consolidated balance sheet data as of December 31, 2013,
2014 and 2015 and the selected consolidated statements of operations data for 2013 and 2014 presented below have been derived from our consolidated financial statements not included in this annual report. Our historical results for any period are
not necessarily indicative of results to be expected for any future period. You should read the following selected financial data in conjunction with the consolidated financial statements and related notes and the information under Item 5.
Operating and Financial Review and Prospects in this annual report. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
2
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For the Year Ended December 31,
|
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(in thousands, except for number of shares and per share data)
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2013
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2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Selected Consolidated Statements of Operations Data:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
1,216,548
|
|
|
|
2,132,949
|
|
|
|
3,463,975
|
|
|
|
5,961,621
|
|
|
|
6,210,181
|
|
|
|
954,487
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|
Cost of revenues
|
|
|
(252,236
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)
|
|
|
(381,498
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)
|
|
|
(669,121
|
)
|
|
|
(2,393,165
|
)
|
|
|
(1,358,685
|
)
|
|
|
(208,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
964,312
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|
|
|
1,751,451
|
|
|
|
2,794,854
|
|
|
|
3,568,456
|
|
|
|
4,851,496
|
|
|
|
745,661
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(245,228
|
)
|
|
|
(559,070
|
)
|
|
|
(1,127,484
|
)
|
|
|
(1,536,939
|
)
|
|
|
(1,647,519
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)
|
|
|
(253,219
|
)
|
General and administrative expenses
|
|
|
(82,529
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)
|
|
|
(129,751
|
)
|
|
|
(193,655
|
)
|
|
|
(306,794
|
)
|
|
|
(281,951
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)
|
|
|
(43,335
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)
|
Product development expenses
|
|
|
(81,651
|
)
|
|
|
(158,395
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)
|
|
|
(273,908
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)
|
|
|
(571,354
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)
|
|
|
(878,773
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)
|
|
|
(135,065
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating profit
|
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|
554,904
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|
|
|
904,235
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|
|
|
1,199,807
|
|
|
|
1,153,369
|
|
|
|
2,043,253
|
|
|
|
314,042
|
|
Interest income
|
|
|
11,082
|
|
|
|
34,682
|
|
|
|
63,218
|
|
|
|
88,168
|
|
|
|
220,282
|
|
|
|
33,857
|
|
Interest expense
|
|
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings/(loss) from equity method investments
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
(6,638
|
)
|
|
|
(10,571
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)
|
|
|
(1,625
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)
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Other income, net
|
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|
2,884
|
|
|
|
2,544
|
|
|
|
13,064
|
|
|
|
13,953
|
|
|
|
8,577
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income before income taxes
|
|
|
568,456
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|
|
|
941,461
|
|
|
|
1,276,191
|
|
|
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1,248,852
|
|
|
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2,261,541
|
|
|
|
347,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(112,294
|
)
|
|
|
(192,781
|
)
|
|
|
(285,542
|
)
|
|
|
(32,629
|
)
|
|
|
(267,082
|
)
|
|
|
(41,050
|
)
|
Net income
|
|
|
456,162
|
|
|
|
748,680
|
|
|
|
990,649
|
|
|
|
1,216,223
|
|
|
|
1,994,459
|
|
|
|
306,542
|
|
Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
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|
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11,691
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|
|
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7,160
|
|
|
|
1,100
|
|
Net income attributable to Autohome Inc.
|
|
|
456,162
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|
|
|
748,680
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|
|
|
990,649
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
Earnings per share for ordinary shares
|
|
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Basic
|
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|
4.57
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|
|
|
7.01
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|
|
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8.83
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|
|
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10.75
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|
|
|
17.20
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|
|
|
2.64
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Diluted
|
|
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4.37
|
|
|
|
6.64
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|
|
|
8.57
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|
|
|
10.58
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|
|
|
16.95
|
|
|
|
2.61
|
|
Weighted average number of shares used to compute earnings per share
(1)
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Ordinary shares
(2)
:
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|
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Basic
|
|
|
99,898,154
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|
|
|
106,735,303
|
|
|
|
112,227,405
|
|
|
|
114,237,600
|
|
|
|
116,379,846
|
|
|
|
116,379,846
|
|
Diluted
|
|
|
104,329,226
|
|
|
|
112,831,585
|
|
|
|
115,646,826
|
|
|
|
116,036,327
|
|
|
|
118,058,856
|
|
|
|
118,058,856
|
|
Dividend per share
(3)
|
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|
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(1)
|
Earnings per share for ordinary shares (Diluted) for each year from 2013 to 2017 were computed after taking into account the dilutive effect of the shares underlying our employees share-based awards.
|
(2)
|
Represents our ordinary shares, par value US$0.01 per share, before our IPO, and our Class A and Class B ordinary shares, par value US$0.01 per share, after our IPO. In June 2016, all of our Class B
ordinary shares were converted into Class A ordinary shares when Telstra Holdings, our then largest shareholder, transferred approximately 47.4% of our total issued and outstanding shares to Yun Chen Capital Cayman. As holders of Class A
and Class B ordinary shares have the same dividend right in our undistributed earnings, the basic and diluted net income per Class A ordinary share and Class B ordinary share are the same for all the periods presented during which
there were two classes of ordinary shares in issue. The weighted average number of shares represents the sum of the weighted average number of Class A and Class B ordinary shares. Please see Earnings per Share under Note 17 to
our audited consolidated financial statements included in this annual report for additional information regarding the computation of the per share amounts and the weighted average number of Class A and Class B ordinary shares.
|
(3)
|
Dividends distributed to our shareholders in 2013 was a
one-time
distribution due to special circumstances. The special cash dividends declared in November 2017 to the holders of
our Class A ordinary shares of record as of the close of business on January 4, 2018 was paid in the amount of US$0.76 per share (inclusive of applicable fees payable to our depositary bank) on or about January 15, 2018. See
Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationDividend Policy.
|
3
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|
As of December 31,
|
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|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, restricted cash and short-term investments
|
|
|
1,383,613
|
|
|
|
2,772,191
|
|
|
|
4,169,053
|
|
|
|
5,733,321
|
|
|
|
8,154,224
|
|
|
|
1,253,282
|
|
Accounts receivable, net
|
|
|
465,712
|
|
|
|
736,695
|
|
|
|
1,075,456
|
|
|
|
1,205,924
|
|
|
|
1,893,737
|
|
|
|
291,062
|
|
Total current assets
|
|
|
1,862,612
|
|
|
|
3,582,797
|
|
|
|
5,696,498
|
|
|
|
7,432,532
|
|
|
|
10,258,586
|
|
|
|
1,576,718
|
|
Total assets
|
|
|
3,512,950
|
|
|
|
5,278,515
|
|
|
|
7,530,076
|
|
|
|
9,392,026
|
|
|
|
12,294,975
|
|
|
|
1,889,705
|
|
Deferred revenue
|
|
|
213,240
|
|
|
|
438,797
|
|
|
|
872,487
|
|
|
|
1,012,143
|
|
|
|
1,409,485
|
|
|
|
216,634
|
|
Total current liabilities
|
|
|
789,818
|
|
|
|
1,080,657
|
|
|
|
2,156,534
|
|
|
|
2,544,040
|
|
|
|
3,889,316
|
|
|
|
597,778
|
|
Total liabilities
|
|
|
1,300,586
|
|
|
|
1,613,092
|
|
|
|
2,679,040
|
|
|
|
3,040,813
|
|
|
|
4,359,689
|
|
|
|
670,073
|
|
Total Autohome Inc. shareholders equity
|
|
|
2,212,364
|
|
|
|
3,665,423
|
|
|
|
4,851,036
|
|
|
|
6,360,404
|
|
|
|
7,951,637
|
|
|
|
1,222,145
|
|
Total equity
|
|
|
2,212,364
|
|
|
|
3,665,423
|
|
|
|
4,851,036
|
|
|
|
6,351,213
|
|
|
|
7,935,286
|
|
|
|
1,219,632
|
|
Exchange Rate Information
Substantially all of our operations are conducted in China and substantially all of our revenues are denominated in RMB. This annual report
contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a
rate of RMB6.5063 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System as of December 29, 2017. We make no representation that any RMB or U.S. dollar amounts could have
been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the
conversion of RMB into foreign exchange and through restrictions on foreign trade. On April 6, 2018, the exchange rate was RMB6.3045 to US$1.00.
The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.
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Exchange Rate
|
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Period
|
|
Period End
|
|
|
Average
(1)
|
|
|
Low
|
|
|
High
|
|
|
|
(RMB per US$1.00)
|
|
2013
|
|
|
6.0537
|
|
|
|
6.1412
|
|
|
|
6.2438
|
|
|
|
6.0537
|
|
2014
|
|
|
6.2046
|
|
|
|
6.1704
|
|
|
|
6.2591
|
|
|
|
6.0402
|
|
2015
|
|
|
6.4778
|
|
|
|
6.2869
|
|
|
|
6.4896
|
|
|
|
6.1870
|
|
2016
|
|
|
6.9430
|
|
|
|
6.6549
|
|
|
|
6.9580
|
|
|
|
6.4480
|
|
2017
|
|
|
6.5063
|
|
|
|
6.7350
|
|
|
|
6.9575
|
|
|
|
6.4773
|
|
October
|
|
|
6.6328
|
|
|
|
6.6254
|
|
|
|
6.6533
|
|
|
|
6.5712
|
|
November
|
|
|
6.6090
|
|
|
|
6.6200
|
|
|
|
6.6385
|
|
|
|
6.5967
|
|
December
|
|
|
6.5063
|
|
|
|
6.5932
|
|
|
|
6.6210
|
|
|
|
6.5063
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.2841
|
|
|
|
6.4233
|
|
|
|
6.5263
|
|
|
|
6.2841
|
|
February
|
|
|
6.3280
|
|
|
|
6.3183
|
|
|
|
6.3471
|
|
|
|
6.2649
|
|
March
|
|
|
6.2726
|
|
|
|
6.3174
|
|
|
|
6.3565
|
|
|
|
6.2685
|
|
April (through April 6)
|
|
|
6.3045
|
|
|
|
6.2960
|
|
|
|
6.3045
|
|
|
|
6.2785
|
|
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.
|
4
B.
|
Capitalization and Indebtedness
|
Not applicable.
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Risks Related to Our Business and Industry
We rely on Chinas automotive industry for substantially all of our revenues and future growth, the prospects of which are subject to many
uncertainties, including government regulations and policies.
We rely on Chinas automotive industry for substantially all
of our revenues and future growth. We have greatly benefited from the growth of Chinas automotive industry during the past few years. China is one of the worlds major automotive markets. However, car ownership rate in China is still low,
indicating significant room for continued growth. We cannot predict how this industry will develop in the future. Further, the growth of Chinas automotive industry could be affected by many factors, including general economic conditions in
China, the urbanization rate of Chinas population, the growth of disposable household income, the costs of new automobiles as well as taxes and incentives related to automobile purchases. In addition, governmental policies may have a
considerable impact on the growth of the automotive industry in China. For example, in an effort to alleviate traffic congestion and improve air quality, the Beijing municipal government issued a regulation in December 2010 to limit the number of
new passenger vehicle plates issued in Beijing each year to 240,000 commencing in 2011, and the limitation was subsequently reduced to 150,000 starting from 2014 to 2017, and further to 100,000 in 2018. There are similar policies that restrict the
issuance of new passenger vehicle plates in several other major cities in China. In 2015, the PRC government released high automobile emission standards and new tax benefits for electric cars. In 2014 and 2017, respectively, the PRC government
released two rules allowing the purchase of new energy vehicles to be exempt from vehicle purchase tax between 2014 and 2020. Moreover, since the beginning of 2018, there are various rules promulgated by the PRC government that have tightened the
regulation of the entire automobile industry, such as setting higher standards and more stringent requirements for approval of automobile loans, more stringent emission standards for light-duty vehicles starting from January 1, 2018 and
progressively stricter requirements on all sales and registration of light-duty vehicles starting from July 1, 2020, and the cancellation of the reduction of vehicle purchase tax on light vehicles by reverting the tax rate back to 10% starting
from January 1, 2018. Such regulatory developments, as well as other uncertainties, may adversely affect the growth prospects of Chinas automotive industry, and in turn reduce demand for automobiles. If automakers and automobile dealers
were to reduce their marketing expenditures as a result, our business, financial condition and results of operations could be materially and adversely affected.
We face significant competition, and if we fail to compete effectively, we may lose market share and our business, prospects and results of operations
may be materially and adversely affected.
The markets for our services are highly competitive. With respect to our auto media
business, we face competition from Chinas automotive vertical websites and mobile applications, such as
Xcar, PCauto
and
BitAuto
, from the automotive channels of major internet portals, such as
Sina
and
Sohu
, and
from companies engaged in mobile social media, news, video and live-streaming applications. We may also face competition from online automobile transaction platforms, such as
maodou.com
,
taoche.com
,
51auto
,
Uxin
,
Guazi
and
Renrenche
, as we develop our auto
e-commerce
business. Our auto finance business faces competition from other auto finance companies, such as
Yixin
. In addition, we also face competition
from companies engaged in social media business, such as
Jinri Toutiao
and
Tencent
.
Competition with these and other websites and mobile applications is primarily centered on increasing user reach, user engagement and
brand recognition, relationships with the suppliers, and attracting and retaining advertisers or customers, among other factors.
5
Some of our competitors or potential competitors have longer operating histories and may have
greater financial, management, technological, development, sales, marketing and other resources than we do. They may use their experience and resources to compete with us in a variety of ways, including by competing more heavily for users,
advertisers and dealers, investing more heavily in research and development and making acquisitions. Some of our competitors have entered or may enter into business cooperation agreements with search engines, which may impact our ability to obtain
additional user traffic from the same sources. Our competitors may be acquired and consolidated by, or cooperate with, industry conglomerates who are able to further invest with significant resources into our operating space. We cannot assure you
that any such large internet business will not in the future focus on the automotive sector. If we are unable to compete effectively and at a reasonable cost against our existing and future competitors, our business, prospects and results of
operations could be materially and adversely affected.
For our media business, we also face competition from traditional advertising
media, such as newspapers, magazines, yellow pages, television, radio and outdoor media. Advertisers in China generally allocate a significant portion of their marketing budgets to traditional advertising media. If we cannot effectively compete with
traditional media for the marketing budgets of our existing and potential customers, our results of operations and growth prospects could be adversely affected. For our
e-commerce
business, as online
automobile transaction is a relatively new business model and consumers in China might be accustomed to make automobile purchases offline, we cannot guarantee that the automobile consumers in China will accept such business model.
If we cannot maintain customer recognition and trust in us, our results of operations and growth prospects could be adversely affected.
We may not be able to manage our expansion and new business initiatives effectively.
We have experienced rapid growth in our business in recent years. The number of our employees has grown rapidly from 3,292 as of
December 31, 2015 to 3,752 as of December 31, 2016 and further to 4,097 as of December 31, 2017. Our net revenues increased from RMB3,464.0 million in 2015 to RMB5,961.6 million in 2016 and RMB6,210.2 million (US$954.5
million) in 2017, representing a CAGR of 33.9%. We expect to continue to grow our user base and our business operations. We have begun to implement our future strategy to integrate four key market segments in our consumer centric automotive
ecosystem, namely auto-media, auto-ecommerce, auto-finance and auto-lifestyle. Our 4+1 strategy continues to drive our growth momentum and guide us in our transformation from a
content-led
vertical
media business to an automotive
eco-platform
based on our advanced data and technology. Also, we are committed to strengthening our competitive advantage in the core media and leads generation business and
have begun to benefit from executing new business initiatives, including data products and auto-financing.
Although we have achieved
profitability in recent periods, our rapid expansion and new business initiatives may expose us to new challenges and risks and may make the prediction of our future results of operations difficult. As a growing company facing risks and
uncertainties, our historical results of operations should not be taken as indicative of the rate of growth, if any, that can be expected in the future. In addition, we may not have sufficient experience in executing our new business initiatives. To
manage the further expansion of our business, we need to continuously expand and enhance our infrastructure and technology, and improve our operational and financial systems, procedures and internal controls. We also need to train, manage and
motivate our growing employee base. In addition, we need to maintain and expand our relationships with automakers, automobile dealers, advertising agencies and other third parties. We cannot assure you that our current and planned personnel,
infrastructure, systems, procedures and controls will be adequate to support our expanding operations. We may be required to further increase our research and development expenses in order to enhance our technology capabilities, such as augmented
reality (AR) technologies and big data technologies, to support any such expansion and our efforts may not be effective. In the future, we may also commit our resources to develop and expand our new business initiatives. Furthermore, we need to
quickly respond to the market reaction to our new business initiatives and adjust accordingly. If we fail to manage our expansion and new business initiatives effectively or efficiently, our business and results of operations may be materially and
adversely affected.
6
If we are unable to grow our new vehicle transaction business, we may not be able to achieve our expected
business growth and our results of operations may be adversely affected.
We started to develop our new vehicle transaction
business in 2014 and expanded to include direct vehicle sales and platform-based services facilitating transactions through our transaction platform. In June 2014, we launched Autohome Mall, which is a full-service online transaction platform for
users to review automobile-related information, purchase coupons offered by automakers for discounts and make purchases to complete the transaction. In late 2016, we gradually shifted the focus to becoming an asset-light vehicle
e-commerce
platform to facilitate transactions between consumers and automakers or independent automobile sellers that obtain vehicles from legitimate distribution channels other than through direct authorization
from and dealership arrangements with automakers. In 2017, platform-based service revenues under our new vehicle transaction business were primarily entrance fees we collected from automakers and independent automobile sellers that participated in
our transaction platform and other service fees for facilitating transactions. We cannot guarantee you that our change of focus will be successful to meet consumers expectation or demand for vehicles on our transaction platform.
We will need to react quickly to meet the changing consumer preferences and buying trends relating to our transaction business. We will also
face competition from other websites and mobile applications engaged in the online automobile transaction business and from traditional dealerships. Furthermore, we must keep up to date with competitive technology trends, including the use of new or
improved technology, creative user interfaces and other transaction marketing tools, such as paid search and mobile applications among others, which may increase our costs but may not succeed in increasing sales or attracting consumers. Developing
the transaction business may require significant investment in product development, sales and marketing and working capital, and we may not be able to get the expected return on our investment. As online automobile transaction is a relatively new
business model, we cannot guarantee that the automobile consumers in China will accept our business model. Due to the limited operating history of our transaction business, we cannot predict that whether consumers, automakers or independent
automobile sellers will trust our platform.
Also, as we continue to develop our transaction business, we may need to comply with additional laws and regulations, including any evolving licensing requirements. We may fail to obtain and
continuously maintain permits or licenses that applicable regulators may deem necessary for our operations.
Our failure to successfully mitigate these risks and uncertainties might adversely affect the financial performance of our transaction
business, as well as damage our reputation and brand.
If we are not able to effectively attract consumers, automakers or independent
sellers to complete automobile transactions on our platform, the service fees we receive from our transaction business may be negatively affected. Finally, developing the transaction business may take up our managements time and allow them
less time to focus on our other businesses. Our transaction business is substantially dependent on the sales level of new vehicles in China, which is sensitive to changing economic conditions.
Also, the success of our transaction business depends, in part, on third parties and factors over which we have limited control. For example,
we rely on independent automobile sellers and our logistics partners to perform order fulfillments for vehicles sold on our platform. We may not have full control over the offline order fulfillment procedures, and any dissatisfaction from the
consumers might result in customer complaints. We cannot guarantee that such complaints will be resolved in a satisfactory manner. As a result, our reputation could be harmed, which could adversely affect our business and financial performance.
7
If we are unable to grow our auto finance business, we may not be able to achieve our expected business
growth and our results of operations may be adversely affected.
In early 2017, we launched our auto finance business and started
to provide services to our cooperative banks and financial institutions by displaying and marketing their financial products, including financing and financial leasing products, on our platform. We enable our cooperative banks and financial
institutions to present their financial products to users of our websites and mobile applications and to accept users auto financing applications. In addition, we acquired a Chinese insurance broker, Shanghai Tianhe Insurance Brokerage Co.,
Ltd. in September 2017, and started to engage in offline insurance brokerage business in November 2017. We are currently undertaking the filing process required for engaging in online insurance business, which we may conduct in the future. Since
insurance brokerage is an industry under specific regulatory system and supervision in the PRC, as our insurance brokerage business grows, we may be exposed to the relevant regulatory risks in connection with our internal control or other compliance
matters if we cannot satisfy all the requirements imposed on insurance brokerage companies by the competent PRC governmental authorities. In addition, although we have an existing large user base, we cannot assure you that the business model of our
auto finance business will be attractive to users and financial partners. Failure to provide satisfactory services on our platform or facilitate financing transactions between our users and financial product providers would cause an adverse impact
on our auto finance business. As a result, we may not be able to achieve our expected business growth and our results of operations may be adversely affected.
If we fail to attract and retain users and customers, our business and results of operations may be materially and adversely affected.
In order to maintain and strengthen our position as the leading online destination for automobile consumers in China, we must continue to
attract and retain users to our websites and mobile applications, which requires us to continue to provide quality content throughout the automobile ownership life cycles. We must also innovate and introduce services and applications that enhance
user experience. In addition, we must maintain and enhance our brand recognition among consumers. If we fail to provide high-quality, enriched and customized content, offer a superior user experience or maintain and enhance our brand recognition, we
may not be able to attract and retain users. Also, the user experience we offer to automobile consumers may be negatively affected by the
non-automobile
advertisements displayed on our websites and
applications. If our user base decreases, our websites may be rendered less attractive to advertisers and our services may become less attractive, which may have a material and adverse impact on our business, financial condition and results of
operations. For our leads generation services, if our service delivery model doesnt gain sufficient market acceptance, we may not be able to sustain our revenue growth and operating profit.
We may not be able to successfully monetize and expand our mobile internet services.
We plan to continue to expand our mobile internet services and explore monetization strategies for our mobile internet services. We have made
significant efforts in recent years to optimize the mobile version of our websites and mobile applications to display our content and develop new mobile applications to capture a greater number of users that access our services through mobile
devices. For example, the number of our average daily unique users who access our websites via mobile devices and the number of our average daily unique users of our mobile applications amounted to approximately 13.7 million and
8.8 million, respectively, in the fourth quarter of 2017. We plan to devote more resources to enhance the functions and user interfaces of our mobile applications. However, if we are unable to attract and retain a substantial number of mobile
device users, or if we do not keep up with our competitors in developing attractive services that are adapted for such mobile devices, we may fail to capture a significant share of an increasingly important portion of the mobile internet market for
our services or lose existing users. Our limited experience in monetizing our mobile internet services makes it difficult to predict whether we will succeed in developing mobile applications that appeal to automakers and dealers. Our experience in
developing browser-based applications may not be relevant to developing mobile applications.
We believe an increasing number of sales
leads were generated from our mobile applications as evidenced by the significant increase of our advertising revenue via our mobile platform. However, we cannot guarantee you that monetization strategies for our mobile internet services will
continue to be successful. If our users continue to allocate more time on our mobile services instead of our traditional PC services, mobile monetization may become increasingly important to our results of operations. Accordingly, if we are unable
to successfully implement monetization strategies for our mobile internet users, our results of operations may be negatively affected.
8
A limited number of automaker advertisers have accounted for, and are expected to continue to account for,
a large portion of our media services revenues. Failure to maintain or to increase revenues from these advertisers could harm our prospects.
A limited number of automaker advertisers have accounted for, and are expected to continue to account for, a large portion of our media
services revenues. In each of 2015, 2016 and 2017, 87, 95 and 101 automakers operating in China used our media services. These automakers include independent Chinese automakers, joint ventures between Chinese and international automakers and
international automakers that sell cars made outside of China. In 2017, our top five automaker advertisers contributed 18.9% of our media services revenues. We believe that our major future revenue growth will be focused on deepening our existing
commercial relationships with automakers to increase our share of each automakers advertising budget. There is no assurance that our relationships with any of our existing automaker customers will continue in the future. If we lose one or more
of our important automaker customers, or if they materially reduce their purchase of our services, our results of operations would be materially and adversely affected.
Due to the limited number of automakers operating in China and our revenue concentration attributable to a small number of these companies,
any of the following events, among others, may cause a material decline in our revenue and materially and adversely affect our results of operations and prospects:
|
|
|
contract reduction, delay or cancellation by one or more significant advertisers and our failure to identify and acquire additional or replacement advertisers;
|
|
|
|
a substantial reduction by one or more of our significant advertisers in the price they are willing to pay for our services; and
|
|
|
|
financial difficulty of one or more of our significant advertisers who become unable to make timely payment for the advertisements placed on our websites and mobile applications.
|
If our service offerings to dealers cannot gain sufficient market acceptance, we may not be able to sustain our revenue growth and operating profit.
We had local sales and service representatives covering 206 cities across China as of December 31, 2017. We intend to
increase our penetration in existing dealer advertising and subscription services markets. We have implemented business strategies to further monetize our large dealer network by enlarging the offering of products and services on our dealer digital
platform and increasing the average spending of our existing dealer subscribers and upselling our dealership packages for our leads generation services. We have been continuously integrating new technologies into our dealer digital platform.
However, our monetization and expansion strategies, in particular our share of wallet approach, sales and marketing efforts designed to attract dealer advertisers and increase the average spending of our existing dealer subscribers, may
be unsuccessful. We may not be able to realize the market acceptance of our products and services as we expected and thus may fail to achieve an increase in the share of wallet from the paying dealers on our platform or maximize the pool
of dealer subscription. In addition, as China is a large and diverse country and business practices and demands may vary significantly by region and by the level of development of the cities, our experience in the markets in which we currently
operate may not be applicable in every part of China or in the lower-tier cities in China. If the service offerings catered to dealers on our platform turn out to be unattractive, we will not be able to generate sufficient revenues to cover our
increased costs and expenses. As a result, our business and results of operations may be materially and adversely affected.
Our business depends on
strong brand recognition, and failing to maintain or enhance our brands could adversely affect our business and prospects.
Maintaining and enhancing our Autohome and Che168 brands is critical to our business and prospects. We believe that
brand recognition will become increasingly important as the number of internet users in China grows and competition in our industry intensifies. A number of factors could prevent us from successfully promoting our brands, including user
dissatisfaction with the content offered on our websites or mobile applications, negative publicity involving our business and the failure of our sales and marketing activities. If we fail to maintain and enhance our brands, or if we incur excessive
expenses in this effort, our business, results of operations and financial condition will be materially and adversely affected.
9
If we are unable to conduct our marketing activities cost-effectively, our results of operations and
financial condition may be materially and adversely affected.
We have incurred expenses on a variety of marketing and brand
promotion efforts designed to enhance our brand recognition and increase sales of our products and services. Our marketing and promotional activities may not be well received by customers and may not result in the level of sales of products and
services that we anticipate. We incurred RMB1,127.5 million, RMB1,536.9 million and RMB1,647.5 million (US$253.2 million) in sales and marketing expenses in 2015, 2016 and 2017, respectively, representing 32.6%, 25.8% and 26.5%,
respectively, of total net revenues in the corresponding years. Marketing approaches and tools in the consumer products market in China are evolving. This further requires us to enhance our marketing approaches and experiment with new marketing
methods to keep pace with industry developments and consumer preferences, which may not be as cost-effective as our marketing activities in the past and may lead to significantly higher marketing expenses in the future. We conducted various sales
and marketing initiatives to promote our brands through websites, search engines, mobile platforms, navigation sites and traditional media channels, for example, the annual Singles Day event and AR Auto Show event. We
also conducted various offline promotional activities and cooperated with brands and dealers for promotions in target regions. We may not be able to continue or conduct these activities efficiently, and our marketing activities may not yield
satisfactory results. Failure to refine our existing marketing approaches or to introduce new effective marketing approaches in a cost-effective manner could impact our net revenues and profitability.
We may not be able to sustain our historical growth.
Our historical growth rates may not be indicative of our future growth, and we may not be able to generate similar growth rates in the future.
Our net revenue increased from RMB3,464.0 million in 2015 to RMB5,961.6 million in 2016 and further increased to RMB6,210.2 million (US$954.5 million) in 2017 representing a CAGR of 33.9%. Also, our net income attributable to Autohome
Inc. increased from RMB990.6 million in 2015 to RMB1,227.9 million in 2016 and RMB2,001.6 million (US$307.6 million) in 2017, representing a CAGR of 42.1%. Our revenue or profit growth may slow down, or our revenues or profits may decline for any
occurrence of possible reasons, including increasing operating expenses, increasing competition, slow growth of our business development, emergence of alternative business models, and changes in government policies or general economic conditions. We
cannot assure you that we will grow at the same rate as we had in the past. If our growth rate declines, investors perceptions of our business and business prospects may be adversely affected and the market price of our ADSs could decline.
Inaccuracy in pricing and listing information provided by dealers and independent automobile sellers on our platform may adversely affect our
business and financial performance.
Our automobile listings and promotional information are provided and updated by the dealers
and independent automobile sellers on our platform. Users interested in particular vehicle models can conveniently search for
up-to-date
information on such models
without having to visit the local showrooms of relevant dealers or solicit related information from other sources. Although we have optimized our system to detect pricing inaccuracy and have leveraged our advanced technology and third-party data to
improve the accuracy of price listings and promotional information on our platform, we cannot assure you that these measures are always effective to ensure the accuracy and reliability of pricing and listing information provided to our users. If
such listings and promotional information provided by the dealers and independent automobile sellers on our platform are frequently inaccurate or not reliable, our users may lose faith in our websites and mobile applications, resulting in reduced
user traffic to our websites and mobile applications and diminished value to advertisers. We may receive more customer complaints, and we may need to allocate more resources in responding and handling such complaints. We cannot guarantee that such
complaints will be resolved in satisfactory outcome. Our reputation could be harmed, which could adversely affect our business and financial performance.
10
If we are unable to maintain our relationships with advertising agencies or if we are unable to collect
accounts receivable from advertising agencies in a timely manner, our results of operations and prospects may be materially and adversely affected.
Although we consider automakers and automobile dealers to be our
end-customers
for our media services,
we sell our advertising services and solutions primarily to third-party advertising agencies that represent the automakers and automobile dealers, as is customary in China. We rely on a few advertising agencies to maintain our business relationships
with automakers and automobile dealers. We do not have long-term cooperation agreements or exclusive arrangements with these agencies and they may elect to direct business to other advertising service providers, including our competitors. If we fail
to retain and enhance our business relationships with third-party advertising agencies, in particular the few ones we frequently transact with, we may suffer from a loss of advertisers and our business, financial condition, results of operations and
prospects may be materially and adversely affected. In our agreements with certain major advertising agencies, we undertake to provide them with most favored pricing terms. Such most favored pricing terms may hinder our ability to acquire new
customers using special pricing terms.
In addition, we rely on third-party advertising agencies for the collection of payment from
advertisers and we rely on a few advertising agencies to collect a significant portion of our total account receivables. As a result, the financial soundness of advertising agencies may affect our collection of accounts receivable. We make a credit
assessment of the advertising agency to evaluate the collectability of the advertising service fees before entering into an advertising contract. However, we cannot assure you that we will be able to accurately assess the creditworthiness of each
advertising agency, and any failure of advertising agencies to pay us in a timely manner may adversely affect our liquidity and cash flows.
If
online advertising and promotion do not continue to grow in China, our ability to increase revenue and profitability could be materially and adversely affected.
With the continuous growth of internet usage in China, the internet has become an increasingly important marketing and advertising channel to
Chinas automotive industry. Although online advertising and promotion have constituted a significant portion of the overall marketing activities of our current and potential advertisers and dealer subscribers, if the promotional effect or
outcome realized through online advertising and promotion cannot meet the expectations of advertisers and dealer subscribers or address their needs, our advertisers and dealer subscribers may decrease their spending and efforts on online advertising
and promotion and devote more marketing budgets to traditional print and broadcast media. Our ability to increase revenue and profitability from online marketing may be adversely impacted by a number of factors, many of which are beyond our control,
including:
|
|
|
difficulties associated with developing a larger user base with demographic characteristics attractive to advertisers;
|
|
|
|
increased competition and potential downward pressure on online advertising prices;
|
|
|
|
difficulties in acquiring and retaining advertisers or dealer subscribers;
|
|
|
|
uncertainties and changes in regards to PRC regulations on internet advertisements;
|
|
|
|
failure to develop an independent and reliable means of verifying online traffic; and
|
|
|
|
decreased use of the internet or online marketing in China.
|
If the internet does not become
more widely accepted as an effective media platform for advertising and marketing by Chinas automotive industry, our business, financial condition and results of operations could be materially and adversely affected.
If we are unable to grow our used automobile-related business through our che168.com website and mobile application, we may not be able to achieve our
expected business growth and our results of operations may be adversely affected.
Our
che168.com
website has been focusing
on used automobile information and content since October 2011. We also launched che168.com mobile application in 2012. Through these platforms, we offer used automobile listing services to used automobile dealers and individual car owners through a
user interface that allows potential used car buyers to identify listings that meet their specific requirements and contact the seller.
11
We may not be able to successfully grow our used automobile-related business through our
che168.com
website and our used car platform services. Although the used automobile market in China is growing due to the increased number of consumer-owned automobiles, there is still significant uncertainty regarding the extent to which our
used automobile-related business may benefit from such growth. We may not be able to source sufficient used automobiles or attract a broad user base to our
che168.com
website and mobile application or be successful compared to our
competitors. Even if we are able to do so, we may not be able to establish a business model that allows us to effectively monetize the user traffic. We may not be able to successfully facilitate used car transactions and our services might not be
satisfactory to the used car buyers or sellers. In such cases, we may not be able to achieve our expected business growth and our results of operations may be adversely affected.
Our business is subject to fluctuations, which makes our results of operations difficult to predict and may cause our quarterly results of operations to
fall short of expectations.
Our quarterly revenues and other operating results have fluctuated in the past and may continue to
fluctuate depending upon a number of factors, many of which are beyond our control. Our business experiences seasonal variations in association with the demand for automobiles in China. For example, the first quarter of each year generally
contributes the lowest portion of our annual net revenues primarily due to a slowdown in business activity around and during the Chinese New Year holiday, which occurs during the period. Consequently, our results of operations may fluctuate from
quarter to quarter. For these reasons, comparing our operating results on a
period-to-period
basis may not be meaningful, and you should not rely on our historical
results as an indication of our future performance. As each of our business lines may have different seasonality factors and the mix of our revenue source may shift from year to year, our past performance may not be indicative of future trends.
In addition, because a significant portion of our revenues arising from our media services is attributable to new model promotion campaigns,
the timing of new car releases of our major automaker advertisers can have a significant impact on our results of operations. The timing of such releases, however, is subject to uncertainty due to various factors, such as automakers design or
manufacturing issues, marketing conditions and government incentives or restrictions. These factors may make our results of operations difficult to predict and cause our quarterly results of operations to fall short of expectations.
Problems with our network infrastructure or information technology systems could impair our ability to provide services.
Our ability to provide our users with a high-quality online experience depends on the continuing operation and scalability of our network
infrastructure and information technology systems. Our systems are potentially vulnerable to damage or interruption as a result of earthquakes, floods, fires, extreme temperatures, power loss, telecommunications failures, technical error, computer
viruses, hacking or similar events. We may encounter problems when upgrading our systems or services and undetected programming errors could adversely affect the performance of the software we use to provide our services. The development and
implementation of software upgrades and other improvements to our internet services is a complex process, and issues not identified during
pre-launch
testing of new services may only become evident when such
services are made available to our entire user base.
In addition, we rely on content delivery networks, data centers and other network
facilities provided by third parties. Any disruption to these network facilities may result in service interruptions, decreases in connection speed, degradation of our services or the permanent loss of user data and uploaded content. If we
experience frequent or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our reputation or relationships with our users or advertisers may be damaged and our users and
advertisers may switch to our competitors, which may have a material adverse effect on our business, financial condition and results of operations.
12
Computer viruses and hacking may cause delays or interruptions on our systems and may reduce
use of our services and damage our reputation and brand.
Computer viruses and hacking may cause delays or other
service interruptions on our systems. Hacking involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, including user identity data, software, hardware or
other computer equipment. In addition, the inadvertent transmission of computer viruses could result in significant damage to our hardware and software systems and databases, disruptions to our business activities, including our
e-mail
and other communications systems, breaches of security and inadvertent disclosure of confidential or sensitive information, interruptions in access to our website through the use of denial of
service or similar attacks and other material adverse effects on our operations. We have experienced hacking attacks in the past, and although such attacks in the past have not had a material adverse effect on our operations, there is no
assurance that there will be no serious computer viruses or hacking attacks in the future. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking.
Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation and brand could be materially damaged and use of our services may decrease.
Failure to ensure and protect the confidentiality of personal data of customers could subject us to penalties, negatively impact our reputation and
brand and deter customers from using our platform.
Ensuring secured transmission of confidential information through public
networks is essential to maintaining the confidence of our customers and users. Our existing security measures may not be adequate to protect such confidential information. In addition, computer and network systems are susceptible to breaches by
computer hackers. Security breaches could expose us to litigation and potential liability for failing to secure confidential customer information and could harm our reputation and reduce our ability to attract customers and users. Future security
breaches, if any, may result in a material adverse effect on our business, financial condition and results of operations.
Practices
regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet and mobile platforms have recently come under increased public scrutiny. As Chinas internet industry continues
to evolve, we believe that it is likely that the PRC government will strengthen the supervision and regulation on data privacy on the internet. We may become subject to new laws and regulations applying to the solicitation, collection, processing or
use of personal or consumer information that could affect how we store, process and share data with our customers. We generally comply with industry standards and are subject to the terms of our own privacy policies. Compliance with any additional
laws could be expensive and may place restrictions on the conduct of our business and the manner in which we interact with our customers. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against
us, subject us to significant penalties and negative publicity, require us to change our business practices, increase our operating costs and ultimately cause an adverse effect on our business.
Pursuant to the General Rules of the Civil Law of the PRC which was promulgated in March 2017 and came into effect in October 2017 and the
Cyber Security Law of the PRC, which was promulgated in November 2016 and became effective in June 2017, any organizations and individuals who require personal information of others should not illegally collect, use or disclose it. Furthermore,
network operators are not allowed to collect personal information which is irrelevant to the services they provide or to collect or use personal information in violation of laws, regulations and mutual agreements. See Item 4. Information on
the CompanyB. Business OverviewPRC RegulationRegulations on Internet Privacy.
Significant capital and other
resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as
the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated, well-funded and constantly evolving. 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. Any perception by the public that online transactions or the privacy of user information is becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online retail and other online
services generally, which may reduce the number of orders we receive.
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The continuing and collaborative efforts of our senior management, key employees and highly skilled
personnel are crucial to our success, and our business may be harmed if we were to lose their services.
Our success depends on
the continuous efforts and services of our senior management team and other key personnel. If one or more of our executive officers or other key personnel are unable or unwilling to continue to provide us with their services, we might not be able to
replace them within a short period of time or at all. Our business could be severely disrupted, our financial condition and results of operations could be materially and adversely affected, and we might incur additional expenses to recruit, train
and retain personnel. Our senior management team is crucial to executing our business strategies. Failure to retain our key management and personnel may create considerable uncertainty on the direction of our future development. If any of our
executive officers joins a competitor or forms a competing company, we may lose customers,
know-how
and key professionals and staff members. Each of our executive officers has entered into an employment
agreement with us, which contains
non-competition
provisions. However, if any dispute arises between us and our executive officers, we may have to incur substantial costs and expenses in order to enforce these
agreements in China.
Our performance and future success also depend on our ability to identify, hire, develop, motivate and retain
skilled personnel for all areas of our organization. Competition in the automotive and internet advertising industries and the online automobile transaction industry for qualified employees is intense, and if competition in these industries further
intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in attracting additional highly skilled personnel or retaining or motivating our existing personnel, we may be unable to grow
effectively or at all.
If we fail to protect our intellectual property rights, our brand and business may suffer.
We rely on a combination of trademark, patent, copyright and trade secret protection laws in the PRC and other jurisdictions, as well as
through confidentiality agreements and other measures, to protect our intellectual property rights. Our major brand names and logos are registered trademarks in China. Most of our original generated content and professionally generated content
available on our websites and mobile applications and proprietary software are protected by copyright laws. Despite our precautions, third parties may obtain and use our intellectual property without our authorization. Historically, the legal system
and courts of the PRC have not protected intellectual property rights to the same extent as the legal system and courts of the United States, and companies operating in the PRC continue to face an increased risk of intellectual property
infringement. Furthermore, the validity, application, enforceability and scope of protection of intellectual property rights for many internet-related activities, such as internet commercial methods patents, are uncertain and still evolving in China
and abroad, which may make it more difficult for us to protect our intellectual property. From time to time, other websites may use our articles, photos or other content without our proper authorization. Although such use has not in the past caused
any material damage to our business, it is possible that there may be misappropriation on a much larger scale with a material adverse impact to our business. If we are unable to adequately protect our intellectual property rights in the future, our
brand and business may suffer.
We may be vulnerable to intellectual property infringement claims brought against us by others.
Internet, technology and media companies are frequently involved in litigation based on allegations of infringement of intellectual property
rights, unfair competition, invasion of privacy, defamation and other violation of other parties rights. We have not experienced any material claims on these issues against us in the past, but as we face increasing competition and as
litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims. We may be subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. We could also be subject to claims based upon the content that is displayed on our websites, our mobile platforms or accessible from our websites through links to other websites
or information on our websites and mobile applications supplied by third parties. Intellectual property claims and litigation are expensive and time-consuming to investigate and defend and may divert resources and management attention from the
operation of our websites and mobile applications. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our websites and mobile applications to reduce the risk of
future liability, may have a material adverse effect on our business, financial condition and results of operations.
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We may be subject to liability for advertisements and other content placed on our websites and mobile
applications.
The PRC government has adopted regulations governing advertising content as well as internet access and the
distribution of information over the internet. Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our websites and mobile applications to ensure that such content is true and accurate and in full
compliance with applicable laws and regulations. See Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations on Advertisements. Under the internet information regulations, internet content
providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, compromises national security, harms the dignity or interests of the state, incites ethnic hatred or racial
discrimination, undermines the PRCs religious policy, disturbs social order, disseminates obscenity or pornography, encourages gambling, violence, murder or fear, incites the commission of a crime, infringes upon the lawful rights and
interests of a third party, or is otherwise prohibited by law or administrative regulations. Internet service providers are required to conduct verification of identity information of users. If information disseminated by internet users on their
internet accounts or internet chat groups contains information prohibited by laws and regulations, the service providers are obliged to take measures including issuing warnings to the relevant users, suspending their publication of the inappropriate
information or closing their accounts or chat groups. See Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations on Internet Content Services. Under the regulations on online live-streaming
services, online live-streaming service providers shall establish platforms for reviewing live-streaming content. Online live-streaming service providers and online live-streaming publishers that provide internet news information services without
permits, or exceeding the scope of their permits, are subject to punishment. See Item 4. Information on the CompanyB. Business OverviewRegulations on Online Performances and Online Live-streaming Services.
We display both automotive and
non-automotive
advertisements on our websites and mobile applications.
In addition, we allow users to upload written materials, images, pictures and other content on our websites, mobile applications, including user forums, and also allow users to share and link to content from other websites through our websites,
mobile applications, including user forums. Moreover, we have also added online live-streaming features on our websites and mobile applications. Failure to identify and prevent illegal or inappropriate content from being displayed on or through our
websites and mobile applications may subject us to liability. We cannot assure you that all of the advertisements and content shown or posted on our websites and mobile applications adhere to the advertising and internet content laws and
regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations.
If PRC regulatory authorities
determine that any advertisements or content displayed on our websites and mobile applications do not adhere to applicable laws and regulations, they may require us to limit or eliminate the dissemination or availability of such advertisements and
other content on our websites and mobile applications in the form of take-down orders or otherwise. Such regulatory authorities may also impose penalties on us, including fines, confiscation of advertising income or, in circumstances involving more
serious violations by us, the termination of our advertising or internet content licenses, any of which would materially and adversely affect our business and results of operations.
In addition, we may be subject to claims by consumers asserting that the information on our websites and mobile applications is misleading,
and we may not be able to recover our losses from advertisers. As a result, our business, financial condition and results of operations could be materially and adversely affected.
We may undertake acquisitions, investments, joint ventures or other alliances, which could prove difficult to integrate, disrupt our business or
otherwise negatively impact our results of operations.
As part of our business strategy, we regularly evaluate potential
acquisitions, investments and alliances, including joint ventures and minority equity investments. These transactions involve numerous risks, including:
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the failure to achieve the expected benefits of the acquisition, investment or alliance;
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difficulties in, and the cost of, integrating operations, technologies, services and personnel;
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write-offs of investments or acquired assets;
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non-performance
by, or conflicts of interest with, the parties with whom we enter into investments or alliances;
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limited ability to monitor or control the actions of other parties with whom we enter into investments or alliances;
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misuse of proprietary information shared in connection with an acquisition, investment or alliance; and
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depending on the nature of the acquisition, investment or alliance, exposure to new regulatory risks.
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The realization of any of these risks could materially and adversely affect our business. To the extent any of our directors or officers also
invests in a capacity other than as our director or officer, his or her interest may not be aligned with ours.
In addition, if we finance
acquisitions by issuing equity or convertible debt securities, our existing shareholders may be diluted, which could affect the market price of our ADSs.
Furthermore, we may fail to identify or secure suitable acquisition, investment and other strategic opportunities, or our competitors may
capitalize on such opportunities before we do, which could impair our ability to compete with our competitors and adversely affect our growth prospects and results of operations.
Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and
adversely affect our business, financial condition and results of operations.
The global financial markets experienced
significant disruptions in 2008 and the United States, European and other economies went into recession. The recovery from the lows of 2008 and 2009 was uneven and the global financial markets are facing new challenges, including the escalation of
the European sovereign debt crisis since 2011, the hostilities in the Ukraine, the end of quantitative easing by the U.S. Federal Reserve and the economic slowdown in the Eurozone in 2014. It is unclear whether these challenges will continue to
exist and what effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the
worlds leading economies, including Chinas. Economic conditions in China are sensitive to global economic conditions. Any prolonged slowdown in Chinas economic development might lead to tighter credit markets, increased market
volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of
automobiles, and our advertisers may also defer, reduce or cancel purchasing our services. To the extent any fluctuations in the Chinese economy significantly affect automakers and dealers demand for our services or change their spending
habits, our results of operations may be materially and adversely affected.
Our third-party vendors may raise prices and as a result, increase our
operating expenses.
We rely on third parties for certain essential services, such as internet services and we may not have any
control over the costs of the services they provide. The third-party service providers may raise their prices, which might not be commercially reasonable to us. If we are forced to seek other providers, there is no assurance that we will be able to
find alternative providers willing or able to provide comparable high-quality services and there is no assurance that such providers will not charge us higher prices for their services. If the prices that we are required to pay third-party service
providers rise significantly, our results of operations could be adversely affected.
We are a controlled company within the meaning of
the NYSE corporate governance requirements, which may result in public investors not having as much protection as they would if we were not a controlled company.
As of March 31, 2018, Yun Chen Capital Cayman, or Yun Chen, a wholly owned subsidiary of Ping An Insurance (Group) Company of China,
Ltd., or Ping An Group, owned 52.7% of the total voting rights in our company, and we are a controlled company under Section 303A of the New York Stock Exchange Listed Company Manual. As a controlled company, we rely on certain
exemptions that are available to controlled companies from the NYSE corporate governance requirements, including the requirements that:
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a majority of our board of directors consists of independent directors;
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our compensation committee be composed entirely of independent directors; and
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our corporate governance and nominating committee be composed entirely of independent directors.
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We are not required to and will not voluntarily meet these requirements. As a result of our use of the controlled company
exemption, our investors will not have the same protection as they would if we were not a controlled company.
In addition, because Ping
An Group beneficially owns over 50% of the voting rights in our company, it has decisive influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations
and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Without the consent of Ping An Group, we may be prevented from entering into transactions that could be beneficial to us. The
interests of Ping An Group may differ from the interests of our other shareholders. Furthermore, Ping An Groups business activities, although not related to our operations, may adversely impact reputation. As Ping An Group is a public company
listed on the Hong Kong Stock Exchange and beneficially controls a majority of our voting rights, Ping An Group may be required to disclose information on us from time to time, which may subject us to additional costs and efforts in making such
disclosures.
If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report
our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our ADSs may be adversely impacted.
The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring
every public company to include a management report on the companys internal control over financial reporting in its annual report, which contains managements assessment of the effectiveness of the companys internal control over
financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2017. See Item 15. Controls and ProceduresManagements Annual Report on Internal Control over
Financial Reporting. 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, 2017.
However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over
financial reporting at a reasonable assurance level. This could in turn result in loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and
anticipate that we will continue to incur considerable costs, management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
We have limited business insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in more developed
economies. We do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. Any uninsured occurrence of business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations
and financial condition.
We face risks related to health epidemics and natural disasters.
We are vulnerable to health epidemics, natural disasters, and other calamities. Any of such occurrences could cause severe disruption to our
daily operations, and may even require a temporary closure of our offices, which may disrupt our business operations and adversely affect our results of operations. In addition, our results of operations could be adversely affected to the extent
that any of these catastrophic events harms the Chinese economy in general.
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Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for operating our services in China do not comply with PRC governmental
restrictions on foreign investment in internet businesses, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those
operations.
Current PRC laws and regulations place certain restrictions on foreign ownership of companies that provide internet
content services in China. Specifically, foreign ownership of internet service providers or other value-added telecommunication service providers may not exceed 50%. In addition, according to the Several Opinions on the Introduction of Foreign
Investment in the Cultural Industry promulgated by the Ministry of Culture, the State Administration of Radio, Film and Television, or the SARFT, the General Administration of Press and Publication, or the GAPP, the National Development and Reform
Commission, or the NDRC, and the Ministry of Commerce in June 2005, foreign investors are prohibited from investing in or operating internet cultural activities. We are a Cayman Islands company and foreign legal person under PRC laws.
Accordingly, neither we nor our wholly foreign-invested PRC subsidiaries are currently eligible to apply for the required licenses for providing internet content services in China.
As such, we conduct our business related to internet content services by entering into a series of contractual arrangements with two of our
VIEs in China, namely Beijing Autohome Information Technology Co., Ltd., or Autohome Information, Beijing Shengtuo Hongyuan Information Technology Co., Ltd., or Shengtuo Hongyuan. In particular, Autohome Information currently holds an ICP license, a
Surveying and Mapping Qualification Certificate for Internet Mapping, an Operating License for the Production and Dissemination of Radio and Television Programs, an internet Audio/Video Program Transmission License, and an Internet Culture Business
Permit. In addition, Autohome Information is the sole shareholder of Shanghai Tianhe Insurance Brokerage Co., Ltd. which holds the license for engaging in insurance brokerage business. Shengtuo Hongyuan currently holds an ICP license, a Surveying
and Mapping Qualification Certificate for Internet Mapping, an Operating License for the Production and Dissemination of Radio and Television Programs and is operating the
che168.com
website and automobile application-related business.
These two VIEs are currently owned by individual shareholders who are PRC citizens and hold the requisite licenses or permits to operate
internet business in China. We do not have any equity interest in these two VIEs but substantially control their operations and receive the economic benefits through contractual arrangements. We have been and are expected to continue to be dependent
upon these two VIEs and their respective subsidiaries for the above mentioned business operations. For more information regarding these contractual arrangements, see Item 7. Major Shareholders and Related Party TransactionsB. Related
Party Transactions Contractual Agreements with our Variable Interest Entities.
In consideration of the previous restrictions
imposed on the shareholders of foreign-invested companies engaging in advertising business, we once conducted advertising business by entering into a series of contractual arrangements with the other two VIEs in China, namely Guangzhou You Che You
Jia Advertising Co., Ltd., or Guangzhou Advertising, and Shanghai You Che You Jia Advertising Co., Ltd., or Shanghai Advertising. Since the relevant regulatory environment developed, such restrictions were lifted in 2015. Therefore, in 2015, we
completed the migration of our advertising business from Guangzhou Advertising, Shanghai Advertising and other PRC entities to the PRC subsidiaries of Autohome Media, a Hong Kong company. Guangzhou Advertising and Shanghai Advertising currently are
not conducting any business and are in the process of liquidation and dissolution, which are expected to be completed by the end of 2018.
Based on the advice of our PRC legal counsel, Commerce & Finance Law Offices, the corporate structure of our VIEs and our
subsidiaries in China are in compliance with all existing PRC laws and regulations. However, as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, we cannot assure you that the PRC
government would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in
the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.
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If we or any of our current or future VIEs or subsidiaries are found to be in violation of any
existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the Ministry of Industry and Information Technology, or the MIIT, which regulates
internet information services companies, the China Insurance Regulatory Commission, or CIRC, and the China Securities Regulatory Commission, or the CSRC, would have broad discretion in dealing with such violations, including levying fines,
confiscating our income or the income of Autohome WFOE, Beijing Chezhiying Technology Co., Ltd., or Chezhiying WFOE and the VIEs, revoking the business licenses or operating licenses of Autohome WFOE, Chezhiying WFOE and the VIEs, shutting down our
servers or blocking our websites and mobile applications, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, or taking other 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 and results of operations. In addition, if the imposition of any of these penalties causes us to lose the rights to direct the activities of the VIEs or our right to
receive their economic benefits, we would no longer be able to consolidate the VIEs.
Our contractual arrangements with our VIEs may not be as
effective in providing operational control as direct ownership.
We have relied and expect to continue to rely on
(i) contractual arrangements with Autohome Information and two of its subsidiaries, Autohome Advertising and Chengshi Advertising, and shareholders of Autohome Information and (ii) contractual arrangements with Shengtuo Hongyuan and its
two subsidiaries and shareholders to operate our business.
For a description of these contractual arrangements, see Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsContractual
Agreements with our Variable Interest Entities. These contractual arrangements may not be as effective in providing us with control over our VIEs as direct ownership. If we had direct ownership of these entities, we would be able to exercise
our rights as a shareholder to effect changes in the board of directors, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely on
the performance by these entities and their shareholders of their contractual obligations to exercise control over our VIEs. Therefore, our contractual arrangements with our VIEs may not be as effective in ensuring our control over their operations
as direct ownership would be.
The shareholders of our VIEs may breach, or cause our VIEs to breach, or refuse to renew, the existing contractual
arrangements we have with them and our VIEs. Any failure by our VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business and financial condition.
The shareholders of our VIEs may breach, or cause our VIEs to breach, or refuse to renew, the existing contractual arrangements
we have with them and our VIEs. If our VIEs or their shareholders fail to perform their obligations under the contractual arrangements, we may have to incur substantial costs and expend resources to enforce our rights under the contracts. We may
have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. For example, if the shareholders of Autohome Information and Shengtuo Hongyuan were to refuse
to transfer their equity interests in those companies to us or our designee when we exercise the call option pursuant to these contractual arrangements, if they transfer the equity interests to other persons against our interests, or if they were
otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC.
Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in 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 law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and the
prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would incur 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 our VIEs, and our ability to conduct our business may be negatively affected.
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Contractual arrangements our subsidiaries have entered into with our VIEs may be subject to scrutiny by the
PRC tax authorities and a finding that we or our VIEs owe additional taxes could substantially reduce our consolidated net income and 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 within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Autohome WFOE, Chezhiying WFOE,
our VIEs and the shareholders of our VIEs do not represent
arms-length
prices and consequently adjust Autohome WFOE and Chezhiying WFOEs or our VIEs 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 our VIEs, which could in turn increase their tax liabilities. In addition, the PRC tax authorities
may impose late payment fees and other penalties on Autohome WFOE, Chezhiying WFOE or our VIEs for any unpaid taxes. Our consolidated net income may be materially and adversely affected if Autohome WFOE and Chezhiying WFOE or our VIEs tax
liabilities increase or if they are subject to late payment fees or other penalties.
The interests of the individual nominee shareholders of our
VIEs may be different from our interests, which may materially and adversely affect our business.
The individual nominee
shareholders of Guangzhou Advertising, Shanghai Advertising, Autohome Information and Shengtuo Hongyuan are Min Lu, chairman of our board of directors and our chief executive officer, and Haiyun Lei, an employee of the affiliate of Yun Chen and has
been with Ping An Group and its affiliates for more than 20 years. They each hold 50% of the equity interests in Guangzhou Advertising, Shanghai Advertising, Autohome Information and Shengtuo Hongyuan. Each of these two individuals is a PRC citizen.
The interests of the individual nominee shareholders of our VIEs may be different to our interest. For example, the individual nominee shareholders of our consolidated affiliated entities do not have a significant equity stake in our company. These
shareholders may breach, or cause our VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIEs, which would have a material and adverse effect on our ability to effectively control our VIEs and receive
substantially all the economic benefits from them. For example, the shareholders may be able to cause our agreements with our VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual
arrangements to us on a timely basis. We cannot assure you that when a conflict of interest arises, any or all of these shareholders will act in the best interests of our company or such conflict will be resolved in our favor.
Currently, we do not have any arrangements to address potential difference of interests between these individual nominee shareholders and our
company. We rely on these individuals to comply with the laws of China, which protect contracts, provide that directors and executive officers owe a duty of loyalty and a duty of diligence to our company and require them to avoid conflicts of
interest and not to take advantage of their positions for personal gain. We also rely on Mr. Min Lu, our chairman of the board of directors and our chief executive officer, to abide by the laws of the Cayman Islands, which provide that
directors owe a duty of care to our company. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any
difference of interests or dispute between us and the shareholders of our VIEs, 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.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing
requirements we may have. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.
We are a holding company, and we may rely on dividends and other distributions on equity to be paid by our wholly owned PRC subsidiaries for
our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. 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 distributions to us.
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Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in the
PRC, may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises are required to set aside at least 10% of their accumulated
after-tax
profits, if any, each year to fund certain statutory reserve funds, until the aggregate amount of such funds reach 50% of their registered capital. These statutory reserve funds are not distributable as
cash dividends.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially
and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may
restrict or prevent us from using the proceeds of our equity offerings to make loans to our PRC subsidiaries and VIEs or to make additional capital contributions to our PRC subsidiaries, which may materially and adversely affect our liquidity and
our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our
PRC subsidiaries and VIEs. We may make loans to our PRC subsidiaries and VIEs, or we may make additional capital contributions to our PRC subsidiaries. Any loans by us to our PRC subsidiaries, which are treated as foreign-invested enterprises under
PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiaries to finance its activities cannot exceed statutory limits and must be registered with the competent local counterpart of
the State Administration of Foreign Exchange, or SAFE. We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be filed with the PRC Ministry of Commerce or its local counterpart. Due to
the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our VIEs, which are PRC domestic companies. Further, we are not likely to finance the activities of our VIEs by
means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in internet content services.
Pursuant to both of SAFE Circular 19 and SAFE Circular 16 promulgated in March 2015 and June 2016, respectively, foreign-invested enterprises
may either continue to follow the current payment-based foreign currency settlement system or choose to follow the
conversion-at-will
system for foreign
currency settlement. SAFE Circular 19 and SAFE Circular 16, therefore, have substantially lifted the restrictions on the usage by a foreign-invested enterprise of its Renminbi registered capital, foreign debt and repatriated funds raised through
overseas listing converted from foreign currencies. According to SAFE Circular 19 and SAFE Circular 16, such Renminbi capital, foreign debt and repatriated funds raised through overseas listing may be used at the discretion of the foreign-invested
enterprise and SAFE will eliminate the prior approval requirement and only examine the authenticity of the declared usage afterwards. Nevertheless, it is still not clear whether foreign-invested enterprises like our PRC subsidiaries are allowed to
extend intercompany loans to our VIEs. In addition, as SAFE Circular 19 and SAFE Circular 16 were promulgated recently, there remain substantial uncertainties with respect to the interpretation and implementation of these circulars by relevant
authorities. See Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations on Foreign Exchange.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding
companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with
respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received from our equity offerings and to capitalize or otherwise fund our
PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
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If our PRC subsidiaries or VIEs become the subject of a bankruptcy or liquidation proceeding, we may lose
the ability to use and enjoy some of our key assets, which could reduce the size of our operations and materially and adversely affect our business, our ability to generate revenues and the market price of our ADSs.
As our two VIEs, namely Guangzhou Advertising and Shanghai Advertising, have no longer operated any business since 2017, we are currently
undertaking the relevant PRC governmental procedures to liquidate, dissolve and
de-register
these
non-operating
VIEs. As of the date of this annual report, we conduct
our business mostly through our PRC subsidiaries and the other two operating VIEs, namely, Autohome Information and Shengtuo Hongyuan, which hold operating permits and licenses and some of the key assets that are important to the operation of our
business. We expect to continue to be dependent on these operating VIEs to operate our business related to internet content services in China. If the above-mentioned operating VIEs go bankrupt and all or part of their assets become subject to liens
or rights of third-party creditors, we may be unable to continue some or all of our business activities, which would materially and adversely affect our business, financial condition and results of operations. If such VIEs undergo a voluntary or
involuntary liquidation proceeding, their equity holders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which would materially and adversely affect our
business, our ability to generate revenues and the market price of our ADSs.
Risks Related to Doing Business in China
Changes in Chinas economic, political or social conditions or government policies could have a material adverse effect on our business and
operations.
The majority of our assets and operations are located in China. Accordingly, our business, financial condition,
results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese 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 Chinese 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 are still owned by the Chinese government. In addition, the Chinese
government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over Chinas 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 the Chinese economy has experienced significant growth over the past decades, the growth has been uneven, both geographically and among
various sectors of the economy, and the rate of growth has been slowing. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these 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. In addition, in the past
the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating
results.
Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through our PRC subsidiaries and VIEs in China. Our operations in China are governed by PRC laws and
regulations. Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us. In 1979, 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 several decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully
integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of
published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing
statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. Furthermore, the PRC legal system is based in part on government policies and internal
rules, some of which are not published on a timely basis or at all, which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any
administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
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Substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and
implementation of draft PRC Foreign Investment Law published for public comments and how it may impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment,
replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law,
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
the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Ministry of Commerce solicited comments on this draft in 2015, but no new draft has been published since then. As such, substantial
uncertainties exist with respect to its enactment timetable, final content, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure,
corporate governance and business operations in many aspects.
Among other things, the draft Foreign Investment Law expands the definition
of foreign investment and introduces the principle of actual control in determining whether a company is considered a foreign-invested enterprise, or an 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 set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce, treated as a PRC domestic
investor provided that the entity is controlled by PRC entities and/or citizens. In this connection, control is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% of more of
the voting rights of the subject entity; (ii) holding less than 50% of the 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 exert material influence on the board, the shareholders meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject
entitys operations, financial matters or other key aspects of business operations. 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 later. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance by the Ministry of Commerce, 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 VIE structure has
been adopted by many
PRC-based
companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See Item 7.
Major Shareholders and Related Party TransactionsB. Related Party Transactions Contractual Agreements with our Variable Interest Entities and Item 3. Key InformationD. Risk FactorsRisks Related to Our Corporate
StructureIf the PRC government finds that the agreements that establish the structure for operating our services in China do not comply with PRC governmental restrictions on foreign investment in internet businesses, or if these regulations or
the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Under the draft Foreign Investment Law, VIEs that are controlled via
contractual arrangement would also be deemed as FIEs, if they are ultimately controlled by foreign investors. Therefore, for any company with a VIE structure in an industry category that is on the negative list, the VIE
structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, the VIEs will be treated
as FIEs and any operation in the industry category on the negative list without market entry clearance may be considered as illegal.
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The draft Foreign Investment Law has not taken a position on what actions will be taken with
respect to existing companies with a VIE structure, whether or not these companies are controlled by Chinese parties, while it is soliciting comments from the public on this point. The provision of internet content services, which we conduct through
our VIEs, is subject to foreign investment restrictions set forth in the Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, issued by the NDRC and the Ministry of Commerce in March 2015 and revised in June 2017. It is
unclear whether the new negative list will be different from the Catalogue. If the enacted version of the Foreign Investment Law and the final negative list mandate further actions, such as Ministry of Commerce market entry
clearance or certain restructuring of our corporate structure and operations, to be completed by companies with existing VIE structure like us, we face substantial uncertainties as to whether these actions can be timely completed, or at all, and our
business and financial condition may be materially and adversely affected.
The draft Foreign Investment Law, if enacted as proposed, may
also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the
applicable FIEs. Aside from the 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 liabilities.
We may be adversely affected by the complexity,
uncertainties and changes in PRC regulation of internet business and companies.
The PRC government extensively regulates the
internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and
enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be violations of applicable laws and regulations. Issues, risks and uncertainties
relating to the PRC government regulation of the internet industry include, but are not limited to, the following:
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We only have contractual control over our websites and mobile applications. We do not own the websites or the mobile applications due to the restriction on foreign investment in businesses providing value-added
telecommunication services in China, which include internet content provision services.
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There are uncertainties relating to the regulation of the internet industry in China, including evolving licensing requirements. This means that permits, licenses or operations at some of our subsidiaries and VIEs may
be subject to challenge, or we may fail to obtain permits or licenses that applicable regulators may deem necessary for our operations, or we may not be able to obtain or renew permits or licenses. For example, both Autohome Information and Shengtuo
Hongyuan may be required to obtain additional licenses, including internet publishing licenses and internet news information service licenses, if the release of articles and information on the mobile applications and the websites
autohome.com.cn
and
che168.com
is deemed by the PRC regulatory authorities as being provision of internet publishing service, internet news information service. See Item 4. Information on the CompanyB. Business
OverviewPRC RegulationRegulations on Internet Publishing and Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations on Internet News Information Service for additional details.
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The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, the Cyberspace Administration of China was established in 2014, as the
central Internet censorship, oversight and control agency for the PRC.
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New laws and regulations may be promulgated to regulate internet activities, including online advertising businesses and online auto finance businesses. As such, additional licenses may be required for our operations.
If our operations do not comply with these new regulations at the time they become effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties.
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New government policies and internal rules relating to the regulations on internet activities may negatively affect our user traffic growth. For example, the Interim Measures for the Administration of Internet
Advertising, which came into effect on September 1, 2016, require that an internet advertisement shall be identifiable and clearly identified as an advertisement so that users will tell it is an advertisement. See Item 4.
Information on the CompanyB. Business OverviewPRC RegulationRegulations on advertisements. The Administrative Provisions on Internet Forum and Community Services and the Administrative Provisions on Internet
Follow-up
Comment Services, both of which became effective on October 1, 2017, require internet service providers to verify the authenticity of identity information of registered users. Internet service
providers are prohibited from providing internet services to users who fail to provide verifiable identity information. See Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations on Internet Content
Services. Complying with such requirement has begun to negatively affect the growth rate of user traffic on our websites and mobile applications. The promulgation of laws and regulations relating to the internet activities may further impair
our user traffic growth.
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On July 13, 2006, the MIIT, the predecessor of which was the Ministry of Information
Industry, issued the Notice of the Ministry of Information Industry on Intensifying the Administration of Foreign Investment in Value-added Telecommunications Services. This notice prohibits domestic telecommunication service providers from leasing,
transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in
China. According to this notice, either the holder of a value-added telecommunication services operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their provision of value-added
telecommunication services. The notice also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. Currently,
Autohome Information and Shengtuo Hongyuan, two of our VIEs, own the related domain names and trademarks and hold the internet content provider licenses, or ICP licenses, necessary to conduct our operations for websites and mobile applications in
China.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies
relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot
assure you that we will be able to maintain our existing licenses or obtain any new licenses if required by any new laws or regulations. There are also risks that we may be found to violate existing or future laws and regulations given the
uncertainty and complexity of Chinas regulation of the internet industry. If we or our VIEs fail to obtain or maintain any of the required assets, licenses or approvals, our continued business operations in the internet industry may subject us
to various penalties, including the confiscation of illegal net revenues, fines and the discontinuation or restriction of our operations, any of which would materially and adversely affect our business and results of operations.
There are substantial uncertainties with respect to the interpretation and implementation of the Cyber Security Law and how it may impact our business
operations.
On July 1, 2015, the Standing Committee of the National Peoples Congress of China issued the National
Security Law, which came into effect on the same day. The National Security Law provides that the state shall safeguard sovereignty, security and development interests of cyberspace in the state, and the state shall establish a national security
review and supervision system to review foreign investment, key technologies, internet and information technology products and services and other important activities that are likely to impact the national security of China.
25
The Cyber Security Law, which was issued by the Standing Committee of the National Peoples
Congress of China and became effective on June 1, 2017, is the first Chinese law that focuses exclusively on cyber security. The Cyber Security Law sets high requirements for the operational security of facilities deemed to be part of
PRCs key information infrastructure facilities, and includes the integration of national security examinations under certain circumstances. Pursuant to the Cyber Security Law, the State shall, based on the classified protection
system for cyber security, focus on protecting both the key information infrastructure used for public communications and information service, energy, transport, water conservancy, finance, public services,
e-government
affairs and other important industries and fields and other key information infrastructure that will result in serious damage to the national security, national economy and peoples
livelihood and public interests once destroyed. The Cyber Security Law provides that key information infrastructure facilities operators must set up specialized internal security management divisions and assign appropriate person(s) responsible for
security management. Additionally, these operators must conduct background checks on the person(s) responsible for security management and on personnel in critical positions. It further provides that when operators of key information infrastructure
facilities purchase network products or services that may affect or involve national security, the operator must pass a security examination jointly arranged by the national network and information authority and the relevant government departments
and the national security examination process under the National Security Law will be triggered. The operators of key information infrastructure facilities must store important data collected and generated, including citizens personal
information, exclusively within the territory of the Peoples Republic of China. The Cyber Security Law also sets increasingly more stringent requirements for network operators. The Cyber Security Law establishes censorship duties for network
operators, including digital information distribution service providers and application software download service providers. When these operators notice a prohibited publication, or the transmission of illicit information, they must promptly stop
transmitting the information and take measures necessary to prevent the spread of that information. Operators must maintain a record of these incidents when they occur and report them to the competent authorities. The Cyber Security Law provides
relevant subjects with solid legal authorities who are empowered to take measures to cut off any transmission(s) of prohibited information on communication networks. Upon finding prohibited information, those authorities will require that the
network operators stop the transmission and take the necessary measures to remove any prohibited content. Where the above prohibited information comes from outside the territory of China, these authorities may request that all related institutions
to take necessary measures to stop the flow of prohibited information.
The implementation of the Cyber Security Law may cause us to incur
substantial costs or require us to change our business practices in a manner materially adverse to our business.
Fluctuations in exchange rates may
have a material adverse effect on your investment.
Substantially all of our revenues and costs are denominated in RMB. The
conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the Peoples Bank of China. In July 2005, the PRC government changed its
decades-old
policy of pegging the value
of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained
within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the
RMB and the U.S. dollar in the future. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and
decided that with effect from October 1, 2016, RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the
fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization
and RMB internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in the
future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
Significant revaluation of the RMB may have a material and adverse effect on your investment. To the extent that we need to convert U.S.
dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide
to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against the RMB would have a negative
effect on the U.S. dollar amount available to us. In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our
ADSs.
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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 to hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to
convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
Governmental
control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency
out of China. We receive substantially all of our revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE.
However, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign
currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy
our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
Certain
regulations in the PRC may make it more difficult for us to pursue growth through acquisitions.
Among other things, certain
regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, these regulations
require that the Ministry of Commerce be notified in advance of any
change-of-control
transaction in which a foreign investor takes control of a PRC domestic enterprise
or a foreign company with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued by the State Council on August 3, 2008, are triggered. According to
the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises issued by the Ministry of Commerce in August 2011, mergers and acquisitions by foreign investors involved in an industry
related to national security are subject to strict review by the Ministry of Commerce. These rules also prohibit any transactions attempting to bypass such security review, including by controlling entities through contractual arrangements. We
believe that our business is not in an industry related to national security. However, we cannot preclude the possibility that the Ministry of Commerce or other government agencies may publish interpretations contrary to our understanding or broaden
the scope of such security review in the future. We may elect to grow our business in the future in part by directly acquiring, or investing in, complementary businesses in China. Complying with the requirements of these regulations to complete such
transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions.
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Failure to comply with PRC regulations regarding the registration requirements for employee share ownership
plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In
December 2006, the Peoples Bank of China, or PBOC, promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, which sets forth the respective requirements for foreign exchange transactions by individuals (both PRC and
non-PRC
citizens) under either the current account or the capital account. In January 2007, SAFE issued relevant implementing rules which was further revised by SAFE Circular 13 in 2016, that specified
approval requirements for certain capital account transactions such as a PRC citizens participation in the employee stock incentive plans or share option plans of an overseas publicly listed company. In February 2012, SAFE promulgated the
Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies, or the Stock Option Notice. The Stock Option Notice supersedes the requirements and procedures
for the registration of PRC resident individuals participation in stock incentive plans set forth by certain rules promulgated by SAFE in March 2007. Under these measures, PRC resident individuals who participate in an employee stock incentive
plan or a share option plan in an overseas publicly listed company are required to register with SAFE and complete certain other procedures. A PRC domestic qualified agent appointed through the PRC subsidiaries of such overseas listed company must
file applications on behalf of such PRC resident individuals with SAFE or its local counterpart to obtain approval for an annual allowance with respect to the foreign exchange in connection with stock holding or share option exercises. With the
approval from SAFE or its local counterpart, the PRC domestic qualified agent must open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, payment received
upon sales of shares, dividends issued on the stock and any other income or expenditures approved by SAFE or its local counterpart. We and our PRC resident employees who participate in our share incentive plans are subject to these regulations as we
are an overseas listed company. We have made registration with the local counterparts of SAFE for our PRC resident employees who participate in our share incentive plans as required under the Stock Option notice and relevant rules. If we or our PRC
optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and other legal or administrative sanctions. See Item 4. Information on the CompanyB. Business OverviewPRC RegulationRegulations
on Employee Stock Options Plans.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by
their
non-PRC
holding companies.
On February 3, 2015, the State Administration of
Taxation, or the SAT, issued SAT Notice 7, which was amended in December 2017, to supersede the existing tax rules in relation to the indirect transfer of assets by
non-PRC
resident enterprises. SAT Notice 7
introduces a more sophisticated anti-avoidance guidance. SAT Notice 7 extends its tax jurisdiction to capture not only indirect transfer as set forth under SAT Circular 698 but also transactions involving transfer of movable and immovable property
in China of a foreign company through the offshore transfer of a foreign intermediate holding company. According to SAT Notice 7, if a
non-resident
enterprise indirectly transfers PRC taxable properties
through an arrangement without reasonable commercial purpose but to avoid PRC Corporate Income Tax, the indirect transfer shall be
re-characterized
and treated as a direct transfer of PRC taxable properties.
SAT Notice 7 also interprets the term transfer of the equity interests in a foreign intermediate holding company broadly. In addition, SAT Notice 7 provides clearer criteria on how to assess reasonable commercial purposes and introduces
safe harbor scenarios applicable to the public trading of shares in a listed company holding taxable PRC assets and indirect transfers resulting from a corporate restructuring.
Further, SAT Notice 7 replaces the compulsory reporting requirement in SAT Circular 698 with a voluntary reporting regime and the criteria set
forth in Circular 698 for indirect transfer reporting have been abolished. Both the foreign transferor and the transferee, and the PRC tax resident enterprise whose equity interests being transferred may voluntarily report the transfer by submitting
the documents required in SAT Notice 7. In addition to the voluntary reporting, SAT Notice 7 empowers the Chinese tax authorities to require various documents from the parties involved. Although SAT Notice 7 provides clarities in many important
areas such as reasonable commercial purpose and reporting requirements, it brings challenges to both the foreign transferor and transferee of the indirect transfer as they are required to make a self-assessment on whether the transaction should be
subject to PRC tax and to file or withhold the PRC tax accordingly.
On October 17, 2017, the State Administration of Taxation issued
the Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-Resident Enterprises at Source, or SAT Circular 37, which became effective on December 1, 2017, to supersede the Notice on
Strengthening Administration of Enterprise Income Tax for Share Transfers by
Non-PRC
Resident Enterprises, or SAT Circular 698. The SAT Circular 37 applies the principle of withholding of income tax of
non-resident
enterprises at source. The SAT Circular 37 stipulates that the taxable income from equity transfers refers to the balance of deducting the net value of equity transferred from the total income from the
applicable equity transfer. Pursuant to SAT Circular 37, the payer, namely the principal, the designator, or the warrantee or the guaranteed party, should assume the obligation of withholding income tax in the circumstances where the payer entrusts
an agent or designates a third party to make payments on its behalf, or the payments should be made by a third-party warrantor or guarantor as provided in the applicable guarantee contracts or applicable laws.
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SAT Notice 7 became effective on February 3, 2015, but it also applies to indirect transfers
which occurred before its issuance but have not received assessments from the tax authorities. SAT Circular 37 and SAT Notice 7 may be determined by the tax authorities to be applicable to our corporate restructuring where
non-resident
investors were involved, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our
non-resident
investors in such transactions may become at risk of being taxed under SAT Circular 37 and SAT Notice 7 and we may be required to expend valuable resources to comply with SAT Circular 37 and SAT
Notice 7 or to establish that we should not be taxed under the general anti-avoidance rule of the amended PRC Enterprise Income Tax Law, which may have a material adverse effect on our financial condition and results of operations or such
non-resident
investors investments in us.
Discontinuation of any of the preferential tax treatments or
imposition of any additional taxes could adversely affect our financial condition and results of operations.
The amended
Enterprise Income Tax Law and its implementation rules permit certain high and new technology enterprises strongly supported by the state which hold independent ownership of core intellectual property to enjoy a preferential enterprise
income tax rate of 15% subject to certain qualification criteria. Autohome WFOE was recognized jointly by the Beijing Municipal Science and Technology Commission and other authorities as a high and new technology enterprise, or HNTE, in
September 2010 and was eligible for the preferential 15% enterprise income tax rate through 2018 upon its filing with the relevant tax authority. Beijing Autohome Technologies Co., Ltd., or Beijing Autohome Technologies, was recognized as an HNTE in
July 2015 and therefore was eligible for the preferential 15% enterprise income tax rate from 2015 to 2017 upon its filing with the relevant tax authority. Beijing Prbrownies Software Co., Ltd., or Beijing Prbrownies, was recognized as an HNTE in
February 2016, qualifying it for the preferential 15% enterprise income tax rate from 2015 to 2017 upon its filing with the relevant tax authority. The qualification as an HNTE is subject to annual evaluation and a three-year review by the relevant
authorities in China. Beijing Prbrownies was accredited as a software enterprise under the relevant PRC laws and regulations and is exempt from income tax for the tax years of 2015 and 2016, followed by a 50% reduction in the statutory income tax
rate of 25% for the next three years provided that it continues to be qualified as a software enterprise during such period. However, Autohome WFOE and Beijing Autohome Technologies will no longer enjoy the 15% preferential tax rate should they lose
the HTNE qualification. If Beijing Prbrownies fails to pass the review by and filing with the relevant tax authorities, it will no longer enjoy the preferential tax rate described above, and the applicable enterprise income tax rate may increase to
up to 15% if it still maintains the HNTE qualification, or up to 25% if it loses the HNTE qualification.
Our global income and the dividends that
we may receive from our PRC subsidiaries, dividends distributed to our
non-PRC
shareholders and ADS holders, and gains recognized by such shareholders or ADS holders, may be subject to PRC taxes under the
Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.
Under the Enterprise Income
Tax Law, which became effective on January 1, 2008 and was amended on February 24, 2017, and its implementation rules, which became effective on January 1, 2008, an enterprise established outside of the PRC with de facto
management bodies within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The SAT issued the Notice Regarding the Determination of Chinese-Controlled Offshore
Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, on April 22, 2009, which was amended in 2013 and 2017 respectively. SAT Circular 82 provides certain specific criteria for
determining whether the de facto management body of a Chinese-controlled offshore-incorporated enterprise is located in China. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident
enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to enterprise income tax at a rate of 25% on our global income. If
we are considered a PRC resident enterprise and earn income other than dividends from our PRC subsidiaries, 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.
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Pursuant to the amended Enterprise Income Tax Law and its implementation rules, dividends
generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors, which are
non-PRC
tax resident enterprises without an establishment in China, or whose
income has no connection with their institutions and establishments inside China, are subject to withholding tax at a rate of 10%, unless any such foreign investors jurisdiction of incorporation has a tax treaty with China that provides for a
different withholding arrangement. We are a Cayman Islands holding company and we conduct our business through our wholly-owned subsidiaries and VIEs in the PRC, of which Autohome WFOE and Chezhiying WFOE are the primary beneficiaries of our
VIEs.
Autohome WFOE is 100% owned by Cheerbright, our wholly owned subsidiary located in the British Virgin Islands. The British Virgin Islands currently does not have any tax treaty with China with respect to withholding tax. As long
as Cheerbright is considered a
non-PRC
resident enterprise, dividends that it receives from Autohome WFOE may be subject to withholding tax at a rate of 10%. As to our subsidiaries located in Hong Kong, such
as Autohome Media, the shareholder of our PRC subsidiaries currently engaging in advertising business, and Autohome Link Hong Kong Limited, the shareholder of Chezhiying WFOE, under the Arrangement between the PRC and the Hong Kong Special
Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, effective on January 1, 2007, as long as each of our Hong Kong subsidiaries is considered a
non-PRC
resident
enterprise and directly holds at least 25% of the equity interests of its respective PRC subsidiaries, dividends that it receives from its PRC subsidiaries may be subject to withholding tax at a preferential rate of 5%, if it is the beneficial owner
of the dividends, upon receiving the approval from the local tax authority. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for
Non-Resident
Taxpayers to Enjoy
Treatments under Tax Treaties, or SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 provides that
non-resident
enterprises are not required to obtain
pre-approval
from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead,
non-resident
enterprises and their withholding agents may, by
self-assessment and upon their confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which
will be subject to post-filing examinations by the relevant tax authorities.
As uncertainties remain regarding the interpretation and
implementation of the amended Enterprise Income Tax Law and its implementation rules, we cannot assure you that if we are regarded as a PRC resident enterprise, any dividends to be distributed by us to our
non-PRC
enterprise shareholders and ADS holders would not be subject to any PRC withholding tax at a rate of 10% and to
non-PRC
individual shareholders and ADS holders
would not be subject to PRC individual income tax at a rate of 20%. Similarly, any gain recognized by such
non-PRC
shareholders or ADS holders on the sale of shares or ADSs, as applicable, may also be subject
to PRC tax. If our dividends payable to our
non-PRC
enterprise shareholders,
non-PRC
individual shareholders and ADS holders, or on gains recognized by such
non-PRC
shareholders or ADS holders are required under the Enterprise Income Tax Law and the Individual Income Tax Law to be subject to PRC tax, such investors investment in our Class A ordinary shares or
ADSs may be materially and adversely affected.
Increases in labor costs and enforcement of stricter labor-related laws and regulations may
adversely affect our business and our results of operations.
Chinas overall economy and the average wage in China have
increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we
are able to pass on these increased labor costs to our users and customers by increasing prices for our services, our profitability and results of operations may be materially and adversely affected.
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In addition, we have been subject to stricter regulatory requirements in terms of entering labor
contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for
the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract law, which became effective in January 2008, as amended in December 2012 and effective as of July 1, 2013, and its implementation rules that became
effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees probation and unilaterally terminating labor contracts. In
the event that we decide to terminate some of our employment contracts or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or
cost-effective manner, which could adversely affect our business and results of operations. In October 2010, the Standing Committee of the National Peoples Congress promulgated the PRC Social Insurance Law, or the Social Insurance Law, which
became effective on July 1, 2011. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must,
together with their employees or separately, pay the social insurance premiums for such employees.
As the interpretation and
implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government
investigations. If we are deemed to have violated relevant labor-related laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations may be materially
and adversely affected.
The Public Company Accounting Oversight Board is not permitted to inspect independent registered public accounting firms
operating in China, including our auditor, and as such, investors may be deprived of the benefits of such inspection.
Our
independent registered public accounting firm, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of
the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our independent registered public accounting firm is located in China, a jurisdiction where
PCAOB is currently unable to conduct inspections without receiving the required approval from the PRC authorities, our independent registered public accounting firm, like other independent registered public accounting firms operating in China, is
currently not inspected by PCAOB. Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms audit procedures and quality control procedures, which may be addressed as part of the
inspection process to improve future audit quality. Since PCAOB cannot conduct inspections of independent registered public accounting firms operating in China without receiving the required approval from the PRC authorities, it is more difficult to
evaluate the effectiveness of our independent registered public accounting firms audit or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
Proceedings instituted by the SEC against certain
PRC-based
accounting firms, including our independent
registered public accounting firm, could result in financial statements being determined to be not in compliance with the requirements of the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our independent registered
public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other China-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision
was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On
February 12, 2014, four of these
PRC-based
accounting firms appealed to the SEC against this decision. In February 2015, each of the four
PRC-based
accounting firms
agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The firms ability to continue to serve all their respective clients is not affected by the settlement. The
settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms audit documents via the CSRC. If the firms do not follow these procedures, the SEC could impose penalties such as suspensions,
or it could restart the administrative proceedings. The settlement did not require the firms to admit to any violation of law and preserves the firms legal defenses in the event the administrative proceeding is restarted.
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In the event that the SEC restarts the administrative proceedings, depending upon the final
outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in
compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and
the market price of our ADSs may be adversely affected.
If our independent registered public accounting firm was denied, even
temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in
compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delay or abandonment of this offering, delisting of our ordinary shares from the NYSE 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 market price for our ADSs has fluctuated and may be volatile.
The daily closing trading prices for our ADSs ranged from US$25.51 to US$67.05 in 2017. The trading price for our ADSs may continue to
fluctuate in response to factors including, without limitation, the following:
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regulatory developments in our target markets affecting us, our customers or our competitors;
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announcements of studies and reports relating to the quality of our services or those of our competitors;
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changes in the economic performance or market valuations of other companies that provide online automotive advertising services;
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actual or anticipated fluctuations in our quarterly results of operations and changes or revisions to our expected results;
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changes in financial estimates by securities research analysts;
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conditions in the entire automotive ecosystem;
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conditions in the online retail industry;
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announcements by us or our competitors of new solutions, acquisitions, strategic relationships, joint ventures or capital commitments;
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additions to or departures of our senior management;
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fluctuations of exchange rates between the RMB and the U.S. dollar;
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release or expiry of
lock-up
or other transfer restrictions on our outstanding Class A ordinary shares or ADSs;
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sales or perceived potential sales of additional Class A ordinary shares or ADSs;
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obtaining or revocation of any operating license or permit in relation to our business; and
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pending or potential litigation or administrative investigation.
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In addition, the securities
market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of
our ADSs.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research
about our business, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will depend
in part on the research and reports that securities or industry analysts publish about us or our business. If we do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or
publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose
visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.
Because we may not
continue to pay dividends in the foreseeable future, you may need to rely on price appreciation of our ADSs as the sole source for return on your investment.
Although we declared special cash dividends to holders of our ordinary shares in November 2017, we may not continue to do so regularly, or at
all. Therefore, you may need to rely on price appreciation of our ADSs as the sole source for return on your investment.
Subject to
certain exceptions, our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on,
among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors
deemed relevant by our board of directors. Accordingly, the future return on your investment in our ADSs will likely depend upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain
the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline.
All ADSs sold in our equity offerings will be freely transferable without restriction or additional registration under the Securities Act. In addition, certain holders of our ordinary shares have the right to cause us to register under the
Securities Act the sale of their shares. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act. Sales of these registered shares, in
the form of ADSs, in the public market could cause the price of our ADSs to decline. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. In
addition, if we pay for our future acquisitions in whole or in part with additionally issued ordinary shares, your ownership interests in our company would be diluted and this, in turn, could have a material and adverse effect on the price of our
ADSs.
You may not have the same voting rights as the holders of our Class A ordinary shares and may not receive voting materials in time to be
able to exercise your right to vote.
Except as described in this annual report and in the deposit agreement, holders of our ADSs
will not be able to exercise voting rights attaching to the Class A ordinary shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting
rights attaching to the Class A ordinary shares represented by the ADSs. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions.
Pursuant to our fourth amended and restated memorandum and articles of association, we may convene a shareholders meeting upon ten
calendar days notice. If we give timely notice to the depositary under the terms of the deposit agreement (30 business days notice), the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you.
We cannot assure you that you will receive the voting materials in time to instruct the depositary to vote the Class A ordinary shares underlying your ADSs, and it is possible that you, or persons who hold their ADSs through brokers, dealers or
other third parties, will not have the opportunity to exercise a right to vote. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This
means that you may not be able to exercise your right to vote and there may be nothing you can do if the Class A ordinary shares underlying your ADSs are not voted as you requested. In addition, although you may directly exercise your right to
vote by withdrawing the Class A ordinary shares underlying your ADSs, you may not receive sufficient advance notice of an upcoming shareholders meeting to withdraw the Class A ordinary shares underlying your ADSs to allow you to vote
with respect to any specific matter.
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Your right to participate in any future rights offerings may be limited, which may cause dilution to your
holdings, and you may not receive cash dividends if it is illegal or impractical to make them available to you.
We may from time
to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under
the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS
holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a
registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution
in your holdings.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian
receives on Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the
depositary is not responsible if it decides that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may 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 those 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 you
may not receive the distribution 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 to you. These restrictions may have a material adverse effect on the value of your ADSs.
You may be subject to limitations on the transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to
time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any
time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the
deposit agreement.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts
may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and substantially all of our directors and officers reside outside the United States.
We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our PRC subsidiaries and VIEs. Most
of our directors and officers reside outside the United States and a substantial portion of the assets of such directors and officers are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action
against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the
laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States,
although the courts of the Cayman Islands will generally recognize and enforce a
non-penal
judgment of a foreign court of competent jurisdiction without retrial on the merits.
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Our corporate affairs are governed by our memorandum and articles of association, as amended and
restated from time to time, and by the Companies Law and common law of the Cayman Islands. The rights of shareholders to take legal action against us and our directors, actions by minority shareholders and the fiduciary responsibilities of our
directors are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which
provides persuasive, but not binding, authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the
United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a
shareholder derivative action in U.S. federal courts.
As a result, our public shareholders may have more difficulty in protecting their
interests through actions against us, our management, our directors or our major shareholders than shareholders of a corporation incorporated in a jurisdiction in the United States.
Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our Class A
ordinary shares and ADSs.
Our fourth amended and restated memorandum and articles of association contain certain provisions that
could limit the ability of others to acquire control of our company, including a provision that grants authority to our board of directors to establish from time to time one or more series of preferred shares without action by our shareholders and
to determine, with respect to any series of preferred shares, the terms and rights of that series. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management
more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected. These
provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or
similar transaction.
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 U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Securities
Exchange Act of 1934, as amended, or 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 stock 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. We intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form
6-K.
However, the information we are required to file with or furnish to the SEC will be less extensive and less frequent compared to that required to be filed with the SEC by 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.
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We may be classified as a passive foreign investment company for United States federal income tax purposes,
which could subject United States investors in the ADSs or Class A ordinary shares to significant adverse tax consequences.
Under United States federal income tax law, we will be classified as a passive foreign investment company (PFIC) for any taxable
year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on the average quarterly value of our assets during the taxable year) is attributable to
assets that produce or are held for the production of passive income (the asset test). Although the law in this regard is not entirely clear, we treat our VIEs as being owned by us for United States federal income tax purposes because we
control their management decisions and are entitled to substantially all of the economic benefits associated with such entities, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements.
Assuming we are the owner of our VIEs for U.S. federal income tax purposes and based on our current income and assets, including goodwill and unbooked intangibles, we do not believe that we were a PFIC for the taxable year ended December 31,
2017 and do not anticipate becoming a PFIC in future taxable years.
While we do not believe that we were a PFIC for the taxable year
ended December 31, 2017 and do not anticipate becoming a PFIC in the foreseeable future, no assurance can be given in this regard 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 us becoming a PFIC for the current or subsequent taxable
years.
If we were to be or become a PFIC, a U.S. Holder (as defined in Item 10. Additional InformationE. TaxationUnited
States Federal Income Tax ConsiderationsGeneral) may incur significantly increased United States income tax on gains recognized on the sale or other disposition of the ADSs or Class A ordinary shares and on the receipt of
distributions on the ADSs or Class A ordinary shares to the extent such gain or distribution is treated as an excess distribution under United States federal income tax rules. Further, if we were a PFIC for any year during which a
U.S. Holder held our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC as to such U.S. Holder for all succeeding years during which such U.S. Holder held our ADSs or Class A ordinary shares.
Alternatively, U.S. Holders of PFIC shares can sometimes avoid the rules described above by making certain elections, including a
mark-to-market
election or
electing to treat a PFIC as a qualified electing fund. However, U.S. Holders will not be able to make an election to treat us as a qualified electing fund because, even if we were to be or become a PFIC, we do not intend to
comply with the requirements necessary to permit U.S. Holders to make such election. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of owning and disposing of ADSs or Class A
ordinary shares if we were to be or become a PFIC. For more information, see Item 10. Additional InformationE. TaxationUnited States Federal Income Tax ConsiderationsPassive Foreign Investment Company Rules.
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, including Section 404 therein relating to internal control over financial reporting, as well as rules subsequently implemented by the SEC and the NYSE, have detailed requirements concerning corporate governance practices of public
companies. 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 is required to
devote substantial time and attention to our public company reporting obligations and other compliance matters. We evaluate and monitor 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 significant strain on our management, operational and financial resources and systems for the foreseeable
future.
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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 companys securities. If we were involved in a class action suit, it could divert a significant amount of our managements attention and other resources from our
business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise
capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
ITEM 4. INFORMATION ON THE COMPANY
A.
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History and Development of the Company
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Autohome Inc. was incorporated under the
laws of the Cayman Islands under its former name, Sequel Limited, in June 2008 and adopted its current name in October 2011. Shortly after its inception, in June 2008, Autohome Inc. acquired all of the equity interests of the following entities:
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Cheerbright International Holdings Limited, or Cheerbright, a British Virgin Islands company that operates
autohome.com.cn
, which was launched in 2005;
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Norstar Advertising Media Holdings Limited, or Norstar, a Cayman Islands Company that, among other businesses, operated
che168.com
, which was launched in 2004; and
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China Topside Limited, or China Topside, a British Virgin Islands company.
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To sharpen our
business focus on the automotive industry, we completed a corporate reorganization in 2011 by spinning off our then subsidiaries that were not involved in our core business. In March 2011, we transferred the
che168.com
business from Norstar
to Cheerbright. In June 2011, in connection with our strategy to focus on serving the automotive industry in China, we contributed our entire equity interests in Norstar and China Topside, which serve the information technology industry, to Sequel
Media, our subsidiary in the Cayman Islands, and then immediately distributed the shares of Sequel Media to our shareholders. Since the
spin-off,
we have been focusing on serving the automotive industry in
China through our
autohome.com.cn
and
che168.com
websites.
In October 2013, we acquired Autohome Media Limited, or Autohome
Media, which is a Hong Kong advertising and marketing company previously named as Prbrownies Marketing Limited, through one of our wholly-owned subsidiary in Hong Kong. Autohome Media had engaged in the advertising business outside the PRC for more
than three years at the time, and was therefore qualified to directly invest in a PRC company providing advertising services in accordance with PRC law. Autohome Media has established subsidiaries in Beijing, Shanghai, Guangzhou, Tianjin, Chengdu
and Huaian. We completed the migration of our advertising business from Guangzhou Advertising, Shanghai Advertising, Beijing Shengtuo Autohome Advertising Co., Ltd., or Autohome Advertising, Beijing Shengtuo Chengshi Advertising Co., Ltd., or
Chengshi Advertising, to the subsidiaries of Autohome Media in 2015.
In December 2013, we completed our initial public offering of
8,993,000 ADSs, representing 8,993,000 Class A ordinary shares, and our ADSs are listed on the NYSE under the symbol ATHM. In November 2014, we completed a public offering, or the 2014 Offering, in which we offered and sold
2,424,801 ADSs, representing 2,424,801 Class A ordinary shares, and our then shareholders sold 7,220,858 ADSs, representing 7,220,858 Class A ordinary shares.
37
In June 2015, we established a strategic joint venture with HappiGo Home Shopping Co, a leading
TV shopping business in China, to build a full-service auto sales platform. We invested RMB49 million (US$7.5 million) into the joint venture, accounting for 49% of the shareholding.
In September 2015, we established a joint venture, the Financing JV, with three companies unaffiliated with us. We invested a full payment of
RMB75 million (US$11.5 million) into the Financing JV for 25% equity interests of the Financing JV. The Financing JV provides auto financing to car buyers and facilitates the transaction process. We entered into a definitive agreement to
transfer all equity interest we held in the Financing JV to a company unaffiliated to us in September 2017. As of the date of this annual report, the transaction has not been consummated and is subject to a set of regulatory and customary closing
conditions to be satisfied. In December 2015, we established a wholly owned subsidiary, Beijing Chezhiying Software Co., Ltd. in Beijing, China, to do used automobile-related business.
In April 2016, we established a joint venture, Beijing Haochezhijia
E-commerce
Co., Ltd., with Beijing
Haoduohaoche Information Technology Co., Ltd., a company unaffiliated with us and is engaged in automobile transaction-related business. We own 75% equity interests in Beijing Haochezhijia
E-Commerce
Co., Ltd.
In September 2016, we established Chengdu Prbrownies Software Co., Ltd. and Huaian Prbrownies Software Co., Ltd., both of which principally provide dealer subscription services.
On June 22, 2016, Telstra Holdings, or Telstra, our then largest shareholder and a wholly owned subsidiary of Telstra Corporation
Limited, completed the sale of approximately 47.4% of our total issued and outstanding shares to Yun Chen for a consideration of US$1.6 billion. On February 22, 2017, Yun Chen further acquired from Telstra Holdings 6.5% equity interests in
us. As of March 31, 2018, Yun Chen owned 52.7% of our total issued and outstanding shares. Since June 22, 2016, our largest shareholder has been Yun Chen, a wholly owned subsidiary of Ping An Group, a financial services group with three
core businesses of insurance, banking and investment and whose ordinary shares are listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange.
In July 2017, we acquired 10% interest in Visionstar Information Technology (Shanghai) Co., Ltd., which primarily engages in the development
and application of AR technologies and related operations in the PRC, with a total cash consideration of RMB30 million (US$4.6 million).
In September 2017, we acquired 100% equity interest of Shanghai Tianhe Insurance Brokerage Co., Ltd., a company licensed by the CIRC to engage
in insurance brokerage business in the PRC, through Autohome Information, with a total cash consideration of RMB21.1 million (US$3.2 million).
Our principal executive offices are located at 10th Floor Tower B, CEC Plaza, 3 Dan Ling Street, Haidian District, Beijing 100080, the
Peoples Republic of China. Our telephone number at this address is +86 (10) 5985 7001. Our registered office in the Cayman Islands is located at 2
nd
Floor Harbour Center 42 North Church
Street George Town, Grand Cayman, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., 400 Madison Avenue, 4th Floor, New York, New York 10017.
See Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesCapital Expenditures for a
discussion of our capital expenditures and divestitures.
Overview
We are the leading online destination for automobile consumers in China. Through our two websites,
autohome.com.cn
and
che168.com
, accessible through PCs and mobile devices and our mobile applications, we deliver comprehensive, independent and interactive content to automobile buyers and owners. We have developed a strong and well-recognized brand. Our
汽车之家 (Autohome) brand has been the most searched automotive-related keyword during substantially the entire period since July 2011 on
Baidu.com
, the leading Chinese language internet search
engine. We have begun and continue to implement four key market segments, namely auto-media, auto-ecommerce, auto-finance and auto-lifestyle, into our consumer-centric automotive ecosystem, and transform us from a
content-led
vertical media business to an automotive
eco-platform
based on advanced data and technology.
38
Since our inception, the media business has been our core competency. Our ability to reach a
large and engaged user base of automobile consumers has made us a preferred platform for automakers and automobile brands regional offices to conduct their advertising and marketing campaigns. We provide automakers with a broad range of
advertising solutions and tools on our websites and mobile applications to enhance their brand recognition, new model releases and sales promotions. We have a high penetration rate in the automaker market, and we provided our media services to 87,
95 and 101 automakers operating in China in 2015, 2016 and 2017, respectively. We believe that the large user base, together with our nationwide advertising platform, targeted advertising solutions and value-added services, has led to our rapid
growth and has laid the foundation for our continuing success.
In addition, we provide subscription services to dealers which allow them
to market their inventory and services through our websites and mobile applications, extending the reach of their physical showrooms to potentially millions of internet users in China and generating sales leads for them. We also offer advertising
services and other value-added services to individual dealers to complement our leads generation services. Our dealer customers utilize our advertising services and leverage our large user base to support their sales and marketing activities.
Our online transaction platform, Autohome Mall, is a full-service online transaction platform for users to review automotive-related
information, purchase coupons offered by automakers for discounts and make purchases to complete the transaction. Leveraging our strength in user traffic and our consumer data analytic capabilities, we provide platform-based services facilitating
transactions through our transaction platform. Our online automotive media and transaction platform captures critical stages of the sales funnel. Through our platform, we also aim to address the under-served auto financing market in China by
providing comprehensive online-based financial services for the complete consumer automobile ownership life cycles. Our online auto-financing platform serves as a bridge to match users that have auto financing needs with our cooperative financial
institutions that offer a variety of products covering loans, leases and insurance services for consumers and independent automobile sellers on our platform.
We have experienced continuous revenue growth while maintaining profitability. Our net revenues increased from RMB3,464.0 million in 2015
to RMB5,961.6 million in 2016 and RMB6,210.2 million (US$954.5 million) in 2017, representing a CAGR of 33.9%.
Our Business Model
We are the leading online destination for automobile consumers in China. Over the past several years, we have developed the largest and most
active online community of automobile consumers in China. We serve three distinct groups: our large and engaged user base of our websites and mobile applications, automobile consumers on our transaction platform and customers that include
automakers, dealers, financial institutions, other auto-related product and service providers. Our business model and technology platforms seek to effectively link each stage of our users automobile ownership life cycles with the corresponding
stage of our customers sales cycle. Since 2016, we have begun to initiate the four key market segments, namely auto-media, auto-ecommerce, auto-finance and auto-lifestyle, into our consumer-centric automotive ecosystem and transform us from a
content-led
vertical media business to an automotive
eco-platform
based on advanced data and technology. Our 4+1 strategy will continue to further enhance our core
foundation and accelerate our growth momentum generated by our new business initiatives.
We have built an online automotive media
platform that captures critical stages of the sales funnel, starting from product awareness to purchase desire initiation and to sales leads generation. To initiate product awareness and purchase desire, we utilize our comprehensive, independent and
interactive content through our websites that are accessible through PCs and mobile devices and on our mobile applications to create strong user traffic and user engagement and stickiness. As our user traffic grows, we focus on generating sales
leads through engaging our users with differentiated and customized promotional activities, personally tailored recommendations and enriched professionally generated contents. We generate revenues from our media services, which mainly include
automaker advertising services and regional marketing campaigns conducted by certain automobile brands regional offices, and our leads generation services, which include our dealer subscription services, advertising services sold to individual
dealer advertisers and other value-added services.
39
We also provide a transaction platform for automobile buyers to purchase new vehicles or used
vehicles from sellers on our platform. In June 2014, we launched Autohome Mall, an online transaction platform. Autohome Mall is a full-service online transaction platform for users to review automotive-related information, purchase coupons offered
by automakers for discounts and make purchases to complete the transaction. We have also built a used automobile listing platform based on our dedicated used car website
che168.com
, and mobile application, which targets the automobile
replacement stage by allowing both used automobile dealers and individuals to list their used automobiles on our websites and mobile applications. We have completed or facilitated vehicle transactions on our platform through various sales
initiatives and other promotional campaigns. In addition, we have been leveraging our comprehensive platform to capture additional revenue opportunities in connection with the remaining stages of the automobile ownership life cycles, such as
auto-finance and auto-lifestyle.
In 2017, we continued to progress on our auto-financing business by providing an expanded variety of
products covering loans, leasing and insurance services to our users and automobile sellers, which better facilitated transactions on our platform. We have also launched data product suites towards the end of 2017 and expect the advanced data will
reinforce our entire ecosystem by providing highly differentiated value to our customers. We aim to further develop synergies between our media and leads generations service, transaction business and data product and our auto-financing initiatives
to realize greater growth potential of our platform.
Our Platform
Our service offerings for users mainly include our high-performance platform, which is comprised of our websites and mobile applications, our
original, professionally and user-generated content and our interactive online community. Our platform is powered by our big data capability. Our extensive user data originates from our expanding large user base, our automotive ecosystem partners
and third-party data providers. Through our comprehensive platform, we have access to valuable data of customers behaviors and patterns in their automotive ownership life cycles, which allows us to accurately and effectively customize content
and commercial offerings. Our accurate and comprehensive user profiling enables us to continuously enhance user experience and improve our ability to attract and retain customers.
Our Websites
Our user-centric
approach has successfully attracted one of the largest user base of automobile consumers in China to our websites. We believe we are well-positioned to capture the fast growth of the internet penetration in China. Our
autohome.com.cn
website
targets a wide spectrum of automobile consumers with a focus on new automobiles. To capitalize on the growing used automobile market in China, we redesigned our
che168.com
website, which in the past had features and user base similar to our
autohome.com.cn
website, to focus on used automobiles. The
re-designed
che168.com
website was launched in October 2011.
Most of the content on our websites is tagged by vehicle models to facilitate easy user access. We have developed and are continuing to
improve our user intelligence engine to analyze user browsing behavior and preferences and prioritize the content that the user is likely to find relevant and interesting. A user who searches for or navigates to a page for a specific vehicle model
will be provided with links to relevant content such as vehicle specifications, photos and video clips, reviews, competing vehicle models, and listing and promotional information from local dealers. Users can easily compare competing vehicle models
and brands for price and specifications to make informed purchase decisions. In addition, these user behavior data are summarized and analyzed on a regular basis to improve user experience and provide consumer intelligence to our advertisers.
To provide a superior experience to our users, we label sponsored content as advertisement to maintain objectivity.
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Our Mobile Websites and Applications
For mobile users, our content can be accessed on our websites and on our mobile applications. We have made significant efforts in recent years
to optimize the mobile version of our websites to display our content and develop and enhance our mobile applications to capture a greater number of users that access our services through mobile devices. For example, the number of average daily
unique users who access our websites via mobile devices amounted to 13.7 million in the fourth quarter of 2017. We were among the earliest in our industry in China to introduce both
iOS-
and Android-based
applications to allow users to easily access our content. As of December 31, 2017, we had thirteen
iOS-based
applications and ten Android-based applications. Our mobile applications have generated
significant user interest and the number of average daily unique users of our mobile applications amounted to approximately 8.8 million in the fourth quarter of 2017. The combined number of average daily unique visitors for our mobile websites
and mobile applications in the fourth quarter of 2017 grew about 25% year-over-year. Users can conveniently enjoy features available on our websites and mobile applications from their mobile devices, such as reading articles, checking vehicle prices
and model parameters, viewing pictures, viewing dealers information, visiting our Autohome Mall and participating in forum discussions. In addition, through our location-based services, our users are able to obtain vehicle pricing information
directly from their nearby dealers in approximately 330 cities in China.
Our Content
The foundation of our websites and mobile applications is a large amount of original generated content, professionally generated content and
user generated content, as well as a comprehensive automobile library and extensive automobile listing and promotional information organized around our automotive information database.
Original Generated Content
Our
original generated content is created by our dedicated editorial team and includes automobile-related articles and reviews, pricing trends in various local markets, photographs, video clips and live streaming. This content covers topics throughout
the automobile ownership life cycle, from automobile research, selection and purchase to ownership and maintenance and to eventual replacement. Our review writers obtain first-hand experiences by test-driving many newly released vehicle models
provided by various automakers. Our editorial team at our Beijing headquarters and sales offices located in 78 cities throughout China work closely with automakers, dealers and other industry participants to create automobile related articles.
Although automakers may provide us with sample vehicles to test drive, we review all new automobiles independently, based upon our teams experience and from our users perspective.
We follow well-developed guidelines in creating and publishing content with attention to details, such as the angles of photos, image sizes
and the time between industry events and the relevant article publication. These practices enable us to streamline our editorial process and quickly and efficiently make national and local content available to our users, while ensuring that we
maintain high-quality standards and a consistent user experience.
Professionally Generated Content
In 2016, we launched an open content platform to invite the key opinion leaders and influential bloggers or writers in the automotive field to
contribute their high-quality professional review, analysis and insights on automotive-related topics, including vehicle reviews, industry trend, auto photography, maintenance and others. Our diversified professionally generated contents complement
our auto-media and auto-lifestyle business strategy and bring our users enriched and customized content consisting of high-quality articles, photographs, video clips and live streaming.
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User Generated Content and User Forum
Our platform hosts an open and vibrant community of automobile consumers, from first-time buyers to sophisticated automobile enthusiasts. Our
user community centers around our discussion forums, which are organized based on vehicle models, cities and regions, and provides users an easy and intuitive way to access various topics of interest. Registered users utilize our discussion forums
to share a wide range of automotive experiences such as driving experiences and usage and maintenance tips. Users also frequently provide reviews of automobiles or automotive products and services, post questions and receive answers from fellow
forum members. We continued to enhance user engagement and participation in the content generation and delivery process. For example, we expanded our user review platform by allowing users to add or modify their views and insights on a continuous
basis. We strive to ensure the credibility, appeal and usefulness of our forums by identifying verified automobile owners and empowering selected registered users as forum moderators. Our verified automobile owners are registered users whose vehicle
ownership has been confirmed through various channels. Our forum moderators are generally active registered users with significant forum post counts whom we have identified as being reputable automobile enthusiasts within our online community.
Our registered users increased by more than 28.1 million in 2017 and as of December 31, 2017, we had over 58.6 million
registered users. As our user base has grown and our user engagement and forum activity has increased, our database of user generated content has expanded, which in turn has attracted more users. Furthermore, this positive effect on our growing user
base has also enhanced the effectiveness of our advertisements and therefore the value of our advertising services, allowing us to attract more advertisers and increase revenues from existing advertisers.
Automobile Library and Listing
We
have one of the most comprehensive automobile libraries within our industry in China with over 35,100 vehicle model configurations as of December 31, 2017. We believe our automobile library covers the substantial majority of passenger vehicle
models released in China since 2005. It includes a broad range of specifications covering performance levels, dimensions, powertrains, vehicle bodies, interiors, safety, entertainment systems and other unique features, as well as automakers
suggested retail prices. The scale of content in our automobile library, which we believe would require significant time, expertise and expense to replicate, makes it a valuable tool for our users in researching both new and used automobiles. Our
database also includes a large amount of new and used automobile listings and promotional information. With the comprehensive and continuously updated listing information, users can conveniently search for
up-to-date
information of vehicle models without having to visit each individual dealer at their local showrooms. In addition, our automotive information database includes a significant amount of user
generated content originating from our user forums. Leveraging our innovative AR and virtual reality (VR) related technologies, we utilize three-dimension technology to restore the actual appearances of vehicles and present stereoscopic
720-degree
review of automobiles on our platform. Compared to the traditional
two-dimensional
picture-based display of automobile appearances, the
AR-
and
VR-based
vehicle review functionality on our platform enables users to have a real perception of the specific vehicles they are interested in buying and has greatly
enhanced user experience.
Our Services
Our
Media Services
Leveraging our large and rapidly growing user base and utilizing the user intelligence data we have collected, we
provide our advertisers with a broad range of advertising solutions and tools. Our advertisers under media services are comprised primarily of automakers and automobile brands regional offices. As millions of consumers visit our websites and
mobile applications for automotive information, we have become an increasingly important medium for automakers and automobile brands regional offices to conduct their advertising and marketing campaigns.
Automakers typically utilize our advertising services for brand promotion, new model releases and sales promotions. We believe we are
well-positioned to provide solutions to meet all of these needs. Our large and growing automobile purchase- and ownership-oriented user base provides a broad reach for automakers marketing messages. Our automotive content delivery and
advertisement management platform allows us to segment our user base in a number of different dimensions, including by users geographical locations and specific automotive interests, and enables us to place advertisements with targeted
audiences likely to be receptive to particular advertising messages.
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Leveraging our large user base and extensive forum posting data, we provide automakers with more
reliable and timely business insights than traditional customer surveys or other post-sales feedback channels. For instance, we analyze user posts in our forums to evaluate consumer behavioral and preference response. In addition, we organize
various types of offline national or local events for our automaker customers through our online marketing campaigns and user forum activities to complement our advertising services. For example, we help automakers increase their brand awareness and
execute sales promotions by organizing large-scale test driving activities and for specific vehicle models in multiple cities across China. Users can conveniently participate and interact with automaker representatives through our forums.
In each of 2015, 2016 and 2017, 87, 95 and 101 automakers in China, which include independent Chinese automakers, joint ventures between
Chinese and international automakers and international automakers that sell their cars made outside of China, purchased media services from us. As is customary in China, we sell our advertising services and solutions primarily through third-party
advertising agencies that represent the automakers and automobile brands regional offices. We typically enter into individual advertising agreements with the third-party advertising agencies. Although we sell our advertising services and
solutions to third-party advertising agencies, we consider the automakers and automobile brands regional offices, who are the main decision makers as to whether to place advertisements on our websites and mobile applications, to be our
end-customers.
As a result, our sales efforts focus primarily on automakers and automobile brands regional offices. However, through direct contact between our sales team, advertisers and advertising agencies,
we are able to maintain good relationships with existing advertisers and their advertising agencies.
Our Leads Generation Services
Our Dealer Subscription Services
We
provide subscription services to dealers which allow them to market their inventory and services through our websites and mobile applications, extending the reach of their physical showrooms to potentially millions of internet users in China and
generating sales leads for them. Our dealer subscription services are delivered through our dealership information system mainly on a
fixed-fee
basis, typically for a period of one year. Through the
web-based
interface of our dealership information system, dealers can create online showrooms hosted on our websites and mobile applications and upload and manage their automobile inventories, pricing and
promotional information. Potential automobile purchasers can interact with our dealer subscribers online or through phone numbers presented on the platform to inquire for more detailed information and schedule test drives. Our dealer subscribers can
track all the interactions with their customers originating from our websites and mobile applications, analyze the number of sales leads and assess the effectiveness of their marketing activities.
We continue to develop our dealer subscription services and have begun to implement additional services, which we believe will allow us to
expand sales leads based on consumer behaviors and preferences and enhance leads conversion and personalized marketing, and further to reach additional dealers by enabling us to offer basic and premium subscriptions at different price levels.
Our Advertising Services for Individual Dealers and Other Value-added Services
We also offer advertising services and other value-added services for individual dealers to complement our leads generation services. Our
dealer customers utilize our advertising services and leverage our large user base to support their sales and marketing activities. In addition to larger brand promotion advertising campaigns organized by the automakers or the group dealers,
individual dealers utilize our advertising services to further enhance their visibility in local community, address local market conditions and promote local events. We also provide other value-added services to dealers. We facilitate the process
and connect our users from online to offline to generate sales leads and transaction for our dealer customers.
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Our Transaction Business
E-commerce
platform for new vehicles
In June 2014, we launched Autohome Mall, an online transaction platform. Autohome Mall is a full-service online transaction platform for users
to review automotive-related information, purchase coupons offered by automakers for discounts and make purchases to complete the transaction. In 2015, we began to provide direct vehicle sales and commission-based services facilitating transactions
through our transaction platform. We completed new vehicle transactions on our platform through various sales initiatives and other promotional campaigns. We conducted several online marketing events on Autohome Mall and offline promotion campaigns
with our partners for our transaction business. We also partnered with automakers to sell customized or exclusive models of selected vehicles on our platform. In the fourth quarter of 2016, we began to shift our focus to become an asset-light
vehicle
e-commerce
platform and as of December 31, 2017, we have cleared all direct sales vehicle inventories. We expanded the offering of services on our platform in 2017 and aim to address the
under-served auto financing market in China by providing comprehensive online-based financial services for the complete consumer automobile ownership life cycle. Based on users preferences and our big data analysis, we recommend a broad range
of loans, leases and insurance products offered by our cooperative financial institutions to our users that have auto financing needs and match them to facilitate transactions. We plan to make our platform as a professional auto financing platform,
through which our users having auto financing needs can be able to easily access various high-quality loans and insurance products and our cooperative financial partners can effectively increase the volume of their financing transactions. See
Item 3. Key InformationD. Risk FactorsRisks Related to Our Business and IndustryIf we are unable to grow our new vehicle transaction business, we may not be able to achieve our expected business growth and our results of
operations may be adversely affected.
Used automobile listing & other platform-based services
We launched our used automobile listing platform in late 2009. Our used automobile listing services allow dealers and individuals to market
their used automobiles for sale on our websites and mobile applications. Our used automobile listing database has been expanding rapidly. We had approximately 11.5 million used automobile listings in our database as of December 31, 2017.
In an effort to capitalize on the used automobile market as it matures, in October 2011, we redesigned our
che168.com
website as a
platform dedicated to used automobiles. The redesigned website features content, listings and interactive functionality similar to our
autohome.com.cn
website, but focuses primarily on used automobiles. We also developed a mobile application
for our used automobile services. Since 2014, we continued to develop and enhance our used automobile sales platform and began to provide advertising services, dealer subscription services and other platform-based services in selected cities.
The used automobile market still remains at a nascent stage of development and the revenue generated from our used automobile listing and
other services, which was included in revenue line for leads generation services, had achieved fast growth in the year ended December 31, 2017. We plan to continue to make efforts in developing our used automobile-related business and explore
new business models and opportunities.
Technology and Product Development
Our technologies and infrastructure are critical to our success. We follow a user-centric strategy for our system architecture and have
developed robust and scalable technology platforms with sufficient flexibility to support our rapid growth.
A key component of our
user-centric strategy is our user intelligence engine which we have developed and are continually enhancing. Our user intelligence engine allows us to rapidly gather user intelligence by analyzing large amounts of data from many sources throughout
our content production system. We are able to monitor and analyze user behaviors and preferences through their browsing record on our platforms. We can utilize such user intelligence data to personalize user interfaces, associate and understand the
relationship of information from different sources and facilitate interactions among users and various elements on our websites and mobile applications. It also helps us recommend suitable products, services and user connections to our users.
Through our user intelligence engine, we can engage our users more closely by providing them with relevant content throughout their automotive life cycles. We are also able to provide precision and targeted marketing services to our automakers,
dealers and other automotive-related customers so that they can accurately deliver relevant advertisements to targeted users who are more receptive to such marketing information.
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We provide automobile consumers trend analysis services for our automaker and dealer customers
that help them analyze data in specific geographic markets such as consumer purchasing behavior characteristics and their brand strength in comparison to that of their competitors. We believe the consumer intelligence gathered from our large user
base reflects the current automotive market trends in China and provides excellent market insight to our automaker and dealer customers.
We invested heavily in mobile technologies and were among the earliest in our industry in China to introduce a mobile version of our websites
and both Apple
iOS-
and Android-based applications to allow our users to easily access our content. We have built up a team of research and development personnel to focus exclusively on the development and
enhancement of our mobile websites and applications and to explore new business models and opportunities through mobile technology. We plan to continue to leverage our mobile technology to enhance the functions and user interfaces of our mobile
applications for Apple iOS and Android platforms focusing on convenience, real-time interaction and location based services.
Leveraging
AR and VR related technologies, we realized significant technology upgrade in 2017 and launched AR automobile showroom and AR auto show during the year, all of which had enabled us to provide our users with an innovative and superior automobile
review experience and thus enhanced our user stickiness. In addition, these technology improvements had strengthened our ability to obtain additional user traffic and expanded our user base. We plan to continue to make further upgrades and develop
new technology to provide more diversified platforms for our users, and to expand the use of AR and VR related technologies throughout our
eco-platform
in order to offer automakers and dealers with more
innovative and effective branding and marketing tools and greater exposure to highly targeted potential consumers throughout China.
We
had an experienced product development team of 1,659 engineers as of December 31, 2017. Our past innovation has focused on helping users research, select and purchase suitable vehicles through our websites. We plan to develop additional
products and services for our mobile applications and media-related technology and enhance our big data analysis capabilities and AR and VR related technologies.
Sales and Marketing
Our nationwide
in-house
team of sales representatives sells our services to automakers and dealers. As of December 31, 2017, we had 1,824 sales and marketing representatives operating our physical sales office network
spanning 78 cities across China and visiting customers in an additional 128 satellite cities. We have a prudent expansion plan and we typically only open new physical sales offices in a city after we have already established a sufficient customer
base in the area. In cities where we do not yet have a customer base, we provide sales coverage by telephone. Our Beijing-based telephone sales team provided sales coverage to the cities in which we did not have physical sales offices. Our sales
team also provides ongoing customer support to advertisers and dealer subscribers. In the past years, we have successfully expanded our market presence in the first- and second-tier cities in China. We plan to continue to expand our sales and
marketing efforts into third- and fourth-tier cities to further capture the opportunities for automobile sales growth in those markets.
Our sales team is equipped with specialized automotive industry knowledge and expertise, understands our customers needs and is trained
to help them develop their advertising strategies. Salespeople work directly with our advertisers and advertising agencies that represent advertisers. Our sales team also maintains close relationships with our dealer customers by, among other
things, providing continuing training, support and ongoing customer service for our dealer subscriptions services and other value-added services. Our sales team for transaction business is in charge of customer services and maintains our
relationships with automakers, our dealership partners, and business development personnel.
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Compensation for our salespeople includes a base salary and incentives based on the sales
revenues they generate. We provide regular
in-house
and external education and training to our salespeople to help them provide current and prospective customers with information on, and the advantages of
using, our services. We believe that our performance-linked compensation structure and career-oriented training help to retain and motivate our salespeople.
We believe brand recognition is important to our ability to attract users. We focus our sales and marketing efforts through search engines,
navigation websites and mobile platforms to retain and strengthen our leading position in terms of user reach. For example, we cooperate with application stores and mobile browsers to promote our mobile applications and our websites. We also conduct
online marketing events on Autohome Mall and other traditional and social media channels as well as offline promotion campaigns with our partners, including the annual Singles Day campaign which generated quality sales leads for
our dealer customers or our transaction business.
Intellectual Property
Our intellectual property includes trademarks and trademark applications related to our brands and services, software copyrights, trade secrets
and other intellectual property rights and licenses. We seek to protect our intellectual property assets and brands through a combination of trademark, patent, copyright and trade secret protection laws in the PRC and other jurisdictions, as well as
through confidentiality agreements and other measures.
We hold 汽车之家 and
车之家 (both mean auto home in English) and AUTOHOME
®
trademarks in China. In addition, as at December 31, 2017, we held 175 pending
trademark applications and 143 registered trademarks in China. As at the same date, we had 61 registered domain names, including our main website domain names,
autohome.com.cn
and
che168.com
, 119 pending patent applications, and 73
registered patents. We had 204 computer software copyrights as of December 31, 2017.
Competition
With respect to our auto media business, we face competition from Chinas automotive vertical websites and mobile applications, such as
Xcar, PCauto
and
BitAuto
, from the automotive channels of major internet portals, such as
Sina
and
Sohu
, and from companies engaged in mobile social media, news, video and live-streaming applications. We may also face
competition from online automobile transaction platforms, such as
maodou.com
,
taoche.com
,
51auto
,
Uxin
,
Guazi
and
Renrenche
, as we develop our auto
e-commerce
business. Our auto finance business faces competition from other auto finance companies, such as
Yixin
. In addition, we also face competition from companies engaged in social media business, such as
Jinri Toutiao
and
Tencent
.
Competition will be centered on factors similar to those affecting our current media services and leads generation services, primarily centered on increasing user reach, user engagement and brand recognition, relationships with the suppliers, and
attracting and retaining advertisers or customers, among other factors. For our transaction business, as online automobile transaction is a relatively new business model and consumers in China might be accustomed to make automobile purchases with
traditional dealerships, we cannot guarantee that the automobile consumers in China will accept such business model. See Item 3. Key InformationD. Risk FactorsRisks Related to Our Business and IndustryWe face significant
competition, and if we fail to compete effectively, we may lose market share and our business, prospects and results of operations may be materially and adversely affected.
Seasonality
Our quarterly revenues and
other operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are beyond our control. Our business experiences seasonal variations in association with the demand for automobiles
in China. For example, the first quarter of each year generally contributes the lowest portion of our annual net revenues primarily due to a slowdown in business activities around and during the Chinese New Year holiday, which occurs during the
period. Consequently, our results of operations may fluctuate from quarter to quarter. As each of our business lines may have different seasonality factors and the mix of our revenue sources may shift from year to year, our past performance may not
be indicative of future trends. See also Item 3. Key InformationD. Risk FactorsRisks Related to Our Business and IndustryOur business is subject to fluctuations, which makes our results of operations difficult to predict and
may cause our quarterly results of operations to fall short of expectations.
46
Legal Proceedings
From time to time, we may be subject to various claims and legal actions that arise in the ordinary course of our business. There are currently
no legal proceedings that, in the opinion of our management, may have a material adverse effect on our business and results of operations.
PRC
Regulation
This section summarizes the principal PRC laws and regulations relevant to our business and operations.
Regulations on Value-Added Telecommunications Services
On September 25, 2000, the State Council promulgated the Telecommunications Regulations, or the Telecom Regulations, which draw a
distinction between basic telecommunication services and value-added telecommunications services. The Telecommunications Regulations were subsequently revised on July 29, 2014 and on February 6, 2016. On
December 28, 2015, the MIIT published the Classification Catalogue of Telecommunications Services (the 2015 Catalogue), which took effect on March 1, 2016. The first catalogue was published in September 2000 and was subsequently amended in
2001 and 2003, respectively. Under the 2015 Catalogue, value-added telecommunication services was further classified into two
sub-categories
and 10 items. Internet content provision services, or
ICP services, is under the second subcategory of value-added telecommunications businesses. Under the Telecom Regulations, commercial operators of value-added telecommunications services must first obtain an operating license from the MIIT or its
provincial level counterparts.
On September 25, 2000, the State Council issued the Administrative Measures on Internet Information
Services, or the Internet Measures. The measures were subsequently revised on January 8, 2011. According to the Internet Measures, commercial ICP service operators must obtain an ICP license from the relevant government authorities before
engaging in any commercial ICP operations within the PRC.
On March 1, 2009, the MIIT promulgated the Administrative Measures on
Telecommunications Business Operating License, or the Telecom License Measures, which took effect on April 10, 2009. The measures were subsequently revised on September 1, 2017. The Telecom License Measures set forth the types of licenses
required to operate value-added telecommunications services and the qualifications and procedures for obtaining such licenses. For example, an ICP operator providing value-added services in multiple provinces is required to obtain an inter-regional
license, whereas an ICP operator providing the same services in one province is required to obtain a local license.
To comply with these
PRC laws and regulations, both of our ICP operators, Autohome Information and Shengtuo Hongyuan, hold ICP licenses. Autohome Information also holds a value-added telecommunications business operation license for provision of mobile network
information services.
Restrictions on Foreign Ownership in Value-Added Telecommunications Services
According to the Provisions on Administration of Foreign Invested Telecommunications Enterprises, or the FITE Provisions, promulgated by the
State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016, respectively, the ultimate foreign equity ownership in a value-added telecommunications service provider must not exceed 50%. Moreover, for a
foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must demonstrate a good track record and experience in operating value-added telecommunications services. Foreign investors that meet these
requirements must obtain approvals from the MIIT and the Ministry of Commerce or its authorized local branches, and the relevant approval application process usually takes six to nine months.
47
On July 13, 2006, the MIIT issued the Notice of the MIIT on Intensifying the Administration
of Foreign Investment in Value-added Telecommunications Services. This notice prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any
form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. According to this notice, either the holder of a value-added telecommunication business operating
license or its shareholders must legally own the domain names and trademarks used by such license holders in their provision of value-added telecommunication services. The notice further requires each license holder to have the necessary facilities,
including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunication service providers are required to maintain network and internet security in
accordance with the standards set forth in relevant PRC regulations. If a license holder fails to comply with the requirements in the notice and cure such
non-compliance,
the MIIT or its local counterparts
have the discretion to take measures against such license holders, including revoking their valued-added telecommunication business operating licenses.
To comply with these PRC regulations, we operate our websites through our VIEs, Autohome Information and Shengtuo Hongyuan. Each of Autohome
Information and Shengtuo Hongyuan is currently 50% owned by Min Lu and 50% owned by Haiyun Lei, both of whom are PRC citizens. Both Autohome Information and Shengtuo Hongyuan hold ICP licenses.
Regulations on Internet Content Services
The National Peoples Congress has enacted laws with respect to maintaining the security of internet operation and internet content.
According to the Administrative Measures for Internet Information Services, or the Internet Information Services Measures, which was issued by the State Council and became effective on January 8, 2011, violators may be subject to penalties,
including criminal sanctions, for internet content that:
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opposes the fundamental principles stated in the PRC constitution;
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compromises national security, divulges state secrets, subverts state power or damages national unity;
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harms the dignity or interests of the state;
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incites ethnic hatred or racial discrimination or damages inter-ethnic unity;
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undermines the PRCs religious policy or propagates heretical teachings or feudal superstitions;
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disseminates rumors, disturbs social order or disrupts social stability;
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disseminates obscenity or pornography, encourages gambling, violence, murder or fear or incites the commission of a crime;
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insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or
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is otherwise prohibited by law or administrative regulations.
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In accordance with the Internet
Information Services Measures, ICP operators are required to monitor their websites. 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 order ICP operators to suspend their operations, or revoke their ICP licenses if such ICP license holders violate any of the above-mentioned content restrictions.
On February 4, 2015, the China Internet Network Information Center promulgated the Administrative Provisions on Account Names of Internet
Users, or the Account Names Provisions, which became effective as of March 1, 2015. The Account Name Provisions require all users of internet information service providers to authenticate their real identity information for registration of
accounts. Relevant internet information service providers are responsible for the protection of users privacy, consistency of user information, such as account names, avatars, the requirements contemplated in the Account Names Provisions,
making reports to the competent authorities regarding any violation of the Account Names Provisions, and taking appropriate measures to stop any such violations, such as notifying the user to make corrections within a specified time and suspending
or closing accounts in the event of continuing
non-compliance.
48
On August 25, 2017, the Cyberspace Administration of China promulgated the Administrative
Provisions on Internet
Follow-up
Comment Services and the Administrative Provisions on Internet Forum and Community Services, both of which became effective as of October 1, 2017. As stipulated in the
Provisions, the internet
follow-up
comment service providers are imposed on strict primary obligations such as verifying the authenticity of registered users identity information, protecting personal
information of users and developing system to review
follow-up
comments on news information prior to the publication. Moreover, the internet forum and community services providers may establish the systems of
information review, real-time public information check, emergency response, personal information protection and other information security administration systems. In addition, the service providers should not publish information in violation of
laws, regulations and the relevant provisions of the state.
On September 7, 2017, the Cyberspace Administration of China promulgated
the Provisions on the Administration of Information Services Provided through Chat Groups on the Internet, or the Chat Groups Provision, and the Administrative Provisions on the Information Services Provided through Public Official Accounts of
Internet Users, or the Public Official Accounts Provision, both of which became effective as of October 8, 2017. According to the Provisions, the internet service providers are required to verify the authenticity of identity information of
their users. In addition, for any violation of laws and regulations by chat groups or public official accounts, service providers should take certain measures such as issuing a warning, suspending publication of the inappropriate information, and
closing the chat groups or the public official accounts.
These laws and regulations apply to the Internet content services we provide
through our VIEs and impose responsibilities on the VIEs for monitoring the websites, mobile applications and users, safeguarding the security of the internet as well as maintaining the internet content.
Regulations on Internet Privacy
In
recent years, PRC government authorities have enacted legislation on internet use to protect personal information from any unauthorized disclosure. The PRC law does not prohibit ICP operators from collecting and using personal information from their
users with the users consent. However, the Internet Measures prohibit an ICP operator from insulting or slandering a third party or infringing the lawful rights and interests of a third party. The regulations further authorize the relevant
telecommunications authorities to order ICP operators to rectify unauthorized disclosure. ICP operators are subject to legal liability if the unauthorized disclosure results in damages or losses to users. 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. On December 29, 2011, the MIIT promulgated the Several Provisions on
Regulating the Market Order of Internet Information Services, effective as of March 15, 2012. It stipulates that ICP operators may not, without a users consent, collect the users information that can be used alone or in combination
with other information to identify the user and may not provide any such information to third parties without the users prior consent. ICP operators may only collect users personal information that is necessary to provide their services
and must expressly inform the users of the method, content and purpose of the collection and use of such personal information. In addition, an ICP operator may only use users personal information for the stated purposes under the ICP
operators scope of service. ICP operators are also required to ensure the proper security of users personal information, and take immediate remedial measures if users personal information is suspected to have been inappropriately
disclosed. If the consequences of any such disclosure are expected to be serious, ICP operators must immediately report the incident to the telecommunications regulatory authority and cooperate with the authorities in their investigations.
On December 28, 2012, the Standing Committee of the National Peoples Congress of the PRC issued the Decision on Strengthening the
Protection of Online Information. Most requirements under this decision relevant to ICP operators are consistent with the requirements already established under the MIIT provisions discussed above, but are often stricter and broader. Under this
decision, ICP operators are required to take such technical and other measures necessary to safeguard information against inappropriate disclosure. To further implement this decision and relevant rules, MIIT issued the Regulation of Protection of
Telecommunication and Internet User Information on July 16, 2013, which became effective on September 1, 2013.
On
March 15, 2017, the Standing Committee of the National Peoples Congress of the PRC issued the General Rules of the Civil Law of the Peoples Republic of China, which came into effect on October 1, 2017. The General Rules have
introduced personal information rights and data protection and provide that personal information of a natural person should be protected by the law. The acquisition of information should be conducted in compliance with laws and regulations. The
organizations and individuals who require personal information of others should neither illegally collect, utilize, process or transmit personal information of others nor illegally sell or buy, provide to others or make public the personal
information of others.
49
The Cyber Security Law of the Peoples Republic of China became effective on June 1,
2017. According to the Cyber Security Law, network operators should, in the course of collecting and using personal information, follow the principles of legitimacy, properness and necessity, disclose their rules with respect to data collection and
usage, clearly express the purposes, means and scope of collecting and using information. Prior consent from the persons whose data is collected is required. In addition, network operators are not allowed to collect personal information which is
irrelevant to the services they provide.
To comply with these laws and regulations, we require our users to accept a user terms of
service whereby they agree to provide certain personal information to us, and have established information security systems to protect users privacy.
Regulations on Advertisements
The PRC
government regulates advertising, including online advertising, principally through the SAIC, although there is no PRC law or regulation at the national level that specifically regulates the online advertising business. Prior to November 30,
2004, in order to conduct any advertising business, an enterprise was required to hold an operating license for advertising in addition to a relevant business license. On November 30, 2004, the SAIC issued the Administrative Rules for
Advertising Operation Licenses, effective as of January 1, 2005, which was replaced by Administrative Provisions on Advertising Registration issued on November 1, 2016 and took effect on December 1, 2016. The advertisement operation
entities are restricted to radio stations, TV stations and newspaper and periodical publishers and the Advertising Operation License was cancelled. Therefore, our subsidiaries and VIEs are not required to hold an advertising operation license.
Before we acquired Autohome Media (formerly known as Prbrownies Marketing Limited) in October 2013, we conducted our advertising business
through two subsidiaries of Autohome Information, namely Autohome Advertising and Chengshi Advertising, Shanghai Advertising and Guangzhou Advertising due to the previous restrictions on foreign investors holding direct equity interests in PRC
advertising companies. In October 2013, Autohome HK acquired Autohome Media, a Hong Kong advertising and marketing company. Autohome Media has established subsidiaries in Beijing, Shanghai, Guangzhou, Tianjin, Chengdu and Huaian. We have
migrated our advertising business from Autohome Advertising, Chengshi Advertising, Shanghai Advertising and Guangzhou Advertising, to the subsidiaries of Autohome Media in 2015.
Advertisers, advertising operators and advertising distributors are required by PRC advertising laws and regulations to ensure that the
content of the advertisements they produce or distribute are true and in full compliance with applicable laws and regulations. In addition, where a special government review is required for certain categories of advertisements before publishing, the
advertisers, advertising operators and advertising distributors are obligated to confirm that such review has been duly performed and that the relevant 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. In circumstances involving serious violations, the SAIC or its local
branches may order the violator to terminate its advertising operation or even revoke its business license. Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liabilities if they infringe on the legal
rights and interests of third parties.
On April 24, 2015, the Standing Committee of the National Peoples Congress issued the
PRC Advertising Law or the Advertising Law, which came into effect on September 1, 2015. The Advertising Law applies to all advertising activities conducted via the internet. The Advertising Law requires that users must be able to close online
pop-up
ads with one click. Moreover, internet service providers are obligated to cease publishing any advertisements that they know or should know are illegal. Violation of these regulations may result in penalties,
including fines, confiscation of the advertising incomes, termination of advertising operations and even suspension of the providers business license.
50
On July 4, 2016, the SAIC issued the Interim Measures for the Administration of Internet
Advertising or the Internet Advertising Measures, which came into effect as of September 1, 2016. All advertising activities by means of the internet are governed by the Advertising Law and the Internet Advertising Measures. Pursuant to the
Internet Advertising Measures, the term Internet Advertisement shall mean commercial advertisement that promote commodities or services, directly or indirectly, via Internet media such as websites, webpages and internet application
programs in the form of texts, pictures, audios, videos or other forms, including the advertisement containing a web link or links,
e-mail
advertisement, paid search advertisements, and advertisements
contained in commercial presentations that promote commodities or services, etc. The Internet Advertising Measures require that an internet advertisement shall be identifiable and clearly identified as an advertisement so that users will
tell it is an advertisement, and the following activities shall be prohibited: (i) providing or using any application programs or hardware to intercept, filter, cover, fast forward or otherwise restrict any authorized advertisement of other
persons; (ii) using network pathways, network equipment or applications to disrupt the normal data transmission of advertisements, alter or block authorized advertisements of other persons or load advertisements without authorization; or
(iii) using false statistical data, transmission effect or internet medium value to induce incorrect quotations, seek undue interests or damage the interests of other persons.
Pursuant to the Internet Advertising Measures, the punishments on illegal acts shall be administered by the local administrative authority for
industry and commerce (AIC) in the place where the advertisement publisher is located. However, if an advertiser or advertising agent who violates the Advertising Law or the Internet Advertising Measures is outside the jurisdiction of
the local AIC of the advertisement publisher, such case may be referred to the local AIC where the advertiser or advertising agent is located; in the event that the local AIC in the place where the advertiser or advertising agent is located has
discovered any clues or received complaints or reports about such illegal acts, they may also exercise the administration. For any illegal advertisements published by advertisers themselves, such case shall be administered by the local AIC where the
advertisers are located.
To comply with these laws and regulations, we include clauses in our advertising contracts requiring that all
advertising content provided by advertisers must comply with relevant laws and regulations. Prior to posting on websites and mobile applications, our staff reviews advertising materials to ensure there is no violent, pornographic or any other
improper content, and will request the advertiser to provide government approval if the advertisement is subject to special government review.
Regulations on Broadcasting Audio/Video Programs through the Internet
On July 6, 2004, the SARFT promulgated the Rules for the Administration of Broadcasting of Audio/Video Programs through the Internet and
Other Information Networks, or the A/V Broadcasting Rules, which were replaced by Provisions on the Administration of Private Network and Targeted Communication Audio-visual Program Services which took effect on June 1, 2016. For an entity that
engages in content delivery, integrated broadcast control, transmission distribution and other private network and targeted communication to send audio-visual program service, an Internet Audio/Video Program Transmission License is
required.
On April 13, 2005, the State Council announced Several Decisions on Investment by
Non-state-owned
Companies in Culture-related Business in China. These decisions encourage and support
non-state-owned
companies to enter certain culture-related business
in China, subject to restrictions and prohibitions for investment in audio/video broadcasting, website news and certain other businesses by
non-state-owned
companies. These decisions authorize the SARFT, the
Ministry of Culture and the GAPP to adopt detailed implementation rules according to these decisions.
On December 20, 2007, the
SARFT and the MIIT jointly issued the Rules for the Administration of Internet Audio and Video Program Services, commonly known as Circular 56, which came into effect as of January 31, 2008 and was amended in August, 2015. Circular 56
reiterates the requirement set forth in the A/V Broadcasting Rules that online audio/video service providers must obtain an internet audio/video program transmission license from the SARFT. Furthermore, Circular 56 requires all online
audio/video service providers to be either wholly state-owned or state-controlled companies. According to relevant official answers to press questions published on the SARFTs website dated February 3, 2008, officials from the SARFT and
the MIIT clarified that online audio/video service providers that already had been operating lawfully prior to the issuance of Circular 56 may
re-register
and continue to operate without becoming state-owned
or controlled, provided that such providers have not engaged in any unlawful activities. This exemption will not be granted to online audio/video service providers established after Circular 56 was issued. These policies have been reflected in the
Application Procedure for Audio/Video Program Transmission License. Failure to obtain the internet audio/video program transmission license may subject an online audio/video service provider to various penalties, including fines of up to RMB30,000,
seizure of related equipment and servers used primarily for such activities and even suspension of its online audio/video services.
51
To comply with these laws and regulations, Autohome Information obtained an internet audio/video
program transmission license on February 9, 2010, which has been renewed on February 13, 2018, for automotive-industry-information-related audio/video programs posted on our
autohome.com.cn
website and relevant mobile applications.
Regulations on Producing Audio/Video Programs
On July 19, 2004, the SARFT promulgated the Administrative Measures on the Production and Operation of Radio and Television Programs,
effective as of August 20, 2004. On August 28, 2015, State Press and Publication of the General Administration of Radio and Television Decree No. 3 was issued to amend some provisions of the aforesaid Measures. These Measures provide
that anyone who wishes to produce or operate radio or television programs must first obtain an operating permit. Applicants for this permit must meet several criteria. Both Autohome Information and Shengtuo Hongyuan hold operating licenses for the
production and dissemination of radio and television programs for special topic programs, cartoons and television variety shows.
Regulations on
Internet Mapping Services
According to the amended Notice on Printing and Distributing Regulations on the Management of Surveying and
Mapping Qualification and Standard of Surveying and Mapping Qualification Classification issued by the National Administration of Surveying, Mapping and Geoinformation, or NASMG, in July 2014, an entity providing internet mapping services should
apply for the Surveying and Mapping Qualification Certificate for Surveying and Mapping, and perform within the scope of the certificate. According to these rules, certain conditions and requirements, such as the number of technical personnel and
map security verification personnel, security facilities and approval from relevant provincial or national government on the service providers security system, qualification management and filings management, are necessary for an entity
applying for a Surveying and Mapping Qualification Certificate. Pursuant to the Notice on Further Strengthening the Administration of Internet Map Services Qualification issued by the NASMG in December 2011, any entity that has not yet applied for a
surveying qualification certificate for internet mapping services is prohibited from providing any internet mapping services.
On
November 26, 2015, the State Council enacted the Administrative Regulations on Maps, or the Maps Regulations, effective as of January 1, 2016. The Maps Regulations requires entities engaging in internet mapping services, such as geographic
positioning, the uploading of geographic information or markings, and the development of a public map database, to obtain a relevant qualification certificate for surveying and mapping. The Maps Regulations require entities engaging in online map
services to use mapping data approved by the relevant governmental authorities, host servers storing map data within the PRC, and establish a management system as well as protection measures for the data security of the online maps. The mapping data
must not contain any content prohibited by the Maps Regulations, and no entities or individuals are allowed to upload or mark such prohibited content online. Further, entities engaging in internet mapping services shall keep confidential any
information involving state secrets and trade secrets acquired during their work.
We have provided maps on our websites and mobile
applications for the convenience of our users to locate certain service providers. Both Autohome Information and Shengtuo Hongyuan hold the Surveying and Mapping Qualification Certificate for internet mapping.
52
Regulations on Online Cultural Services
On February 17, 2011, the Ministry of Culture promulgated the Interim Administrative Provisions on Internet Culture, which became
effective on April 1, 2011 and replaced the original measures promulgated in 2003 and amended in 2004. On December 15, 2017, the Decision of the Ministry of Culture on the Revision or Abolishment of Certain Administrative Provisions was
issued to amend some articles of the aforesaid provisions. The Interim Administrative Provisions on Internet Culture require ICP operators engaged in internet culture activities to obtain an Internet Culture Business Permit from the
provincial administration of culture. The term internet culture activities includes, among other things, online dissemination of internet cultural products (such as audio-video products, gaming products, performances of plays or
programs, works of art and cartoons) and the production, reproduction, importation, publication and broadcasting of internet cultural products.
Autohome Information has applied for and obtained an Internet Culture Business Permit in January 2013, and we have renewed our permit to
include use of information network to operate music entertainment products, game products, performance drama (section), performance.
Regulations on Online Performances and Online Live-streaming Services
On December 2, 2016, the Ministry of Culture issued the Administrative Measures for Business Activities of Online Performances, which took
effect on January 1, 2017. Under these measures, an operator of online performances conducting the business activities of online performances shall apply for an Internet Culture Business Permit with the competent provincial administrative
cultural department, and the business scope indicated on the permit shall clearly include reference to online performances. An operator of online performances undertakes the primary responsibility for the business activities of online performances
operated by it, and shall establish a content review and management system, arrange staff with corresponding qualifications
to undertake the work of reviewing the performance content, and establish technical supervision measures
adaptable to content management in accordance with relevant laws and regulations.
The Provisions on the Administration of Online Live
Streaming Services was issued by the State Internet Information Office on November 4, 2016 and was effective on December 1, 2016. Under the provisions, those who provide online live-streaming services through online performances, internet
video and audio programs, and so forth, shall obtain relevant qualifications as required by laws and regulations. Online live streaming service providers shall carry out entity responsibilities, equip professionals comparable to the service scale,
and improve systems for information review, information security management, duty patrols, emergency response, and technical guarantee. Online live streaming service providers shall establish platforms for reviewing live streaming content. Online
live streaming service providers and online live streaming publishers that provide internet news information services without licenses, or exceeding the scope of their licenses, are subject to punishment. For other violations of these provisions
that are subject to punishment by the national and local Internet information offices in accordance with law; if a crime is constituted, criminal liability shall be investigated in accordance with law. Violations of the relevant laws and provisions
in providing online live streaming services through Internet performances, online audio and visual programs and so forth are subject to punishment by the relevant departments in accordance with law.
Currently we are providing online live-streaming services through autohome.com.cn website. Autohome Information has obtained an internet
audio/video program transmission license on February 9, 2010, which has been renewed on February 13, 2018 and will remain effective until February 13, 2021. In addition, in January 2013, Autohome Information has obtained an Internet
Culture Business Permit, which includes use of information network to operate music entertainment products, game products, performance drama (section), performance.
Regulations on Internet Publishing
The
Administrative Provisions on Online Publishing Services, or the Online Publishing Provisions, was jointly issued by the MIIT and the State General Administration of Press, Publication, Radio, Film and Television in 2016, and came into effect on
March 10, 2016. The Online Publishing Provisions define online publishing services as providing online publications to the public through information networks. Any online publishing services provided in the territory of the PRC are
subject to these provisions. The Online Publishing Provisions requires any internet publishing services provider to obtain an online publishing service license to engage in online publishing services. Under the Online Publishing Provisions, online
publications refers to digital works which have publishing features such as digital work that have been edited, produced or processed and which are made available to the public through information networks, including written works, pictures, maps,
games, cartoons, audio/video reading materials and other methods. Any online game shall obtain approval from SAPPRFT before it is launched online. Furthermore, Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures and wholly
foreign-owned enterprises cannot engage in providing web publishing services.
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Based on a consultation we had with the local press and publication administration authority, we
believe we are not required to obtain the internet publishing license as the activities we engage in on our websites and mobile applications do not constitute internet publishing activities, as such term is used in the Online Publishing
Provisions. We are also not aware of companies with an operation similar to ours that have obtained or been required to obtain the internet publishing license. As a result, both Autohome Information and Shengtuo Hongyuan have not applied for such
internet publishing approval. However, in the event that our activities are deemed to be internet publishing, we may be required to obtain approval from GAPP. If we are deemed to be in breach of relevant internet publishing regulations,
the PRC regulatory authorities may seize the related equipment and servers used primarily for such activities and confiscate any revenues generated from such activities. In addition, relevant PRC authorities may also impose a fine of five to ten
times of any revenues exceeding RMB10,000 or a fine of not more than RMB50,000 if such related revenues are below RMB10,000.
Regulations on Internet
News Information Service
On May 2, 2017, the Cyberspace Administration of China issued the Provisions for the Administration of
Internet News Information Services, or Internet News Provision, which became effective on June 1, 2017 and replaced the original provisions promulgated in 2005.
Internet news information services shall include service of collecting, editing and publishing internet news information, service of reposting
and service of providing propagation platform. Under the Internet News Provision, internet news service providers shall also include entities that are not established by the press but reproduce internet news from other sources, provide electronic
bulletin services on current and political events, and transmit such information to the public. The Cyberspace Administration of China shall be in charge of the supervision and administration of the internet news information services throughout
China.
If we release information that may be deemed by authorities as internet news, we may be required to obtain the internet news
information service license. However, we have consulted the relevant government authorities and have been informed that we would not be required to obtain the internet news releasing license because the internet news posted on our websites and
mobile applications is only automotive industry related news which is not political in nature or related to macroeconomics. However, if any of the internet news posted on our websites and mobile applications is deemed by the government to be
political in nature, related to macroeconomics, or otherwise requires such license based on the sole discretion of the government authority, we would need to apply for such license. If we are deemed to be in breach of the Internet News Provision or
other relevant internet news releasing regulations, the PRC regulatory authorities may suspend our information release activities and impose a fine exceeding RMB10,000 but not more than RMB30,000. In serious cases, the PRC regulatory authorities may
even suspend the internet service or internet access.
Regulations on
E-commerce
Chinas
e-commerce
industry is at an early stage of development and there are few PRC laws or
regulations specifically regulating the
e-commerce
industry. In January 2014, the SAIC promulgated the Administrative Measures for Online Trading, which strengthen the protection of consumers and impose
stringent requirements and obligations on online business operators and third-party online marketplace operators. Online business operators and third-party online marketplace operators are prohibited from collecting any information on consumers and
business operators or disclosing, selling or providing any such information to any third party, or sending commercial electronic messages to consumers without their consent. Fictitious transactions, deletion of adverse comments and technical attacks
on competitors websites are prohibited as well. In addition, third-party online marketplace operators are required to examine and verify the identifications of the online business operators and set up and retain relevant records for at least
two years. For corporations, other economic organizations or individual-owned business that apply to enter the platforms to sell commodities or to provide services, the operators of the third-party trading platforms should examine the authenticity
of the identities of the online business operators, register such operators and establish registration files with regular verification and update, and should disclose the information about their business licenses or place the electronic linkage
identifiers of their business licenses at notable positions of the homepages where they conduct their business activities. We are subject to these measures as a result of our online platform services.
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Foreign investors were not allowed to own more than 50% of the equity interests in
e-commerce
companies which is a subcategory of value-added telecommunication services, and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a
good track record, except for foreign investors in China (Shanghai) Pilot Free Trade Zone, subject to certain conditions. The NDRC and the Ministry of Commerce jointly issued the Catalogue for the Guidance of Foreign Investment Industries in March
2015, or the Catalogue, which further relaxes market access through regulatory reforms such as allowing foreign investors to have complete ownership of equity interests in
e-commerce
businesses. The Catalogue
took effect on April 10, 2015.
Currently, we primarily cooperate with independent automobile sellers to facilitate their sales of
automobiles through our
e-commerce
platforms.
Regulations on Mobile Internet Applications
On June 28, 2016, Cyberspace Administration of China promulgated the Administrative Provisions on Mobile Internet Applications Information
Services, or the Mobile Application Administrative Provisions, which took effect on August 1, 2016. According to the Mobile Application Administrative Provisions, mobile internet application refers to application software that runs
on mobile smart devices providing information services after being
pre-installed,
downloaded or embedded through other means. Mobile internet application provider refer to the owners or operators
of mobile internet applications. Internet application stores refer to platforms which provide services related to online browsing, searching and downloading of application software and releasing of development tools and products through the
internet. On December 16, 2016, the MIIT promulgated the Interim Administrative Provisions on the
Pre-installation
and Distribution of the Mobile Smart Terminal Application Software, which took effect on
July 1, 2017 and requires, among others, that internet information service providers must ensure that a mobile application, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user easily, unless
the mobile application is a basic function software, which refers to a software that supports the normal functioning of the hardware and operating system of a mobile smart device. In addition, mobile smart terminal application software involving
charges should strictly comply with the relevant regulations such as sale at an expressly marked price, and express the charge standard and method. The content expressed should be true, accurate,
eye-catching
and normative, and users should be charged only after their confirmation.
Pursuant to the Mobile Application Administrative Provisions,
an internet application program provider must verify a users mobile phone number and other identity information under the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office
end. An internet application provider must not enable functions that can collect a users geographical location information, access users contact list, activate the camera or recorder of the users mobile smart device or other
functions irrelevant to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has clearly indicated to the user and obtained the users consent on such functions and application programs.
In respect of an internet application service provider, the Mobile Application Administrative Provisions requires that, among others, it must file a record with the local authority within 30 days after it rolls out the internet application service
online. It must also examine the authenticity, security and legality of internet application providers on its platform, establish a system to monitor application providers credit and file a record of such information with relevant governmental
authorities. If an application provider violates the regulations, the internet application store service provider must take measures to stop the violations, including warning, suspension of release, withdrawal of the application from the platform,
keeping a record and reporting the incident to the relevant governmental authorities.
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Regulations on Foreign Investment in the Leasing Industry
On September 18, 2013, the Ministry of Commerce enacted the Circular of the Ministry of Commerce on Printing and Distributing the
Administrative Measures of Supervision on Financial Leasing Enterprises, or the Circular No. 337, which became effective as of October 1, 2013. Circular No. 337 stipulates that the financial leasing enterprises in China shall be
supervised and managed by the Ministry of Commerce, while the provincial competent departments of commerce shall supervise the financial leasing enterprises within their administrative regions. The financial leasing enterprises may, in accordance
with the provisions of relevant laws, regulations and rules, carry out the financial leasing businesses in such forms as direct lease, sublease,
sale-and-
lease-back,
leveraged lease, entrusted lease and joint lease. The financial leasing enterprises shall take the leasing businesses such as financial leasing as their principal businesses while carrying out businesses in relation thereto such as the purchase of
leased property, disposal of the residual value of assets underlying the leases and maintenance of assets underlying the leases, leasing transaction consultancy and guaranty services, transferring receivables to a third party, accepting rental
deposit and other businesses approved by the authorities. However, under Circular No. 337, financial leasing enterprises are not allowed to carry out illegal fund-raising activities in the name of financing lease as well as engage in financial
business such as accepting deposits, and providing loans or entrusted loans. Moreover, financial leasing enterprises shall not engage in inter-bank borrowing and other businesses without the approval from relevant authorities.
The Financing JV primarily engages in auto financial leasing business. In September 2017, we entered into a definitive agreement to transfer
all equity interest we held in the Financing JV to a company unaffiliated to us. As of the date of this annual report, the transaction has not been consummated and is subject to a set of regulatory and customary closing conditions to be satisfied.
Regulations on Automobile Sales
On
April 5, 2017, the Ministry of Commerce promulgated the Measures on the Administrations of Automobile Sales, or the Measures on Automobile Sales, which took effect on July 1, 2017 and replaced the original Branded Automobile Sales Measures
promulgated in 2005. According to the Measures on Sales of Automobile, the supplier takes the way of selling the vehicle to the dealer, and the authorization term (excluding the shop construction term) shall not be less than 3 years, and the first
authorization term shall not be less than 5 years. An independent automobile seller who sells an automobile without authorization from a supplier or an automobile which is not authorized to be sold by an automobile manufacturer outside the country
shall provide a reminder and explanation to the consumer in writing and inform the consumer of the relevant responsibility in writing. When a dealer or an independent automobile seller sells the car to the consumer, it shall verify the
identification of the registered consumer, sign the sales contract, and issue the sales invoice.
The Measures on Sales of Automobile
further provides that a supplier shall not require its dealers to have sales, after-sales service and other functions at the same time, shall not restrict its dealers operations of goods of other suppliers, and shall not restrict the dealers
from providing parts or other after-sales services for automobiles of other suppliers. Except as otherwise agreed by the parties, a supplier shall not sell automobiles directly to consumers in the area where its dealer is authorized to sell.
As regards to information recording, the Measures on Sales of Automobile requires the suppliers or the dealers and independent automobile
sellers to file their basic information at the State Council department in charge of the national automobile circulation information management system within 90 days after obtaining their respective business license. If the basic information of a
supplier, a dealer or an independent automobile seller is changed, it shall complete the updated filing within 30 days from the date of the change. The basic information of the supplier, the dealer or the independent automobile seller, if it is
established before the Measures, should be filed within 90 days from the date that the Measures took effect. The file of automobile sales, users and other information shall be kept by the dealer and independent automobile seller for no less than 10
years.
Currently, we provide a transaction platform for automobile buyers to liaise with third-party sellers on our platform and to
purchase vehicles from such sellers.
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Regulations on Insurance Brokerage Business
In April 2015, the Standing Committee of the National Peoples Congress promulgated the Insurance Law of PRC. In October 2015, the CIRC
promulgated the Provisions on the Supervision and Administration of Insurance Brokers, or the Insurance Brokers Provisions. The Insurance Brokers Provisions define insurance brokers as institutions which provide intermediary services, in favor of
the insured, in the course of concluding insurance contracts between the insured and the insurance companies and charge certain commission as agreed. Pursuant to the Insurance Law and Insurance Brokers Provisions, a license for engaging in insurance
brokerage businesses is required in the course of setting up an insurance brokerage company. The companies which intend to provide insurance brokerage service should meet certain requirements set up by the CIRC and should not conduct insurance
brokerage business unless the aforesaid license is received.
In July 2015, the CIRC promulgated the Circular of the CIRC on Issuing the
Interim Measures for the Supervision of Internet Insurance Business, or CIRC Circular 69, which became effective on October 1, 2015. CIRC Circular 69 sets up strict restrictions on the institutions allowed to conduct internet insurance
business. CIRC Circular 69 stipulates that only insurance companies and professional insurance intermediaries established upon approval by insurance regulatory authorities and registered could provide internet insurance services. Simultaneously,
CIRC Circular 69 sets up certain requirements for providing insurance services through self-operated online platforms or platforms operated by third parties.
In September 2017, we have acquired Shanghai Tianhe Insurance Brokerage Co., Ltd., or Shanghai Tianhe, which is holding the license for
engaging in insurance brokerage businesses. Shanghai Tianhe is currently conducting offline insurance brokerage business and might engage in online insurance business in the future.
Regulations on Intellectual Property Rights
China has adopted legislation governing intellectual property rights, including trademarks, patents and copyrights. China is a signatory to the
major international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.
Patent
.
The National Peoples Congress adopted the Patent Law in 1984, and amended it in 1992, 2000 and 2008. The
purpose of the Patent Law is to protect lawful interests of patent holders, encourage invention, foster applications of inventions, enhance innovative capabilities and promote the development of science and technology. To be patentable, invention or
utility models must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal
and plant breeds, substances obtained by means of nuclear transformation or a design which has major marking effect on the patterns or colors of graphic print products or a combination of both patterns and colors. The Patent Office under the State
Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent is valid for a term of twenty years in the case of an invention and a term of ten 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. We had 119 pending patent applications and 73 registered patents as of
December 31, 2017.
Copyright
. The National Peoples Congress adopted the Copyright Law in 1990 and amended it in
2001 and 2010, respectively. The amended Copyright Law extends copyright protection to internet activities, products disseminated over the internet and software products. In addition, there is a voluntary registration system administered by the
China Copyright Protection Center. The amended Copyright Law also requires registration of a copyright pledge.
To address the problem of
copyright infringement related to the content posted or transmitted over the internet, the National Copyright Administration and the MIIT jointly promulgated the Measures for Administrative Protection of Internet Copyright on April 29, 2005.
This measure became effective on May 30, 2005.
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In order to further implement the Computer Software Protection Regulations promulgated by the
State Council on December 20, 2001, as amended in 2013, the National Copyright Administration of the PRC issued Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration,
license contract registration and transfer contract registration.
In compliance with, and in order to take advantage of, the above rules,
we have registered 204 computer software copyrights as of December 31, 2017.
On May 18, 2006, the State Council promulgated the
Protection of the Right of Communication through Information Networks, which became effective on July 1, 2006, as amended in 2013. Under this regulation, with respect to any information storage space, search or link services provided by an
internet service provider, if the legitimate rights owner believes that the works, performance or audio or video recordings pertaining to that service infringe his or her rights of communication, the rights owner may give the internet service
provider a written notice containing the relevant information along with preliminary documents supporting that an infringement has occurred, and requesting that the internet service provider delete, or disconnect the links to, such works or
recordings. The rights owner will be responsible for the truthfulness of the content of the notice. Upon receipt of the notice, the internet service provider must delete or disconnect the links to the infringing content immediately and forward the
notice to the user that provided the infringing works or recordings. If the user believes that the subject works or recordings have not infringed upon others rights, the user may submit to the internet service provider a written explanation
with preliminary documents supporting
non-infringement,
and a request for the restoration of the deleted works or recordings. The internet service provider should then immediately restore the deleted or
disconnected content and forward the users written statement to the rights owner.
On December 26, 2009, the Standing Committee
of the National Peoples Congress adopted the Torts Liability Law, which became effective on July 1, 2010. Under this Torts Liability Law, both internet users and internet service providers may be liable for the wrongful acts of users who
infringe the lawful rights of other parties. If an internet user utilizes internet services to commit a tortious act, the party whose rights are infringed may request the internet service provider to take measures, such as removing or blocking the
content, or disabling the links thereto. Failure to take necessary measures after receiving such notice will subject the internet service providers to joint liability for any further damages suffered by the rights holder. Furthermore, if an internet
service provider fails to take necessary measures when it knows that an internet user utilizes its internet services to infringe the lawful rights and interests of other parties, it will be held jointly liable with the internet user for damages
resulting from the infringement.
According to an interpretation by PRC Supreme Peoples Court, which took effect on January 1,
2013, internet service providers will be held jointly liable if they continue their infringing activities or do not remove infringing content from their websites once they know of the infringement or receive notice from the rights holder. If an
internet service provider economically benefits from the works, performances, and sound or visual recordings provided by network users, it must pay close attention to infringement of network information transmission rights by network users.
Trademark
.
The PRC Trademark Law, adopted in 1982 and amended in 1993, 2001 and 2013, protects registered trademarks. The
Trademark Office under the SAIC handles trademark registrations and grants a term of ten years for registered trademarks. Trademark license agreements must be filed with the Trademark Office for record. We hold
汽车之家 and 车之家 (auto home in English) and AUTOHOME
®
trademarks in China with each registered
under different categories.
Domain Names
. In September 2002, the CNNIC issued the Implementing Rules for Domain Name
Registration, as amended in June 2009 and May 2012, that set forth detailed rules for registration of domain names. On August 24, 2017, the MIIT promulgated the Administrative Measures for Internet Domain Names, which came into effect on
November 1, 2017 and replaced the original Measures promulgated in 2004. The Domain Name Measures regulate the registration of domain names, such as the first tier domain name .cn. In 2002, the CNNIC issued the Measures on Domain
Name Dispute Resolution, as amended in 2006, 2012 and 2014, pursuant to which the CNNIC can authorize a domain name dispute resolution institution to decide disputes. We have registered a number of domain names, including
autohome.com.cn
,
autohome.com
and
che168.com
.
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Regulations on Tax
See Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxationPRC and Item 10.
Additional InformationE. TaxationPeoples Republic of China Taxation.
Regulations on Foreign Exchange
Foreign exchange activities in China are primarily governed by the following regulations:
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Foreign Currency Administration Rules (2008), or the Exchange Rules; and
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Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
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Under the Exchange Rules, if documents certifying the purposes of the conversion of RMB into foreign currency are submitted to the relevant
foreign exchange conversion bank, the RMB will be convertible for current account items, including the distribution of dividends, interest and royalties payments, and trade and service-related foreign exchange transactions. Conversion of RMB for
capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is subject to the approval of, or registration with, SAFE or its local counterpart. Capital investments by PRC entities outside
of China, after obtaining the required approvals of, or making filings with, the relevant approval authorities, such as the Ministry of Commerce and the NDRC or their local counterparts, are also required to register with SAFE or its local
counterpart.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks
authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from or being registered with SAFE or its local counterpart.
In utilizing the proceeds we received from our equity offerings, as an offshore holding company with PRC subsidiaries, we may (a) make
additional capital contributions to our PRC subsidiaries, (b) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (c) make loans to our PRC subsidiaries or VIEs or (d) acquire offshore entities
with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:
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capital contributions to our PRC subsidiaries, whether existing or newly established, must be approved by the Ministry of Commerce or its local counterparts;
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loans by us to our PRC subsidiaries, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local branches; and
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loans by us to our VIEs, which are domestic PRC entities, must be approved by the NDRC (in the case of middle or long term loans) or be within the limits approved by SAFE (in the case of short term loans), and must also
be registered with SAFE or its local branches.
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On March 30, 2015, SAFE issued the SAFE Circular 19, which became effective on June 1,
2015. On June 9, 2016, the SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, which revised
some provisions of SAFE Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital converted from registered capital denominated in foreign currency of a foreign-invested company is regulated such that
Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than the foreign-invested companys affiliates unless otherwise permitted under its business scope. Violations of SAFE Circular 19 or
SAFE Circular 16 could result in administrative penalties. Pursuant to both of SAFE Circular 19 and SAFE Circular 16, foreign-invested enterprises may either continue to follow the current payment-based foreign currency settlement system or choose
to follow the
conversion-at-will
system for foreign currency settlement. Where a foreign-invested enterprise follows the
conversion-at-will
system for foreign currency settlement, it may convert part or all of the amount of the foreign currency in its capital account, special account for foreign debt or special account for
overseas listing into Renminbi at any time. The converted Renminbi will be kept in a designated account labeled as settled but pending payment, and if the foreign-invested enterprise needs to make payment from such designated account, it still needs
to go through the review process with its bank and provide necessary supporting documents. SAFE Circular 19 and SAFE Circular 16, therefore, have substantially lifted the restrictions on the usage by a foreign-invested enterprise of its Renminbi
registered capital, foreign debt and repatriated funds raised through overseas listing converted from foreign currencies. According to SAFE Circular 19 and SAFE Circular 16, such Renminbi capital, foreign debt and repatriated funds raised through
overseas listing may be used at the discretion of the foreign-invested enterprise and SAFE will eliminate the prior approval requirement and only examine the authenticity of the declared usage afterwards. Nevertheless, it is still not clear whether
foreign-invested enterprises like our PRC subsidiaries are allowed to extend intercompany loans to our VIEs. In addition, as SAFE Circular 19 and SAFE Circular 16 were promulgated recently, there remain substantial uncertainties with respect to the
interpretation and implementation of these circulars by relevant authorities. See Item 3. Key InformationD. Risk FactorsRisks Related to Our Corporate StructurePRC regulation of loans to, and direct investment in, PRC
entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our equity offerings to make loans to our PRC subsidiaries and VIEs or to make additional capital
contributions to our PRC subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
Moreover, on January 26, 2017, SAFE promulgated Circular of the State Administration of Foreign Exchange on Further Advancing the Reform
of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance (Circular 3). The Circular 3 stipulates several control measures with respect to the outbound remittance of any profit from domestic entities to
offshore entities, including (i) under the principle of genuine transaction, banks should review board resolutions, the original version of tax filing records and audited financial statements before wiring the foreign exchange profit
distribution of a foreign-invested enterprise exceeding US$50,000; and (ii) domestic entities should hold income to make up previous years losses before remitting the profits to offshore entities. Moreover, pursuant to Circular 3,
verification on the genuineness and compliance of foreign direct investments in domestic entities has also been tightened.
Regulations on Dividend
Distribution
The principal regulations governing dividend distributions of wholly foreign-owned enterprises include:
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the Companies Law (2005, as amended in 2013);
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the Wholly Foreign-Owned Enterprise Law (2016); and
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the Wholly Foreign-Owned Enterprise Law Implementing Rules (2014).
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Under these regulations,
wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, these wholly foreign-owned enterprises are required to set
aside at least 10% of their respective accumulated profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital.
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Regulations on Offshore Investment by PRC Residents
On July 4, 2014, the SAFE promulgated the Notice on Relevant Issues Concerning Foreign Exchange Control of Domestic Residents
Overseas Investment and Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or SAFE Circular No. 37, which replaced the former Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to
Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles (generally known as SAFE Circular No. 75) promulgated by the SAFE on October 21, 2005.
SAFE Circular No. 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 such PRC residents legally owned assets or equity interests in domestic enterprises or offshore assets or interests, which is referred to in
SAFE Circular No. 37 as a special purpose vehicle. SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or
decrease of capital contributed by PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to complete the required SAFE
registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities and the special purpose vehicle
may be restricted in its ability to contribute additional capital into its PRC subsidiaries. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of
foreign exchange controls.
Currently, there is no PRC resident among our shareholders. Should there be any PRC residents proposed to
become our shareholders in the future, they shall register with the competent local branch of the SAFE with respect to their investments in our company as required by SAFE Circular No. 37 and shall update their registration filings with the
SAFE when there are any changes that should be registered under SAFE Circular No. 37.
Regulations on Employee Stock Options Plans
In December 2006, the PBOC promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, setting forth the respective
requirements for foreign exchange transactions by individuals (both PRC or
non-PRC
citizens) under either the current account or the capital account. The relevant implementing rules which were issued in
January 2007 and further revised in May 2016 by SAFE specified approval requirements for certain capital account transactions, such as a PRC citizens participation in employee stock ownership plans or share option plans of an overseas publicly
listed company. In February 2012, SAFE promulgated the Stock Option Notice that supersedes the requirements and procedures for the registration of PRC resident individuals participation in stock incentive plans set forth by certain rules
promulgated by SAFE in March 2007. The purpose of the Stock Option Notice is to regulate the foreign exchange administration of PRC resident individuals who participate in employee stock holding plans and share option plans of overseas listed
companies.
According to the Stock Option Notice, if a PRC resident individual participates in any employee stock incentive plan of an
overseas listed company, a PRC domestic qualified agent appointed through the PRC subsidiary of such overseas listed company must, among other things, file, on behalf of such individual, an application with SAFE or its local counterpart to obtain
approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or share option exercises. With the approval from SAFE or its local counterpart, the PRC domestic qualified agent shall open a special
foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits upon sales of shares, any dividends issued on the stock and any other income or
expenditures approved by SAFE or its local counterpart.
Under the Foreign Currency Administration Rules, as amended, the foreign exchange
proceeds of domestic entities and individuals can be remitted into China or deposited abroad, subject to the terms and conditions to be issued by SAFE. However, the implementing rules in respect of depositing the foreign exchange proceeds abroad
have not been issued by SAFE. The foreign exchange proceeds from the sales of shares can be converted into RMB or transferred to such individuals foreign exchange savings account after the proceeds have been remitted back to the special
foreign exchange account opened at the PRC domestic bank. If share options are exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to special foreign exchange accounts.
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Many issues with respect to the Stock Option Notice require further interpretation. We and our
PRC employees who participate in an employee stock incentive plan are subject to the Stock Option Notice as we are an overseas listed company. We have registered with the local counterparts of SAFE for our PRC resident employees who participate in
our share incentive plans, as required under the Stock Option Notice and relevant rules. If we or our PRC employees fail to comply with the Stock Option Notice, we and our PRC employees may face sanctions imposed by the PRC foreign exchange
authority or any other PRC government authorities, including restrictions on foreign currency conversions and additional capital contribution to our PRC subsidiaries.
In addition, the SAT has issued circulars concerning employee share options. Under these circulars, our employees working in China who
exercise share options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee share options with relevant tax authorities and withhold the individual income taxes of employees who
exercise their share options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities. See Item 3. Key InformationD. Risk
FactorsRisks Related to Doing Business in ChinaFailure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines
and other legal or administrative sanctions.
Regulation on Employment
Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All
employers must compensate their employees with wages equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide
employees with workplace safety training. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative liabilities.
In addition, employers in China are obliged to provide employees with welfare schemes covering pension insurance, unemployment insurance,
maternity insurance, work-related injury insurance, medical insurance and housing funds.
Regulations on Concentration in Merger and Acquisition
Transactions
The M&A Rules established additional procedures and requirements that could make merger and acquisition activities by
foreign investors more time-consuming and complex. These rules require, among other things, that the Ministry of Commerce be notified in advance of any
change-of-control
transaction in which a foreign investor will take control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of
Undertakings issued by the State Council on August 3, 2008 are triggered. In August 2006, six PRC regulatory agencies, including the CSRC, jointly adopted the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rule, which became effective in September 2006 and was further amended in June 2009. This M&A Rule purports to require, among other things, offshore SPVs, formed for listing purposes through acquisition of PRC domestic
companies and controlled by PRC companies or individuals, to obtain the approval from the CSRC prior to publicly listing their securities on an overseas stock exchange.
Complying with these requirements could affect our ability to expand our business or maintain our market share. See Item 3. Key
InformationD. Risk FactorsRisks Related to Doing Business in ChinaCertain regulations in the PRC may make it more difficult for us to pursue growth through acquisitions.
C.
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Organizational Structure
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The following diagram illustrates our corporate
structure, including our principal subsidiaries and VIEs, as of the date of this annual report:
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(1)
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The two individuals are Min Lu and Haiyun Lei, each a PRC citizen. Each of Min Lu and Haiyun Lei holds 50% of the equity interests in each of Autohome Information, Shanghai Advertising, Guangzhou Advertising and
Shengtuo Hongyuan.
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As of March 31, 2018, Yun Chen owned 52.7% of our total issued and outstanding ordinary shares. Yun
Chen is a wholly owned subsidiary of Ping An Insurance (Group) Company of China, Ltd., a public company listed on the Hong Kong Stock Exchange, which beneficially owned 52.7% of the total voting rights in our company.
In September 2016 and March 2017, the then individual nominee shareholders of Shengtuo Hongyuan, Guangzhou Advertising, Autohome Information
and Shanghai Advertising entered into Equity Interest Purchase Agreements and Debt Transfer and Offset Agreements with Min Lu and Haiyun Lei, pursuant to which the then individual nominee shareholders transferred all of their equity interests in
each of the entities to Min Lu and Haiyun Lei. Shengtuo Hongyuan, Guangzhou Advertising, Shanghai Advertising and Autohome Information have completed their AIC registration filings with the relevant Chinese authorities. Upon the execution of the
above Equity Interest Purchase Agreements and Debt Transfer and Offset Agreements, all contractual arrangements between the then individual nominee shareholders and our wholly owned subsidiaries were terminated. Autohome WFOE entered into a series
of contractual agreements with (i) Guangzhou Advertising and each of its individual nominee shareholders, (ii) Autohome Information, each of its individual nominee shareholders and two of its subsidiaries, Autohome Advertising and Chengshi
Advertising, and (iii) Shanghai Advertising and each of its individual nominee shareholders in September 2016, March 2017 and March 2017, respectively. Chezhiying WFOE entered into a series of contractual agreements with Shengtuo Hongyuan, each
of its individual nominee shareholders and its two subsidiaries in September 2016.
For the information regarding our contractual
arrangements, please refer to Item 7.B. Related Party Transactions Contractual Agreements with Our Variable Interest Entities.
In consideration of the previous restrictions imposed on the shareholders of foreign-invested companies engaging in advertising business, we
once conducted advertising business by entering into a series of contractual arrangements with Guangzhou Advertising and Shanghai Advertising. See Item 3. Key InformationD. Risk FactorsRisks Related to Our Corporate
StructureIf the PRC government finds that the agreements that establish the structure for operating our services in China do not comply with PRC governmental restrictions on foreign investment in internet businesses, or if these regulations or
the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Since the regulatory environment developed, such restrictions were lifted in
2015. Therefore, in 2015, we completed the migration of our advertising business from Guangzhou Advertising, Shanghai Advertising and other PRC entities to the PRC subsidiaries of Autohome Media. Guangzhou Advertising and Shanghai Advertising are
currently not conducting any business. In August 2017 and March 2018, we decided to liquidate and dissolve Guangzhou Advertising and Shanghai Advertising, respectively. Currently we are undertaking the governmental procedures to liquidate, dissolve
and
de-register
Guangzhou Advertising and Shanghai Advertising, which are expected to be completed by the end of 2018. Autohome WFOE has signed the termination agreements with respect to the contractual
agreements that it has entered into with Guangzhou Advertising and Shanghai Advertising and each of their individual nominee shareholders to terminate the contractual arrangements on the date of the issuance of an approval notice for the
deregistration of Guangzhou Advertising and Shanghai Advertising by the competent Bureau of Industry and Commerce in charge of such two entities, respectively.
D.
|
Property, Plants and Equipment
|
Our corporate headquarters is located in
Beijing, China, where we lease office space with an area of approximately 25,821 square meters. We generally make rental payments on a monthly basis. In addition, as of December 31, 2017, we also leased office space in 78 cities for our
representative offices, including regional operation centers in Shanghai, Guangzhou and Tianjin in China. We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to
accommodate future growth.
Our servers are primarily hosted at internet data centers owned by major domestic internet data center
providers. The hosting services agreements typically have a term of one year. We believe that our current facilities are adequate and that we will be able to obtain additional facilities, principally through leasing, to accommodate any future
expansion plans.
64
ITEM 4A
|
UNRESOLVED STAFF COMMENTS
|
None.
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
You should read the following discussion and analysis
of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors and
elsewhere in this annual report.
Overview
We are the leading online destination for automobile consumers in China. Through our two websites,
autohome.com.cn
and
che168.com
, accessible through PCs and mobile devices, and our mobile applications, we deliver comprehensive, independent and interactive content to automobile buyers and owners, as well as offering them our transaction facilitation and auto
financing services. We generate revenues from media services, leads generation services and online marketplace. In 2017, we derived 49.7%, 42.1% and 8.2% of our total net revenues from our media services, leads generation services and online
marketplace, respectively, while in 2016, each of these three revenue lines contributed 39.4%, 32.1% and 28.5% of our total net revenues, respectively. The change in the composition of revenue lines was primarily due to the implementation of our
strategy to
de-emphasize
direct vehicle sales and to focus on facilitating transactions. Through our media services, we provide automakers with solutions in connection with brand promotion, new model releases
and sales promotions. Our large and engaged user base of automobile consumers provides a broad reach for automakers marketing messages. Our leads generation services enable our dealer subscribers to create their own online showrooms, list
pricing and promotional information, provide dealer contact information, place advertisements and manage customer relationships to help them reach a broad set of potential customers and effectively market their automobiles to consumers online and
ultimately generate sales leads. In 2017, while we continued to strengthen our existing business, we also further developed our transaction business. Our transaction business includes new vehicle transaction business consisting of direct vehicle
sales and platform-based services facilitating transactions, and used automobile listing. In early 2017, we also launched our auto financing business and started to provide services to our cooperative banks and financial institutions by displaying
and marketing their financial products, covering loans, leases and insurance services for consumers and independent automobile sellers. Through offering these services on our platform, we believe we are on the right track to build a robust
automotive
eco-platform
to serve consumers throughout their automobile ownership life cycles.
Our
net revenues increased from RMB3,464.0 million in 2015 to RMB5,961.6 million in 2016 and RMB6,210.2 million (US$954.5 million) in 2017, representing a CAGR of 33.9%. Our net income attributable to Autohome Inc. increased from
RMB990.6 million in 2015 to RMB1,227.9 million in 2016 and RMB2,001.6 million (US$307.6 million) in 2017, representing a CAGR of 42.1%.
General Factors Affecting Our Results of Operations
Our business and results of operations are significantly affected by Chinas overall economic conditions and the general trends in the
automotive industry, especially new automobile sales in China. Economic growth in China has contributed to an increase in household disposable income and improved the availability of financing for automobile purchases. These factors, coupled with
the rapid growth of the automotive industry and the emergence of industry-wide favorable governmental policies in recent years, have contributed to the increased number of new automobiles sold in China and have promoted the development of automobile
transaction business, in particular, the auto-financing business. Regardless of Chinas overall favorable policies, some local governments have different approaches and have even tightened the local regulations on automobile transactions, which
may slow the growth rate of new automobile sales and decrease the demand for our services. In addition, our business is subject to the overall advertising expenditures by automakers and automobile dealers, the development of online advertising
industry in China and the market acceptance of online advertising and promotion. Our results of operations can also be significantly impacted by our ability to minimize costs and maximize efficiency in our operations.
65
In addition, our business and results of operations may be affected by our user reach, the level
of user experience and engagement. Automaker and dealer advertisers, who contribute a substantial portion of our revenues, choose to advertise on our websites and mobile applications in significant part due to our leading market position in the
online automotive advertising industry. Also, effective marketing and promotion activities conducted by us are critical for us to maintain and enhance our brand recognition and attract more traffic to our platform. We anticipate that our ability to
continue to attract a large and growing user base and maintain a high level of user engagement and satisfactory user experience will affect our ability to attract advertisers and dealer subscribers to our websites and mobile applications and in
turn, our ability to generate sales leads. Finally, our business and results of operations may be affected by the development of
e-commerce
in China and consumers acceptance of online automobile
purchases.
Specific Factors Affecting Our Results of Operations
While our business and results of operations are generally affected by Chinas overall economic conditions, the general trends in
Chinas automotive industry, our user reach and engagement and consumers acceptance of online automobile purchases, our results of operations are more directly affected by the specific financial factors set forth below.
Net Revenues
As of December 31,
2015, we had two revenue lines, namely advertising services and dealer subscription services. To better present our business in line with the business development, we changed our revenue reporting lines to three revenue lines, namely media services,
leads generation services and online marketplace. We retrospectively adjusted our revenue line information for all periods presented to reflect these changes. These adjustments are also reflected in the following discussion of our net revenue
results for comparison to prior year results.
We currently generate our net revenues from media services, leads generation services and
online marketplace. Media services mainly include automaker advertising services and regional marketing campaigns conducted by certain automobile brands regional offices. Leads generation services primarily include (i) dealer subscription
services, (ii) advertising services sold to individual dealer advertisers, and (iii) other value-added services. We sell our advertising services primarily to automakers and dealers through third-party advertising agencies, with automakers
contributing a substantial majority of our advertising services revenues. We offer rebates to advertising agencies and cash incentives to automakers and automobile dealers who participate in various incentive programs on our online transaction
platform. Our net revenues are presented net of rebates to advertising agencies and cash incentives to automakers and automobile dealers. We generate revenues from leads generation services through dealer subscription services, advertising services
sold to individual dealer advertisers, and other value-added services. We sell our dealer subscription services to automobile dealers mainly on a
fixed-fee
subscription basis.
We also generate online marketplace revenues from the new vehicle transaction business, which is composed of direct vehicle sales and
platform-based services facilitating transactions on the Autohome Mall platform and the revenues from auto-financing business. We record revenues from direct sales on gross basis when vehicles are delivered and title has passed to the buyers. In
addition, we earn service fees for new vehicle displayed and transactions facilitated through the Autohome Mall platform. The service fees are recognized ratably over the display period or recognized when the vehicles are delivered to customers. For
auto-financing services, we earn service fees for the generation of sales leads or the facilitation of financial product transactions through our platform. The service fees are recognized when the sales leads are delivered or upon the completion of
transaction facilitation.
66
The following table sets forth the principal components of our net revenues in absolute amounts
and as percentages of our total net revenues for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media services
|
|
|
1,878,397
|
|
|
|
54.3
|
%
|
|
|
2,347,626
|
|
|
|
39.4
|
%
|
|
|
3,083,496
|
|
|
|
473,925
|
|
|
|
49.7
|
%
|
Leads generation services
|
|
|
1,403,892
|
|
|
|
40.5
|
|
|
|
1,916,445
|
|
|
|
32.1
|
|
|
|
2,616,009
|
|
|
|
402,073
|
|
|
|
42.1
|
|
Online marketplace
|
|
|
181,686
|
|
|
|
5.2
|
|
|
|
1,697,550
|
|
|
|
28.5
|
|
|
|
510,676
|
|
|
|
78,489
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
3,463,975
|
|
|
|
100.0
|
%
|
|
|
5,961,621
|
|
|
|
100.0
|
%
|
|
|
6,210,181
|
|
|
|
954,487
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Services Revenues
We generate media services revenues primarily from automaker advertising services and regional marketing campaigns conducted by certain
automobile brands regional offices. In 2015, 2016 and 2017, 87, 95 and 101 automakers operating in China purchased media services from us. As a result of our high penetration in the automaker market, we believe that our future media services
revenue growth will be driven primarily by automakers increased advertising spending on our websites and mobile applications as they continue to shift their advertising budgets from traditional media to online media, as well as further
development of mobile advertising, and monetization leveraging our enriched content and big data analytic capabilities.
Increased
spending will be driven primarily by a combination of (i) our ability to increase advertising volume, either due to the availability of additional advertising locations, such as the mobile platform, as we expand our service offerings, or due to
higher sell-through rates, which is calculated as the percentage of advertising locations actually sold over total advertising locations available for sale in a given period, (ii) our ability to increase our pricing, as measured by price per
location per day, as our user reach continues to expand, thereby enhancing the effectiveness of the services we offer and building automakers increasing awareness of our platform, and (iii) our ability to constantly provide more diversified and
optimized portfolio of product offerings. We primarily use a cost per time pricing model to price our online advertising services by charging advertisers on a daily basis for an advertisement placed in a given location on our websites
and mobile applications. However, as we continue to grow our user base and enhance user engagement, we began to explore cost per thousand impressions, cost per click and other performance-based pricing models. These new
initiatives have already begun to generate revenues but the amount was still insignificant compared to the revenues generated from the cost per time pricing model.
Leads Generation Services Revenues
We
generate leads generation services revenues through (i) dealer subscription services, (ii) advertising services sold to individual dealer advertisers, and other value-added services. Our dealer subscribers are dealers that have purchased
subscription packages which are delivered through our dealership information system. We provide our dealer subscribers with additional tools and features to enable them to more effectively market their inventories on our websites and mobile
applications. We provided leads generation services to 21,858, 24,096 and 27,167 dealers in 2015, 2016 and 2017, respectively. Our leads generation services revenues accounted for 40.5%, 32.1% and 42.1% of our net revenues in 2015, 2016 and 2017,
respectively. We believe that our leads generation services revenues will continue to grow in the near future, driven by our ability to command higher fees for different subscription packages and provide more diversified value-added services to our
dealer customers with our capabilities of connecting dealers with our large user base, and expanding the dealer client base.
Online Marketplace
Revenues
We generate online marketplace revenues through the new vehicle transaction business, which is composed of direct vehicle
sales and platform-based services facilitating transactions on the Autohome Mall platform, and auto-financing business. Our online marketplace revenues accounted for 5.2%, 28.5% and 8.2% of our net revenues in 2015, 2016 and 2017, respectively.
Revenues from direct vehicle sales accounted for 73.6%, 96.3% and 70.0% of online marketplace revenues in 2015, 2016 and 2017, respectively. With the implementation of our strategy to focus on facilitating transactions, we cleared all direct vehicle
sales inventories as of December 31, 2017. Going forward, we will explore diversified business models and opportunities to build a robust and comprehensive
e-commerce
platform and continue to develop our
auto-financing business.
67
Cost of Revenues
Cost of revenues refers primarily to (i) content-related costs, (ii) depreciation and amortization expenses, (iii) bandwidth and
internet data center (IDC) costs, (iv) value-added tax (VAT) and surcharges and (v) cost of sales including tax. The following table sets forth the principal components of our cost of revenues in absolute amounts
and as a percentage of our total net revenues for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content-related costs
(1)
|
|
|
184,635
|
|
|
|
5.3
|
%
|
|
|
269,313
|
|
|
|
4.5
|
%
|
|
|
390,885
|
|
|
|
60,078
|
|
|
|
6.3
|
%
|
Depreciation and amortization expenses
|
|
|
43,160
|
|
|
|
1.3
|
|
|
|
42,570
|
|
|
|
0.7
|
|
|
|
41,579
|
|
|
|
6,391
|
|
|
|
0.7
|
|
Bandwidth and IDC costs
|
|
|
38,893
|
|
|
|
1.1
|
|
|
|
51,766
|
|
|
|
0.9
|
|
|
|
89,889
|
|
|
|
13,816
|
|
|
|
1.4
|
|
VAT and surcharges
|
|
|
269,491
|
|
|
|
7.8
|
|
|
|
349,373
|
|
|
|
5.9
|
|
|
|
484,811
|
|
|
|
74,513
|
|
|
|
7.8
|
|
Cost of sales, including tax
|
|
|
132,942
|
|
|
|
3.8
|
|
|
|
1,680,143
|
|
|
|
28.1
|
|
|
|
351,521
|
|
|
|
54,028
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
669,121
|
|
|
|
19.3
|
%
|
|
|
2,393,165
|
|
|
|
40.1
|
%
|
|
|
1,358,685
|
|
|
|
208,826
|
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Including share-based compensation expenses of RMB6.9 million for 2015, RMB12.3 million for 2016 and RMB15.2 million (US$2.3 million) for 2017, respectively.
|
Content-related Costs
. Content-related costs are costs directly related to creating and editing the original generated content,
organizing and maintaining user generated content on our websites and mobile applications, and maintaining our professionally generated content. Content-related costs mainly include salaries and benefits, toll free telephone charges, travel and
office expenses of our editorial personnel, expenses we incur in the execution of the offline portion of our advertisers online promotions and expenses we pay to third parties for creating and publishing certain rich media content and
professionally generated content displayed on our websites and mobile applications. We expect our content-related costs may continue to increase primarily due to our business growth.
Depreciation and Amortization Expenses
. A substantial majority of our amortization expenses relate to the amortization of intangibles
including trademarks that we acquired in connection with the acquisitions of Cheerbright, China Topside and Norstar in June 2008, shortly after the inception of our company. Depreciation expenses are related to servers and other equipment that are
directly related to our revenue-generating business activities and leasehold improvements. We expect our amortization expenses will decrease after the end of the estimated useful lives of certain intangible assets.
Bandwidth and IDC Costs
. Bandwidth and IDC costs consist of fees that we pay to telecommunication carriers and other service providers
for telecommunication services and for hosting our servers at their internet data centers, as well as fees we pay to our content delivery network service provider for the distribution of our content. Our bandwidth and IDC costs are expected to
continue to increase in subsequent periods as our user traffic continued to increase and we require more high-quality bandwidth and more cabinets to support user traffic growth and improve our users experience.
VAT and Surcharges
. After VAT reform in 2012, our PRC subsidiaries and VIEs excluding Beijing Prbrownies Software Co., Ltd. and Chengdu
Prbrownies Software Co., Ltd. are subject to a 6% VAT for the media services and leads generation services provided and 17% for the direct vehicle sales under online marketplace. Advertising services are also subject to the cultural construction
fee. For Beijing Prbrownies Software Co., Ltd. and Chengdu Prbrownies Software Co., Ltd., they are subject to 17% VAT for the dealer subscription services, which were sold in the form of software products starting from October 2014. Since November
2014 and December 2016, respectively, Beijing Prbrownies Software Co., Ltd. and Chengdu Prbrownies Software Co., Ltd. were entitled to a 14% VAT refund on the total VAT payable at the rate of 17% after being certified as software resolutions by the
relevant authority. As a result of the above, our overall VAT and surcharges as a percentage of our total net revenues excluding direct vehicle sales was 8.1% in 2015, 8.1% in 2016 and 8.3% in 2017.
68
Cost of Sales, including tax.
Cost of sales includes cost of vehicle purchases, other
directly attributable costs of direct vehicle sales under the new vehicle transaction business and write-down of inventories and prepayment for vehicle purchase cost. Our direct vehicle sales were subject to 17% VAT rate. Rebates relating to new
vehicles purchased but still held by us as of the balance sheet date are recorded as a reduction to cost of inventories while rebates relating to new vehicles purchased and sold during the reporting period are recorded as a reduction to cost of
revenues.
Operating Expenses
Our operating expenses consist of sales and marketing expenses, general and administrative expenses and product development expenses. The
following table sets forth our operating expenses in absolute amounts and as percentages of our total net revenues for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
(1)
|
|
|
1,127,484
|
|
|
|
32.6
|
%
|
|
|
1,536,939
|
|
|
|
25.8
|
%
|
|
|
1,647,519
|
|
|
|
253,219
|
|
|
|
26.5
|
%
|
General and administrative
expenses
(2)
|
|
|
193,655
|
|
|
|
5.6
|
|
|
|
306,794
|
|
|
|
5.2
|
|
|
|
281,951
|
|
|
|
43,335
|
|
|
|
4.5
|
|
Product development expenses
(3)
|
|
|
273,908
|
|
|
|
7.9
|
|
|
|
571,354
|
|
|
|
9.6
|
|
|
|
878,773
|
|
|
|
135,065
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,595,047
|
|
|
|
46.0
|
%
|
|
|
2,415,087
|
|
|
|
40.6
|
%
|
|
|
2,808,243
|
|
|
|
431,619
|
|
|
|
45.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Including share-based compensation expenses of RMB36.6 million for 2015, RMB50.8 million for 2016, and RMB53.1 million (US$8.2 million) for 2017, respectively.
|
(2)
|
Including share-based compensation expenses of RMB40.1 million for 2015, RMB78.0 million for 2016, and RMB60.0 million (US$9.2 million) for 2017, respectively.
|
(3)
|
Including share-based compensation expenses of RMB24.3 million for 2015, RMB54.3 million for 2016, and RMB49.6 million (US$7.6 million) for 2017, respectively.
|
Sales and Marketing Expenses
. Our sales and marketing expenses primarily consist of the marketing expenses incurred in connection with
promoting our brands through search engines, mobile platforms and navigation sites, sales promotion activities and salaries and benefits and sales commissions for our sales and marketing personnel. Our sales and marketing expenses also include
office and travel-related expenses and business development expenses associated with our sales and marketing activities. We expect that our sales and marketing expenses will continue to increase in the future as we will enhance our user engagement,
enlarge our sales force to expand our coverage and transform us from a
content-led
vertical media business to an automotive
eco-platform
based on advanced data and
technology.
General and Administrative Expenses.
Our general and administrative expenses primarily consist of personnel-related
expenses for management and administrative personnel and professional service fees. We expect that our general and administrative expenses will be relatively stable compared to our revenue growth in the future.
69
Product Development Expenses
. Our product development expenses primarily consist of
personnel-related expenses associated with the development of new technologies and products as well as enhancement of our websites and mobile applications. We expect that our product development expenses will increase as we expand our business,
develop new features and functionalities, increase the accessibility of our websites, mobile applications and the transaction platform, invest further in AR and VR related technologies and enhance our big data analysis capabilities.
Taxation
Cayman Islands
Autohome Inc., Autohome
E-commerce
Inc., Autohome Link Inc. and Autohome Financing Limited are
incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, companies incorporated in the Cayman Islands are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the
Cayman Islands.
British Virgin Islands
Cheerbright is a company incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Cheerbright is not
subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the British Virgin Islands.
Hong Kong
Autohome HK, Autohome Media, Autohome
E-commerce
Hong Kong Limited, Autohome Link Hong
Kong Limited and Autohome Financing Hong Kong Limited are incorporated in Hong Kong. Companies incorporated and 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. For 2015, 2016 and 2017, we did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or
earned in Hong Kong during these periods.
Under the Hong Kong tax law, our subsidiaries in Hong Kong are exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of
dividends.
PRC
On
February 24, 2017, the Standing Committee of the National Peoples Congress amended the PRC Enterprise Income Tax Law, which was issued on March 16, 2007. The Implementing Regulations of the Law of the PRC on Enterprise Income Tax was
issued on December 6, 2007 and became effective on January 1, 2008. Under the PRC Enterprise Income Tax Law and its implementation rules, a standard 25% enterprise income tax rate is generally applicable to both foreign-invested
enterprises and domestic enterprises, unless they qualify for certain exceptions.
In September 2010, Autohome WFOE was recognized as an
HNTE, effective 2010 and was eligible for a 15% preferential enterprise income tax rate effective through 2018. Beijing Autohome Technologies was recognized as an HNTE in July 2015 and therefore was eligible for the preferential 15% enterprise
income tax rate from 2015 to 2017 upon their filing with the relevant tax authority. The HNTE qualification is subject to an annual evaluation and a three-year review by the relevant authorities in China. However, should we lose this qualification
for any reason, both Autohome WFOE and Beijing Autohome Technologies will no longer enjoy the 15% preferential tax rate, and the applicable enterprise income tax rate may increase to up to 25%. Beijing Prbrownies was recognized as an HNTE in
February 2016, qualifying it for the preferential 15% enterprise income tax rate from 2015 to 2017 upon its filing with the relevant tax authority. In addition to being recognized as an HNTE, Beijing Prbrownies was also recognized as an eligible
software enterprise by the relevant tax authorities in 2016 and 2017, qualifying it for the exemption of enterprise income tax for the tax year 2015 and 2016.
70
Pursuant to the Circular on Income Tax Policies for Further Encouraging the Development of
Software Industry and Integrated Circuit Industry jointly issued by the SAT and the MOF on April 20, 2012, and the Circular on Issues concerning Preferential Enterprise Income Tax Policies for Software and Integrated Circuit Industries jointly
issued by the MOF, the SAT, the NDRC and the MIIT on May 4, 2016, eligible software enterprises which pass annual review and filing by the relevant tax authorities can enjoy exemption for enterprise income tax for the first and second year as
calculated from the profit making year or no later than December 31, 2017 if no profit is made prior to that date, and thereafter enjoy half of the statutory rate of 25% for the third through fifth year thereafter until the expiration of the
preferential period. Beijing Prbrownies started to make profit since 2015, and it passed the review and filing as an eligible software enterprise by the relevant tax authorities in 2016 and 2017, which qualified it for the exemption of enterprise
income tax for 2015 and 2016. If Beijing Prbrownies passes the aforesaid review and filing again in 2018, it will enjoy a reduced enterprise income tax for 2017. However, if Beijing Prbrownies fails to pass the review and filing by the relevant tax
authorities, it will no longer enjoy the preferential tax rate, and the applicable enterprise income tax rate may increase to up to 15% as an HNTE if it still maintains the HNTE qualification, or up to 25% if it loses the HNTE qualification.
Except for the above mentioned Autohome WFOE, Beijing Autohome Technologies and Beijing Prbrownies, our remaining PRC subsidiaries and all the
VIEs were subject to EIT at a rate of 25% for 2015, 2016 and 2017.
If our holding company in the Cayman Islands, Autohome Inc., were
deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, it would be subject to enterprise income tax on its global income at a rate of 25%. If a subsidiary of us established in Hong Kong were deemed to be a PRC
resident enterprise and Autohome Inc. were not deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, then dividends payable by such subsidiary to Autohome Inc. may become subject to 10% PRC dividend
withholding tax. Under such circumstances, it is not clear whether dividends payable by our PRC subsidiaries to their respective shareholders in Hong Kong would still be subject to PRC dividend withholding tax at a rate of 5%. If such subsidiary in
Hong Kong were deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, it would be subject to enterprise income tax at a rate of 25%. See Item 3. Key InformationD. Risk FactorsRisks Related to Doing
Business in ChinaOur global income and the dividends that we may receive from our PRC subsidiaries, dividends distributed to our
non-PRC
shareholders and ADS holders, and gains recognized by such
shareholders or ADS holders, may be subject to PRC taxes under the Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.
Critical Accounting Policies
We prepare
our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the end of each
reporting period and the reported amount of revenue and expenses during each reporting period. We evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions and
expectations that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from these estimates and assumptions.
Some of our accounting policies require higher degrees of judgment than others in their application. When reviewing our consolidated financial
statements, you should consider (a) our selection of critical accounting policies, (b) the judgment and other uncertainties affecting the application of such policies and (c) the sensitivity of reported results to changes in
conditions and assumptions. For further information on our significant accounting policies, see Note 2 to our consolidated financial statements for 2015, 2016 and 2017. We consider the policies discussed below to be critical to an understanding of
our consolidated financial statements as their application places significant demands on the judgment of our management. We believe the following critical accounting policies are most significant to the presentation of our financial statements and
some of which may require the most difficult, subjective and complex judgments. They should be read in conjunction with our consolidated financial statements, the risks and uncertainties of which are described under Item 3. Key
InformationD. Risk Factors and other disclosures included in this annual report.
Revenue Recognition
Our revenue is derived from media services, leads generation services and online marketplace. Revenue is recognized only when the price is
fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the related fee is reasonably assured based on the guidance in ASC 605,
Revenue Recognition
.
71
Contracts are signed to establish significant terms such as the price and services to be
provided. We consider the price for our services to be fixed or determinable when we and our customers have signed the contracts. We assess the creditworthiness of our customers prior to signing the contracts to ensure collectability is reasonably
assured.
Non-refundable
payments received before all of the relevant criteria for revenue recognition are satisfied and are to be recognized ratably over a period are recorded as deferred revenue.
Starting 2016, in order to better present the business, we changed our revenue reporting lines into media services, leads generation services
and online marketplace, from advertising services and dealer subscription services, with the comparative figures for the year ended December 31, 2015 revised accordingly.
Media services
Media services revenues
mainly include revenues from automaker advertising services and regional marketing campaigns conducted by certain automobile brands regional offices. The majority of our online advertising service arrangements involve multiple deliverables
such as banner advertisements, links and logos, other media insertions and promotional activities that are delivered over different periods of time.
In determining its best estimated selling price for each deliverable, we considered our overall pricing model and objectives, as well as
market or competitive conditions that may impact the price at which we would transact if the deliverable were sold regularly on a standalone basis. We monitor the conditions that affect its determination of selling price for each deliverable and
reassess such estimates periodically. Revenue is recognized ratably when the advertisements are published over the stated display period in the case of websites and mobile applications or when the services have been rendered in the case of
promotional activities. The amount recognized is limited to the amount that is not contingent upon the delivery of additional deliverables or meeting other specified performance conditions.
Leads generation services
Leads
generation services primarily include revenues from (i) dealer subscription services, (ii) advertising services sold to individual dealer advertisers, and other value-added services. Under the dealer subscription services, we make
available throughout the subscription period a webpage linked to its websites where the dealers can publish information such as the pricing of their products, locations and addresses and other related information. Revenue is recognized ratably as
services are provided over the subscription period.
Online marketplace
Online marketplace revenues mainly include revenues from the new vehicle transaction business, which is composed of direct vehicle sales and
platform-based services facilitating transactions on the Autohome Mall platform, and auto-financing business. For direct vehicle sales, we recognize revenue on a gross basis as we act as the principal, are the primary obligor of the sales
arrangements and are subject to inventory risk. Revenue from direct vehicle sales are recognized when a sales contract has been executed and the vehicle has been delivered. Under the platform-based service arrangements, we earn service fee for the
new vehicle displayed and transactions facilitated through the Autohome Mall platform. The service fee is recognized ratably over the display period or recognized when the vehicles are delivered to customers. For the auto-financing business, we earn
service fees for the generation of sales leads or for facilitating financial product transactions through our platform. The service fee is recognized when the sales leads are delivered or upon the completion of the facilitated transaction.
Rebates and cash incentives provided to customers
We provide rebates to agency companies based on cumulative annual advertising and service volume. We estimate our obligations under such
agreements based on an evaluation of the likelihood of the agency companies achievement of the advertising and service volume targets and evaluation of the agency companies purchase trends and history.
72
We also provide cash incentives to automakers and dealers who participated in various incentive
programs on our online transaction platform. The cash incentives are accounted for as a reduction of revenue in accordance with ASC
605-50,
Revenue Recognition: Customer Payments and
Incentives
. However, for the cash incentives not within the scope of ASC
605-50
and provided to the end users for the promotional purpose, they are recognized as expense.
We have estimated and recorded rebates and cash incentives to agency companies, dealers and automakers cumulatively amounting to
RMB578.5 million, RMB653.5 million and RMB886.9 million (US$136.3 million) for the years ended December 31, 2015, 2016 and 2017, as a reduction of revenue, respectively.
Income taxes
We account for
income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that
will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is
more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the
enactment date.
We apply ASC 740,
Accounting for Income Taxes
, to account for uncertainty in income taxes. ASC 740 prescribes a
recognition threshold a tax position is required to meet before being recognized in the financial statements. We have recorded unrecognized tax benefits in the other liabilities line item in the accompanying consolidated balance sheets. We have
elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense, in the consolidated statements of operations data.
Our estimated liability for unrecognized tax benefits and the related interest and penalties are periodically assessed for adequacy and may be
affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The actual benefits ultimately realized may differ from our estimates. As
each audit is concluded, adjustments, if any, are recorded in our consolidated financial statements. Additionally, in future periods, changes in facts and circumstances, and new information may require us to adjust the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which they occur.
We adopted ASU
No. 2015-17,
Income Taxes (Topic 740), Balance Sheet Classification of Deferred
Taxes
, which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as
non-current
on the balance sheet, starting the first quarter of 2017
on a retrospective basis. After adoption of this ASU, current deferred tax assets of RMB99.2 million as of December 31, 2016 on consolidated balance sheet was reclassified as
non-current.
Fair Value Measurements of Financial Instruments
Our financial instruments primarily comprise of cash and cash equivalents, restricted cash, short-term investments, accounts receivable,
amounts due from related parties, prepaid expenses and other current assets, other
non-current
assets, accrued expenses and other payables, notes payable, and amounts due to related parties. The carrying
values of these financial instruments approximated their fair values due to the short-term maturity of these instruments.
ASC topic 820
(ASC 820),
Fair Value Measurements and Disclosures
, establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 Include other inputs that are directly or indirectly observable in the marketplace
Level 3 Unobservable inputs which are supported by little or no market activity
73
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities:
(1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income
approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at net realizable value. An allowance for doubtful accounts is recorded in the period when a loss is probable
based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging and other factors. An accounts receivable balance is written off after all collection effort has ceased.
Inventories
Inventories consist
of new vehicles held for sale, stated at the lower of cost or market. Cost is determined using the specific identification method. Our purchase arrangements with certain automakers entitle us to receive a specified amount of cash rebates if certain
conditions are met during the stated rebate periods. We account for these rebates in accordance with ASC
605-50,
Revenue Recognition: Customer Payments and Incentives
. Rebates relating to new vehicles
purchased but still held by us as of the balance sheet date are recorded as a reduction to cost of inventories while rebates relating to new vehicles purchased and sold during the reporting period are recorded as a reduction to cost of revenues.
Adjustments are recorded to write down the cost of inventory to the estimated market value for slow-moving and damaged goods. The amount
of write-down is also dependent upon factors such as inventory aging, historical and forecasted consumer demand, and promotional environment. Write-downs are recorded in cost of revenues in the consolidated statements of operations data.
Goodwill
Goodwill represents the
excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. Our goodwill at December 31, 2016 and 2017 were related to our acquisition of Cheerbright,
China Topside and Norstar. In accordance with ASC 350,
Goodwill and Other Intangible Assets
, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment
present.
Goodwill is tested for impairment at the reporting unit level on an annual basis (December 31 for us) and between annual tests
if an event occurs or circumstances change that would
more-likely-than-not
reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in
stock prices, business environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of reporting unit using a discounted cash flow methodology
also requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur,
and determination of our weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could
materially affect the determination of fair value and goodwill impairment for the reporting unit.
Our management has determined that we
represent the lowest level within the entity at which goodwill is monitored for internal management purposes. Our management evaluated the recoverability of goodwill by performing a qualitative assessment before using a
two-step
impairment test approach at the reporting unit level. Based on an assessment of the qualitative factors, our management determined that it is
more-likely-than-not
that the fair value of the reporting unit is in excess of its carrying amount. Therefore, our management concluded that it was not necessary to proceed to the
two-step
goodwill impairment test. As of
December 31, 2016 and 2017, goodwill was RMB1.5 billion and RMB1.5 billion (US$231.2 million), respectively. No impairment loss was recorded for any of the years presented.
If we reorganize our reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill is
reassigned based on the relative fair value of each of the affected reporting units.
74
Share-based Compensation
We account for share-based awards granted to employees under ASC 718,
CompensationStock Compensation
, which requires that
share-based awards granted to employees be measured based on the grant date fair value and recognized as compensation expense over the requisite service period (which is generally the vesting period) in the consolidated statements of operations
data. We have elected to recognize compensation expense using the straight-line method for all share-based awards granted with service conditions that have a graded vesting schedule. Under ASC 718, an entity can make an accounting policy election to
either estimate the number of awards that are expected to vest or account for forfeitures when they occur. We have elected to estimate the forfeitures rate at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures
differ from initial estimates.
Forfeiture rates are estimated based on historical and future expectations of employee turnover rates and
are adjusted to reflect future changes in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest. To the
extent that we revise these estimates in the future, the share-based payments could be materially impacted in the period of revision, as well as in following periods. We, with the assistance of an independent third-party valuation firm, determined
the fair value of the stock options granted to employees. The binomial option pricing model was applied in determining the estimated fair value of the options granted to employees. Subsequent to the IPO, fair value of the ordinary shares is the
price of our publicly traded shares.
We account for a change in any of the terms or conditions of share-based awards as a modification in
accordance with ASC subtopic
718-20,
Compensation-Stock Compensation: Awards Classified as Equity
, whereby the incremental fair value, if any, of a modified award, is recorded as compensation cost on
the date of modification for vested awards or over the remaining vesting period for unvested awards. The incremental compensation cost is the excess of the fair value of the modified award on the date of modification over the fair value of the
original award immediately before the modification.
Results of Operations
The following table presents our results of operations in absolute amounts and as a percentage of our total net revenues for the years
indicated.
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media services
|
|
|
1,878,397
|
|
|
|
54.3
|
%
|
|
|
2,347,626
|
|
|
|
39.4
|
%
|
|
|
3,083,496
|
|
|
|
473,925
|
|
|
|
49.7
|
%
|
Leads generation services
|
|
|
1,403,892
|
|
|
|
40.5
|
|
|
|
1,916,445
|
|
|
|
32.1
|
|
|
|
2,616,009
|
|
|
|
402,073
|
|
|
|
42.1
|
|
Online marketplace
|
|
|
181,686
|
|
|
|
5.2
|
|
|
|
1,697,550
|
|
|
|
28.5
|
|
|
|
510,676
|
|
|
|
78,489
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
3,463,975
|
|
|
|
100.0
|
|
|
|
5,961,621
|
|
|
|
100.0
|
|
|
|
6,210,181
|
|
|
|
954,487
|
|
|
|
100.0
|
|
Cost of revenues
(1)
|
|
|
(669,121
|
)
|
|
|
(19.3
|
)
|
|
|
(2,393,165
|
)
|
|
|
(40.1
|
)
|
|
|
(1,358,685
|
)
|
|
|
(208,826
|
)
|
|
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
2,794,854
|
|
|
|
80.7
|
|
|
|
3,568,456
|
|
|
|
59.9
|
|
|
|
4,851,496
|
|
|
|
745,661
|
|
|
|
78.1
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
(1)
|
|
|
(1,127,484
|
)
|
|
|
(32.6
|
)
|
|
|
(1,536,939
|
)
|
|
|
(25.8
|
)
|
|
|
(1,647,519
|
)
|
|
|
(253,219
|
)
|
|
|
(26.5
|
)
|
General and administrative
expenses
(1)
|
|
|
(193,655
|
)
|
|
|
(5.6
|
)
|
|
|
(306,794
|
)
|
|
|
(5.2
|
)
|
|
|
(281,951
|
)
|
|
|
(43,335
|
)
|
|
|
(4.5
|
)
|
Product development expenses
(1)
|
|
|
(273,908
|
)
|
|
|
(7.9
|
)
|
|
|
(571,354
|
)
|
|
|
(9.6
|
)
|
|
|
(878,773
|
)
|
|
|
(135,065
|
)
|
|
|
(14.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,199,807
|
|
|
|
34.6
|
|
|
|
1,153,369
|
|
|
|
19.3
|
|
|
|
2,043,253
|
|
|
|
314,042
|
|
|
|
32.9
|
|
Interest income
|
|
|
63,218
|
|
|
|
1.8
|
|
|
|
88,168
|
|
|
|
1.5
|
|
|
|
220,282
|
|
|
|
33,857
|
|
|
|
3.5
|
|
Earnings/(loss) from equity method investments
|
|
|
102
|
|
|
|
0.0
|
|
|
|
(6,638
|
)
|
|
|
(0.1
|
)
|
|
|
(10,571
|
)
|
|
|
(1,625
|
)
|
|
|
(0.2
|
)
|
Other income, net
|
|
|
13,064
|
|
|
|
0.4
|
|
|
|
13,953
|
|
|
|
0.2
|
|
|
|
8,577
|
|
|
|
1,318
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,276,191
|
|
|
|
36.8
|
|
|
|
1,248,852
|
|
|
|
20.9
|
|
|
|
2,261,541
|
|
|
|
347,592
|
|
|
|
36.3
|
|
Income tax expense
|
|
|
(285,542
|
)
|
|
|
(8.2
|
)
|
|
|
(32,629
|
)
|
|
|
(0.5
|
)
|
|
|
(267,082
|
)
|
|
|
(41,050
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
990,649
|
|
|
|
28.6
|
|
|
|
1,216,223
|
|
|
|
20.4
|
|
|
|
1,994,459
|
|
|
|
306,542
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
11,691
|
|
|
|
0.2
|
|
|
|
7,160
|
|
|
|
1,100
|
|
|
|
0.1
|
|
Net income attributable to Autohome Inc.
|
|
|
990,649
|
|
|
|
28.6
|
%
|
|
|
1,227,914
|
|
|
|
20.6
|
%
|
|
|
2,001,619
|
|
|
|
307,642
|
|
|
|
32.1
|
%
|
75
(1)
|
Including share-based compensation expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Allocation of Share-Based Compensation Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
6,939
|
|
|
|
0.2
|
%
|
|
|
12,310
|
|
|
|
0.2
|
%
|
|
|
15,166
|
|
|
|
2,331
|
|
|
|
0.2
|
%
|
Sales and marketing expenses
|
|
|
36,584
|
|
|
|
1.1
|
|
|
|
50,814
|
|
|
|
0.9
|
|
|
|
53,064
|
|
|
|
8,155
|
|
|
|
0.9
|
|
General and administrative expenses
|
|
|
40,142
|
|
|
|
1.1
|
|
|
|
77,965
|
|
|
|
1.3
|
|
|
|
59,954
|
|
|
|
9,215
|
|
|
|
1.0
|
|
Product development expenses
|
|
|
24,280
|
|
|
|
0.7
|
|
|
|
54,304
|
|
|
|
0.9
|
|
|
|
49,602
|
|
|
|
7,624
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expenses
|
|
|
107,945
|
|
|
|
3.1
|
%
|
|
|
195,393
|
|
|
|
3.3
|
%
|
|
|
177,786
|
|
|
|
27,325
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net Revenues
. Our net revenues increased by 4.2% from RMB5,961.6 million in 2016 to RMB6,210.2 million (US$954.5
million) in 2017. This increase was due to a 33.7% increase in combined revenues from media and leads generation services, partially offset by the decrease in revenues from direct vehicle sales as part of the Companys implementation of an
asset-light strategy.
Media services
. Our media services revenues increased by 31.3% from RMB2,347.6 million in 2016 to
RMB3,083.5 million (US$473.9 million) in 2017. This increase was due to increased revenue from automaker advertising services and regional marketing campaigns conducted by certain automobile brands regional offices.
The increase in revenues from our media services was attributable to 23.5% increase in average revenue per automaker advertiser from
RMB24.7 million in 2016 to RMB30.5 million (US$4.7 million) in 2017, as automakers continued to allocate more of their advertising budgets to our online advertising and marketing channels, with increasingly diversified and optimized
portfolio of products being offered.
Leads generation services
. Leads generation services revenues increased by 36.5% from
RMB1,916.4 million in 2016 to RMB2,616.0 million (US$402.1 million) in 2017. The increase in leads generation services revenues was mainly driven by 21.1% year-over-year increase in average revenue per paying dealer from
RMB79.5 thousand in 2016 to RMB96.3 thousand (US$14.8 thousand) in 2017 as dealers continue to allocate a greater portion of their budgets to our services, as well as an expanded dealer client base. We provided leads generation services to
27,167 dealers in 2017, compared with 24,096 dealers in 2016.
76
Online marketplace.
Online marketplace revenues were RMB510.7 million (US$78.5
million) in 2017 compared to RMB1,697.6 million in 2016. Revenues from direct vehicle sales account for 96.3% and 70.0% of online marketplace revenues in 2016 and 2017, respectively.
Cost of Revenues
. Our cost of revenues decreased by 43.2% from RMB2,393.2 million in 2016 to RMB1,358.7 million
(US$208.8 million) in 2017, primarily due to a decrease in cost of sales related to direct vehicle sales.
Content-related Costs
.
Our content-related costs increased by 45.1% from RMB269.3 million in 2016 to RMB390.9 million (US$60.1 million) in 2017, primarily due to a 20.3% increase of salaries and benefits of our editorial personnel (including share-based
compensation expenses) from RMB116.0 million in 2016 to RMB139.5 million (US$21.4 million) in 2017. Our content-related costs included share-based compensation expenses, which increased from RMB12.3 million in 2016 to
RMB15.2 million (US$2.3 million) in 2017.
Depreciation and Amortization Expenses
. Our depreciation and amortization expenses
were RMB41.6 million (US$6.4 million) in 2017 compared to RMB42.6 million in 2016.
Bandwidth and IDC Costs
. Our
bandwidth and IDC costs increased by 73.6% from RMB51.8 million in 2016 to RMB89.9 million (US$13.8 million) in 2017, primarily due to increased bandwidth and IDC requirements to fulfill the growth of our user traffic, improve the user
experience and enhance our big data analysis capabilities.
VAT and Surcharges
. VAT and related surcharges increased by 38.8% from
RMB349.4 million for 2016 to RMB484.8 million (US$74.5 million) in 2017, as a result of increased revenues.
Cost of sales
including tax.
Cost of sales including tax were RMB351.5 million (US$54.0 million) in 2017 compared to RMB1,680.1 million in 2016. RMB50.2 million and RMB1.5 million (US$0.2 million) of write-down was recorded in cost of
sales in 2016 and 2017, respectively.
Operating Expenses
. Our operating expenses increased by 16.3% from
RMB2,415.1 million in 2016 to RMB2,808.2 million (US$431.6 million) in 2017, primarily due to increases in product development expenses and sales and marketing expenses.
Sales and Marketing Expenses
. Our sales and marketing expenses increased by 7.2% from RMB1,536.9 million in 2016 to
RMB1,647.5 million (US$253.2 million) in 2017. This increase was primarily due to (i) a 13.1% increase in marketing and promotional expenses from RMB879.1 million in 2016 to RMB994.4 million (US$152.8 million) in 2017, mainly in
connection with the promotion of our mobile platforms and offline execution and promotional expenses, and (ii) a 5.1% increase in salaries and benefits (including share-based compensation expenses) from RMB528.6 million in 2016 to
RMB555.8 million (US$85.4 million) in 2017, which is in line with our overall growth. As a percentage of net revenues, sales and marketing expenses were 26.5% in 2017, compared to 25.8% in 2016. Our sales and marketing expenses in 2017 included
share-based compensation expenses of RMB53.1 million (US$8.2 million), compared to RMB50.8 million in 2016.
General and
Administrative Expenses
. Our general and administrative expenses decreased by 8.1% from RMB306.8 million in 2016 to RMB282.0 million (US$43.3 million) in 2017. This decrease was primarily attributable to a 4.6% decrease in salaries and
benefits (including share-based compensation expenses) from RMB190.4 million in 2016 to RMB181.7 million (US$27.9 million) in 2017. As a percentage of net revenues, general and administrative expenses decreased from 5.2% in 2016 to 4.5% in
2017. Our general and administrative expenses for 2017 included share-based compensation expenses of RMB60.0 million (US$9.2 million), compared to RMB78.0 million in 2016.
Product Development Expenses
. Our product development expenses increased by 53.8% from RMB571.4 million in 2016 to
RMB878.8 million (US$135.1 million) in 2017. The increase was primarily attributable to a 41.1% increase in salaries and benefits (including share-based compensation expenses) from RMB505.7 million in 2016 to RMB713.6 million
(US$109.7 million) in 2017, as a result of the increase in product development headcount, which is in line with our overall growth and continuous reinvestment in future growth opportunities. As a percentage of net revenues, product development
expenses increased from 9.6% in 2016 to 14.2% in 2017. Our product development expenses for 2017 included share-based compensation expenses of RMB49.6 million (US$7.6 million), compared to RMB54.3 million in 2016.
77
Income before Income Taxes
. Our income before income taxes was
RMB2,261.5 million (US$347.6 million) in 2017 compared to RMB1,248.9 million in 2016.
Income Tax Expense
. We
incurred income tax expense of RMB267.1 million (US$41.1 million) in 2017, a significant increase compared with RMB32.6 million in 2016, primarily due to an increase in taxable income and withholding tax liability associated with special
cash dividend.
Net Income Attributable to Autohome Inc
. As a result of the foregoing, we had net income attributable to
Autohome Inc. of RMB2,001.6 million (US$307.6 million) in 2017, increased by 63.0% compared with net income attributable to Autohome Inc. of RMB1,227.9 million in 2016.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Revenues
. Our net revenues increased by 72.1% from RMB3,464.0 million in 2015 to RMB5,961.6 million in 2016. This
increase was due to the significant revenue growth from our online marketplace and a 29.9% increase in revenues from media and leads generation services.
Media services
. Our media services revenues increased by 25.0% from RMB1,878.4 million in 2015 to RMB2,347.6 million in 2016.
This increase was due to increased revenue from automaker advertising services and regional marketing campaigns conducted by certain automobile brands regional offices.
The increase in revenues from our media services was attributable to 14.5% increase in average revenue per automaker advertiser from
RMB21.6 million in 2015 to RMB24.7 million in 2016, as automakers continued to allocate more of their advertising budgets to our online advertising and marketing channels.
Leads generation services
. Leads generation services revenues increased by 36.5% from RMB1,403.9 million in 2015 to
RMB1,916.4 million in 2016. The increase in leads generation services revenues was mainly driven by 23.8% year-over-year increase in average revenue per paying dealer from RMB64.2 thousand in 2015 to RMB79.5 thousand in 2016 as
dealers continue to allocate a greater portion of their budgets to our services. We provided leads generation services to 24,096 dealers in 2016, compared with 21,858 dealers in 2015.
Online marketplace.
Online marketplace revenues were RMB1,697.6 million in 2016 compared to RMB181.7 million in 2015.
Revenues from direct vehicle sales were RMB133.6 million and RMB1,635.1 million in 2015 and 2016, respectively, accounting for 73.6% and 96.3% of online marketplace revenues.
Cost of Revenues
. Our cost of revenues increased by 257.7% from RMB669.1 million in 2015 to RMB2,393.2 million in
2016, primarily due to an increase in cost of sales related to direct vehicle sales.
Content-related Costs
. Our content-related
costs increased by 45.9% from RMB184.6 million in 2015 to RMB269.3 million in 2016, primarily due to a 36.7% increase of salaries and benefits of our editorial personnel (including share-based compensation expenses) from
RMB84.9 million in 2015 to RMB116.0 million in 2016. Our content-related costs included share-based compensation expenses, which increased from RMB6.9 million in 2015 to RMB12.3 million in 2016.
Depreciation and Amortization Expenses
. Our depreciation and amortization expenses were RMB42.6 million in 2016 compared to
RMB43.2 million in 2015.
Bandwidth and IDC Costs
. Our bandwidth and IDC costs increased by 33.1% from RMB38.9 million in
2015 to RMB51.8 million in 2016, primarily due to increased bandwidth and IDC requirements to fulfill the growth of our user traffic, improve the user experience and enhance our big data analysis capabilities.
78
VAT and Surcharges
. VAT and related surcharges increased by 29.6% from
RMB269.5 million for 2015 to RMB349.4 million in 2016, as a result of increased revenues.
Cost of sales including tax.
Cost of sales including tax were RMB1,680.1 million in 2016 compared to RMB132.9 million in 2015. Nil and RMB50.2 million of write-down was recorded in cost of sales in 2015 and 2016, respectively.
Operating Expenses
. Our operating expenses increased by 51.4% from RMB1,595.0 million in 2015 to RMB2,415.1 million in
2016, primarily due to increases in sales and marketing expenses, product development expenses and general and administrative expenses.
Sales and Marketing Expenses
. Our sales and marketing expenses increased by 36.3% from RMB1,127.5 million in 2015 to
RMB1,536.9 million in 2016. This increase was primarily due to (i) a 38.3% increase in marketing and promotional expenses from RMB635.6 million in 2015 to RMB879.1 million in 2016, mainly in connection with the promotion of our
mobile platforms including mobile applications, and (ii) a 27.0% increase in salaries and benefits (including share-based compensation expenses) from RMB416.2 million in 2015 to RMB528.6 million in 2016, which is in line with our
overall growth. As a percentage of net revenues, sales and marketing expenses decreased from 32.6% in 2015 to 25.8% in 2016. Our sales and marketing expenses in 2016 included share-based compensation expenses of RMB50.8 million, compared to
RMB36.6 million in 2015.
General and Administrative Expenses
. Our general and administrative expenses increased by 58.4% from
RMB193.7 million in 2015 to RMB306.8 million in 2016. This increase was primarily attributable to a 79.5% increase in salaries and benefits (including share-based compensation expenses) from RMB106.1 million in 2015 to
RMB190.4 million in 2016. As a percentage of net revenues, general and administrative expenses decreased from 5.6% in 2015 to 5.2% in 2016. Our general and administrative expenses for 2016 included share-based compensation expenses of
RMB78.0 million, compared to RMB40.1 million in 2015.
Product Development Expenses
. Our product development expenses
increased by 108.6% from RMB273.9 million in 2015 to RMB571.4 million in 2016. The increase was primarily attributable to a 107.4% increase in salaries and benefits (including share-based compensation expenses) from RMB243.8 million
in 2015 to RMB505.7 million in 2016, as a result of the increase of product development headcount, which is in line with our overall growth and continuous reinvestment in future growth opportunities. As a percentage of net revenues, product
development expenses increased from 7.9% in 2015 to 9.6% in 2016. Our product development expenses for 2016 included share-based compensation expenses of RMB54.3 million, compared to RMB24.3 million in 2015.
Income before Income Taxes
. Our income before income taxes was RMB1,248.9 million in 2016 compared to
RMB1,276.2 million in 2015.
Income Tax Expense
. We incurred income tax expense of RMB32.6 million in 2016, a
significant decrease compared with RMB285.5 million in 2015, primarily due to change in the enacted tax rate of Beijing Prbrownies which resulted in tax benefit of RMB173.6 million being recorded in 2016.
Net Income Attributable to Autohome Inc.
. As a result of the foregoing, we had net income attributable to Autohome Inc. of
RMB1,227.9 million in 2016, increased by 24.0% compared with net income attributable to Autohome Inc. of RMB990.6 million in 2015.
Inflation
Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of
Statistics of China, the consumer price index in China increased by 1.4%, 2.0% and 1.6% in 2015, 2016 and 2017, and the year-over-year percent changes in the consumer price index for December 2015, 2016 and 2017 were increases of 1.6%, 2.1% and
1.8%, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.
79
Recent Accounting Pronouncements
See Item 17 of Part III, Financial StatementsNote 2Summary of significant accounting policiesRecent accounting
pronouncements.
B.
|
Liquidity and Capital Resources
|
Cash Flows and Working Capital
Our principal sources of liquidity are cash generated from our operating activities and our issuance of ADSs. In December 2013, we completed
our initial public offering and raised net proceeds of US$142.6 million, after deducting underwriting commissions and discounts and expenses. In November 2014, we completed our 2014 Offering and raised net proceeds of US$97.3 million,
after deducting underwriting commissions and discounts and expenses. Our principal uses of cash for 2015, 2016 and 2017 were operating activities, including employee compensation, tax expenses, marketing expenses, bandwidth and IDC costs and
purchase of vehicles, investments and other capital expenditures. As of December 31, 2017, we had cash and cash equivalents and short-term investments altogether amounting to RMB8,154.2 million (US$1,253.3 million).
We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including
our cash needs for at least the next 12 months. We may require additional cash due to unanticipated business conditions or other future developments. We may also need additional cash resources if we find and wish to pursue opportunities for
investments, acquisitions, strategic cooperation or other similar actions. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or secure debt funding from financial
institutions.
The following table sets forth a summary of our cash flows for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Net cash generated from operating activities
|
|
|
1,461,841
|
|
|
|
1,625,896
|
|
|
|
2,473,018
|
|
|
|
380,096
|
|
Net cash used in investing activities
|
|
|
(407,657
|
)
|
|
|
(514,906
|
)
|
|
|
(4,913,827
|
)
|
|
|
(755,241
|
)
|
Net cash generated from financing activities
|
|
|
30,200
|
|
|
|
27,920
|
|
|
|
61,070
|
|
|
|
9,386
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
13,847
|
|
|
|
2,354
|
|
|
|
(2,584
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
1,098,231
|
|
|
|
1,141,264
|
|
|
|
(2,382,323
|
)
|
|
|
(366,156
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,054,416
|
|
|
|
2,152,647
|
|
|
|
3,293,911
|
|
|
|
506,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
2,152,647
|
|
|
|
3,293,911
|
|
|
|
911,588
|
|
|
|
140,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Net cash generated from operating activities was RMB2,473.0 million (US$380.1 million) for 2017. This amount was primarily attributable to
net income of RMB1,994.5 million (US$306.5 million), (a) adjusted for (i) certain
non-cash
items, primarily including share-based compensation expenses of RMB177.8 million (US$27.3 million),
deferred income taxes of RMB12.3 million (US$1.9 million), depreciation of property and equipment of RMB81.9 million (US$12.6 million), loss from equity method investments of RMB10.6 million (US$1.6 million), and fair value change of
short-term investments of RMB29.0 million (US$4.5 million) and (ii) changes in operating assets and liabilities that positively affected operating cash flow, primarily due to an increase in accrued expenses and other payables of
RMB425.3 million (US$65.4 million), an increase in deferred revenue of RMB397.3 million (US$61.1 million), a decrease in prepaid expenses and other current assets of RMB191.3 million (US$29.4 million), a decrease in inventory of
RMB94.1 million (US$14.5 million) and a decrease in restricted cash of RMB9.3 million (US$1.4 million), (b) partially offset by changes in operating assets and liabilities that negatively affected operating cash flow, primarily due to an
increase in accounts receivable of RMB688.9 million (US$105.9 million), decrease in income tax payable of RMB172.4 million (US$26.5 million), and a decrease in notes payable of RMB31.1 million (US$4.8 million). The increase in accrued
expenses and other payables was mainly due to the increase in accrued rebates to advertising agencies in accordance with the growth of media service revenues, accrual for the
year-end
bonuses to employees
during the period and marketing expenses. The increase in deferred revenue was mainly attributable to the growth of our dealer subscription services. The decrease in prepaid expenses and other current assets and inventories was attributable to the
clearance of direct sales vehicle inventories. The decrease in restricted cash and notes payable was primarily due to the maturity and settlement of short-term bank acceptance notes used for the purchase of new vehicles. The increase in accounts
receivable was primarily due to the increase of our media services.
80
Net cash generated from operating activities was RMB1,625.9 million for 2016. This amount
was primarily attributable to net income of RMB1,216.2 million, (a) adjusted for (i) certain
non-cash
expenses, primarily share-based compensation expenses of RMB195.4 million, deferred
income taxes of RMB103.8 million, depreciation of property and equipment of RMB65.2 million, and write-down of inventories and prepayment for vehicle purchase cost of RMB50.2 million and (ii) changes in operating assets and
liabilities that positively affected operating cash flow, primarily an increase in accrued expenses and other payables of RMB308.9 million, an increase in deferred revenue of RMB139.7 million and a decrease in restricted cash of
RMB51.8 million, (b) partially offset by changes in operating assets and liabilities that negatively affected operating cash flow, primarily a decrease in notes payable of RMB143.9 million, an increase in accounts receivable of
RMB132.8 million and increase in prepaid expenses and other current assets of RMB77.6 million. The increase in accrued expenses and other payables was mainly due to the increase in accrued rebates to advertising agencies in accordance with
growth of media service revenues, accrual for the
year-end
bonuses to employees during the period and customer deposit received. The increase in deferred revenue was mainly attributable to the growth of our
dealer subscription services. The decrease in restricted cash and notes payable was primarily due to the maturity and settlement of short-term bank acceptance notes used for the purchase of new vehicles. The increase in accounts receivable was
primarily due to the increase of our media services. The increase in prepaid expenses and other current assets was mainly due to the advance payment for purchase of new vehicles.
Net cash generated from operating activities was RMB1,461.8 million for 2015. This amount was primarily attributable to net income of
RMB990.6 million, (a) adjusted for (i) certain
non-cash
expenses, primarily share-based compensation expenses of RMB107.9 million, depreciation of property and equipment of
RMB51.3 million and deferred income taxes of RMB6.5 million, and (ii) changes in operating assets and liabilities that positively affected operating cash flow, primarily an increase in deferred revenue of RMB433.7 million and an
increase in accrued expenses and other payables of RMB316.7 million, and (b) partially offset by changes in operating assets and liabilities that negatively affected operating cash flow, primarily an increase in accounts receivable of
RMB340.9 million and increase in prepaid expenses and other current assets of RMB264.4 million and inventories of RMB111.7 million. The increase in deferred revenues was mainly attributable to the growth of our dealer subscription
services. The increase in accrued expenses and other payables was mainly due to the increase in accrued rebates to advertising agencies in accordance with growth of revenue and accrual for the
year-end
bonuses
to employees during the period. The increase in accounts receivable was primarily due to the increase of our advertising services. The increase in prepaid expenses and inventories was mainly due to the advance payment for and purchase of vehicles.
Investing Activities
Net
cash used in investing activities was RMB4,913.8 million (US$755.2 million) in 2017, which was primarily attributable to the purchase of term deposits and adjustable-rate financial products, capital expenditures primarily related to the
purchase of electronic equipment, purchase of operating license and investment in and disposal of equity investees.
Net cash used in
investing activities was RMB514.9 million in 2016, which was primarily attributable to the purchase of term deposits and adjustable-rate financial products, capital expenditures primarily related to purchase of electronic equipment and
leasehold improvements and investment in our new joint ventures.
81
Net cash used in investing activities was RMB407.7 million in 2015, which was primarily
attributable to the purchase of term deposits, the investment in our new joint ventures and the capital expenditures primarily related to purchase of electronic equipment and leasehold improvements.
Financing Activities
Net cash
generated from financing activities in 2017 was RMB61.1 million (US$9.4 million), which was attributable to proceeds from exercise of share-based awards.
Net cash generated from financing activities in 2016 was RMB27.9 million, which was primarily attributable to proceeds from exercise of
share-based awards.
Net cash generated from financing activities in 2015 was RMB30.2 million, which was attributable to proceeds
from exercise of share-based awards.
Capital Expenditures
Cash outflow in connection with capital expenditures amounted to RMB89.2 million, RMB88.8 million and RMB86.4 million (US$13.3
million) in 2015, 2016 and 2017, respectively. These capital expenditures were primarily used to purchase servers and other electronic equipment for our business and leasehold improvements.
Holding Company Structure
Our
ability to pay dividends is primarily dependent on our receiving distributions of funds from our subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if
any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial
statements of our PRC subsidiaries.
Under PRC law, our PRC subsidiaries are required to provide for certain statutory reserves, namely a
general reserve, an enterprise expansion fund and a staff welfare and bonus fund and allocate at least 10% of their
after-tax
profits on an individual company basis as determined under PRC accounting standards
to the general reserve, and have the right to discontinue allocations to the general reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, they are also required to make appropriations to the
enterprise expansion fund and staff welfare and bonus fund at the discretion of their respective boards of directors. Our VIEs in the PRC are also subject to similar statutory reserve requirements. These reserves can only be used for specific
purposes and are not transferable to us in the form of loans, advances or cash dividends. As of December 31, 2015, 2016 and 2017, our PRC subsidiaries and our VIEs had appropriated RMB19.2 million, RMB36.0 million and
RMB51.8 million (US$8.0 million), respectively, of retained earnings for their statutory reserves.
As a result of these PRC laws and
regulations, prior to allocations of
after-tax
profits to the statutory reserves, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to us.
Foreign exchange and other regulation in the PRC may further restrict our PRC subsidiaries and VIEs from transferring funds to us in the form
of dividends, loans and advances. As of December 31, 2016 and 2017, the amounts of the net restricted assets of our PRC subsidiaries and our VIEs were RMB5,165.7 million and RMB6,789.4 million (US$1,043.5 million), respectively.
C.
|
Research and Development, Patents and Licenses, Etc.
|
Technology and Product Development
Our technologies and infrastructure are critical to our success. We follow a user-centric strategy for our system architecture and
have developed robust and scalable technology platforms with sufficient flexibility to support our rapid growth.
82
A key component of our user-centric strategy is our user intelligence engine which we have
developed and are continually enhancing. Our user intelligence engine allows us to rapidly gather user intelligence by analyzing large amounts of data from many sources throughout our content production system. We can utilize such user intelligence
data to personalize user interfaces, associate and understand the relationship of information from different sources and facilitate interactions among users and various elements on our websites and mobile applications. It also helps us recommend
suitable products, services and user connections to our users. Through our user intelligence engine, we can engage our users more closely by providing them with relevant content. We are also able to provide precision marketing services to our
automakers, dealers and other automotive-related customers so that they can deliver relevant advertisements to targeted users who are more receptive to such marketing information.
We distribute our web content to numerous network nodes close to our users by utilizing the content delivery networks, allowing most of our
user communications to bypass internet congestion. With our technological expertise, we manage the content delivery networks to enhance our website responsiveness and to improve user experience. As such, we believe our websites have a performance
advantage over other automotive vertical websites.
We invested heavily in mobile technologies and were among the earliest in our industry
in China to introduce a mobile version of our websites and both Apple
iOS-
and Android-based applications to allow our users to easily access our content. We have built up a team of research and development
personnel to focus exclusively on the development of our mobile websites and applications and to explore new business models and opportunities through mobile technology. We plan to continue to leverage our mobile technology to enhance the functions
and user interfaces of our mobile applications for Apple
iOS-
and Android- platforms focusing on convenience, real-time interaction and location based services.
We had an experienced product development team of 1,659 engineers as of December 31, 2017. Our past innovation has focused on helping
users research, select and purchase suitable automobiles through our websites. We plan to develop additional products and services for our mobile applications and media-related technology, enhance the big data analysis capabilities as well as AR and
VR related technologies. Our product development expenses were RMB273.9 million, RMB571.4 million and RMB878.8 million (US$135.1 million) for the years ended December 31, 2015, 2016 and 2017, respectively.
Intellectual Property
Our intellectual
property includes trademarks and trademark applications related to our brands and services, software copyrights, trade secrets and other intellectual property rights and licenses. We seek to protect our intellectual property assets and brands
through a combination of trademark, patent, copyright and trade secret protection laws in the PRC and other jurisdictions, as well as through confidentiality agreements and other measures.
We hold 汽车之家 and 车之家 (both mean auto home in English) and
AUTOHOME
®
trademarks in China. In addition, as at December 31, 2017, we held 175 pending trademark applications and 143 registered trademarks in China. As at the same date, we
had 61 registered domain names, including our main website domain names,
autohome.com.cn
and
che168.com
, 119 pending patent applications and 73 registered patents. We had 204 computer software copyrights as of December 31, 2017.
Other than as disclosed elsewhere in this annual report, we
are not aware of any trends, uncertainties, demands, commitments or events since the beginning of our fiscal year 2017 that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or
capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E.
|
Off-Balance
Sheet Arrangements
|
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 derivative contracts that are indexed to our shares and classified as shareholders equity.
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.
83
F.
|
Tabular Disclosures of Contractual Obligations
|
The following summarizes our
contractual obligations as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less than
1 Year
|
|
|
1 to 3 years
|
|
|
3 to 5 Years
|
|
|
More than
5 Years
|
|
|
Total
|
|
|
|
(in thousands of RMB)
|
|
Operating lease obligations
(1)
|
|
|
82,360
|
|
|
|
48,982
|
|
|
|
|
|
|
|
|
|
|
|
131,342
|
|
(1)
|
Operating lease obligations primarily related to the lease of office space.
|
Rental expenses
for the years ended December 31, 2015, 2016 and 2017 were RMB49.9 million, RMB84.7 million and RMB95.7 million (US$14.7 million), respectively.
See Forward-Looking Statements on page 1 of this annual
report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
|
Directors and Senior Management
|
The following table sets forth information
regarding our directors and executive officers as of the date of this annual report.
|
|
|
|
|
Directors and Executive Officers
|
|
Age
|
|
Position/Title
|
Min Lu
|
|
57
|
|
Chairman of the Board and Chief Executive Officer
|
Dong Liu
|
|
53
|
|
Director
|
Han Qiu
|
|
43
|
|
Director
|
Zheng Liu
|
|
49
|
|
Director
|
Junling Liu
|
|
53
|
|
Independent Director
|
Tianruo Pu
|
|
49
|
|
Independent Director
|
Dazong Wang
|
|
63
|
|
Independent Director
|
Jun Zou
|
|
47
|
|
Chief Financial Officer
|
Haifeng Shao
|
|
46
|
|
President
|
Mr.
Min Lu
has served as our chairman of the board and our chief executive officer
since June 2016. Before joining our company, Mr. Min Lu was the chief of the strategy center of Ping An Insurance (Group) Company of China, Ltd., or Ping An Group. Having worked at Ping An for 20 years, Mr. Lu is an experienced
professional in the Chinese insurance industry, as well as a specialist in strategic development. Mr. Lu has also served as deputy general manager of Ping An Life Insurance Company of China, Ltd., or Ping An Life, and general manager of the
bank assurance business unit of Ping An Life. From 2009 to 2014, Mr. Lu served as chairman and chief executive officer of Ping An Health Insurance Company of China, Ltd. Mr. Lu holds an MBA degree from the University of Dundee.
Mr.
Dong Liu
has served as our director since June 2016. Mr. Dong Liu joined Ping An Group in 2014 and is
currently deputy general manager of China Ping An Trust Co., Ltd., or Ping An Trust, and general manager of the Private Equity Investments Group. Prior to joining Ping An Group, Mr. Liu was chief representative of the Government of Singapore
Investment Corporation, or GIC, Greater China, and Senior Vice President of GIC from 2007 to 2014, principal investment officer of IFC China from 2003 to 2007, senior investment officer of the International Finance Corporation, part of The World
Bank Group, in Washington D.C. from 1998 to 2003 and senior economist at The World Bank Group in Washington D.C. from 1994 to 1998. Mr. Liu has more than 20 years of international and domestic investment experience. Since returning to China in
2003, Mr. Liu has led investments in sectors such as the consumer, healthcare, education, environmental protection, financial services, technology and agribusiness industries.
84
Ms.
Han Qiu
has served as our director since June 2016. Ms. Han
Qiu is the general manager of Shenzhen Qianhai Credit Service Company and the deputy general manager of Shanghai Yizhangtong Network Technology Co., Ltd., subsidiaries of Ping An Group. With over 15 years of experience in finance, risk management
and data science, Ms. Qiu has deep technical knowledge in big data and analytics. Prior to her current role, Ms. Qiu headed the Group Big Data Center at Ping An Group. In addition, Ms. Qiu has served as head of change at Standard
Chartered Bank and vice president of business intelligence at Fullerton Financial Holdings/Temasek Holdings. Ms. Qiu has also previously worked as an associate at McKinsey & Company and held technical leadership positions at GE
Money/GE Capital.
Mr.
Zheng Liu
has served as our director since December 2017. Mr. Liu currently serves
as the deputy general manager of Ping An Property Insurance Company of China and the general director of its agency business unit. Mr. Liu has nearly 25 years of experience in business management and the industry of insurance, in particular
property insurance. He joined Ping An Group in 1993 and has served consecutively as the assistant to the general manager, the deputy general manager and the general manager of Ping An Property Insurance Company of Chinas Beijing Branch. In
2011, Mr. Liu was relocated to Ping An Property Insurance Company of Chinas headquarters, and has since then served consecutively as its deputy general manager and general director of western China business unit, then its deputy general
manager and general director of new sales channel business unit, and its deputy general manager and general director of northern Chines business unit. Mr. Zheng Liu received a Bachelor of Laws degree from Sun
Yat-sen
University in 1991.
Mr.
Junling Liu
has served as our
independent director since January 2015. Mr. Liu is the
co-founder
and Chairman of New Peak Group, a leading digital and mobile health group in China since 2015. Before New Peak Group, he was the
co-founder
and chief executive officer of Yihaodian from 2008 to 2015. Before 2008, Mr. Liu was the
co-president
of Dell China and Hong Kong. Prior to that, he was a
managing director of Avaya China. Mr. Liu received his Master of International Business Administration from Flinders University in Australia.
Mr.
Tianruo Pu
has served as our independent director since December 2016. Mr. Pu currently serves as an
independent director and chairman of the audit committee of JMU Limited (NASDAQ: JMU), the former Wowo Limited, a Chinese internet
e-commerce
company listed on the NASDAQ, as an independent director and member
of the audit committee of Renren Inc., a Chinese social network platform listed on the New York Stock Exchange, and as an independent director and chairman of the audit committee of 3SBio Inc., a Chinese
bio-pharmaceutical
company listed on the Hong Kong Stock Exchange. Mr. Pu is also the chief financial officer of Zhaopin Limited, a leading career platform in China. Mr. Pu has more than twenty years
of work experience in finance and accounting in both the United States and China. Prior to joining Zhaopin, Mr. Pu was the chief financial officer of UTStarcom, a global telecommunications equipment company listed on the NASDAQ, and prior to
that, Mr. Pu served as the chief financial officer at China Nuokang
Bio-Pharmaceutical
Inc. Mr. Pu received an MBA degree from Northwestern University Kellogg School of Management in 2000 and a
Master of Science degree in accounting from the University of Illinois in 1996.
Dr.
Dazong Wang
has served as
our independent director since December 2016. Dr. Wang has been the founder and the chairman of Ophoenix Capital Management since 2011. Dr. Wang also serves as a director of FUBA Automotive Electronics GmbH, Germany, a leading supplier of
automotive reception systems, as a director of Merit Automotive Electronics Systems, S.L., Spain, a leading supplier of complex automotive mechatronics modules and as a director of Committee of 100, a
non-profit
membership organization of prominent Chinese Americans. From 2008 to 2011, Dr. Wang was the president and chief executive officer of Beijing Automotive Industry Corporation. From 2006 to 2008,
Dr. Wang served as the vice president of Shanghai Automotive Industry Corporation, where he was responsible for engineering and key component operations. Before that, Dr. Wang served several positions in General Motors Company, or GM, from
1985 to 2006, including, senior staff engineer, China country manager and engineering director for North America operations. Dr. Wang received a Ph.D. degree from Cornell University and a Master of Science degree from Huazhong University of
Science and Technology in China.
85
Mr.
Jun Zou
has served as our chief financial officer since September
2017. Mr. Zou has over 23 years of experience in financial management and capital markets in the U.S., Europe and China. He most recently served as iDreamSkys chief financial officer from 2014 to 2016, during which time he led the
companys initial public offering on the Nasdaq Global Select Market and the companys subsequent privatization. Prior to joining iDreamSky, Mr. Zou served as the chief financial officer for several U.S.-listed Chinese companies,
including
E-Commerce
China Dangdang Inc. (NYSE: DANG, now privatized), a leading
business-to-consumer
e-commerce
company in China from 2012 to 2014, and Xunlei Ltd. (NASDAQ: XNET), a leading cloud-based acceleration technology company in China from 2010 to 2012. He has also worked as the chief financial officer for
the global technical services business unit and the head of the global customer financing and treasury at Huawei Technologies, a Fortune 500 technology company in China from 2006 to 2008. Before returning to China, Mr. Zou served in progressive
managerial roles in treasury, customer finance, strategic planning and eventually as global controller for the managed services business unit at Ericsson in the U.S. and Sweden. Mr. Zou received a master degree in business administration from
the University of Texas in the U.S. and a bachelor degree in international business and economics from Shanghai International Studies University in China.
Mr.
Haifeng Shao
has served as our president since February 2018. Mr. Shao worked for Ping An Group for over 22
years, including 15 years as a senior manager in the financial services division, and seven years in its internet finance division. He joined Ping An Group in 1996 where he served successively as the General Assistant Manager of Ping An Life
Insurance, Shanghai Branch; the Deputy General Manager of Ping An Life Insurance, Yunnan Branch; and the Deputy General Manager of Ping An Annuity Insurance. Starting 2012, Mr. Shao served as the General Manager of Ping An
E-wallet.
In 2016, Mr. Shao served as the General Manager of Ping An Finance One Account. Mr. Shao received a Bachelor of Arts in Literature from Nanjing Normal University in 1995.
B.
|
Compensation of Directors and Executive Officers
|
For the fiscal year ended
December 31, 2017, we incurred an aggregate compensation expense of approximately RMB13.6 million (US$2.1 million) for our executive officers and directors (not including share-based compensation expenses). Our PRC subsidiaries and VIEs
are required by law to make contributions equal to certain percentages of each employees salary for his or her pension insurance, medical insurance, unemployment insurance, housing fund and other statutory benefits. Other than the
above-mentioned statutory contributions mandated by applicable PRC law, we have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. For additional information on share
incentive grants to our directors and executive officers, see Share Incentive Plans.
Employment Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is
employed for a specified time period. We may terminate employment for cause at any time without advance notice or remuneration for certain acts of the executive officer, such as a conviction or plea of guilty to a felony or any crime involving moral
turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the
termination, and the executive officers right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officers employment without cause upon
one-month
advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including cash compensation determined based on the term of office of the
involved executive officer. The executive officer may terminate the employment at any time with a
one-month
advance written notice, if there is any significant change in the executive officers duties and
responsibilities inconsistent in any material and adverse respect with his or her title and position, or a material reduction in the executive officers annual salary before the next annual salary review, or if otherwise approved by the board
of directors.
Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment
agreement, in strict confidence and not to use, except as required in the performance of his duties in connection with the employment, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients
or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs
and trade secrets which they conceive, develop or reduce to practice and to assign all right, title and interest in them to us, and assist us in obtaining patents, copyrights and other legal rights for these inventions, designs and trade secrets.
86
In addition, each executive officer has agreed to be bound by
non-competition
and
non-solicitation
restrictions during the term of his or her employment. Specifically, each executive officer has agreed not to (a) approach our
clients, advertisers or contacts or other persons or entities introduced to the executive officer for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities;
(b) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors; or (c) seek directly or indirectly, to solicit the services of any of our
employees who is employed by us on or after the date of the executive officers termination, or in the year preceding such termination.
Share
Incentive Plans
2011 Share Incentive Plan
In May 2011, we adopted our 2011 Share Incentive Plan to attract and retain the best available personnel, provide additional incentives to
employees, directors and consultants and promote the success of our business. The maximum aggregate number of our Class A ordinary shares which may be issued pursuant to all awards under the 2011 Share Incentive Plan, as currently in effect, is
7,843,100. As of March 31, 2018, options to purchase 98,337 Class A ordinary shares under the 2011 Share Incentive Plan at an exercise price of US$2.20 were outstanding. The following table summarizes, as of March 31, 2018, the
outstanding options we had granted to our directors, officers and other individuals under our 2011 Share Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Options
|
|
|
Exercise Price
(US$/Share)
|
|
|
Date of Grant
|
|
Date of
Expiration
|
|
Vesting Schedule
|
Individuals other than directors and officers as a group
|
|
|
98,337
|
|
|
|
US$2.20
|
|
|
May 6, 2011
December 19, 2011
October 22, 2013
January 16, 2014
|
|
Ten years after grant date
|
|
Approximately
4 years from
each date of
grant
|
The following paragraphs describe the principal terms of the 2011 Share Incentive Plan:
Types of awards
. The Plan permits the awards of incentive and
non-statutory
share-based awards,
share appreciation rights, restricted shares and restricted share units. The following briefly describes the principal features of the various awards that may be granted under the 2011 Share Incentive Plan.
|
|
|
Options
. The administrator may grant incentive stock options, or ISOs, or
non-statutory
stock options, NSOs, under our 2011 Share Incentive Plan. Unless the administrator
determines otherwise, the exercise price of options granted under our 2011 Share Incentive Plan must at least be equal to the fair market value of our ordinary shares on the date of grant and its term may not exceed ten years. In addition, for any
participant who owns more than 10% of the total combined voting rights of all classes of our outstanding shares, or of certain of our parent or subsidiary, the term of an ISO must not exceed five years and the exercise price of such ISO must equal
at least 110% of the fair market value on the grant date. The administrator determines the term of all other options.
|
After
termination of an employee, director or consultant, he or she may exercise his or her option, to the extent vested as of such date of termination, within 60 days of termination, or such longer period of time stated in the option agreement. In the
absence of a specified period of time in the option agreement, the option will remain exercisable for a period of 12 months in the event of a termination due to death or disability. However, in no event may an option be exercised later than the
expiration of its term.
|
|
|
Share appreciation rights
. Share appreciation rights may be granted under our 2011 Share Incentive Plan. Share appreciation rights allow the recipient to receive the appreciation in the fair market value of our
Class A ordinary shares between the exercise date and the date of grant. The exercise price of share appreciation rights granted under our 2011 Share Incentive Plan must at least be equal to the fair market value of our Class A ordinary
shares on the date of grant. The administrator determines the terms of share appreciation rights, including when such rights vest and become exercisable and whether to settle such awards in cash or with our ordinary shares, or a combination thereof.
Share appreciation rights expire under the same rules that apply to options.
|
87
|
|
|
Restricted shares
. Restricted shares may be granted under our 2011 Share Incentive Plan. Restricted share awards are Class A ordinary shares that are subject to various restrictions, including restrictions
on transferability and forfeiture provisions. Restricted shares will vest and the restrictions on such shares will lapse, in accordance with terms and conditions established by the administrator. The administrator will determine the number of
restricted shares granted to any employee. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals and/or
continued service to us. Holders of restricted share awards generally will have voting rights but not dividend rights, unless the administrator provides otherwise. Restricted shares that do not vest for any reason will be forfeited by the recipient
and will revert to us.
|
|
|
|
Restricted Share Units
. A restricted share unit award is the grant of the right to receive an ordinary share at a future date and may be subject to forfeiture. Our plan administrator has the discretion to set
performance objectives or other vesting criteria that will determine the number or value of restricted share units to be granted. Unless otherwise determined by our plan administrator, a restricted share unit is nontransferable and may be forfeited
or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator, at the time of grant, specifies the dates on which the restricted share units become fully vested.
|
Administration
. Our board of directors or the compensation committee of our board of directors administers our 2011 Share Incentive
Plan. Subject to the provisions of our 2011 Share Incentive Plan, the administrator has the power to determine the terms of the awards, including the recipients, the exercise price, the number of shares subject to each such award, the vesting
schedule applicable to the awards, together with any vesting acceleration, and the form of consideration payable upon exercise. The administrator also has the authority to modify or amend awards, to prescribe rules and to construe and interpret the
2011 Share Incentive Plan. Our board of directors may delegate limited authority to additional committees with respect to certain employees and consultants to reduce the burden on the board in administering the 2011 Share Incentive Plan.
Award Agreement
. Options, share appreciation rights, restricted shares, or restricted share units granted under the plan are evidenced
by an award agreement that sets forth the terms, conditions, and limitations for each grant.
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-based awards only to our employees and employees of our parent companies and subsidiaries.
Transferability
. Unless the administrator provides otherwise, our 2011 Share Incentive Plan does not allow for the transfer of awards
other than by will or the laws of descent and distribution and only the recipient of an award may exercise an award during his or her lifetime.
Certain adjustments
. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or
potential benefits available under the 2011 Share Incentive Plan, the administrator will make adjustments to one or more of the number and class of shares that may be delivered under the plan and/or the number, class and price of shares covered by
each outstanding award and the numerical share limits contained in the plan. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior
to the consummation of such proposed transaction.
Change in control transactions
. Our 2011 Share Incentive Plan provides that in
the event of our merger or change in control, as defined in the 2011 Share Incentive Plan, each outstanding award will be treated as the administrator determines, except that if the successor corporation or its parent or subsidiary does not assume
or substitute an equivalent award for each outstanding option or share appreciation right, then such option or share appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion. The option or
share appreciation right will then terminate upon the expiration of the specified period of time.
Amendment and Termination
. Our
board of directors has the authority to amend, suspend or terminate the 2011 Share Incentive Plan.
88
2013 Share Incentive Plan
We adopted the 2013 Share Incentive Plan in November 2013. The maximum aggregate number of Class A ordinary shares which may be issued
pursuant to all awards under the 2013 Share Incentive Plan is 3,350,000. As of March 31, 2018, 952,959 restricted shares under the 2013 Share Incentive plan were outstanding. The following table summarizes, as of March 31, 2018, the
outstanding awards we granted under the 2013 Share Incentive Plan:
|
|
|
|
|
|
|
Name
|
|
Restricted Shares
|
|
Date of Grant
|
|
Vesting Schedule
|
Min Lu
|
|
*
|
|
March 23, 2017
|
|
Approximately four years from the date of grant
|
Junling Liu
|
|
*
|
|
April 30, 2015
|
|
Approximately four years from each date of grant
|
|
|
|
|
December 19, 2016
|
|
|
Tianruo Pu
|
|
*
|
|
December 19, 2016
|
|
Approximately four years from the date of grant
|
Dazong Wang
|
|
*
|
|
December 19, 2016
|
|
Approximately four years from the date of grant
|
Directors and officers as a group
|
|
*
|
|
Between
April 30, 2015
to
March 23, 2017
|
|
Approximately four years from each date of grant
|
Other individuals as a group
|
|
*
|
|
Between
May 8, 2014
to
April 13, 2017
|
|
Approximately four years from each date of grant
|
*
|
Less than one percent of our total outstanding share capital.
|
The following paragraphs
summarize the terms of the 2013 Share Incentive Plan:
Types of awards
. The 2013 Share Incentive Plan permits the awards of
options, restricted shares and restricted share units. The following briefly describe the principal features of the various awards that may be granted under the 2013 Share Incentive Plan.
|
|
|
Options
. Options provide for the right to purchase a specified number of our ordinary shares at a specified price and usually will become exercisable at the discretion of our plan administrator in one or more
installments after the grant date. The option exercise price may be paid, subject to the discretion of the plan administrator, in cash or check, in our Class A ordinary shares which have been held by the option holder for such period of time as
may be required by our plan administrator, in other property with value equal to the exercise price, through a broker-assisted cashless exercise, or by any combination of the foregoing.
|
|
|
|
Restricted Shares
. A restricted share award is the grant of our Class A ordinary shares which are subject to certain restrictions and may be subject to risk of forfeiture. Unless otherwise determined by our
plan administrator, a restricted share is nontransferable and may be forfeited or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator may also impose other restrictions on the restricted
shares, such as limitations on the right to vote or the right to receive dividends.
|
|
|
|
Restricted share units
. A restricted share unit award is the grant of the right to receive an ordinary share at a future date and may be subject to forfeiture. Our plan administrator has the discretion to set
performance objectives or other vesting criteria that will determine the number or value of restricted share units to be granted. Unless otherwise determined by our plan administrator, a restricted share unit is nontransferable and may be forfeited
or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator, at the time of grant, specifies the dates on which the restricted share units become fully vested.
|
89
Plan Administration
. Our board or a committee of one or more members of our board duly
authorized for the purpose of the 2013 Share Incentive Plan can act as the plan administrator.
Award Agreement.
Options,
restricted shares or restricted share units granted under the 2013 Share Incentive Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each grant.
Exercise Price.
The exercise price in respect of any option shall be determined by the plan administrator and set forth in the award
agreement which may be a fixed or variable price related to the fair market value of the shares. The exercise price per share subject to an option may be amended or adjusted in the absolute discretion of the plan administrator, the determination of
which shall be final, binding and conclusive.
Eligibility.
We may grant awards to our directors, employees or consultants.
Term of the Options.
The term of each option grant shall be no more than ten years from the date of the grant.
Vesting Schedule.
In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement.
Transfer Restrictions.
Unless otherwise determined by the plan administrator, no awards may be transferred other than by will or the
laws of descent and distribution. Nevertheless, awards (other than incentive share-based awards) can be transferred to certain persons or entities related to the plan participants.
Termination
. The 2013 Share Incentive Plan will expire in 2023 and may be terminated earlier with the approval of our board.
Amended and Restated 2016 Share Incentive Plan
Our board of directors adopted and amended the 2016 Share Incentive Plan, or the Amended and Restated 2016 Plan, in March 2017 and April 2017,
respectively. The Amended and Restated 2016 Plan was approved by our Hong Kong Parent, Ping An Insurance (Group) Company of China, Ltd., a company listed on the Hong Kong Stock Exchange, at its general meeting on June 16, 2017 and was
subsequently approved, confirmed and ratified by our shareholders at our extraordinary general meeting of shareholders on June 27, 2017. The maximum aggregate number of Class A ordinary shares which may be issued pursuant to all awards
under the Amended and Restated 2016 Plan is 4,890,000. As of March 31, 2018, options to purchase 1,404,630 Class A ordinary shares under the Amended and Restated 2016 Plan at exercise prices ranging from US$22.19 to US$69.90 were
outstanding. The following table summarizes, as of March 31, 2018, the outstanding options we had granted under the Amended and Restated 2016 Plan:
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Name
|
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Options
|
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Exercise
Price
(US$/Share)
|
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Date of Grant
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Date of Expiration
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Vesting Schedule
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Min Lu
|
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*
|
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29.55
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July 11, 2017
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Ten years after
grant date
|
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Approximately four years from the date of grant
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Dong Liu
|
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*
|
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58.68
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January 1, 2018
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Ten years after
grant date
|
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Approximately four years from the date of grant
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Jun Zou
|
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*
|
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65.10
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December 1, 2017
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Ten years after
grant date
|
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Approximately four years from the date of grant
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Haifeng Shao
|
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*
|
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69.90
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March 22, 2018
|
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Ten years after
grant date
|
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Approximately four years from the date of grant
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Directors and officers as a group
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*
|
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29.55~69.90
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Between
July 11, 2017
and
March 22, 2018
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Ten years after grant date
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Approximately four years from each date of grant
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Other individuals as a group
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*
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22.19~38.42
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Between June 3, 2016
and
November 30, 2017
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Ten years after grant date
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Approximately four years from each date of grant
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*
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Less than one percent of our total outstanding share capital.
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90
The following paragraphs describe the principal terms of the Amended and Restated 2016 Plan:
Types of awards
. The Amended and Restated 2016 Plan permits the awards of options, restricted shares and restricted share units. The
following briefly describe the principal features of the various awards that may be granted under the Amended and Restated 2016 Plan.
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Options
. Options provide for the right to purchase a specified number of our ordinary shares at a specified price and usually will become exercisable at the discretion of our plan administrator in one or more
installments after the grant date. The total number of Class A ordinary shares issued and to be issued upon the exercise of the options granted and to be granted to any participant in any
12-month
period
up to and including the date of grant shall not exceed 1% of the issued and outstanding shares of the Company as at the date of grant. The option exercise price may be paid, subject to the discretion of the plan administrator, in cash or check, in
our Class A ordinary shares which have been held by the option holder for such period of time as may be required by our plan administrator, in other property with value equal to the exercise price, through a broker-assisted cashless exercise,
or by any combination of the foregoing. For so long as we remain a subsidiary of the Hong Kong Parent, the administration of the Amended and Restated 2016 Plan shall comply with the Hong Kong Listing Rules in respect of options.
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The options shall lapse (to the extent not already exercised) automatically on the earliest of: (i) expiry of the term of any option,
(ii) the date of termination of employment, (iii) expiry of the
60-day
period from the date of voluntary resignation of the participant, (iv) the date of termination of such other contract or
agreement constituting a participant for his breach of the terms thereof or in accordance with the termination provisions of such contract or agreement by any contracting party, (v) expiry of the three-month period following the occurrence of
an event which causes the participant to cease to be an eligible person, including
ill-health,
injury, disability, death or retirement, (vi) the date on which the resolution to voluntarily wind up the
Company is passed and the date of the commencement of winding up of the Company.
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Restricted Shares
. A restricted share award is the grant of our Class A ordinary shares which are subject to certain restrictions and may be subject to risk of forfeiture. Unless otherwise determined by our
plan administrator, a restricted share is nontransferable and may be forfeited or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator may also impose other restrictions on the restricted
shares, such as limitations on the right to vote or the right to receive dividends.
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Restricted share units
. A restricted share unit award is the grant of the right to receive an ordinary share at a future date and may be subject to forfeiture. Our plan administrator has the discretion to set
performance objectives or other vesting criteria that will determine the number or value of restricted share units to be granted. Unless otherwise determined by our plan administrator, a restricted share unit is nontransferable and may be forfeited
or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator, at the time of grant, specifies the dates on which the restricted share units become fully vested.
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Plan Administration
. Our board or a committee of one or more members of our board duly authorized for the purpose of the Amended and
Restated 2016 Plan can act as the plan administrator. Such committee may from time to time in its absolute discretion waive or amend the rules of the Amended and Restated 2016 Plan as it deems desirable, provided that, except with the prior approval
of the shareholders of our Company and the shareholders of our Hong Kong Parent (for so long as we remain a subsidiary of the Hong Kong Parent) in general meetings: (i) no alteration to any of the matters set out in Rule 17.03 of the Hong Kong
Listing Rules shall be made to the advantage of participants; and (ii) no alteration to the terms and conditions of the Amended and Restated 2016 Plan which are of a material nature or any change to the terms of the options granted may be made,
except where the alterations take effect automatically under the existing terms of the Amended and Restated 2016 Plan, provided that as we remain a subsidiary of the Hong Kong Parent, the amended terms must still comply with the relevant
requirements of Chapter 17 of the Hong Kong Listing Rules.
91
Award Agreement
. Options, restricted shares or restricted share units granted under the
Amended and Restated 2016 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each grant.
Exercise Price.
The exercise price in respect of any option shall be determined by the plan administrator and set forth in the award
agreement which may be a fixed or variable price related to the fair market value of the shares. The exercise price per share subject to an option may be amended or adjusted in the absolute discretion of the plan administrator, the determination of
which shall be final, binding and conclusive. For so long as we remain a subsidiary of the Hong Kong Parent, the determination of the exercise price shall comply with the Hong Kong Listing Rules.
Eligibility.
We may grant awards to our directors, employees or consultants.
Term of the Options.
The term of each option grant shall be no more than ten years from the date of the grant.
Vesting Schedule.
In general, the plan administrator determines the vesting schedule, which is set forth in the award agreement.
Transfer Restrictions.
Unless otherwise determined by the plan administrator, no awards may be transferred other than by will or the
laws of descent and distribution. Nevertheless, awards (other than options) can be transferred to certain persons or entities related to the plan participants.
Termination.
The Amended and Restated 2016 Plan will expire in 2027 and may be terminated earlier with the approval of our board.
2016 Share Incentive Plan II
We
adopted the 2016 Share Incentive Plan II (as amended by Amendment No. 1 to the 2016 Share Incentive Plan II), or the Amended 2016 Share Incentive Plan II, in December 2016. The maximum aggregate number of Class A ordinary shares which may
be issued pursuant to all awards under the Amended 2016 Share Incentive Plan II is 3,000,000. As of March 31, 2018, 404,894 restricted shares under the Amended and Restated 2016 Plan II were outstanding.
The following table summarizes, as of March 31, 2018, the outstanding restricted shares that we granted to our current directors and
executive officers and to other individuals as a group under our 2016 Share Incentive Plan II.
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Name
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Restricted Shares
|
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Date of Grant
|
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Vesting Schedule
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Jun Zou
|
|
*
|
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December 1, 2017
|
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Approximately four years
from the date of grant
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Haifeng Shao
|
|
*
|
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March 22, 2018
|
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Approximately four years
from the date of grant
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Directors and officers as a group
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*
|
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December 1, 2017;
March 22, 2018
|
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Approximately four years
form each date of grant
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Other individuals as a group
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|
*
|
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Between
April 13, 2017
and
November 30, 2017
|
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Approximately four years
from each date of grant
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92
*
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Less than one percent of our total outstanding share capital.
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The following paragraphs
describe the principal terms of the Amended 2016 Share Incentive Plan II:
Types of awards
. The Amended 2016 Share Incentive Plan
II permits the awards of restricted shares. A restricted share award is the grant of our Class A ordinary shares which are subject to certain restrictions and may be subject to risk of forfeiture. Unless otherwise determined by our plan
administrator, a restricted share is nontransferable and may be forfeited or repurchased by us upon termination of employment or service during a restricted period. Our plan administrator may also impose other restrictions on the restricted shares,
such as limitations on the right to vote or the right to receive dividends.
Plan Administration
. Our board or a committee of one
or more members of our board duly authorized for the purpose of the Amended 2016 Share Incentive Plan II can act as the plan administrator.
Award Agreement
. Restricted shares granted under the Amended 2016 Share Incentive Plan II are evidenced by an award agreement that sets
forth the terms, conditions and limitations for each grant.
Eligibility.
We may grant awards to our directors, employees or
consultants.
Vesting Schedule.
In general, the plan administrator determines the vesting schedule, which is set forth in the award
agreement.
Transfer Restrictions.
Unless otherwise determined by the plan administrator, no awards may be transferred other than
by will or the laws of descent and distribution, or to certain persons or entities related to the plan participants.
Termination.
The Amended 2016 Share Incentive Plan II will expire in 2026 and may be terminated earlier with the approval of our board of directors.
Our board of directors consists of seven directors. A director
is not required to hold any shares in the Company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he or she is materially interested provided (a) such director, if his or her
interest in such contract or arrangement is material, has declared the nature of his or her interest at the earliest meeting of the board at which it is practicable for him or her to do so, either specifically or by way of a general notice and
(b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property
and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. None of our
non-executive
directors has a
service contract with us that provides for benefits upon termination of service.
Committees of the Board of Directors
We have established three committees under the board of directors: the audit committee, the compensation committee and the nominating and
corporate governance committee. We have adopted a charter for each of the three committees. Each committees members and functions are described below.
Audit Committee
. Our audit committee consists of Messrs. Tianruo Pu, Dazong Wang and Junling Liu. Mr. Tianruo Pu is the chairman
of our audit committee. We have determined that Messrs. Tianruo Pu, Dazong Wang and Junling Liu satisfy the independence requirements of Section 303A of the New York Stock Exchange Listed Company Manual and Rule
10A-3
under the Securities Exchange Act of 1934. In addition, our board of directors has determined that Mr. Tianruo Pu qualifies as an audit committee financial expert as defined in Item 16A of Form
20-F.
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:
93
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appointing the independent auditors and preapproving all auditing and
non-auditing
services permitted to be performed by the independent auditors;
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reviewing with the independent auditors any audit problems or difficulties and managements response;
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discussing the annual audited financial statements with management and the independent auditors;
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reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;
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reviewing and approving all proposed related party transactions;
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meeting separately and periodically with management and the independent auditors; and
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monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
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In 2017, our audit committee held meetings or passed resolutions by unanimous written consent six times.
Compensation Committee
. Our compensation committee consists of Messrs. Min Lu, Zheng Liu and Dazong Wang. Mr. Min Lu is the
chairman of our compensation committee. We have determined that Dr. Dazong Wang satisfies the independence requirements of Section 303A of the New York Stock Exchange Listed Company Manual. The compensation committee assists
the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his
compensation is deliberated. The compensation committee is responsible for, among other things:
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reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;
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reviewing and recommending to the board for determination with respect to the compensation of our nonemployee directors; and
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reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements.
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In 2017, our compensation committee held meetings or passed resolutions by unanimous written consent seven times.
Nominating and Corporate Governance Committee
. Our nominating and corporate governance committee consists of Messrs. Min Lu and Tianruo
Pu and Ms. Han Qiu. Mr. Min Lu is the chairperson of our nominating and corporate governance committee. We have determined that Mr. Tianruo Pu satisfies the independence requirements of Section 303A of the New York
Stock Exchange Listed Company Manual. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The
nominating and corporate governance committee is responsible for, among other things:
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selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
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reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;
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making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and
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94
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advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the
board on all matters of corporate governance and on any remedial action to be taken.
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In 2017, our nominating and corporate
governance committee held meetings or passed resolutions by unanimous written consent three times.
Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly in good faith with a view to our best interests. Our directors also owe to
our 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. In fulfilling their duty of care to us,
our directors must ensure compliance with our memorandum and articles of association. Our company has the right to seek damages if a duty owed by our directors is breached.
Terms of Directors and Officers
Our
officers are elected by and serve at the discretion of the board of directors. At each annual general meeting,
one-third
of our directors then existing, or if their number is not a multiple of three, then the
number nearest to and not exceeding
one-third,
shall retire from office by rotation, provided that the chairman of the board and/or our chief executive officer shall not, whilst holding such office, be subject
to retirement by rotation or be taken into account in determining the number of directors to retire in each year.
We had 3,292, 3,752 and 4,097 employees as of December 31, 2015,
2016 and 2017, respectively. The following table sets forth the number of our employees by function as of December 31, 2017:
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Functional Area
|
|
Number of Employees
|
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Sales and marketing
|
|
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1,824
|
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Product development
|
|
|
1,659
|
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Content and editorial
|
|
|
429
|
|
Management and administrative
|
|
|
185
|
|
|
|
|
|
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Total
|
|
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4,097
|
|
|
|
|
|
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Through a combination of short-term performance evaluations and long-term incentive arrangements, we intend to
build a competent, loyal and highly motivated workforce. We have not experienced any work stoppages due to labor disputes.
Class A Ordinary Shares
As of March 31, 2018, we had 117,413,293 Class A ordinary shares outstanding (excluding 749,007 Class A ordinary shares that are
reserved for future grants under our share incentive plans). In addition, as of March 31, 2018, we had granted, and had outstanding, options to purchase a total of 1,502,967 Class A ordinary shares and 1,357,853 restricted shares to our
employees and directors. For information regarding the Share Incentive Plans, see Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors and Executive Officers.
Class B Ordinary Shares
As of
March 31, 2018, we had zero Class B ordinary shares outstanding.
95
Beneficial Ownership of Ordinary Shares
Except as specifically noted in the table, the following table sets forth information with respect to the beneficial ownership of our
Class A ordinary shares as of March 31, 2018:
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each of our directors and executive officers; and
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each person known to us to own beneficially more than 5% of our ordinary shares.
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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.
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|
|
|
|
|
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Class A Ordinary Shares Beneficially Owned as of March 31, 2018
|
|
|
|
Number
|
|
|
%
(1)
|
|
Directors and Executive Officers:
|
|
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|
|
|
|
|
|
Min Lu
(2)
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|
|
*
|
|
|
|
*
|
|
Dong Liu
(3)
|
|
|
|
|
|
|
|
|
Han Qiu
(4)
|
|
|
|
|
|
|
|
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Zheng Liu
(5)
|
|
|
|
|
|
|
|
|
Junling Liu
(6)
|
|
|
*
|
|
|
|
*
|
|
Tianruo Pu
(7)
|
|
|
*
|
|
|
|
*
|
|
Dazong Wang
(8)
|
|
|
*
|
|
|
|
*
|
|
Jun Zou
(9)
|
|
|
|
|
|
|
|
|
Haifeng Shao
(10)
|
|
|
|
|
|
|
|
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All Directors and Executive Officers as a Group
|
|
|
*
|
|
|
|
*
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
Yun Chen Capital Cayman
(11)
|
|
|
61,824,328
|
|
|
|
52.7
|
%
|
Kayne Anderson Rudnick Investment Management LLC
(12)
|
|
|
8,761,806
|
|
|
|
7.5
|
%
|
*
|
Less than one percent of our total outstanding share capital.
|
(1)
|
For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of our total ordinary
shares outstanding, which is 117,413,293 as of March 31, 2018, and the number of shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after March 31, 2018.
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(2)
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Represents Class A ordinary shares in the form of ADSs vested from restricted shares held by Mr. Lu. The business address of Mr. Lu is 10th Floor, Tower B, CEC Plaza, No. 3 Dan Ling Street, Haidian
District, Beijing 100080, Peoples Republic of China.
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(3)
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The business address of Mr. Liu is Ping An Finance Building, No. 1333 Lujiazui Loop, Pudong District, Shanghai 200120, Peoples Republic of China.
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(4)
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The business address of Ms. Qiu is 8th Floor, Tower B, No. 166 Kaibin Street, Xuhui District, Shanghai 200232, Peoples Republic of China.
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(5)
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The business address of Mr. Liu is No. 115 Lane 572, Bibo Road, Pudong, Shanghai, 201203, Peoples Republic of China.
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(6)
|
Represents Class A ordinary shares in the form of ADSs vested from restricted shares held by Mr. Liu. The business address of Mr. Liu is Floor 3, Building 9, No. 115 Lane 572, Bibo Road, Pudong,
Shanghai, 201203, Peoples Republic of China.
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(7)
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Represents Class A ordinary shares in the form of ADSs vested from restricted shares held by Mr. Pu. The business address of Mr. Pu is 5/F, Shoukai Plaza No.10 Furong Street, Wangjing, Chaoyang District,
Beijing 100102, Peoples Republic of China.
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(8)
|
Represents Class A ordinary shares in the form of ADSs vested from restricted shares held by Dr. Wang. The business address of Dr. Wang is 502 North Tower, 1 Guanghua Road, Chaoyang District, Beijing,
100020, Peoples Republic of China.
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(9)
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The business address of Mr. Zou is 10th Floor, Tower B, CEC Plaza, No. 3 Dan Ling Street, Haidian District, Beijing 100080, Peoples Republic of China.
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(10)
|
The business address of Mr. Shao is 10th Floor, Tower B, CEC Plaza, No. 3 Dan Ling Street, Haidian District, Beijing 100080, Peoples Republic of China.
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(11)
|
Represents 61,824,328 Class A ordinary shares beneficially owned as of March 31, 2018 and as reported in a Schedule 13D/A filed by Yun Chen Capital Cayman, a Cayman Islands company and a special purpose
vehicle and subsidiary of Ping An Insurance (Group) Company of China, Ltd., a company organized under the laws of the Peoples Republic of China. Ping An Insurance (Group) Company of China, Ltd.s business address is Ping An Finance
Building, No. 1333 Lujiazui Loop, Pudong District, Shanghai 200120, Peoples Republic of China.
|
96
(12)
|
The number of Class A ordinary shares beneficially owned is as of February 13, 2018 as reported in a Schedule 13G/A filed by Kayne Anderson Rudnick Investment Management LLC, or Kayne Anderson, and consists of
8,761,806 Class A ordinary shares represented by American depositary shares. Kayne Anderson is an investment adviser in accordance with
§240.13d-1(b)(1)(ii)(E).
Kayne Andersons business address
is 1800 Avenue of the Stars, 2nd Floor, Los Angeles, CA 90067.
|
To our knowledge, as of March 31, 2018, 55,588,965
Class A ordinary shares were held by one record holder in the United States, which was Deutsche Bank Trust Company Americas, the depositary of our ADS program (excluding 749,007 Class A ordinary shares that are reserved for future grants
under our share incentive plans). No Class B ordinary shares were held by record holders in the United States. 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
Class A ordinary shares in the United States.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of March 31, 2018, Yun Chen owned 52.7% of our total
issued and outstanding ordinary shares. Yun Chen is a wholly owned subsidiary of Ping An Insurance (Group) Company of China, Ltd. As such, we are indirectly controlled by Ping An Insurance (Group) Company of China, Ltd., which beneficially owned
52.7% of the total voting rights in our company.
Please refer to Item 6. Directors, Senior Management and EmployeesE. Share
Ownership.
B.
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Related Party Transactions
|
Contractual Arrangements with Our Variable Interest Entities
PRC laws and regulations currently limit foreign ownership of companies that engage in internet services. We established the
following contractual arrangements by and among the following entities to conduct part of our operations in China:
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|
|
our wholly owned PRC subsidiary, Autohome WFOE, Autohome Information, the shareholders of Autohome Information and two subsidiaries of Autohome Information, namely Chengshi Advertising and Autohome Advertising; and
|
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|
our wholly owned PRC subsidiary, Chezhiying WFOE, Shengtuo Hongyuan, the shareholders of Shengtuo Hongyuan and two subsidiaries of Shengtuo Hongyuan, namely Beijing Autohome Used Car Appraisal Co., Ltd., or Autohome
Used Car Appraisal, and Beijing Autohome Used Car Brokerage Co., Ltd., or Autohome Used Car Brokerage.
|
In September 2016,
the then individual nominee shareholders of Shengtuo Hongyuan and Guangzhou Advertising entered into Equity Interest Purchase Agreements and Debt Transfer and Offset Agreements with Min Lu and Haiyun Lei, pursuant to which the then individual
nominee shareholders transferred all of their equity interests in each of the entities to Min Lu and Haiyun Lei. In March 2017, the then individual nominee shareholders of Autohome Information and Shanghai Advertising entered into Equity Interest
Purchase Agreements and Debt Transfer and Offset Agreements with Min Lu and Haiyun Lei, pursuant to which the then individual nominee shareholders transferred all of their equity interests in each of the entities to Min Lu and Haiyun Lei. Upon the
execution of the above Equity Interest Purchase Agreements and Debt Transfer and Offset Agreements, all contractual arrangements between the then individual nominee shareholders and our wholly owned subsidiaries have been terminated. Autohome WFOE
entered into a series of contractual agreements with (i) Guangzhou Advertising and each of its individual nominee shareholders, (ii) Autohome Information, each of its individual nominee shareholders and two of its subsidiaries, Autohome
Advertising and Chengshi Advertising, and (iii) Shanghai Advertising and each of its individual nominee shareholders in September 2016, March 2017 and March 2017, respectively. Chezhiying WFOE entered into a series of contractual agreements
with Shengtuo Hongyuan, each of its individual nominee shareholders and its two subsidiaries in September 2016. Guangzhou Advertising and Shanghai Advertising are currently not conducting any substantial business and are in the process of
liquidation and dissolution, which are expected to be completed by the end of 2018. During such process, Autohome WFOE has signed the termination agreements with respect to the contractual agreements that it has entered into with Guangzhou
Advertising and Shanghai Advertising and each of their individual nominee shareholders to terminate the contractual arrangements on the date of the issuance of an approval notice for the deregistration of Shanghai Advertising and Guangzhou
Advertising by the competent Bureau of Industry and Commerce in charge of such two entities, respectively.
97
The following is a summary of our current contractual arrangements (i) by and among Autohome
WFOE, Autohome Information and two of its subsidiaries, Autohome Advertising and Chengshi Advertising, and the shareholders of Autohome Information, and (ii) by and among Chezhiying WFOE, Shengtuo Hongyuan and its two subsidiaries, and the
shareholders of Shengtuo Hongyuan. The contractual agreements by and among Autohome WFOE and Shanghai Advertising and its shareholders and the contractual agreements by and among Autohome WFOE and Guangzhou Advertising and its shareholders are
substantially the same as the contractual agreements among Autohome WFOE, Autohome Information and its shareholders.
Agreements that Provide
Effective Control over Autohome Information and Shengtuo Hongyuan
Equity Interest Pledge Agreements
. Pursuant to the
equity interest pledge agreements between Autohome WFOE and each of the two shareholders of Autohome Information entered into in March 2017, each shareholder of Autohome Information pledges to Autohome WFOE all of his or her equity interests in
Autohome Information to secure the performance of such shareholders respective obligations and Autohome Informations obligations under the loan agreements, equity option agreements, and the exclusive technology consulting and service
agreements. See Contractual Agreements with our Variable Interest EntitiesAgreements that Transfer Economic Benefits of Autohome Information and Shengtuo Hongyuan to Us and Contractual Agreements with our Variable
Interest EntitiesAgreements that Provide Us the Options to Purchase the Equity Interests in Autohome Information for a brief description of these obligations. Without Autohome WFOEs consent, shareholders of Autohome Information
shall not create or permit to create any encumbrances on the pledged equity interests in Autohome Information. In the event of default, Autohome WFOE is entitled to request immediate repayment of the outstanding amounts payable under the loan
agreements, the equity option agreements and the exclusive technology consulting and service agreements or to dispose of the pledged equity interests at Autohome WFOEs sole discretion. The equity pledge agreements have an indefinite term and
will terminate after all the secured obligations under these agreements have been satisfied in full or the pledged equity interests have been transferred to Autohome WFOE or its designee.
Pursuant to the equity interest pledge agreements between Autohome WFOE and Autohome Information entered into in September 2016, Autohome
Information pledges to Autohome WFOE all of its equity interests in Chengshi Advertising and Autohome Advertising to secure the performance of its obligations under the equity option agreements and the obligations of Chengshi Advertising and
Autohome Advertising under the exclusive technology consulting and service agreements. These equity interest pledge agreements contain substantially the same terms as the equity interest pledge agreements between Autohome WFOE and the shareholders
of Autohome Information.
In September 2016, Chezhiying WFOE and each of the shareholders of Shengtuo Hongyuan entered into equity
interest pledge agreements. The terms of these agreements are substantially the same as the equity interest pledge agreements between Autohome WFOE and each of the two shareholders of Autohome Information described above. In September 2016,
Chezhiying WFOE and Shengtuo Hongyuan entered into equity interest pledge agreements. The terms of these agreements are substantially the same as the equity interest pledge agreements between Autohome WFOE and Autohome Information. As of the date of
this annual report, we have completed the registration for the equity interest pledge agreements between Autohome WFOE and Autohome Informations individual shareholders, and between Chezhiying WFOE and Shengtuo Hongyuans individual
shareholders.
Power of Attorney
. In September 2016 and in March 2017, Autohome Information and each of the shareholders of
Autohome Information have executed an irrevocable power of attorney appointing Autohome WFOE, or any person designated by Autohome WFOE, as their
attorney-in-fact
to
vote on their behalf at the shareholders meetings of Autohome Advertising and Chengshi Advertising and Autohome Information and to exercise full voting rights as the shareholders of these companies with powers granted under PRC laws and
regulations and the articles of association of each of the above companies, including the rights to appoint directors and management personnel.
98
In September 2016, Shengtuo Hongyuan and each of the shareholders of Shengtuo Hongyuan have
executed an irrevocable power of attorney appointing Chezhiying WFOE, or any person designated by Chezhiying WFOE, as their
attorney-in-fact
to vote on their behalf at
the shareholders meetings of Shengtuo Hongyuans subsidiaries and Shengtuo Hongyuan and to exercise full voting rights as the shareholders of these companies with powers granted under PRC laws and regulations and the articles of
association of each of the above companies, including the rights to appoint directors and management personnel.
Agreements that Transfer Economic
Benefits of Autohome Information and Shengtuo Hongyuan to Us
Exclusive Technology Consulting and Service Agreements
.
Pursuant to the exclusive technology consulting and service agreements entered into between Autohome WFOE and each of Autohome Information, Autohome Advertising and Chengshi Advertising respectively in March 2017, September 2016 and September 2016,
Autohome WFOE has the exclusive right to provide each of these VIEs comprehensive technology and management consulting services. In addition, Autohome WFOE is obligated to provide financing support to each of these VIEs to ensure the cash flow
requirements of the
day-to-day
operations of these VIEs. Each of these VIEs is obligated to pay to Autohome WFOE service fees, which are calculated based on such
VIEs revenues reduced by its VAT and surcharges, operating expenses and an appropriate amount of retained profit that is determined pursuant to our tax planning strategies and relevant tax laws. Such service fees may be adjusted by Autohome
WFOE at Autohome WFOEs sole discretion. Autohome WFOE owns the intellectual properties arising from the performance of these agreements. These agreements have a
30-year
term that can be automatically
extended for another 10 years at the option of Autohome WFOE and can only be terminated by the parties mutual written consent or by Autohome WFOEs prior
30-day
notice at its sole discretion. During
the term of these agreements, these VIEs may not enter into any agreements with third parties for the provision of any technology or management consulting services without prior consent of Autohome WFOE.
In September 2016, Chezhiying WFOE and each of Shengtuo Hongyuan and its two subsidiaries entered into exclusive technology consulting and
service agreements. The terms of these agreements are substantially the same as the exclusive technology consulting and service agreements between Autohome WFOE and each of Autohome Information, Autohome Advertising and Chengshi Advertising
described above.
Autohome WFOE and Chezhiying WFOE recognized service fees from all the VIEs in the amount of RMB365.5 million in
2015, RMB125.8 million in 2016 and RMB414.8 million (US$63.8 million) in 2017 in consideration for services provided to the VIEs.
Loan Agreements
. Pursuant to the loan agreements between Autohome WFOE and each of the two shareholders of Autohome Information
entered into in March 2017, Autohome WFOE granted interest-free loans to these two shareholders of Autohome Information. The loans are to be used solely for the purpose of making capital contributions to the registered capital of Autohome
Information. The term of the loans is indefinite and must be repaid in the manner specified in the agreements upon written notice from Autohome WFOE at any time in Autohome WFOEs sole discretion or upon an event of default by the shareholders
of Autohome Information.
In September 2016, Chezhiying WFOE and each of the shareholders of Shengtuo Hongyuan entered into loan
agreements. The terms of these agreements are substantially the same as the loan agreements between Autohome WFOE and each of the two shareholders of Autohome Information described above.
Agreements that Provide Us the Options to Purchase the Equity Interests in Autohome Information and Shengtuo Hongyuan
Equity Option Agreements
. Pursuant to the equity option agreements among Autohome WFOE, Autohome Information and each of the two
shareholders of Autohome Information entered into in March 2017, each shareholder of Autohome Information jointly and severally grants to Autohome WFOE an option to purchase all or part of his or her equity interests in Autohome Information at a
price equivalent to the lowest price permitted by PRC law. The purchase price is to be offset against the loan repayments under the loan agreements. If there will be additional payments to be made by Autohome Information to these shareholders
required by the PRC law, these shareholders must immediately return the received payments to Autohome WFOE. Autohome WFOE may exercise its option at any time or transfer the rights and obligations under the equity option agreement to any of its
designated parties. The equity option agreements have an indefinite term and will terminate at the earlier of (i) the date on which the equity interests in Autohome Information have been transferred to Autohome WFOE or its designated parties,
or (ii) the unilateral termination by Autohome WFOE.
99
Pursuant to the equity option agreements among Autohome WFOE, Autohome Information and two of
Autohome Informations subsidiaries, namely Autohome Advertising and Chengshi Advertising, entered into in September 2016, Autohome Information granted Autohome WFOE or its designated parties an option to purchase all or part of Autohome
Informations equity interests in these Autohome Information subsidiaries at a price equivalent to the lowest price permitted by PRC law. Autohome WFOE may exercise its option at any time. The equity option agreements have an indefinite term
and will terminate at the earlier of (i) the date on which all of Autohome Informations equity interests in these subsidiaries have been transferred to Autohome WFOE or its designated parties, or (ii) the unilateral termination by
Autohome WFOE.
In September 2016, Chezhiying WFOE, Shengtuo Hongyuan and each of the shareholders of Shengtuo Hongyuan entered into
equity option agreements. The terms of these agreements are substantially the same as the equity option agreements among Autohome WFOE, Autohome Information and each of the two shareholders of Autohome Information described above. In September 2016,
Chezhiying WFOE, Shengtuo Hongyuan and each of the two subsidiaries of Shengtuo Hongyuan entered into equity option agreements. The terms of these agreements are substantially the same as the equity option agreements among Autohome WFOE, Autohome
Information and each of Autohome Advertising and Chengshi Advertising.
Transactions with Entities Affiliated with Our Shareholders
Since Ping An Group became our controlling shareholder, it provided services including rental and property management service and other
miscellaneous services to us for a total amount of RMB21.6 million in 2016 and RMB55.2 million (US$8.5 million) in 2017, respectively.
We earned service fees primarily for facilitating transactions for Ping An Group or its affiliates on our platform and providing advertising
services to Ping An Group for a total amount of RMB21.2 million (US$3.3 million) in 2017.
Since Ping An Group became our controlling
shareholder, we and a subsidiary of Ping An Group entered into a sales contract under which we sold vehicles to the latter for a total amount of RMB21.9 million in 2016. The outstanding receivable was collected in full as of December 31,
2016.
Investors Rights Agreements
We entered into an investors rights agreement with Yun Chen on September 30, 2016. Under this investors rights agreement, so
long as Yun Chen holds at least 20% of our issued and outstanding shares, (i) we must permit Yun Chen and its designated representatives, at their own cost and expense, at reasonable times and upon reasonable prior notice to us, to review our
books and records and to discuss our financial condition with our officers; and (ii) we must provide to Yun Chen our financial statements stated in the investors rights agreement so long as its external auditor considers it to be
necessary to consolidate our financial statements into Yun Chens financial statements in accordance with the PRC accounting standards.
Employment Agreements
See Item 6.
Directors, Senior Management and EmployeesB. Compensation of Directors and Executive OfficersEmployment Agreements for a description of the employment agreements we have entered into with our senior executive officers.
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Share Incentive Plans
See Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors and Executive Officers for a description
of share-based compensation awards we have granted to our directors, officers and other individuals as a group.
See Note 12 to our
financial statements for further information about our related party transactions.
C.
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Interests of Experts and Counsel
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Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
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Consolidated Statements and Other Financial Information
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We have appended
consolidated financial statements filed as part of this annual report.
Legal Proceedings
From time to time, we may be subject to various claims and legal actions that arise in the ordinary course of our business. There are currently
no legal proceedings that, in the opinion of our management, may have a material adverse effect on our business and results of operations.
Dividend
Policy
Our board of directors has complete discretion to declare dividends. Even if our board of directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
Our board of directors declared dividends of RMB49.9 million and RMB249.2 million in February 2012 and May 2013, respectively, to
all of our shareholders. The dividends, net of applicable withholding taxes, were paid in April 2012 and June and July 2013, respectively. In November 2017, our board of directors declared a special cash dividend to the holders of our ordinary
shares of record as of the close of business on January 4, 2018, or the Record Date. We paid a cash dividend of US$0.76 per share (inclusive of applicable fees payable to our depositary bank) on or about January 15, 2018 to the holders of
our ordinary shares as of the Record Date. Our board of directors decides the timing, amount and form of any future dividends, if any, based on, among other things, our future results of operations and cash flow, our capital requirements and
surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. We do not have any plan to pay additional cash
dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our remaining available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China 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. Information on the CompanyB. Business OverviewPRC
RegulationRegulations on Dividend Distribution.
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. Description of Securities other than Equity SecuritiesD. American Depositary Shares.
Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
101
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.
ITEM 9. THE OFFER AND LISTING
A.
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Offering and Listing Details
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See C. Markets.
Not applicable.
Our ADSs, each representing one Class A ordinary share, have been
listed on the NYSE since December 2013 and trade under the symbol ATHM. The following table provides the high and low trading prices for our ADSs on the NYSE for the periods indicated.
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Trading Price
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High
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Low
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US$
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US$
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Annual High and Low
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Fiscal Year 2013 (from December 11, 2013)
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37.88
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26.51
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Fiscal Year 2014
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57.93
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28.50
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Fiscal Year 2015
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56.59
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28.00
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Fiscal Year 2016
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33.70
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19.32
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Fiscal Year 2017
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67.69
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25.00
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Quarterly Highs and Lows
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First Fiscal Quarter of 2016
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33.70
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21.53
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Second Fiscal Quarter of 2016
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32.15
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20.08
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Third Fiscal Quarter of 2016
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27.20
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19.32
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Fourth Fiscal Quarter of 2016
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28.88
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22.07
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First Fiscal Quarter of 2017
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36.01
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25.00
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Second Fiscal Quarter of 2017
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46.48
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28.63
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Third Fiscal Quarter of 2017
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67.69
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44.34
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Fourth Fiscal Quarter of 2017
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66.45
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52.93
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First Fiscal Quarter of 2018
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92.65
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65.35
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Monthly Highs and Lows
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October 2017
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62.69
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54.67
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November 2017
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66.45
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53.43
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December 2017
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65.57
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52.93
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January 2018
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86.86
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65.35
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February 2018
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86.50
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70.51
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March 2018
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92.65
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73.20
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April 2018 (through April 12)
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97.59
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79.01
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Not applicable.
Not applicable.
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Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
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 of the Cayman Islands, referred to as the Companies Law below. The following are summaries of certain provisions of our memorandum and articles of association
in effect as of the date of this annual report insofar as they relate to the material terms of our ordinary shares.
Registered Office and Objects
Our registered office in the Cayman Islands is located at 2nd Floor Harbour Center 42 North Church Street George Town, Grand Cayman,
Cayman Islands. The memorandum of association provides,
inter alia
, that the liability of the shareholders of our company is limited to the amount, if any, for the time being unpaid on the ordinary shares. The objects for which our company is
established are unrestricted (including acting as an investment company), and we shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of corporate benefit, as provided in section 27(2) of the
Companies Law and in view of the fact that we are an exempted Company, we will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of our business carried on outside the Cayman Islands.
Board of Directors
See Item 6.
Directors, Senior Management and EmployeesC. Board PracticesDuties of Directors and Terms of Directors and Officers.
Ordinary Shares
General
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares
and Class B ordinary shares will have the same rights except for voting and conversion rights. All of our outstanding ordinary shares, which consist of Class A ordinary shares, are fully paid and
non-assessable.
Certificates representing the Class A ordinary shares are issued in registered form. Our shareholders who are
non-residents
of the Cayman Islands
may freely hold and transfer their Class A ordinary shares.
Class Rights of our Class A and Class B Ordinary Shares
Subject to our fourth memorandum and articles of association and any resolution of the shareholders to the contrary and without
prejudice to any special rights conferred thereby on the holders of any other shares or class of shares, the Class A ordinary shares and Class B ordinary shares carry equal rights and rank
pari passu
with one another other than as
set out below.
Conversion
Subject
to the provisions of our fourth amended and restated memorandum and articles of association and in compliance with all fiscal and other laws and regulations applicable thereto, a holder of Class B ordinary shares shall have the right to convert
all or any of its Class B ordinary shares into Class A ordinary shares on a
one-for-one
basis. We previously had Class B ordinary shares held by Telstra.
As a result of the sale by Telstra to Yun Chen in June 2016, all of our then outstanding Class B ordinary shares were converted into Class A ordinary shares. As of the date of this annual report, we do not have any Class B ordinary
shares outstanding.
103
A holder of Class A ordinary shares has no rights of conversion in respect of each such
Class A ordinary share into Class B ordinary shares.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by us in general meeting or by our board of directors
subject to the Companies Law and to the fourth amended and restated memorandum and articles of association.
Voting Rights
Subject to any special rights or restrictions as to voting for the time being attached to any shares, at any general meeting every holder of
Class A ordinary shares who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) shall have one vote on a show of hands, and on a poll every shareholder holding
Class A ordinary shares present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly appointed representative) shall have one vote for each fully paid Class A ordinary share of which such shareholder is
the holder. As a result of the sale by Telstra to Yun Chen in June 2016, all of our then outstanding Class B ordinary shares were converted into Class A ordinary shares.
A quorum required for a meeting of shareholders consists of two shareholders entitled to vote and present in person or by proxy or, if a
corporation or other
non-natural
person, by its duly authorized representative holding at least one third of the voting rights represented by the issued and outstanding ordinary shares throughout the meeting.
We may, but are not obligated to, hold a general meeting in each year as our annual general meeting. The annual general meeting shall be held at such time and place as may be determined by the directors. Each general meeting, other than an annual
general meeting, shall be an extraordinary general meeting. A majority of our board of directors or our chairman may call extraordinary general meetings. Advance notice of at least ten clear days is required for the convening of our annual general
meeting and other shareholders meetings. The agenda of any extraordinary general meeting will be set by a majority of the directors then in office.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the
ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of at least
two-thirds
of the votes cast attaching to the outstanding ordinary shares. A special resolution
will be required for important matters such as a change of name or making changes to our fourth amended and restated memorandum and articles of association.
Transfer of Ordinary Shares
Subject to the restrictions of our fourth amended and restated memorandum and articles of association, as applicable, 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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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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the instrument of transfer is in respect of only one class of ordinary shares;
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the instrument of transfer is properly stamped, if required; and
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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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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 Designated Stock Exchange (as defined in the fourth amended and restated memorandum and articles of association), be suspended and the register closed at such times and for such periods as our board of directors may from time
to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.
Liquidation
On a return of
capital on winding up or otherwise (other than on conversion, redemption or purchase of 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. The amount received by holders of Class A ordinary shares and Class B ordinary shares should be the same in any liquidation event. 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.
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 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
Subject to the provisions of the Companies Law, we may repurchase or redeem shares 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 varied
with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking
pari passu
with such existing class of shares.
General Meetings of Shareholders
Shareholders meetings may be convened by a majority of our board of directors or our chairman. Advance notice of at least ten clear days
is required for the convening of our annual general shareholders meeting and any other general meeting of our shareholders. In addition, general meetings will also be convened on the requisition in writing of any shareholder or shareholders
entitled to attend and vote at our general meetings holding at least one third of the voting rights represented by our issued voting shares.
Appointment of Directors
Our
shareholders may by ordinary resolution elect any person to fill a casual vacancy or as an addition to the existing board.
105
The directors will also have the power from time to time and at any time to appoint any person as
a director to fill a casual vacancy on the board or as an addition to the existing board.
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 allow our shareholders to inspect our register of members and provide our shareholders with annual audited financial statements.
Pursuant to the investors rights agreement we have with the Yun Chen and other shareholders, Yun Chen has the right to access our books
and records so long as it holds in aggregate at least 20% of our issued and outstanding share capital.
Issuance of Additional Preferred Shares
Our fourth amended and restated 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 fourth
amended and restated memorandum of association 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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the number of shares of the series;
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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.
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Our board of directors may
issue preferred shares without action by our shareholders to the extent authorized but unissued. The issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of these shares
may dilute the voting rights of holders of ordinary shares.
We have not entered into any material contracts other than in
the ordinary course of business and other than those described elsewhere in Item 4. Information on the CompanyB. Business Overview, Item 7. Major Shareholders and Related Party TransactionsB. Related Party
Transactions, or elsewhere in this annual report.
See Item 4. Information on the CompanyB. Business
OverviewPRC RegulationRegulations on Foreign Exchange.
106
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to holders of ADSs or Class A ordinary shares. The Cayman Islands is not party to
any double tax treaties, except for a double tax treaty entered into with the United Kingdom in 2010. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (2018 Revision) of the Cayman Islands, we have obtained an undertaking from the
Governor-in-Cabinet:
(a) that no law which is enacted in the
Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and
(b)
that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations.
The undertaking for us is for a period of 20 years from July 22, 2008.
Peoples Republic of China Taxation
We are a holding company incorporated in the Cayman Islands, which indirectly holds Autohome WFOE, Chezhiying WFOE and other subsidiaries in
the PRC. Our business operations are principally conducted through our PRC subsidiaries and VIEs. Although we believe we are not a PRC resident enterprise for enterprise income tax purposes, substantial uncertainty exists. In the event that our
company or any of our offshore entities, is considered to be a PRC resident enterprise: (a) our company or our offshore entities, as the case may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income; and
(b) dividend income that our company or our offshore entities, as the case may be, receives from our PRC subsidiaries would be exempt from the PRC withholding tax since such income is exempted under the Enterprise Income Tax Law for PRC
resident enterprise; and (c) any dividends we pay to our
non-PRC
shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs may be
regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%, subject to reduction or exemption by an applicable treaty. See Item 3. Key InformationD. Risk FactorsRisks Related to
Doing Business in ChinaOur global income and the dividends that we may receive from our PRC subsidiaries, dividends distributed to our
non-PRC
shareholders and ADS holders, and gains recognized by such
shareholders or ADS holders, may be subject to PRC taxes under the Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.
As uncertainties remain regarding the interpretation and implementation of the Enterprise Income Tax Law and its implementation rules, we
cannot assure you that, if we are deemed a PRC resident enterprise, any dividends to be distributed by us to our
non-PRC
shareholders and ADS holders would not be subject to any PRC withholding tax. See
Item 3. Key InformationD. Risk FactorsRisks Related to Doing Business in ChinaOur global income and the dividends that we may receive from our PRC subsidiaries, dividends distributed to our
non-PRC
shareholders and ADS holders, and gains recognized by such shareholders or ADS holders, may be subject to PRC taxes under the Enterprise Income Tax Law, which would have a material adverse effect on
our results of operations.
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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 Class A ordinary shares by U.S. Holders (as defined below) that will hold ADSs or Class A 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 applicable provisions of the Code, Treasury regulations (proposed, temporary and final) promulgated thereunder, pertinent judicial decisions, interpretive rulings of the Internal Revenue
Service and such other authorities as we have considered relevant, which are subject to change, possibly with retroactive effect. 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 investment circumstances, including investors subject to special tax rules (for example, certain financial institutions, insurance companies, broker-dealers, pension plans, regulated investment
companies, real estate investment trusts, cooperatives, and
tax-exempt
organizations (including private foundations), holders who are not U.S. Holders, holders who own (directly, indirectly, or constructively)
10% or more of our stock, investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United States federal income tax purposes, investors that
are traders in securities that have elected the
mark-to-market
method of accounting, or investors that have a functional currency other than the United States dollar),
all of whom may be subject to tax rules that differ significantly from those discussed below. In addition, this discussion does not address United States federal estate, gift, Medicare, and alternative minimum tax considerations, or any
non-United
States, state, or local tax considerations. Each U.S. Holder is urged to consult its tax advisors regarding the United States federal, state, local, and
non-United
States income and other tax considerations of an investment in ADSs or Class A ordinary shares.
General
For purposes of this summary, a U.S. Holder is a beneficial owner of our ADSs or Class A 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, or treated as such for United States federal income tax purposes, (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 validly 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
Class A ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner of a partnership holding our ADSs or
Class A ordinary shares, the U.S. Holder is urged to consult its tax advisors regarding an investment in our ADSs or Class A 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 Class A 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 a PFIC), for United States federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of passive income or (ii) 50% or
more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the asset test). Passive income generally includes dividends, interest,
royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash is categorized as a passive asset and the companys goodwill and other unbooked
intangibles associated with active business activity are taken into account as
non-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.
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Although the law in this regard is unclear, we treat our VIEs 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 results
of operation in our consolidated financial statements. If it were determined, however, that we are not the owner of our VIEs for United States federal income tax purposes, we would likely be treated as a PFIC for our current and any subsequent
taxable year.
Furthermore, the determination of whether we will be or become a PFIC will depend, 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. 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.
Assuming we are the owner of our VIEs for U.S. federal income tax purposes, we believe that we primarily operate as an active provider of
online automotive advertising solutions in China. Based on our current income and assets, we do not believe that we were a PFIC for the taxable year ended December 31, 2017 and do not anticipate becoming a PFIC in future taxable years. While we
do not believe that we were a PFIC for the taxable year ended December 31, 2017 and do not anticipate becoming a PFIC for the current taxable year or the foreseeable future, no assurance can be given in this regard. Because the determination of
whether we will be or become a PFIC is a fact-intensive inquiry made on an annual basis, the determination of whether we will be or become a PFIC will depend, in part, upon the value of our goodwill and other unbooked intangibles (which will depend
upon the market value 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. It is also possible that the Internal Revenue Service may challenge our classification or valuation of our goodwill and other
unbooked intangibles, which may result in our company being or becoming a PFIC for the current taxable year or foreseeable future.
If we
are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, the PFIC tax rules discussed below under Passive Foreign Investment Company Rules generally will apply to such U.S.
Holder for such taxable year and, unless the U.S. Holder makes certain elections, will apply in future years even if we cease to be a PFIC in subsequent years. The discussion below under Dividends and Sale or Other Disposition of
ADSs or Class A Ordinary Shares is written on the basis that we will not be classified as a PFIC for United States federal income tax purposes.
Dividends
Any cash distributions
(including the amount of any PRC tax withheld, if any) paid on ADSs or Class A ordinary shares out of our 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 Class A 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, any distribution paid will generally be treated as a dividend for United States federal income tax purposes.
Non-corporate
U.S.
Holders receiving dividend income generally will be subject to tax on such 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) generally will be considered to be a qualified foreign corporation (i) 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, or (ii) if it is eligible for the benefits of a comprehensive tax treaty with the United States that the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and that
includes an exchange of information program. Our ADSs are listed on the NYSE, 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 such exchange. 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.
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Since we do not expect that our Class A ordinary shares 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 requirements for the reduced tax rate. However, in the event that we are deemed to be a PRC resident enterprise under the
Enterprise Income Tax Law (see Peoples Republic of China Taxation), we may be eligible for the benefits of the United
States-PRC
income tax treaty, which the United States Treasury Department
has determined is satisfactory for this purpose, and be treated as a qualified foreign corporation with respect to dividends paid on our ADSs or Class A ordinary shares. Dividends received on our ADSs or Class A ordinary shares will not be
eligible for the dividends-received deduction allowed to corporations. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate applicable to qualified dividend income for any dividends we pay with
respect to our ADSs or Class A ordinary shares.
Dividends generally will be treated as income from foreign sources for United States
foreign tax credit purposes. In the event that we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs or Class A 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 ADSs or Class A 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 taxes, 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 and 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 Class A Ordinary Shares
A U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in an
amount equal to the difference between the amount realized upon the disposition and the holders adjusted tax basis in such ADSs or Class A ordinary shares. Any capital gain or loss will be long-term gain or loss if the ADSs or
Class A ordinary shares have been held for more than one year and will generally be United States-source gain or loss for United States foreign tax credit purposes. Long-term capital gain of
non-corporate
U.S. Holders is generally eligible for reduced rates of taxation. In the event that gain from the disposition of the ADSs or Class A ordinary shares is subject to tax in the PRC, a U.S. Holder that is eligible for the benefits of the United
States-PRC
income tax treaty may elect to treat the gain as
PRC-source
income. 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 Class A 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 Class A ordinary shares, and unless the
U.S. Holder makes a
mark-to-market
election with respect to ADSs (as described below), the U.S. Holder will generally 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 that is greater than 125% of the average annual
distributions paid in the three preceding taxable years or, if shorter, the U.S. Holders holding period for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition, including a pledge, under
certain circumstances, of ADSs or Class A ordinary shares. Under these PFIC rules:
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the U.S. Holders excess distribution or gain will be allocated ratably over the U.S. Holders holding period for the ADSs or Class A ordinary shares;
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the amount allocated to the current taxable year and any taxable years in the U.S. Holders 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 a
pre-PFIC
year, will be subject to tax at the highest tax rate in effect applicable to individuals or corporations, as
appropriate, for that year;
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an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable 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 Class A ordinary shares and any of our
non-United
States subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by
value) of the shares of the lower-tier PFIC and would be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though such U.S. Holder would not receive the proceeds
of those distributions or dispositions. U.S. Holders are urged to consult their 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 NYSE. We anticipate that the ADSs should qualify as being regularly traded, but no assurances may be given
in this regard. If a U.S. Holder makes this election, the U.S. Holder will generally (i) include as ordinary income for each taxable year 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 such ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will be allowed only to the
extent of the amount previously included in income as a result of the
mark-to-market
election. The U.S. Holders adjusted tax basis in the ADSs would be adjusted to
reflect any income or loss resulting from the
mark-to-market
election. If a U.S. Holder makes a
mark-to-market
election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to
take into account the gain or loss described above during any year that such corporation is not classified as a PFIC. If a U.S. Holder makes a
mark-to-market
election,
any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to
the extent of the net amount previously included in income as a result of the
mark-to-market
election. In the case of a U.S. Holder who has held ADSs or Class A
ordinary shares during any taxable year in respect of which we were classified as a PFIC and continues to hold such ADSs or Class A ordinary shares (or any portion thereof) and has not previously made a
mark-to-market
election, and if such U.S. Holder makes a
mark-to-market
election, special tax rules may apply relating to
purging the PFIC taint of such ADSs or Class A ordinary shares.
Because, as a technical matter, a
mark-to-market
election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us
that are treated as an equity interest in a PFIC for United States federal income tax purposes.
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.
Dividends that we pay on our ADSs or Class A ordinary shares will not be eligible for the reduced tax rate that applies to qualified
dividend income discussed above under Dividends if we are classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. If a U.S. Holder owns our ADSs or Class A ordinary shares during any
taxable year that we are a PFIC, the U.S. Holder must generally file an annual report with the Internal Revenue Service, 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 of our ADSs or Class A ordinary shares if we are or become a PFIC, including filing requirements, the possibility of making a
mark-to-market
election and the unavailability of the qualifying electing fund election.
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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 (including an exception for shares held in custodial accounts maintained with a U.S. financial institution). 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, dividend payments with respect to
our ADSs or Class A ordinary shares and proceeds from the sale or other disposition of our ADSs or Class A ordinary shares may be subject to information reporting to the Internal Revenue Service. U.S. Holders are urged to consult their tax
advisors regarding the application of the United States information reporting rules to their particular circumstances.
F.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
We previously filed with the SEC registration statements on
Form
F-1
under the Securities Act with respect to our initial public offering and our
follow-on
offering of our Class A ordinary shares represented by ADSs.
We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, or the Exchange Act.
Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form
20-F
within four months after the end of each fiscal year,
which is December 31. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. Copies of reports
and other information, when filed, may also be inspected without charge, and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain
information regarding the Washington, D.C. Public Reference Room by calling the SEC at
1-800-SEC-0330.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act.
We will furnish Deutsche Bank Trust Company Americas, 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 NYSE Rule 203.01, we will
post this annual report on our website http://ir.autohome.com.cn. In addition, we will provide hardcopies of our annual report to shareholders, including ADS holders, free of charge upon request.
I.
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Subsidiary Information
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Not applicable.
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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, and adjustable-rate short-term investments. 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. Based on our interest
earning instruments during the year ended December 31, 2017, a 10% change in the interest rates would result in an increase or decrease of RMB22.0 million (US$3.4 million) of our total amount of interest income for 2017. However, our
future interest income may fluctuate due to changes in market interest rates. See Item 5.B. Operating and Financial Review and ProspectsLiquidity and Capital Resources.
Foreign Exchange Risk
We earn
substantially all of our revenues and incur most of our expenses in RMB, and substantially all of our sales contracts are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not used any
derivative financial instruments to hedge our exposure to such risk. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S.
dollar and the RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars. Based on the amount of our cash and cash equivalents and short-term investments as of December 31, 2017, a
1.0% change in the exchange rate between the Renminbi and the U.S. dollar would result in an increase or decrease of approximately US$1.4 million to our cash and cash equivalents and short-term investments.
Significant revaluation of RMB against U.S. dollar may materially affect our earnings and financial position, the conversion of RMB into
foreign currencies, including U.S. dollars, is based on rates set by the PBOC. In July 2005, the PRC government changed its
decades-old
policy of pegging the value of the RMB to the U.S. dollar, and the RMB
appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the
RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund completed the regular five-year review of the basket of currencies that make up
the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the
Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. In 2017, the RMB has appreciated significantly in the
backdrop of a weak U.S. dollar, robust Chinese economy in 2017 and stringent foreign exchange regulation. With the development of the foreign exchange market and progress towards interest rate liberalization and RMB internationalization, the PRC
government may in the future announce further changes to the exchange rate system. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes,
appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our
ordinary shares or ADSs, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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Not applicable.
Not applicable.
D.
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American Depositary Shares
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Fees and Charges Our ADS Holders May Have to Pay
Deutsche Bank Trust Company Americas, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from
investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The principal executive office of the depositary is located at 60 Wall Street, New York, NY 1005, USA. As an ADS holder, you will
be required to pay the following service fees to the depositary bank:
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Service
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Fees
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Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
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Up to US$0.05 per ADS issued
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Cancellation of ADSs, including in the case of termination of the deposit agreement
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Up to US$0.05 per ADS cancelled
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Distribution of cash dividends or other cash distributions
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Up to US$0.05 per ADS held
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Distribution of ADSs pursuant to share dividends, free share distributions or exercise of rights
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Up to US$0.05 per ADS held
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Distribution of securities other than ADSs or rights to purchase additional ADSs
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A fee equivalent to the fee that would be payable if securities distributed to you had been Class A ordinary shares and the Class A ordinary shares had been deposited for issuance of ADSs
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Depositary services
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Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank
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Transfer of ADRs
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US$1.50 per certificate presented for transfer
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As an ADS holder, you will also be responsible for paying certain fees and expenses incurred by the depositary
bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:
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Fees for the transfer and registration of Class A ordinary shares charged by the registrar and transfer agent for the Class A ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of
Class A ordinary shares).
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Expenses incurred for converting foreign currency into U.S. dollars.
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Expenses for cable, telex and fax transmissions and for delivery of securities.
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Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when Class A ordinary shares are deposited or withdrawn from deposit).
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Fees and expenses incurred in connection with the delivery or servicing of Class A ordinary shares on deposit.
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Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to Class A ordinary shares, deposited securities, ADSs and ADRs.
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Any applicable fees and penalties thereon.
|
The depositary fees payable upon the issuance and
cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary
bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the
holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted
from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date
holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In
the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians
holding ADSs in their DTC accounts. The brokers and custodians who hold their clients ADSs in DTC accounts in turn charge their clients accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested
service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
Fees and Other
Payments Made by the Depositary to Us
Our depositary has agreed to reimburse us for a portion of certain expenses we incur that are
related to establishment and maintenance of the ADR program, including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related
to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs. Neither we nor the depositary can determine the exact amount to be made
available to us because (i) the number of ADSs that will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and (iii) our reimbursable expenses related to the program are not known at this time.
In 2017, we have received from the depositary a reimbursement of approximately US$0.5 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
Autohome Inc., formerly known as Sequel Limited (the Company), was
incorporated under the laws of the Cayman Islands on June 23, 2008. Upon incorporation, the Company was 100% owned by Telstra Holdings Pty Ltd. (Telstra). On June 27, 2008 (the Acquisition date), the Company
acquired Cheerbright International Holdings Limited (Cheerbright), China Topside Co., Ltd. (China Topside), and Norstar Advertising Media Holdings Co., Ltd. (Norstar), and their respective wholly foreign-owned
enterprises and variable interest entities (VIEs). Subsequent to the acquisition, the Company was owned 55% by Telstra, and 45% by the selling shareholders of Cheerbright, China Topside and Norstar. In May 2012, Telstra acquired
additional ordinary shares of the Company from other shareholders. In June 2016, Telstra completed the sale of approximately 47.4% of the total issued shares in the Company to Ping An Insurance (Group) Company of China Ltd. (Ping An) and
on February 22, 2017, Ping An further acquired from Telstra approximately 6.5% of the total issued shares in the Company. After the consummation of the sale, Ping An became the Companys controlling shareholder.
The Company successfully completed its IPO and listing of 8,993,000 American Depositary Shares (ADSs) on the New York Stock Exchange in December,
2013, and raised net proceeds of US$142,590 from the offering. Each ADS represents one ordinary share. Upon the completion of IPO in December, 2013, the Companys dual-class ordinary share structure came into effect (Note 15). Upon the
completion of follow-on offering in November 2014, 2,424,801 ADSs were issued by the Company and 6,964,612 Class B ordinary shares were converted into Class A ordinary shares. The net proceeds from the follow-on offering amounted to US$97,344
net of issuance cost. Upon the transfer of 47.4% share ownership by Telstra to Ping An in June 2016, all the Class B ordinary shares were converted into Class A ordinary shares. As of December 31, 2017, the Company had ordinary shares
outstanding, all comprised of 117,140,856 Class A ordinary shares. Ping An became the Companys controlling shareholder holding 52.8% of the total equity interest and voting rights, respectively in the Company as of December 31, 2017.
The Company, through its subsidiaries and VIEs (as disclosed in the table below), is engaged in the provision of media services, leads generation
services and online marketplace in the Peoples Republic of China (the PRC).
As of December 31, 2017, the Companys principal
subsidiaries and VIEs where Autohome WFOE and Chezhiying WFOE are the primary beneficiaries include the following entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
Date of
incorporation or
acquisition
|
|
|
Place of incorporation
|
|
|
Percentage of
direct
ownership by
the Company
|
|
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
Cheerbright International Holdings, Limited (Cheerbright)
|
|
|
June 13, 2006
|
|
|
|
British Virgin Islands
|
|
|
|
100
|
%
|
Autohome E-commerce Inc.
|
|
|
February 6, 2015
|
|
|
|
Cayman Islands
|
|
|
|
100
|
%
|
Autohome Link Inc.
|
|
|
January 29, 2015
|
|
|
|
Cayman Islands
|
|
|
|
100
|
%
|
Autohome Financing Limited
|
|
|
March 23, 2015
|
|
|
|
Cayman Islands
|
|
|
|
100
|
%
|
Autohome (Hong Kong) Limited (Autohome HK)
|
|
|
March 16, 2012
|
|
|
|
Hong Kong
|
|
|
|
100
|
%
|
Autohome Media Limited (Autohome Media, formerly known as Prbrownies Marketing
Limited)
|
|
|
October 18, 2013
|
|
|
|
Hong Kong
|
|
|
|
100
|
%
|
Autohome E-commerce Hong Kong Limited
|
|
|
February 18, 2015
|
|
|
|
Hong Kong
|
|
|
|
100
|
%
|
Autohome Link Hong Kong Limited
|
|
|
February 16, 2015
|
|
|
|
Hong Kong
|
|
|
|
100
|
%
|
Autohome Financing Hong Kong Limited
|
|
|
April 15, 2015
|
|
|
|
Hong Kong
|
|
|
|
100
|
%
|
Beijing Cheerbright Technologies Co., Ltd. (Autohome WFOE)
|
|
|
September 1, 2006
|
|
|
|
PRC
|
|
|
|
100
|
%
|
Autohome Shanghai Advertising Co., Ltd.
|
|
|
September 29, 2013
|
|
|
|
PRC
|
|
|
|
100
|
%
|
Beijing Prbrownies Software Co., Ltd. (formerly known as Beijing Autohome Software Co.,
Ltd.)
|
|
|
November 12, 2013
|
|
|
|
PRC
|
|
|
|
100
|
%
|
F-10
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
1.
|
ORGANIZATION (CONTINUED)
|
|
|
|
|
|
|
|
|
|
Entity
|
|
Date of
incorporation or
acquisition
|
|
Place of incorporation
|
|
Percentage of
direct
ownership by
the Company
|
|
Beijing Autohome Technologies Co., Ltd.
|
|
November 12, 2013
|
|
PRC
|
|
|
100
|
%
|
Beijing Autohome Advertising Co., Ltd.
|
|
November 13, 2013
|
|
PRC
|
|
|
100
|
%
|
Guangzhou Autohome Advertising Co., Ltd.
|
|
November 25, 2013
|
|
PRC
|
|
|
100
|
%
|
Autohome (Tianjin) Automobile Sales Co., Ltd.
|
|
October 20, 2014
|
|
PRC
|
|
|
100
|
%
|
Beijing Chezhiying Technology Co., Ltd.(Chezhiying WFOE)
|
|
May 26, 2015
|
|
PRC
|
|
|
100
|
%
|
Beijing Chezhiying Software Co., Ltd.(Chezhiying Software)
|
|
December 9, 2015
|
|
PRC
|
|
|
100
|
%
|
Beijing Kemoshijie Technology Co., Ltd.
|
|
September 11, 2015
|
|
PRC
|
|
|
100
|
%
|
Beijing Haochezhijia E-commerce Co., Ltd.
|
|
April 25, 2016
|
|
PRC
|
|
|
75
|
%
|
Huaian Prbrownies Software Co., Ltd.
|
|
September 13, 2016
|
|
PRC
|
|
|
100
|
%
|
Chengdu Prbrownies Software Co., Ltd.
|
|
September 30, 2016
|
|
PRC
|
|
|
100
|
%
|
VIEs
|
|
|
|
|
|
|
|
|
Beijing Autohome Information Technology Co., Ltd. (Autohome Information)
|
|
August 28, 2006
|
|
PRC
|
|
|
|
|
Beijing Shengtuo Autohome Advertising Co., Ltd.
|
|
September 21, 2010
|
|
PRC
|
|
|
|
|
Beijing Shengtuo Hongyuan Information Technology Co., Ltd. (Shengtuo
Hongyuan)
|
|
November 8, 2010
|
|
PRC
|
|
|
|
|
Beijing Shengtuo Chengshi Advertising Co., Ltd.
|
|
November 12, 2010
|
|
PRC
|
|
|
|
|
Shanghai You Che You Jia Advertising Co., Ltd. (Shanghai Advertising)
|
|
December 31, 2011
|
|
PRC
|
|
|
|
|
Guangzhou You Che You Jia Advertising Co., Ltd. (Guangzhou Advertising)
|
|
May 8, 2012
|
|
PRC
|
|
|
|
|
Beijing Autohome Used Car Appraisal Co., Ltd.
|
|
January 30, 2015
|
|
PRC
|
|
|
|
|
Beijing Autohome Used Car Brokerage Co., Ltd.
|
|
June 10, 2015
|
|
PRC
|
|
|
|
|
Shanghai Tianhe Insurance Brokerage Co., Ltd.
|
|
September 21, 2017
|
|
PRC
|
|
|
|
|
The Company, its subsidiaries and VIEs are hereinafter collectively referred to as the Group. The Group provides
media services, leads generation services and online marketplace through its websites and mobile applications. These services are offered to automakers and dealers, and advertising agencies that represent automakers and dealers in the automobile
industry, and financial institutions. The Groups principal geographic market is in the PRC. The Company does not conduct any substantive operations of its own but conducts its primary business operations through its wholly-owned subsidiaries
and VIEs in the PRC.
PRC laws and regulations prohibit or restrict foreign ownership of internet content businesses. To comply with these foreign
ownership restrictions, the Company and its subsidiaries operate websites and mobile applications and conduct its business related to internet content services through VIEs. The paid-in capital of the VIEs was funded by the Companys PRC
subsidiaries, Autohome WFOE and Chezhiying WFOE, through loans extended to the VIEs shareholders (Nominee Shareholders). The effective control of the VIEs is held by WFOEs, through a series of contractual agreements (the
Contractual Agreements). As a result of the Contractual Agreements, the WFOEs maintain the ability to control the VIEs, are entitled to substantially all of the economic benefits from the VIEs and are obligated to absorb all of the
VIEs expected losses.
F-11
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
1.
|
ORGANIZATION (CONTINUED)
|
In September 2016 and March 2017, the then individual nominee shareholders of Shengtuo Hongyuan, Guangzhou
Advertising, Autohome Information and Shanghai Advertising, entered into Equity Interest Purchase Agreements and Debt Transfer and Offset Agreements with Min Lu and Haiyun Lei, pursuant to which the then individual nominee shareholders transferred
all of their equity interest in each of the entities to Min Lu and Haiyun Lei. In September 2016 and in March 2017, each of Autohome WFOE and Chezhiying WFOE, and each of Shengtuo Hongyuan and its two subsidiaries, Guangzhou Advertising, Autohome
Information and its two subsidiaries and Shanghai Advertising, and each of Min Lu and Haiyun Lei, as the individual nominee shareholder of VIEs, entered into contractual agreements.
Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Company and the VIEs through the irrevocable power
of attorney agreement, whereby the Nominee Shareholders effectively assigned all of their voting rights underlying their equity interest in the VIEs to the WFOEs. In addition, through the Contractual Agreements the Company demonstrates its ability
and intention to continue to exercise the ability to absorb substantially all of the expected losses and majority of the profits of the VIEs through the WFOEs.
Thus, the Company is also considered the primary beneficiary of the VIEs through the WFOEs. As a result of the above, the Company consolidates the VIEs in
accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (ASC) 810-10 (ASC 810-10)
Consolidation: Overall
.
The following is a summary of the Contractual Agreements:
Exclusive technical consulting and service agreements
Pursuant to the exclusive technical consulting and service agreements that have been entered into by the WFOEs and the VIEs, the VIEs have engaged the WFOEs as
their exclusive provider of technical support and management consulting services. The VIEs shall pay to the WFOEs service fees calculated based on such VIEs revenues reduced by its value-added taxes and surcharges, operating expenses and an
appropriate amount of retained profit that is determined pursuant to our tax planning strategies and relevant tax laws. The service fees can be adjusted by the WFOEs unilaterally. The WFOEs shall exclusively own any intellectual property arising
from the performance of this agreement. This agreement has a 30 year term that can be automatically extended for another 10 years at the option of the WFOEs. The agreement can only be terminated mutually by the parties in writing. During the term of
the agreement, the VIEs may not enter into any agreement with third parties for the provision of any technical or management consulting services without prior consent of the WFOEs.
Loan agreement
Pursuant to the loan agreements between
the Nominee Shareholders of the VIEs and the WFOEs, the WFOEs granted interest-free loans for the Nominee Shareholders contributions to the VIEs. The term of the loan is indefinite until the WFOEs requests repayment. The manner and timing of
the repayment shall be at the sole discretion of the WFOEs and at the WFOEs option may be in the form of transferring the VIEs equity interest to the WFOEs or their designated persons.
Exclusive equity option agreements
Pursuant to the
exclusive equity option agreements entered into among the Nominee Shareholders of the VIEs, VIEs and the WFOEs, the Nominee Shareholders jointly and severally granted to the WFOEs an option to purchase their equity interests in the VIEs. The
purchase price will be offset against the loan repayments under the loan agreements. If the transfer price of the equity interest is greater than the loan amount, the Nominee Shareholders are required to immediately return the received transfer
price in excess of the loan amount to the WFOEs or any person designated by the WFOEs. The WFOEs may exercise such option at any time until it has acquired all equity interests of the VIEs or freely transfer the option to any third party and such
third party may assume the right and obligations of the option agreement. The exclusive equity option agreements have an indefinite term and will terminate at the earlier of i) the date on which all of the equity interests have been transferred to
the WFOEs or any person designated by the WFOEs; or ii) the unilateral termination by the WFOEs.
F-12
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
1.
|
ORGANIZATION (CONTINUED)
|
Equity interest pledge agreements
Pursuant to the equity interest pledge agreements entered into between the Nominee Shareholders of the VIEs and the WFOEs, the Nominee Shareholders pledged all
of their equity interests in the VIEs to the WFOEs as collateral for all of their payments due to the WFOEs and to secure their obligations under the above agreements. The Nominee Shareholders may not transfer or assign the shares, the rights and
obligations in the share pledge agreement or create or permit to create any pledges which may have an adverse effect on the rights or benefits of the VIEs without the WFOEs preapproval. The WFOE is entitled to transfer or assign in full or in
part the shares pledged. In the event of default, the WFOE as the pledgee will be entitled to request immediate repayment of the loan or to dispose of the pledged equity interests through transfer or assignment. There have been no dividends or
distributions from inception to date. The equity interest pledge agreements have an indefinite term and will terminate after all the obligations under these agreements have been satisfied in full or the pledged equity interests have been transferred
to the WFOEs or their designees.
Power of attorney agreements
Pursuant to the power of attorney agreements, shareholders of the VIEs have given the WFOEs an irrevocable proxy to act on their behalf on all matters
pertaining to the VIEs and to exercise all of their rights as shareholders of the VIEs, including the right to attend shareholders meetings, to exercise voting rights and to transfer all or a part of his equity interests in the VIEs.
In June 2011, the Contractual Agreements were supplemented with the following terms:
|
|
|
With respect to the exclusive equity option agreements, in the event of liquidation or dissolution of the VIEs, all assets shall be sold to the WFOEs at the lowest selling price permitted by applicable PRC law, and any
proceeds from the transfer and any residual interests in the VIEs shall be remitted to the WFOEs immediately;
|
|
|
|
With respect to the exclusive equity option agreements, dividends and distributions are not permitted without the prior consent of the WFOEs, to the extent there is a dividend or distribution, the Nominee Shareholders
will remit the amounts in full to the WFOEs immediately;
|
|
|
|
With respect to the exclusive technical consulting and service agreements and loan agreements, the WFOEs shall provide the necessary financial support to the VIEs whether or not the VIEs incur any losses, and not
request for repayment if the VIEs are unable to do so.
|
Risk in relation to the VIE Structure
Internet content related businesses are subject to significant restrictions under current PRC laws and regulations. Specifically, foreign investors are not
allowed to own more than 50% equity interest in any Internet Content Provider (ICP) business.
The Group conducts its operations in China
through Contractual Agreements entered into between the WFOEs and VIEs. In 2014, the Group began gradually migrating the advertising service business from the VIEs to the subsidiaries of Autohome Media, a transition that was completed to a
substantial extent. If the Company or any of its current or future VIEs or subsidiaries are found in violation of any existing or future laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC
regulatory authorities would have broad discretion in dealing with such violations, including levying fines, confiscating the income of Autohome WFOE, Chezhiying WFOE and VIEs, revoking their business licenses or operating licenses, shutting down
the Groups servers or blocking the Groups websites and mobile applications, discontinuing or placing restrictions or onerous conditions on the Groups operations, requiring the Group to undergo a costly and disruptive restructuring,
restricting the Groups rights to use the proceeds from the offering to finance the Groups business and operations in China, or enforcement actions that could be harmful to the Groups business. Any of these actions could cause
significant disruption to the Groups business operations and severely damage the Groups reputation, which would in turn materially and adversely affect the Groups business and results of operations. In addition, if the imposition
of any of these penalties causes the Company to lose the rights to direct the activities of VIEs or the Companys right to receive their economic benefits, the Company would no longer be able to consolidate the VIEs.
F-13
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
1.
|
ORGANIZATION (CONTINUED)
|
In addition, if Shanghai Advertising, Guangzhou Advertising, Autohome Information and its subsidiaries,
Shengtuo Hongyuan and its subsidiaries or their shareholders fail to perform their obligations under the Contractual Agreements, the Company may have to incur substantial costs and expend resources to enforce the Companys rights under the
contracts. The Company may have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. All of these Contractual Agreements are governed by PRC law and
provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in PRC
is not as developed as in other jurisdictions, such as United States. As a result, uncertainties in the PRC legal system could limit the Companys ability to enforce these Contractual Agreements. Under PRC law, rulings by arbitrators are final,
parties cannot appeal the arbitration results in courts, and prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would incur additional expenses and delay. In the event
the Company is unable to enforce these Contractual Agreements, the Company may not be able to exert effective control over its VIEs, and the Companys ability to conduct its business may be negatively affected.
Based on the advice of the Companys PRC legal counsel, the corporate structure and Contractual Agreements of the Companys VIEs and WFOEs in China
are in compliance with all existing PRC laws and regulations. Therefore, in the opinion of management, (i) the ownership structure of the Company and the VIEs are in compliance with existing PRC laws and regulations; (ii) the Contractual
Agreements with VIEs and their nominee shareholders are valid and binding, and will not result in any violation of PRC laws or regulations currently in effect; and (iii) the Groups business operations are in compliance with existing PRC
law and regulations in all material respects.
VIEs contributed an aggregate of 7.8%, 5.5% and 4.4% of the consolidated net revenues for the years ended
December 31, 2015, 2016 and 2017, respectively, after elimination of inter-company transactions. As of December 31, 2016 and 2017, the VIEs accounted for an aggregate of 19.3% and 21.1%, respectively, of the consolidated total assets, and
10.5% and 6.7%, respectively, of the consolidated total liabilities after elimination of inter-company balances.
Relevant PRC laws and regulations
restrict the VIE from transferring a portion of its net assets to the Company in the form of loans and advances or cash dividends. Please refer to Note 16 for disclosure of restricted net assets.
The following table sets forth the assets, liabilities, results of operations and cash flows of the VIEs included in the Companys consolidated balance
sheets, consolidated statements of comprehensive income and consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Current assets
|
|
|
1,059,117
|
|
|
|
1,326,075
|
|
|
|
203,814
|
|
Non-current assets
|
|
|
1,643,467
|
|
|
|
1,645,183
|
|
|
|
252,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,702,584
|
|
|
|
2,971,258
|
|
|
|
456,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables
|
|
|
191,942
|
|
|
|
162,423
|
|
|
|
24,964
|
|
Advance from customers
|
|
|
15,452
|
|
|
|
45,747
|
|
|
|
7,031
|
|
Deferred revenue
|
|
|
40,115
|
|
|
|
47,507
|
|
|
|
7,302
|
|
Income tax payable
|
|
|
42,746
|
|
|
|
|
|
|
|
|
|
Amounts due to related parties
|
|
|
1,430
|
|
|
|
4,309
|
|
|
|
662
|
|
Inter-company payables
|
|
|
761,583
|
|
|
|
1,031,877
|
|
|
|
158,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,053,268
|
|
|
|
1,291,863
|
|
|
|
198,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
21,131
|
|
|
|
20,010
|
|
|
|
3,075
|
|
Deferred tax liabilities
|
|
|
7,400
|
|
|
|
12,708
|
|
|
|
1,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
28,531
|
|
|
|
32,718
|
|
|
|
5,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,081,799
|
|
|
|
1,324,581
|
|
|
|
203,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
1,620,785
|
|
|
|
1,646,677
|
|
|
|
253,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
1.
|
ORGANIZATION (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Net revenues
|
|
|
271,198
|
|
|
|
328,618
|
|
|
|
274,774
|
|
|
|
42,232
|
|
Net (loss)/income
|
|
|
(68,272
|
)
|
|
|
(71,931
|
)
|
|
|
20,380
|
|
|
|
3,132
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Net cash (used in)/generated from operating activities
|
|
|
(23,630
|
)
|
|
|
20,337
|
|
|
|
851,872
|
|
|
|
130,930
|
|
Net cash used in investing activities
|
|
|
(73,318
|
)
|
|
|
(33,204
|
)
|
|
|
(802,710
|
)
|
|
|
(123,374
|
)
|
Net cash generated from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue-producing assets that are held by the VIEs comprise of customer relationships, trademarks, websites, domain names,
operating license and servers.
The current assets of the VIEs included amounts due from PRC subsidiaries of RMB887,932 and RMB381,388 (US$58,618), as of
December 31, 2016 and 2017, respectively, which were eliminated upon consolidation by the Company. The current liabilities of the VIEs included amounts due to PRC subsidiaries of RMB761,583 and RMB1,031,877(US$158,597), as of December 31,
2016 and 2017, respectively, which were eliminated upon consolidation by the Company. There was no pledge or collateralization of the VIEs assets and the WFOEs have not provided any financial support that they were not previously contractually
required to provide to the VIEs. There were no assets of the VIEs that can only be used to settle their own obligations. Creditors of the VIEs have no recourse to the general credit of the WFOEs, which are the primary beneficiaries of the VIEs.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying consolidated financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).
(b)
|
Principles of Consolidation
|
The consolidated financial statements include the financial
statements of the Company, its subsidiaries, and the VIEs for which the Company or subsidiaries of the Company are the primary beneficiaries. All significant inter-company transactions and balances between the Company, its subsidiaries, and the VIEs
are eliminated upon consolidation. Results of acquired subsidiaries and VIEs are consolidated from the date on which control is transferred to the Company.
The preparation of the consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the year. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets and intangible assets, identifying separate accounting units and
estimating rebates related to revenue transactions, assessing the initial valuation of the assets acquired and liabilities assumed in a business combination and the subsequent impairment assessment of long-lived assets, intangible assets and
goodwill, long-term investments, determining the provision for accounts receivable, inventories and prepayment for vehicle purchase cost, accounting for deferred income taxes and accounting for the share-based compensation. Changes in facts and
circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
F-15
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The functional currency of the Company, its Cayman subsidiaries and
Cheerbright, is the United States dollar (US$), whereas the functional currency of Hong Kong subsidiaries is the Hong Kong dollar (HK$), and the functional currency of the PRC subsidiaries and VIEs is the Chinese Renminbi
(RMB) as determined based on the criteria of ASC 830
, Foreign Currency Matters
. The Company uses the RMB as its reporting currency. Transactions denominated in foreign currencies are re-measured into the functional currency 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. Exchange gains and losses are included in other income, net in the
consolidated statements of comprehensive income.
Assets and liabilities of the Company, its Cayman subsidiaries, Cheerbright and Hong Kong subsidiaries
are translated into RMB at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year.
(e)
|
Convenience Translation
|
Amounts in United States dollars (US$) are presented for the
convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB6.5063 on December 29, 2017 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
(f)
|
Cash and Cash Equivalents
|
Cash and cash equivalents consist of cash on hand, demand deposits,
time deposits and money market funds placed with banks or other financial institutions which are unrestricted as to withdrawal and use and have original maturities of three months or less.
(g)
|
Short-term Investments
|
Short-term investments represent bank deposits, adjustable-rate financial
products with original maturities of greater than 3 months but less than 1 year and money market funds that are measured at fair value. In accordance with ASC 825
, Financial Instruments
, for adjustable-rate financial products with the
interest rate indexed to performance of underlying assets and money market funds, the Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the
consolidated statements of comprehensive income as interest income.
(h)
|
Fair Value Measurements of Financial Instruments
|
Financial instruments of the Group primarily
comprise of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, amounts due from related parties, prepaid expenses and other current assets, other non-current assets, accrued expenses and other payables, notes
payable, and amounts due to related parties. The carrying values of these financial instruments approximated their fair values due to the short-term maturity of these instruments.
ASC topic 820 (ASC 820),
Fair Value Measurements and Disclosures
, establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets
Level 2 Include other inputs that are directly or indirectly observable in the marketplace
Level 3 Unobservable inputs which are supported by little or no market activity
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and
(3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future
amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
(i)
|
Accounts Receivable and Allowance for Doubtful Accounts
|
Accounts receivable are carried at net
realizable value. An allowance for doubtful accounts is recorded in the period when a loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging and other factors. An accounts
receivable balance is written off after all collection effort has ceased.
F-16
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Inventories consist of new vehicles held for sale, stated at the lower of cost
or net realizable value. Cost is determined using the specific identification method. The Companys purchase arrangements with certain automakers entitle the Company to receive a specified amount of cash rebates if certain conditions are met
during the stated rebate periods. The Company accounts for these rebates in accordance with ASC 605-50,
Revenue Recognition: Customer Payments and Incentives
. Rebates relating to new vehicles purchased but still held by the Company as of the
balance sheet date are recorded as a reduction to cost of inventories while rebates relating to new vehicles purchased and sold during the reporting period are recorded as a reduction to cost of revenues.
Adjustments are recorded to write down the cost of inventory to the estimated market value for slow-moving and damaged goods, which is dependent upon factors
such as inventory aging, historical and forecasted consumer demand, and promotional environment. Write-downs are recorded in cost of revenues in the consolidated statements of comprehensive income.
(k)
|
Property and Equipment
|
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, as follows:
|
|
|
Category
|
|
Estimated useful life
|
Electronic equipment
|
|
3 5 years
|
Office equipment
|
|
3 5 years
|
Motor vehicles
|
|
4 5 years
|
Software
|
|
3 5 years
|
Leasehold improvements
|
|
Shorter of lease term or the estimated useful lives of
the assets
|
Repair and maintenance costs are charged to expense as incurred, whereas the costs of betterments that extend the useful life
of property and equipment are capitalized as additions to the related assets. Retirements, sale and disposals of assets are recorded by removing the cost and accumulated depreciation with any resulting gain or loss reflected in the consolidated
statements of comprehensive income.
Intangible assets are carried at cost less accumulated amortization and any
recorded impairment. Intangible assets acquired in a business combination were recognized initially at fair value at the date of acquisition. Intangible assets acquired in asset acquisitions are measured based on the cost to the acquiring entity,
which generally includes transaction costs. Intangible assets with finite useful lives are amortized using a straight-line method of amortization that reflects the estimated pattern in which the economic benefits of the intangible asset are to be
consumed. The estimated useful life for the intangible assets is as follows:
|
|
|
Category
|
|
Estimated useful life
|
Trademark
|
|
3-15 years
|
Customer relationship
|
|
5 years
|
Websites
|
|
4 years
|
Domain names
|
|
4-10 years
|
Licensing agreements
|
|
1.75 years
|
Insurance brokerage license
|
|
4 years
|
(m)
|
Long-term Investments
|
The Companys long-term investments consist of equity method
investments. Investments in entities in which the Company can exercise significant influence and holds an investment in voting common stock or in-substance common stock (or both) of the investee but does not own a majority equity interest or control
are accounted for using the equity method of accounting in accordance with ASC topic 323 (ASC 323),
Investments-Equity Method and Joint Ventures
. Under the equity method, the Company initially records its investments at cost. The
Company subsequently adjusts the carrying amount of the investments to recognize the Companys proportionate share of each equity investees net income or loss into earnings after the date of investments. The Company evaluates the equity
method investments for impairment under ASC 323. An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary.
F-17
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Goodwill represents the excess of the purchase price over the amounts assigned to the
fair value of the assets acquired and the liabilities assumed of an acquired business. The Groups goodwill at December 31, 2016 and 2017 were related to its acquisition of Cheerbright, China Topside and Norstar. In accordance with ASC
350,
Goodwill and Other Intangible Assets
, recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present.
Goodwill is tested for impairment at the reporting unit level on an annual basis (December 31 for the Company) and between annual tests if an event occurs or
circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial
performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of
goodwill to reporting units, and determination of the fair value of each reporting unit. The estimation of fair value of reporting unit using a discounted cash flow methodology also requires significant judgments, including estimation of future cash
flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Companys business, estimation of the useful life over which cash flows will occur, and determination of the Companys weighted average
cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of
fair value and goodwill impairment for the reporting unit.
Management has determined that the Group represents the lowest level within the entity at
which goodwill is monitored for internal management purposes. Management evaluated the recoverability of goodwill by performing a qualitative assessment before using a two-step impairment test approach at the reporting unit level. Based on an
assessment of the qualitative factors, management determined that it is more-likely-than-not that the fair value of the reporting unit is in excess of its carrying amount. Therefore, management concluded that it was not necessary to proceed to the
two-step goodwill impairment test. At December 31, 2016 and 2017, goodwill was RMB1,504,278 and RMB1,504,278 (US$231,203), respectively. No impairment loss was recorded for any of the years presented.
If the Group reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill is reassigned based
on the relative fair value of each of the affected reporting units.
(o)
|
Impairment of Long-Lived Assets and Intangibles
|
The Group evaluates its long-lived assets or
asset group, including intangible assets with finite lives, for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the
carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Group evaluates 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 flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the excess of the carrying amount of the
asset group over its fair value. No impairment charge was recorded for any of the years presented.
The Groups revenue is derived from media services, leads generation
services and online marketplace. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the related fee is reasonably assured based on the
guidance in ASC 605,
Revenue Recognition
.
Contracts are signed to establish significant terms such as the price and services to be provided. The
Group considers the price for its services to be fixed or determinable when the Group and its customers have signed the contracts. The Group assesses the creditworthiness of its customers prior to signing the contracts to ensure collectability is
reasonably assured. Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied and are to be recognized ratably over a period are recorded as deferred revenue.
F-18
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(p)
|
Revenue Recognition (continued)
|
Media services
Media services revenues mainly include revenues from automaker advertising services and regional marketing campaigns conducted by certain automobile
brands regional offices. The majority of the Groups online advertising service arrangements involve multiple deliverables such as banner advertisements, links and logos, other media insertions and promotional activities that are
delivered over different periods of time.
In determining its best estimated selling price for each deliverable, the Group considered its overall pricing
model and objectives, as well as market or competitive conditions that may impact the price at which the Group would transact if the deliverable were sold regularly on a standalone basis. The Group monitors the conditions that affect its
determination of selling price for each deliverable and reassesses such estimates periodically. Revenue is recognized ratably when the advertisements are published over the stated display period in the case of websites and mobile applications or
when the services have been rendered in the case of promotional activities. The amount recognized is limited to the amount that is not contingent upon the delivery of additional deliverables or meeting other specified performance conditions.
Leads generation services
Leads generation services
primarily include revenues from (i) dealer subscription services, (ii) advertising services sold to individual dealer advertisers, and other value-added services. Under the dealer subscription services, the Group makes available throughout
the subscription period a webpage linked to its websites and mobile applications where the dealers can publish information such as the pricing of their products, locations and addresses and other related information. Revenue is recognized ratably as
services are provided over the subscription period.
Online marketplace
Online marketplace revenues mainly include revenues from the new vehicle transaction business, which is composed of direct vehicle sales and platform-based
services on the Autohome Mall platform, and auto-financing business. For direct vehicle sales, the Company recognizes revenue on a gross basis as it acts as the principal, is the primary obligor of the sales arrangements and is subject to inventory
risk. Revenue from direct vehicle sales are recognized when a sales contract has been executed and the vehicle has been delivered. Under the platform-based service arrangements, the Company earns service fee for the new vehicle display and
transactions facilitated through the Autohome Mall platform. The service fee is recognized ratably over the display period or recognized as the vehicles are delivered to customers. For the auto-financing business, the Company earns service fee for
the generation of sales leads or the facilitation of financial products transactions through the platform. The service fee is recognized when the sales leads are delivered or upon the completion of transaction facilitation.
Rebates and cash incentives provided to customers
The
Group provides rebates to agency companies based on cumulative annual advertising and service volume. The Group estimates its obligations under such agreements based on an evaluation of the likelihood of the agency companies achievement of the
advertising and service volume targets and evaluation of the agency companies purchase trends and history.
The Group also provides cash incentives
to automakers and dealers who participated in various incentive programs on the Groups online transaction platform. The cash incentives are accounted for as a reduction of revenue in accordance with ASC 605-50,
Revenue Recognition:
Customer Payments and Incentives
. However, for the cash incentives not within the scope of ASC 605-50 and provided to the end users for the promotional purpose, they are recognized as expense.
The Group has estimated and recorded rebates and cash incentives to agency companies, dealers and automakers cumulatively amounting to RMB578,548, RMB653,481
and RMB886,907 (US$136,315) for the years ended December 31, 2015, 2016 and 2017, as a reduction of revenue, respectively.
F-19
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Cost of revenues consist primarily of bandwidth and internet data center fees,
depreciation of the Groups long-lived assets, amortization of acquired intangible assets, value-added tax (VAT) and surcharges, content-related costs, cost of sales and write-downs of inventories and prepayment for vehicle purchase
cost. Content-related costs primarily comprise of salaries and benefits for employees directly involved in revenue generation activities, cost related to content generation and acquisition and execution cost and other overhead expenses directly
attributable to the provision of the media services, leads generation services and online marketplace. Cost of sales include vehicle purchase cost and other directly attributable costs. Rebates relating to new vehicles purchased and sold during the
reporting period are recorded as a reduction to cost of revenues.
The Groups business is subject to VAT, surcharges and cultural construction fees
levied on advertising related revenue in China. Pursuant to ASC 605-45,
Revenue RecognitionPrincipal Agent Considerations,
the group elected to present VAT, surcharges and cultural construction fees as cost of revenues on the
consolidated statements of comprehensive income. For the years ended December 31, 2015, 2016 and 2017, the Companys PRC subsidiaries and its VIEs excluding Beijing Prbrownies Software Co., Ltd. and Chengdu Prbrownies Software Co., Ltd.
are subject to a 6% VAT for the media services, leads generation services and platform-based and auto-financing services under online marketplace and 17% for the direct vehicle sales under online marketplace. For Beijing Prbrownies Software Co.,
Ltd. and Chengdu Prbrownies Software Co., Ltd., they are subject to 17% VAT for the dealer subscription services under leads generation services. Since November 2014 and December 2016, respectively, Beijing Prbrownies Software Co., Ltd. and Chengdu
Prbrownies Software Co., Ltd. were entitled to a 14% VAT refund on the total VAT payable at the rate of 17% after being certified as software resolutions by the relevant authority.
(r)
|
Advertising Expenditures
|
Advertising expenditures which amounted to RMB533,632, RMB756,073 and
RMB767,528 (US$117,967) for the years ended December 31, 2015, 2016 and 2017, respectively, are expensed as incurred and are included in sales and marketing expenses.
(s)
|
Product Development Expenses
|
Product development expenses consist primarily of employee costs
related to personnel involved in the development and enhancement of the Groups service offerings on its websites and mobile applications. The Group recognizes these costs as expenses when incurred, unless they result in significant additional
functionality or are related to application development stage, in which case they are capitalized.
Leases are classified at the inception date as either a capital lease or an operating
lease. The Group assesses a lease to be a capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the
propertys estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease
is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. The Group has no capital leases for the years presented.
All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the periods of their respective
lease terms. The Group leases office space under operating lease agreements. Certain of the lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rental expense to be recorded over the lease term. The
lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense on straight-line basis over the term of the lease.
Notes payable represents short-term bank acceptance notes issued by financial
institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the notes. The Group has utilized notes payable to settle amounts owed to the automakers.
F-20
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The Group accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are
expected to reverse. The Group records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect
on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
The Group applies ASC 740,
Accounting for Income Taxes
, to account for uncertainty in income taxes. ASC 740 prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group has recorded unrecognized
tax benefits in the other liabilities line item in the accompanying consolidated balance sheets. The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax
expense, in the consolidated statements of comprehensive income.
The Groups estimated liability for unrecognized tax benefits and the related
interest and penalties are periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations.
The actual benefits ultimately realized may differ from the Groups estimates. As each audit is concluded, adjustments, if any, are recorded in the Companys consolidated financial statements. Additionally, in future periods, changes in
facts and circumstances, and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which
they occur.
The Group adopted ASU No. 2015-17,
Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes
, which simplifies the
presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as non-current on the balance sheet, starting from the first quarter of 2017 on a retrospective basis. After adoption of this ASU, current deferred
tax assets of RMB99,228 as of December 31, 2016 on consolidated balance sheet was reclassified as non-current.
Earnings per share are calculated in accordance with ASC 260-10,
Earnings
per Share: Overall.
Basic earnings per share are computed by dividing net income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year using the two-class method. Under the
two-class method, net income is allocated between the Class A and Class B ordinary shares based on their participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed.
Diluted earnings per ordinary share reflects the potential dilution that could occur if securities to issue ordinary shares were exercised. The dilutive
effect of outstanding share-based awards is reflected in the diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A ordinary share assumes the conversion of Class B
ordinary shares, while the diluted net income per share of Class B ordinary share does not assume the conversion of those shares.
The participating
rights (liquidation and dividend rights) of the holders of the Companys Class A and Class B ordinary shares are identical, except with respect to voting and conversion. As a result, and in accordance with ASC 260, the undistributed income
for 2015 is allocated based on the contractual participating rights of the Class A and Class B ordinary shares as if the income for the year had been distributed. As the participating rights are identical, the undistributed income is allocated
on a proportionate basis.
Comprehensive income is defined to include all changes in
shareholders equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220-10,
Comprehensive Income: Overall
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Companys comprehensive
income includes foreign currency translation adjustments and is presented in the consolidated statement of comprehensive income. There have been no reclassifications out of accumulated other comprehensive income to net income for the years
presented.
F-21
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(y)
|
Noncontrolling interests
|
Noncontrolling interests are recognized to reflect the portion of the
equity of majority-owned subsidiary which is not attributable, directly or indirectly, to the controlling shareholder. Non-controlling interests are classified as a separate line item in the equity section of the Groups consolidated balance
sheets and have been separately disclosed in the Groups consolidated statements of comprehensive income to distinguish the interests from that of the Company.
In accordance with ASC 280-10,
Segment Reporting: Overall
, the
Groups chief operating decision maker has been identified as the Chief Executive Officer who reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group as a whole;
hence, the Group has only one operating segment. The Group does not distinguish between markets or segments for the purpose of internal reporting. As the Groups long-lived assets and revenue are substantially located in and derived from the
PRC, no geographical segments are presented.
The full-time employees of the Companys PRC subsidiaries and VIEs are
entitled to staff welfare benefits including medical care, housing fund, pension benefits and unemployment insurance, which are governmental mandated defined contribution plans. These entities are required to accrue for these benefits based on
certain percentages of the employees respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. The total expenses for
the employee benefits plans were RMB134,125, RMB214,596 and RMB270,794 (US$41,620 ) for the years ended December 31, 2015, 2016 and 2017, respectively.
(bb)
|
Share-based Compensation
|
Share-based awards granted to employees are accounted for under ASC
718,
CompensationStock Compensation
, which requires that share-based awards granted to employees be measured based on the grant date fair value and recognized as compensation expense over the requisite service period (which is generally
the vesting period) in the consolidated statements of comprehensive income. The Company has elected to recognize compensation expense using the straight-line method for all share-based awards granted with service conditions that have a graded
vesting schedule. Under ASC 718, an entity can make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company has elected to estimate the forfeiture rate
at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
Forfeiture rates are estimated
based on historical and future expectations of employee turnover rates and are adjusted to reflect future changes in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense is
recorded only for those share-based awards that are expected to vest. To the extent the Company revises these estimates in the future, the share-based payments could be materially impacted in the period of revision, as well as in following periods.
The Company, with the assistance of an independent third-party valuation firm, determined the fair value of the stock options granted to employees. The binomial option pricing model was applied in determining the estimated fair value of the options
granted to employees. Subsequent to the IPO, fair value of the ordinary shares is the price of the Companys publicly traded shares.
The Company
accounts for a change in any of the terms or conditions of share-based awards as a modification in accordance with ASC subtopic 718-20,
Compensation-Stock Compensation: Awards Classified as Equity
, whereby the incremental fair value, if any,
of a modified award, is recorded as compensation cost on the date of modification for vested awards or over the remaining vesting period for unvested awards. The incremental compensation cost is the excess of the fair value of the modified award on
the date of modification over the fair value of the original award immediately before the modification.
Government grants primarily represent tax refunds for operating a business in
certain jurisdictions and fulfilment of specified tax payment obligations, and subsidies. These grants are not subject to any specific requirements and are recorded when received in other income, net in the Companys consolidated
statements of comprehensive income. For the years ended December 31, 2015, 2016 and 2017, RMB11,281, RMB12,576 and RMB25,657 (US$3,943) of government grants were recorded as other income, net.
F-22
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(dd)
|
Recent Accounting Pronouncements
|
In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers-Deferral of the effective date
(ASU 2015-14). The amendments in ASU 2015-14 defer the effective date of ASU No. 2014-09,
Revenue from Contracts with Customers
issued in May 2014.
Further in 2016 and 2017, as a clarification of the new revenue guidance, the FASB issued several amendments and updates to the new revenue guidance. All the above amendments regarding the new revenue guidance are effective for annual reporting
periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim
reporting periods within that reporting period. The Company will adopt the new revenue guidance beginning January 1, 2018 by applying the modified retrospective method with the cumulative effect of initially applying the guidance recognized at
the date of initial application. The Company has finalized our analysis and the most significant impact will be the change from presentation of value-added tax on gross basis to net basis.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(ASU 2016-02). Further, as a clarification of the new guidance, the FASB
issued several amendments and updates. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All
other leases will fall into one of two categories: (i) financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) operating leases
which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be
classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. It is expected to be effective for fiscal years and interim periods beginning after
December 15, 2018 for public entities. Early application is permitted. The Company is currently evaluating the impact of adopting this guidance.
In
August 2016, the FASB issued ASU No. 2016-15
Statement of Cash FlowsClassification of Certain Cash Receipts and Cash Payments
(ASU 2016-15), which clarifies the presentation and classification of certain
cash receipts and cash payments in the statement of cash flows. The amendments in ASU 2016-15 are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The amendments in this Update
should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the
earliest date practicable. Early adoption is permitted. The adoption of the guidance is not expected to have significant impact on the Companys consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 320): Restricted Cash
(ASU 2016-18). The amendments
in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in ASU
2016-18 are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The amendments in this Update should be applied using a retrospective transition method to each period presented. The
adoption of the guidance is not expected to have significant impact on the Companys consolidated financial statements.
In January 2017, the FASB
issued ASU No. 2017-04,
Simplifying the Test for Goodwill Impairmen
t (ASU 2017-04). The amendments in ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A
goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The amendments in ASU 2017-04 are effective for annual or any interim goodwill
impairment tests beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of
the guidance is not expected to have significant impact on the Companys consolidated financial statements.
F-23
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(ee)
|
Concentration of Risk
|
Credit risk
Financial instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and cash equivalents,
restricted cash, short-term investments and accounts receivable. As of December 31, 2016 and 2017, cash and cash equivalents, restricted cash and short-term investments altogether amounting to RMB5,733,321 and RMB8,154,224 (US$1,253,282),
respectively, were deposited with various major reputable financial institutions located in the PRC and international financial institutions outside of the PRC. Management believes that these financial institutions are of high credit quality and
continually monitors the creditworthiness of these financial institutions. Historically, deposits in Chinese banks are secure due to the state policy on protecting depositors interests. However, China promulgated a new Bankruptcy Law in August
2006 that came into effect on June 1, 2007, which contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new
Bankruptcy Law, a Chinese bank may go into bankruptcy. In the event of bankruptcy of one of the banks which holds the Groups deposits, it is unlikely to claim its deposits back in full since it is unlikely to be classified as a secured
creditor based on PRC laws. The Group continues to monitor the financial strength of these financial institutions.
Accounts receivable are typically
unsecured and derived from revenue earned from customers in the PRC, which are exposed to credit risk. The risk is mitigated by the Groups assessment of its customers creditworthiness and its ongoing monitoring process of outstanding
balances. The Group maintains reserves for estimated credit losses and these losses have generally been within expectations. There were two customers and one customer that individually represented greater than 10% of the total accounts receivable as
of December 31, 2016 and 2017.
Business, customer, political, social and economic risks
The Group participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on
the Groups future financial position, results of operations or cash flows; changes in the overall demand for services and products; changes in business offerings; competitive pressures due to new entrants; acceptance of the Internet as an
effective marketing platform by Chinas automotive industry; changes in certain strategic relationships or customer relationships; growth in Chinas automotive industry, regulatory considerations; and risks associated with the Groups
ability to attract and retain employees necessary to support its growth.
There were no customers that individually represented greater than 10% of the
total net revenues for the years ended December 31, 2015, 2016 and 2017, respectively.
Currency convertibility risk
The Group transacts substantially all its business in RMB, which is not freely convertible into foreign currencies. According to the relevant regulations in
the PRC, all foreign exchange transactions are required to take place either through the Peoples Bank of China (PBOC) or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval
of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers invoices, shipping documents and signed contracts.
As of December 31, 2017, cash and cash equivalents and short-term investments in PRC were held by PRC subsidiaries and the VIEs. Cash and cash
equivalents and short-term investments of PRC subsidiaries and VIEs are all denominated in RMB and altogether amounted to RMB6,399,234 (US$983,544) and RMB862,215 (US$132,520), respectively. Cash distributed outside of the PRC by PRC subsidiaries
and the VIEs may be subject to PRC dividend withholding tax.
F-24
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(ee)
|
Concentration of Risk (continued)
|
Foreign Currency exchange rate risk
Since July 21, 2005, the RMB was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. There was
depreciation of 4.2% and 6.7%, and appreciation of 6.7% for the years ended December 31, 2015, 2016 and 2017, respectively. Any significant appreciation or depreciation of the RMB may materially and adversely affect the Groups earnings
and financial position, and the value of, and any dividends payable on, the Companys ADSs in U.S. dollars. For example, to the extent that the Group need to convert U.S. dollars it received from our initial public offering into RMB to pay its
operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount it would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly
reduce the U.S. dollar equivalent of the Groups earnings, which in turn could adversely affect the price of ADSs.
3.
|
FAIR VALUE MEASUREMENT
|
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
December 31, 2017 Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active Market
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Unobservable
inputs
(Level 3)
|
|
|
Fair Value at December 31, 2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
|
|
|
|
694,500
|
|
|
|
|
|
|
|
694,500
|
|
|
|
106,743
|
|
Money market fund
|
|
|
34,105
|
|
|
|
|
|
|
|
|
|
|
|
34,105
|
|
|
|
5,242
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term deposits
|
|
|
|
|
|
|
842,912
|
|
|
|
|
|
|
|
842,912
|
|
|
|
129,554
|
|
Money market fund
|
|
|
|
|
|
|
10,042
|
|
|
|
|
|
|
|
10,042
|
|
|
|
1,543
|
|
Adjustable-rate financial products
|
|
|
|
|
|
|
6,389,682
|
|
|
|
|
|
|
|
6,389,682
|
|
|
|
982,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,105
|
|
|
|
7,937,136
|
|
|
|
|
|
|
|
7,971,241
|
|
|
|
1,225,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
December 31, 2016 Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active Market
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Unobservable
inputs
(Level 3)
|
|
|
Fair Value at December 31, 2016
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
|
|
|
|
2,099,200
|
|
|
|
|
|
|
|
2,099,200
|
|
Money market fund
|
|
|
225,848
|
|
|
|
|
|
|
|
|
|
|
|
225,848
|
|
Restricted cash
|
|
|
|
|
|
|
9,319
|
|
|
|
|
|
|
|
9,319
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term deposits
|
|
|
|
|
|
|
1,804,208
|
|
|
|
|
|
|
|
1,804,208
|
|
Adjustable-rate financial products
|
|
|
|
|
|
|
625,883
|
|
|
|
|
|
|
|
625,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,848
|
|
|
|
4,538,610
|
|
|
|
|
|
|
|
4,764,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
3.
|
FAIR VALUE MEASUREMENT (CONTINUED)
|
Other financial instruments
The followings are other financial instruments not measured at fair value in the consolidated balance sheets, but for which the fair value is estimated for
disclosure purposes.
Financial assets including accounts receivable, amounts due from related parties, prepaid expenses and other current assets, and
other non-current assets are not measured at fair value in the consolidated balance sheets, and the carrying values approximated fair value due to their short-term maturity. Financial liabilities including notes payable, accrued expense and other
payables, and amounts due to related parties are also not measured at fair value in the consolidated balance sheets, and the carrying values approximated fair value due to their short-term maturity.
Assets and liabilities measured at fair value on a nonrecurring basis
The Group measures certain assets, including long-term investments, goodwill and intangible assets, at fair value on a nonrecurring basis when they are deemed
to be impaired (Level 3). The fair values of these assets are determined based on valuation techniques using the best information available, and may include management judgments, future performance projections, etc. An impairment charge to these
investments is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
4.
|
ACCOUNTS RECEIVABLE, NET
|
Accounts receivable and allowance for doubtful accounts consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Accounts receivable
|
|
|
1,206,436
|
|
|
|
1,895,145
|
|
|
|
291,278
|
|
Allowance for doubtful accounts
|
|
|
(512
|
)
|
|
|
(1,408
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,205,924
|
|
|
|
1,893,737
|
|
|
|
291,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2017, all accounts receivable were due from third party customers.
An analysis of the allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Beginning balance
|
|
|
2,315
|
|
|
|
512
|
|
|
|
79
|
|
Additions charged to bad debt expense
|
|
|
2,792
|
|
|
|
1,854
|
|
|
|
284
|
|
Reversal
|
|
|
(489
|
)
|
|
|
(744
|
)
|
|
|
(114
|
)
|
Write off
|
|
|
(4,106
|
)
|
|
|
(214
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
512
|
|
|
|
1,408
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group recognized additions to allowance for doubtful accounts amounting to RMB2,179, RMB2,303 and RMB1,110 (US$170) within
general and administrative expenses, for the years ended December 31, 2015, 2016 and 2017, respectively.
Inventories consist of new vehicles held for sale amounting to RMB95,617 and nil, net
of write-down of RMB9,201 and nil as of December 31, 2016 and 2017, respectively.
F-26
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
6.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Prepayments
|
|
|
317,262
|
|
|
|
125,317
|
|
|
|
19,262
|
|
Rental deposits
|
|
|
1,494
|
|
|
|
11,918
|
|
|
|
1,832
|
|
Interest receivable
|
|
|
11,690
|
|
|
|
3,462
|
|
|
|
532
|
|
Staff advances
|
|
|
7,712
|
|
|
|
7,496
|
|
|
|
1,152
|
|
Receivables from third-party payment platform
|
|
|
12,327
|
|
|
|
14,757
|
|
|
|
2,268
|
|
Other receivables
|
|
|
26,734
|
|
|
|
23,173
|
|
|
|
3,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,219
|
|
|
|
186,123
|
|
|
|
28,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments primarily include prepaid purchase cost for new vehicles, prepaid VAT and surcharges, prepaid promotional expenses
and service fee. As of December 31, 2016 and 2017, prepaid purchase cost for new vehicles were RMB226,419 and nil, respectively.
Enterprise income tax
Cayman Islands
The Company is incorporated in the Cayman
Islands and conducts substantially all of its business through its PRC subsidiaries and VIEs. Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon payments of dividends by
these entities to their shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Cheerbright is incorporated in the British Virgin Islands and conducts substantially all of its businesses through its PRC subsidiary and VIEs. Under the
current laws of the British Virgin Islands, Cheerbright is not subject to tax on income or capital gains. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
Hong Kong
Autohome HK is incorporated in Hong Kong
on March 16, 2012. In October 2013, Autohome HK acquired Autohome Media, a Hong Kong advertising and marketing company. Also in 2015, three new entities are established in 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. For the years ended December 31, 2015, 2016
and 2017, the Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong during this period. Under the Hong Kong tax law, subsidiaries in Hong Kong are exempted from income
tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
F-27
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
The PRC
In September 2010, Autohome WFOE was recognized as a High-New Technology Enterprise (HNTE), and is eligible for a 15% preferential tax
rate effective through 2018. In July 2015, Beijing Autohome Technologies Co., Ltd. obtained the certificate of HNTE and is eligible for a 15% preferential tax rate from 2015 to 2017. Beijing Prbrownies was recognized as an HNTE in February 2016,
qualifying it for the preferential 15% enterprise income tax rate from 2015 to 2017. Besides being an HNTE, Beijing Prbrownies was also a software enterprise. Pursuant to the Circular on Issues concerning Preferential Enterprise Income Tax Policies
for Software and Integrated Circuit Industries in May 2016, the eligible software enterprises would enjoy preferential tax rate policy, whereby the enterprise will be entitled to two-year enterprise income tax exemption and reduced enterprise income
tax rate of 12.5% for the three years thereafter, depending on the results of annual tax filing and examination afterwards instead of pre-approval process. Beijing Prbrownies started to make profit since 2015, and it passed the tax filing and
examination as an eligible software enterprise by the relevant tax authorities in 2016 and 2017, qualifying it for the exemption of enterprise income tax for the tax year 2015 and 2016. A reversal of RMB173,557 and RMB158,995 (US$24,437) was
recorded in 2016 and 2017 for the change in enacted tax rate, each composed of current income tax expense of RMB181,586 and deferred income tax expense of RMB8,029 and current income tax expense of RMB163,651 (US$25,153) and deferred income tax
expense of RMB4,656 (US$716 ). For the tax year of 2017, 15% preferential tax rate of HNTE was applied for Beijing Prbrownies in accrual of income tax expense, considering that the uncertainty in the results of tax filing and examination was not
eliminated yet. The aggregate effects of the preferential tax rate were RMB56,389, RMB330,198 and RMB383,039 (US$58,872) for the years ended December 31, 2015, 2016 and 2017, respectively. The basic earnings per share effects related to the
preferential tax rate were RMB0.50, RMB2.89 and RMB3.29 (US$0.51) for the years ended December 31, 2015, 2016 and 2017, respectively.
The
Companys remaining PRC subsidiaries and all the VIEs were subject to Enterprise Income Tax (EIT) at a rate of 25% for the years ended December 31, 2015, 2016 and 2017.
Under the New EIT Law, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject to PRC withholding tax
of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain countries.
The New EIT Law also provides that enterprises
established under the laws of foreign countries or regions and whose place of effective management is located within the PRC are considered PRC tax resident enterprises and subject to PRC income tax at the rate of 25% on worldwide
income. The definition of place of effective management refers to an establishment that exercises, in substance, overall management and control over the production and business, personnel, accounting, properties, and other aspects of an
enterprise. If the Company is deemed as a PRC tax resident, it would be subject to PRC tax under the New EIT Law. The Company has analyzed the applicability of this law and believes that the chance of being recognized as a tax resident enterprise is
remote for PRC tax purposes.
The Group had minimal operations in jurisdictions other than the PRC. Income/(loss) before income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
PRC
|
|
|
1,292,104
|
|
|
|
1,263,223
|
|
|
|
2,266,075
|
|
|
|
348,289
|
|
Non PRC
|
|
|
(15,913
|
)
|
|
|
(14,371
|
)
|
|
|
(4,534
|
)
|
|
|
(697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,276,191
|
|
|
|
1,248,852
|
|
|
|
2,261,541
|
|
|
|
347,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax expense is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Current
|
|
|
292,017
|
|
|
|
136,429
|
|
|
|
254,803
|
|
|
|
39,163
|
|
Deferred
|
|
|
(6,475
|
)
|
|
|
(103,800
|
)
|
|
|
12,279
|
|
|
|
1,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,542
|
|
|
|
32,629
|
|
|
|
267,082
|
|
|
|
41,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
The reconciliation of income tax expense for the years ended December 31, 2015, 2016 and 2017 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Income before income tax expense
|
|
|
1,276,191
|
|
|
|
1,248,852
|
|
|
|
2,261,541
|
|
|
|
347,592
|
|
Income tax expense computed at applicable tax rates (25%)
|
|
|
319,047
|
|
|
|
312,213
|
|
|
|
565,385
|
|
|
|
86,898
|
|
Non-deductible expenses
|
|
|
16,372
|
|
|
|
25,798
|
|
|
|
32,417
|
|
|
|
4,983
|
|
Change in valuation allowances
|
|
|
16,054
|
|
|
|
47,006
|
|
|
|
(15,510
|
)
|
|
|
(2,384
|
)
|
Outside basis difference
|
|
|
(17,329
|
)
|
|
|
(28,265
|
)
|
|
|
7,360
|
|
|
|
1,131
|
|
Effect of international tax rate difference
|
|
|
3,978
|
|
|
|
3,593
|
|
|
|
1,133
|
|
|
|
174
|
|
Interest expense relating to unrecognized tax benefits
|
|
|
3,809
|
|
|
|
2,482
|
|
|
|
|
|
|
|
|
|
Effect of preferential tax rate
|
|
|
(56,389
|
)
|
|
|
(330,198
|
)
|
|
|
(383,039
|
)
|
|
|
(58,872
|
)
|
Effect of withholding tax
|
|
|
|
|
|
|
|
|
|
|
59,336
|
|
|
|
9,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
285,542
|
|
|
|
32,629
|
|
|
|
267,082
|
|
|
|
41,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
The
significant components of deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
7,066
|
|
|
|
352
|
|
|
|
53
|
|
Accrued staff cost
|
|
|
3,166
|
|
|
|
1,563
|
|
|
|
240
|
|
Accrued expenses
|
|
|
52,497
|
|
|
|
73,500
|
|
|
|
11,297
|
|
Revenue recognition
|
|
|
42,062
|
|
|
|
48,774
|
|
|
|
7,497
|
|
Tax losses
|
|
|
83,941
|
|
|
|
101,746
|
|
|
|
15,638
|
|
VAT refund
|
|
|
3,598
|
|
|
|
3,842
|
|
|
|
591
|
|
Less: Valuation allowances
|
|
|
(70,667
|
)
|
|
|
(55,157
|
)
|
|
|
(8,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
121,663
|
|
|
|
174,620
|
|
|
|
26,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets and internally-developed software
|
|
|
8,690
|
|
|
|
14,262
|
|
|
|
2,192
|
|
Outside basis difference
|
|
|
453,106
|
|
|
|
423,989
|
|
|
|
65,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
461,796
|
|
|
|
438,251
|
|
|
|
67,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, the Group has considered whether it is more-likely-than-not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The
Group records a valuation allowance to reduce deferred tax assets to a net amount that management believes is more-likely-than-not of being realizable based on the weight of all available evidence. The Company recorded valuation allowances against
the deferred tax assets of thirteen and fourteen PRC subsidiaries and VIEs as of December 31, 2016 and 2017, respectively, due to the cumulative tax loss positions and insufficient forecasted future taxable income.
As of December 31, 2017, the Group had net operating losses of approximately RMB406,984 (US$62,552), which can be carried forward to offset taxable
income. The net operating loss will start to expire in 2018 if not utilized.
F-29
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
Deferred tax liabilities arising from undistributed earnings
The Enterprise Income Tax Law also imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprises (FIEs) to its
immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIEs immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China.
On November 6, 2017, the board of directors of the Company declared a special cash dividend of approximately RMB5.08 (US$0.76) per ordinary share. The
Company does not have present plan to pay additional dividends in the foreseeable future and the board of directors of the Company currently intends to retain the remaining available funds and earnings to operate and expand the business. In 2017,
The Company accrued RMB59,336 (US$9,120) of deferred income tax expenses associated with the expected cash dividend payment. As of December 31, 2016 and 2017, the total amount of undistributed earnings from the Companys PRC subsidiaries
and VIEs that are considered to be permanently reinvested was RMB3,616,426 and RMB5,318,555 (US$817,447), respectively. As of December 31, 2016 and 2017, determination of the amount of unrecognized deferred tax liability related to the earnings
that are indefinitely reinvested is not practical.
Unrecognized tax benefits
As of December 31, 2016 and 2017, the Company recorded an unrecognized tax benefit of RMB34,977 and RMB32,122 (US$4,937), respectively, of which nil and
nil, respectively, are presented on a net basis against the deferred tax assets related to tax loss carry forwards on the consolidated balance sheets. This represents the difference between the amount of benefit recognized in the statement of
financial position and the amount taken or expected to be taken in a tax return. It is possible that the amount of uncertain tax position will change in the next twelve months, however, an estimate of the range of the possible outcomes cannot be
made at this time. As of December 31, 2016 and 2017, unrecognized tax benefits of RMB19,850 and RMB16,995 (US$2,612), respectively, if ultimately recognized, will impact the effective tax rate.
A roll-forward of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Beginning balance
|
|
|
22,003
|
|
|
|
21,902
|
|
|
|
3,366
|
|
Additions based on tax positions related to current year
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases based on tax positions related to prior years
|
|
|
(101
|
)
|
|
|
(2,855
|
)
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
21,902
|
|
|
|
19,047
|
|
|
|
2,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2015, 2016 and 2017, the Company recorded late payment interest expense of RMB3,809,
RMB2,482 and nil, and penalties of nil, nil and nil, respectively, as part of income tax expense. As of December 31, 2016 and 2017, the Company recorded RMB13,075 and RMB13,075 (US$2,010) for late payment interest expense, and nil and nil for
penalties.
The tax years ended December 31, 2013 through 2017 for the Companys PRC subsidiaries and VIEs remain subject to examination by the
PRC tax authorities.
F-30
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
8.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
At cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic equipment
|
|
|
234,360
|
|
|
|
301,783
|
|
|
|
46,383
|
|
Office equipment
|
|
|
1,024
|
|
|
|
1,361
|
|
|
|
209
|
|
Motor vehicles
|
|
|
3,418
|
|
|
|
2,855
|
|
|
|
439
|
|
Software
|
|
|
26,480
|
|
|
|
34,310
|
|
|
|
5,273
|
|
Leasehold improvements
|
|
|
42,364
|
|
|
|
40,408
|
|
|
|
6,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,646
|
|
|
|
380,717
|
|
|
|
58,515
|
|
Less: Accumulated depreciation
|
|
|
(173,072
|
)
|
|
|
(250,395
|
)
|
|
|
(38,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,574
|
|
|
|
130,322
|
|
|
|
20,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was RMB51,337, RMB65,246 and RMB81,915 (US$12,590) for the years ended December 31, 2015, 2016 and
2017, respectively.
9.
|
INTANGIBLE ASSETS, NET
|
The following tables present the Groups intangible assets with definite
lives as of the respective balance sheet dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Trademarks
|
|
|
68,380
|
|
|
|
(43,292
|
)
|
|
|
25,088
|
|
|
|
3,856
|
|
Customer relationship
|
|
|
9,050
|
|
|
|
(9,050
|
)
|
|
|
|
|
|
|
|
|
Websites
|
|
|
27,000
|
|
|
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
Domain names
|
|
|
1,917
|
|
|
|
(1,870
|
)
|
|
|
47
|
|
|
|
7
|
|
Licensing agreements
|
|
|
2,492
|
|
|
|
(2,492
|
)
|
|
|
|
|
|
|
|
|
Insurance brokerage license
|
|
|
28,133
|
|
|
|
(2,345
|
)
|
|
|
25,788
|
|
|
|
3,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,972
|
|
|
|
(86,049
|
)
|
|
|
50,923
|
|
|
|
7,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Trademarks
|
|
|
68,380
|
|
|
|
(38,713
|
)
|
|
|
29,667
|
|
Customer relationship
|
|
|
9,050
|
|
|
|
(9,050
|
)
|
|
|
|
|
Websites
|
|
|
27,000
|
|
|
|
(27,000
|
)
|
|
|
|
|
Domain names
|
|
|
1,870
|
|
|
|
(1,870
|
)
|
|
|
|
|
Licensing agreements
|
|
|
2,667
|
|
|
|
(2,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,967
|
|
|
|
(79,300
|
)
|
|
|
29,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
9.
|
INTANGIBLE ASSETS, NET (CONTINUED)
|
The Company obtained insurance brokerage license in 2017 through acquisition of Shanghai Tianhe Insurance
Brokerage Co., Ltd., which was accounted for as asset acquisition. The intangible assets are amortized using the straight-line method, which is the Groups best estimate of how these assets will be economically consumed over their respective
estimated useful lives ranging from approximately 1.75 to 15 years. Amortization expense was RMB5,247, RMB4,558 and RMB6,923 (US$1,064) for the years ended December 31, 2015, 2016 and 2017, respectively.
The annual estimated amortization expenses for the acquired intangible assets for each of the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Amortization expenses
|
|
|
11,615
|
|
|
|
11,611
|
|
|
|
11,592
|
|
|
|
9,247
|
|
|
|
4,559
|
|
10.
|
LONG-TERM INVESTMENTS
|
As of December 31, 2016 and 2017, the Company holds several equity
investments through its subsidiaries or VIEs, all of which were accounted for under the equity method since the Company can exercise significant influence but does not own a majority equity interest in or control them.
Hunan Mango Autohome Automobile Sales Co., Ltd. (Mango JV)
In May 2015, the Group entered into a shareholder agreement with HappiGo Home Shopping Co. (HappiGo) to establish a strategic joint venture,
Mango JV, with total capital contribution of RMB100,000, of which the Company subscribed for RMB49,000 or 49% of the ordinary shares.
Shanghai
Youcheyoujia Financing Co., Ltd. (Financing JV)
In September 2015, the Group signed a memorandum of understanding to establish a joint
venture with three parties. In 2015, the Group made a full payment of RMB75,000, for a 25% equity interest of the Financing JV. In September 2017, the Group entered into a definitive agreement to transfer all its equity interests in Financing JV to
an unaffiliated party. As of December 31, 2017, the equity transfer is still in process.
Visionstar Information Technology (Shanghai) Co., Ltd.
(Shanghai Visionstar)
In July 2017, the Group acquired a 10% interest in Shanghai Visionstar, which primarily engages in augmented reality
technology and related operations in the PRC, with a total cash consideration of RMB30,000. The investment was accounted for using equity method as the Group determined that it can exercise significant influence over Shanghai Visionstar.
Other investments
The company also holds several other
investments in equity investees.
The carrying amount of all of the equity method investments was RMB134,466 and RMB147,929 (US$22,736) as of
December 31, 2016 and 2017, respectively. The Company excluded the summarized information for these equity method investees as they were insignificant either individually or on an aggregated basis for all the years presented.
No impairment charges associated with the equity method investments were recognized during any of the years presented.
F-32
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
11.
|
ACCRUED EXPENSES AND OTHER PAYABLES
|
The components of accrued expenses and other payables are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
VAT and surcharges payable
|
|
|
82,759
|
|
|
|
88,435
|
|
|
|
13,592
|
|
Payroll and welfare payable
|
|
|
302,006
|
|
|
|
409,691
|
|
|
|
62,968
|
|
Accrued rebates and cash incentives
|
|
|
473,271
|
|
|
|
646,922
|
|
|
|
99,430
|
|
Deposit from customers
|
|
|
66,526
|
|
|
|
46,321
|
|
|
|
7,119
|
|
Accrued expenses
|
|
|
128,489
|
|
|
|
328,315
|
|
|
|
50,461
|
|
Payable for purchase of fixed assets
|
|
|
12,200
|
|
|
|
6,303
|
|
|
|
969
|
|
Professional service fees
|
|
|
12,570
|
|
|
|
5,236
|
|
|
|
805
|
|
Payable for exercise of share-based awards
|
|
|
10,464
|
|
|
|
5,735
|
|
|
|
881
|
|
Others
|
|
|
63,262
|
|
|
|
121,976
|
|
|
|
18,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151,547
|
|
|
|
1,658,934
|
|
|
|
254,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
RELATED PARTY TRANSACTIONS
|
|
|
|
Name of related parties
|
|
Relationship with the Group
|
Ping An and its subsidiaries (Ping An Group)
|
|
The Companys controlling shareholder and its subsidiaries
|
Mango JV
|
|
An equity-method investee of the Companys subsidiary
|
Ping An became the Companys controlling shareholder in June 2016 and therefore Ping An Group became the Companys
related party since then. The following related party transactions represent the transactions occurred afterwards.
During the years ended
December 31, 2015, 2016 and 2017, significant related party transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Sales of new vehicles to Ping An Group
|
|
|
|
|
|
|
21,938
|
|
|
|
|
|
|
|
|
|
Services provided by Ping An Group (a)
|
|
|
|
|
|
|
21,594
|
|
|
|
55,220
|
|
|
|
8,487
|
|
Services provided to Ping An Group (b)
|
|
|
|
|
|
|
|
|
|
|
21,171
|
|
|
|
3,254
|
|
Interest income from Ping An Group
|
|
|
|
|
|
|
3,564
|
|
|
|
35,049
|
|
|
|
5,387
|
|
F-33
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
12.
|
RELATED PARTY TRANSACTIONS (CONTINUED)
|
As of December 31, 2016 and December 31, 2017, balances with related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Amounts due from related parties, current
|
|
|
|
|
|
|
|
|
|
|
|
|
Ping An Group (c)
|
|
|
14,120
|
|
|
|
21,014
|
|
|
|
3,230
|
|
Mango JV (d)
|
|
|
6,331
|
|
|
|
3,425
|
|
|
|
526
|
|
Other related parties
|
|
|
|
|
|
|
63
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,451
|
|
|
|
24,502
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due from related parties, non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
Ping An Group (c)
|
|
|
809
|
|
|
|
10,956
|
|
|
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
809
|
|
|
|
10,956
|
|
|
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Ping An Group
|
|
|
1,312
|
|
|
|
1,101
|
|
|
|
169
|
|
Mango JV (e)
|
|
|
15,158
|
|
|
|
9,049
|
|
|
|
1,391
|
|
Other related parties
|
|
|
160
|
|
|
|
135
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,630
|
|
|
|
10,285
|
|
|
|
1,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The amount represents rental and property management services and other miscellaneous services provided by Ping An Group.
|
(b)
|
The amount represents the commission fee for facilitating transactions and advertising service provided to Ping An Group.
|
(c)
|
Receivable from Ping An Group primarily consists of interest receivable from cash and cash equivalents and short-term investments held at Ping An Group, service fee receivable and deposit in relation to the operating
lease agreement and others. As of December 31, 2016 and 2017, the Group had cash and cash equivalents and short-term investments of RMB541,218 and RMB1,374,574 (US$211,268) at Ping An Group, respectively.
|
(d)
|
The amount represents unsettled portion of fulfilment cost paid by the Group to dealers on behalf of Mango JV and commission fee receivable for facilitating the sale of Mango JVs vehicles through the Autohome Mall
platform.
|
(e)
|
The outstanding payable to Mango JV represents proceeds from vehicle sales on the Autohome Mall platform collected by the Group on behalf of Mango JV.
|
13.
|
COMMITMENTS AND CONTINGENCIES
|
Operating lease commitments
The Group leases office space and employee accommodation in the PRC under non-cancellable operating leases expiring on various dates. Payments under operating
leases are expensed on a straight-line basis, after considering rent holidays, over the periods of the respective lease terms. The terms of the leases do not contain rent escalation or contingent rents, and for the years ended December 31,
2015, 2016 and 2017, total rental expenses for all operating leases amounted to RMB49,892, RMB84,673 and RMB95,654 (US$14,702) respectively.
As of
December 31, 2017, the Group has future minimum lease payments under non-cancellable operating leases, with initial terms in excess of one year, for office premises consisting of the following:
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
2018
|
|
|
82,360
|
|
|
|
12,659
|
|
2019
|
|
|
48,982
|
|
|
|
7,528
|
|
2020 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,342
|
|
|
|
20,187
|
|
|
|
|
|
|
|
|
|
|
F-34
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
13.
|
COMMITMENTS AND CONTINGENCIES (CONTINUED)
|
Legal proceedings
From time to time, the Group is subject to legal proceedings and claims in the ordinary course of business. The Group does not believe that any currently
pending legal proceeding to which the Group is a party will have a material effect on its business, balance sheets, and results of operations or cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Content-related costs
|
|
|
184,635
|
|
|
|
269,313
|
|
|
|
390,885
|
|
|
|
60,078
|
|
Depreciation and amortization
|
|
|
43,160
|
|
|
|
42,570
|
|
|
|
41,579
|
|
|
|
6,391
|
|
Bandwidth and internet data center
|
|
|
38,893
|
|
|
|
51,766
|
|
|
|
89,889
|
|
|
|
13,816
|
|
VAT and surcharges
|
|
|
269,491
|
|
|
|
349,373
|
|
|
|
484,811
|
|
|
|
74,513
|
|
Cost of sales, including tax
|
|
|
132,942
|
|
|
|
1,680,143
|
|
|
|
351,521
|
|
|
|
54,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
669,121
|
|
|
|
2,393,165
|
|
|
|
1,358,685
|
|
|
|
208,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of inventories and prepayment for vehicle purchase cost of nil, RMB50,190 and RMB1,483 (US$228) was included in
cost of sales, including tax for the years ended December 31, 2015, 2016 and 2017, respectively.
Upon the effectiveness of the IPO registration statement, the Companys ordinary
shares were redeemed and cancelled in consideration for the issuance of an equivalent number of Class A ordinary shares and Class B ordinary shares to the holders of former ordinary shares, respectively. Holders of Class A ordinary shares
and Class B ordinary shares have the same rights except for conversion and voting rights. Each Class B ordinary share is convertible into one Class A ordinary share at any time, while Class A ordinary shares cannot be converted into Class
B ordinary shares under any circumstances. Each Class A ordinary share is entitled to one vote.
Immediately prior to the completion of the IPO in
December 2013, the Company had 27,354,496 Class A ordinary shares and 68,788,940 Class B ordinary shares outstanding. During the IPO, the Company issued 8,993,000 Class A ordinary shares. As of December 31, 2013, the Company had
ordinary shares outstanding comprised of 36,347,496 Class A ordinary shares and 68,788,940 Class B ordinary shares.
Upon the completion of follow-on
offering in November, 2014, 2,424,801 ADSs were issued by the Company and 6,964,612 Class B ordinary shares were converted into Class A ordinary shares, and the net proceeds from the follow-on offering amounts to US$97,344 net of issuance
costs. Each ADS represents one ordinary share. In June 2016, Telstra completed the sale of approximately 47.4% of the Companys total issued and outstanding shares to Yun Chen Capital Cayman, a wholly owned subsidiary of Ping An. Upon the
completion of sale, all of the Companys remaining Class B ordinary shares were converted into Class A ordinary shares. There were nil, 61,824,328 and nil class B ordinary shares converted into Class A ordinary shares for the years
ended December 31, 2015, 2016 and 2017, respectively. On February 22, 2017, Ping An further acquired from Telstra approximately 6.5% of the total issued shares in the Company. As of December 31, 2017, the Company had ordinary shares
outstanding, all comprised of 117,140,856 Class A ordinary shares.
F-35
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
16.
|
RESTRICTED NET ASSETS
|
The Companys ability to pay dividends is primarily dependent on the Company
receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Companys PRC subsidiaries only out of its retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. The results of operations reflected in the consolidated financial statements prepared in accordance with U.S.GAAP differ from those reflected in the statutory financial statements of the Companys PRC
subsidiaries.
Under PRC law, the Companys PRC subsidiaries are required to provide for certain statutory reserves, namely a general reserve, an
enterprise expansion fund and a staff welfare and bonus fund. The subsidiary is required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC accounting standards to the general reserve and has
the right to discontinue allocations to the general reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registered capital of the Companys PRC subsidiaries and VIEs is also restricted.
Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiary. The
Companys VIEs in the PRC are also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Group in the form of loans, advances or cash dividends. As of
December 31, 2015, 2016 and 2017, the Companys PRC subsidiaries and VIEs had appropriated RMB19,175, RMB36,000 and RMB51,847 (US$7,969), respectively, of retained earnings for its statutory reserves.
As a result of these PRC laws and regulations subject to the limit discussed above that require annual appropriations of 10% of after-tax income to be set
aside, prior to payment of dividends as general reserve fund, the Companys PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in the PRC
may further restrict the Companys PRC subsidiaries and VIEs from transferring funds to the Company in the form of dividends, loans and advances. As of December 31, 2016 and 2017, amounts restricted are the net assets of the Companys
PRC subsidiaries and VIEs, which amounted to RMB5,165,673 and RMB6,789,409 (US$1,043,513), respectively.
The Company performed a test on the restricted
net assets of its consolidated subsidiaries and VIEs in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e)(3), General Notes to the Financial Statements and concluded that it was applicable for the Company to
disclose the condensed financial information for the parent company (Note 19) for the year ended December 31, 2017. For the purposes of presenting parent only financial information, the Company records its investments in its subsidiaries and
VIEs under the equity method of accounting. Such investments are presented on the separate condensed balance sheets of the Company as Investments in subsidiaries and VIEs and the profit of the subsidiaries and VIEs is included in
Share of income of subsidiaries and VIEs in the condensed statements of comprehensive income.
F-36
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
Basic and diluted earnings per share for each of the years presented are calculated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Ordinary shares
|
|
|
Ordinary shares
|
|
|
Ordinary shares
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Autohome Inc.
|
|
|
444,916
|
|
|
|
545,733
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding
|
|
|
50,403,077
|
|
|
|
61,824,328
|
|
|
|
114,237,600
|
|
|
|
116,379,846
|
|
|
|
116,379,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
8.83
|
|
|
|
8.83
|
|
|
|
10.75
|
|
|
|
17.20
|
|
|
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Autohome Inc.
|
|
|
461,052
|
|
|
|
529,597
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
Reallocation of net income as a result of conversion of Class B into Class A ordinary
shares (Note 15)
|
|
|
529,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Autohome Inc.
|
|
|
990,649
|
|
|
|
529,597
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding
|
|
|
50,403,077
|
|
|
|
61,824,328
|
|
|
|
114,237,600
|
|
|
|
116,379,846
|
|
|
|
116,379,846
|
|
Conversion of Class B into Class A ordinary shares
(Note 15)
|
|
|
61,824,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of share-based awards
|
|
|
3,419,421
|
|
|
|
|
|
|
|
1,798,727
|
|
|
|
1,679,010
|
|
|
|
1,679,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding-diluted
|
|
|
115,646,826
|
|
|
|
61,824,328
|
|
|
|
116,036,327
|
|
|
|
118,058,856
|
|
|
|
118,058,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
8.57
|
|
|
|
8.57
|
|
|
|
10.58
|
|
|
|
16.95
|
|
|
|
2.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effects of nil, 831,042 and 272,421 stock options were excluded from the calculation of diluted earnings per share as
their effect would have been anti-dilutive during the years ended December 31, 2015, 2016 and 2017, respectively. The effects of 256,165, 354,423 and 201,432 restricted shares were excluded from the calculation of diluted earnings per share as
their effect would have been anti-dilutive during the years ended December 31, 2015, 2016 and 2017, respectively.
F-37
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
18.
|
SHARE-BASED COMPENSATION
|
In order to provide additional incentives to employees and to promote the
success of the Companys business, the Company adopted a share incentive plan in 2011 (the 2011 Plan) and a share incentive plan in 2013 (the 2013 Plan), Amended and Restated 2016 Share Incentive Plan (the 2016
Plan) and 2016 share incentive plan II (the 2016 Plan II) in 2016, collectively the Plans. The Company may grant share-based awards to its employees, directors and consultants to purchase an aggregate of no more than
7,843,100, 3,350,000, 4,890,000 and 3,000,000 ordinary shares of the Company under the 2011 Plan, 2013 Plan, 2016 Plan and 2016 Plan II, respectively. 2011 Plan, 2013 Plan, 2016 Plan and 2016 Plan II were approved by the Board of Directors in May
2011, November 2013, March 2017 and December 2016, respectively. The Plans are administered by the Board of Directors or any of its committees as set forth in the Plans. For share options and restricted shares granted under the Plans,
majority are subject to vesting schedules of approximately four years with 25% of the awards vesting each year and have a contractual term of ten years.
Share options
The following table summarizes the
Companys employee share option activity under the share option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
grant
date fair
value
|
|
|
Weighted
average
remaining
contractual
term
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Years
|
|
|
US$
|
|
Outstanding, January 1, 2017
|
|
|
2,821,592
|
|
|
|
16.66
|
|
|
|
11.87
|
|
|
|
8.15
|
|
|
|
24,329
|
|
Granted
|
|
|
775,458
|
|
|
|
32.17
|
|
|
|
30.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,060,830
|
)
|
|
|
8.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(948,606
|
)
|
|
|
24.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
1,587,614
|
|
|
|
24.88
|
|
|
|
19.67
|
|
|
|
8.53
|
|
|
|
63,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2017
|
|
|
1,533,724
|
|
|
|
24.84
|
|
|
|
19.67
|
|
|
|
8.52
|
|
|
|
61,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2017
|
|
|
292,352
|
|
|
|
13.85
|
|
|
|
11.65
|
|
|
|
6.53
|
|
|
|
14,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying
awards and US$64.67, the closing stock price of the Companys ordinary shares on December 29, 2017. The weighted-average grant-date fair value of options granted during the years ended December 31, 2015, 2016 and 2017 was nil,
US$14.62 and US$30.23, respectively. The total grant date fair value of options vested during the years ended December 31, 2015, 2016 and 2017 was RMB37,582, RMB25,168 and RMB64,334 (US$9,888), respectively. Total intrinsic value of options
exercised during the years ended December 31, 2015, 2016 and 2017 was RMB623,605, RMB246,754 and RMB257,025 (US$39,504), respectively.
The aggregate
fair value of the outstanding options at the grant dates were determined to be RMB203,146 (US$31,223) and such amount shall be recognized as compensation expenses using the straight-line method for all employee share options granted with graded
vesting. As of December 31, 2017, there was RMB148,513 (US$22,826) of total unrecognized share-based compensation expenses, net of estimated forfeitures, related to unvested share-based awards which are expected to be recognized over a
weighted-average period of 2.95 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.
F-38
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
18.
|
SHARE-BASED COMPENSATION (CONTINUED)
|
Restricted shares
Restricted shares activity for the year ended December 31, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Weighted
average grant
date fair
value
|
|
|
|
|
|
|
US$
|
|
Outstanding, January 1, 2017
|
|
|
2,087,392
|
|
|
|
26.61
|
|
Granted
|
|
|
934,518
|
|
|
|
34.63
|
|
Vested
|
|
|
(782,802
|
)
|
|
|
27.66
|
|
Forfeited
|
|
|
(588,100
|
)
|
|
|
26.38
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
1,651,008
|
|
|
|
29.95
|
|
|
|
|
|
|
|
|
|
|
Expected to vest, December 31, 2017
|
|
|
1,572,618
|
|
|
|
29.98
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of restricted shares granted during the years ended December 31, 2015, 2016
and 2017 was US$34.70, US$22.30 and US$34.63, respectively, which was derived from the fair value of the underlying ordinary shares. The total grant date fair value of restricted shares vested during the years ended December 31, 2015, 2016 and
2017 was RMB38,104, RMB131,861 and RMB140,887 (US$21,654). The aggregate fair value of the outstanding restricted shares at the grant dates were determined to be RMB321,724 (US$49,448) and such amount shall be recognized as compensation expense
using the straight-line method for all restricted shares granted with graded vesting. As of December 31, 2017, there was RMB241,950 (US$37,187) of total unrecognized share-based compensation expenses, net of estimated forfeitures, related to
unvested restricted shares which are expected to be recognized over a weighted-average period of 2.91 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.
The binomial option pricing model was applied in determining the estimated fair value of the options granted to employees. The model requires the input of
highly subjective assumptions including the estimated expected stock price volatility and the exercise multiple for which employees are likely to exercise share options. For expected volatilities, the Company has made reference to the historical
price volatilities of ordinary shares of several comparable companies in the same industry as the Company. 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 and is based on a consideration of research study regarding exercise pattern based on historical statistical data. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury Bills yield curve in
effect at the time of grant. The estimated fair value of the ordinary shares, at the option grant dates prior to the IPO, was determined with assistance from an independent third party valuation firm. The Companys management is ultimately
responsible for the determination of the estimated fair value of its ordinary shares. Subsequent to the IPO, fair value of the ordinary shares was the price of the Companys publicly traded shares.
In November 2016, the Company approved the vesting acceleration plan of options and restricted shares for certain employees and incremental compensation cost
of RMB53,896 occurred as a result of the modification.
The Company calculated the estimated fair value of the share-based awards on the respective grant
dates using the binomial option pricing model with the following assumptions:
|
|
|
|
|
|
|
2016
|
|
2017
|
Fair value of ordinary share
|
|
US$23.76-US$24.88
|
|
US$45.36-US$54.84
|
Risk-free interest rates
|
|
1.70%-1.75%
|
|
2.30%-2.44%
|
Expected exercise multiple
|
|
2.2-2.8
|
|
2.2-2.8
|
Expected volatility
|
|
63%
|
|
57%-60%
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
Weighted average fair value per option granted
|
|
US$14.12-US$15.26
|
|
US$27.05-US$33.73
|
F-39
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
18.
|
SHARE-BASED COMPENSATION (CONTINUED)
|
Share-based compensation expenses relating to options and restricted shares granted to employees recognized
for the year ended December 31, 2015, 2016 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cost of revenues
|
|
|
6,939
|
|
|
|
12,310
|
|
|
|
15,166
|
|
|
|
2,331
|
|
Sales and marketing expenses
|
|
|
36,584
|
|
|
|
50,814
|
|
|
|
53,064
|
|
|
|
8,155
|
|
General and administrative expenses
|
|
|
40,142
|
|
|
|
77,965
|
|
|
|
59,954
|
|
|
|
9,215
|
|
Product development expenses
|
|
|
24,280
|
|
|
|
54,304
|
|
|
|
49,602
|
|
|
|
7,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,945
|
|
|
|
195,393
|
|
|
|
177,786
|
|
|
|
27,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
19.
|
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
|
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
57,505
|
|
|
|
31,781
|
|
|
|
4,885
|
|
Short-term investments
|
|
|
486,341
|
|
|
|
699,159
|
|
|
|
107,459
|
|
Prepaid expenses and other current assets
|
|
|
26,113
|
|
|
|
23,315
|
|
|
|
3,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
569,959
|
|
|
|
754,255
|
|
|
|
115,927
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
|
5,936
|
|
|
|
3,816
|
|
|
|
587
|
|
Investment in subsidiaries and VIEs
|
|
|
5,807,841
|
|
|
|
7,798,858
|
|
|
|
1,198,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
5,813,777
|
|
|
|
7,802,674
|
|
|
|
1,199,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
6,383,736
|
|
|
|
8,556,929
|
|
|
|
1,315,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables
|
|
|
20,660
|
|
|
|
6,932
|
|
|
|
1,065
|
|
Dividend payable
|
|
|
|
|
|
|
595,779
|
|
|
|
91,570
|
|
Due to subsidiaries
|
|
|
2,672
|
|
|
|
2,581
|
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
23,332
|
|
|
|
605,292
|
|
|
|
93,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,332
|
|
|
|
605,292
|
|
|
|
93,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (par value of US$0.01 per share; 100,000,000,000 (including 99,931,211,060
Class A and 68,788,940 Class B ) shares authorized; 115,297,224 and 117,140,856 shares issued and outstanding, all comprised of Class A, as of December 31, 2016 and 2017, respectively)
|
|
|
7,784
|
|
|
|
7,909
|
|
|
|
1,216
|
|
Additional paid-in capital
|
|
|
3,006,152
|
|
|
|
3,246,475
|
|
|
|
498,974
|
|
Accumulated other comprehensive income
|
|
|
125,009
|
|
|
|
69,954
|
|
|
|
10,752
|
|
Retained earnings
|
|
|
3,221,459
|
|
|
|
4,627,299
|
|
|
|
711,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
6,360,404
|
|
|
|
7,951,637
|
|
|
|
1,222,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
6,383,736
|
|
|
|
8,556,929
|
|
|
|
1,315,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
AUTOHOME INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and US dollars (US$) except for number of shares and per share data)
19.
|
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
|
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(24,235
|
)
|
|
|
(20,533
|
)
|
|
|
(13,334
|
)
|
|
|
(2,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating losses
|
|
|
(24,235
|
)
|
|
|
(20,533
|
)
|
|
|
(13,334
|
)
|
|
|
(2,049
|
)
|
Interest income
|
|
|
11,526
|
|
|
|
7,492
|
|
|
|
13,441
|
|
|
|
2,066
|
|
Share of income of subsidiaries and VIEs
|
|
|
1,003,358
|
|
|
|
1,240,955
|
|
|
|
2,001,512
|
|
|
|
307,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
990,649
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
990,649
|
|
|
|
1,227,914
|
|
|
|
2,001,619
|
|
|
|
307,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss), net of tax of nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
56,821
|
|
|
|
62,256
|
|
|
|
(55,055
|
)
|
|
|
(8,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
1,047,470
|
|
|
|
1,290,170
|
|
|
|
1,946,564
|
|
|
|
299,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Net cash used in operating activities
|
|
|
(2,017
|
)
|
|
|
(23,846
|
)
|
|
|
(8,303
|
)
|
|
|
(1,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(132,976
|
)
|
|
|
(86,743
|
)
|
|
|
(77,005
|
)
|
|
|
(11,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from financing activities
|
|
|
30,200
|
|
|
|
25,420
|
|
|
|
61,070
|
|
|
|
9,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7,569
|
|
|
|
5,864
|
|
|
|
(1,486
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(97,224
|
)
|
|
|
(79,305
|
)
|
|
|
(25,724
|
)
|
|
|
(3,953
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
234,034
|
|
|
|
136,810
|
|
|
|
57,505
|
|
|
|
8,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
136,810
|
|
|
|
57,505
|
|
|
|
31,781
|
|
|
|
4,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Company only condensed financial information, the Company records
its investment in its subsidiaries and VIEs under the equity method of accounting as prescribed in ASC 323-10
, Investments-Equity Method and Joint Ventures: Overall.
Such investment is presented on the condensed balance sheets as
Investment in subsidiaries and VIEs and share of their income as Share of income of subsidiaries and VIEs on the condensed statements of comprehensive income. The parent companys condensed financial statements should be
read in conjunction with the Companys consolidated financial statements.
The Company does not have any significant commitments or long-term obligations as of
any of the years presented.
F-42